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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________to _________
Commission file number 0-19267
ALKERMES, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2472830
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
64 Sidney Street, Cambridge, MA 02139-4234
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 494-0171
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share ("Common Stock")
1994 Class A Warrants to purchase shares of Common Stock
$3.25 Convertible Exchangeable Preferred Stock
--------------------------------------------
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of Registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. [X ]
Based upon the last sale price of the Registrant's Common Stock on June
10, 1999, the aggregate market value of the 23,918,428 outstanding shares of
voting and non-voting common equity held by non-affiliates of the Registrant was
$620,384,226.
As of June 10, 1999, 25,064,387 shares of the Registrant's Common Stock
were issued and outstanding, and no shares of the Registrant's Non-Voting Common
Stock were issued or outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference in
this Report on Form 10-K:
1) Definitive Proxy Statement to be filed within 120 days after
March 31, 1999 for the Registrant's Annual Shareholders'
Meeting to be held on August 6, 1999 (Part III).
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PART I
ITEM 1. BUSINESS
The following Business section contains forward-looking statements
which involve risks and uncertainties. The Registrant's actual results could
differ materially from those anticipated in these forward-looking statements as
a result of certain factors. See "Risk Factors" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Forward-Looking
Statements."
GENERAL
Alkermes, Inc. (together with its subsidiaries, referred to as "we",
"us" or the "Registrant"), a Pennsylvania corporation organized in 1987, is
applying the tools of biotechnology to the development of sophisticated
proprietary drug delivery systems. We are developing product candidates based on
our independent drug delivery technologies: (i) controlled, sustained release of
injectable drugs lasting several days to several weeks, utilizing our
ProLease(R) and Medisorb(R) technologies; (ii) the delivery of drugs into the
brain past the blood-brain barrier, utilizing the Cereport(TM) technology; (iii)
oral delivery of drugs using our RingCap(TM) and dose sipping technologies
("DST"); and (iv) the development of pharmaceutical products based on
proprietary pulmonary drug delivery technologies utilizing our Advanced
Inhalation Research, Inc. ("AIR(TM)") technology. Utilizing these drug delivery
systems, we are currently in various stages of preclinical and clinical
development of several product candidates.
OVERVIEW OF DRUG DELIVERY
Drug delivery companies apply proprietary technologies to create new
pharmaceutical products based on drugs developed by others. These products are
generally novel, cost-effective dosage forms that provide any of several
benefits including control of drug concentration in the blood, improved safety
and efficacy, improved patient compliance and ease of use and expanded
indications. Drug delivery technologies can provide pharmaceutical companies
with a means of developing new products, as well as expanding existing drug
franchises.
The drug delivery industry emerged to address the opportunities for
improved delivery of traditional pharmaceutical compounds. These compounds are
generally stable, small molecules manufactured by conventional synthetic
methods, for which oral or transdermal (through the skin) delivery could be
enabled or enhanced by drug delivery technologies. Technologies such as passive
transdermal systems (patches) and improved tablets and capsules have been
developed and successfully applied to a range of pharmaceutical products. In
addition, certain traditional small molecule pharmaceuticals are delivered by
means of encapsulation in polymeric microspheres.
With the advent of biotechnology, new opportunities in drug delivery
have arisen. Advances in biotechnology have facilitated the development of a new
generation of biopharmaceutical products based on proteins, peptides and nucleic
acids. At the same time, the scientific tools of biotechnology have enabled new
approaches to drug delivery based on exploiting particular biological phenomena,
for example utilizing natural properties of the blood-brain barrier to
facilitate drug delivery to the central nervous system.
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Proteins and peptides present drug delivery challenges because they are
often large molecules which degrade rapidly in the bloodstream, have limited
ability to cross cell membranes and generally cannot be delivered orally. As a
result, many biopharmaceuticals must be administered by injection, often
multiple times per day or per week. Consequently, the methods of administration
of biopharmaceuticals can limit their clinical applications to certain disease
states that warrant the expense and inconvenience of frequent injection.
Drug delivery to the central nervous system is complicated by the
existence of the blood-brain barrier, the layer of tightly joined endothelial
cells which comprise the walls of the capillaries of the brain and limit the
free flow of many blood constituents into the brain. Many drugs cannot easily
cross the blood-brain barrier, and therefore must be administered in relatively
high doses that may result in systemic toxicity or high cost. Drugs with limited
ability to cross the blood-brain barrier include many water soluble
chemotherapeutic and anti-infective agents that are frequently used in the
treatment of diseases outside of the central nervous system.
Delivery of drugs via the lungs or by oral administration also presents
challenges. The effectiveness of pulmonary dosage forms is often limited by the
poor efficiency of pulmonary devices and the difficulty of administering high
doses of certain drugs. In addition, drugs that act systemically require
deposition in the deep lung, which can lead to the use of complicated and
expensive devices. For certain oral medications, high doses of the drug are
often necessary, requiring patients to swallow numerous large pills. In
addition, many patients have difficulty swallowing pills. Often it is necessary
to take a number of doses per day, which lowers patient compliance and may
cause certain side effects associated with high drug concentrations in the
blood.
BUSINESS STRATEGY
Our business strategy is to develop and acquire drug delivery systems
to address significant new drug delivery opportunities arising in the
pharmaceutical industry. There are four key elements to our strategy:
Develop and Acquire Broadly Applicable Drug Delivery Systems and Apply
Them to Multiple Pharmaceutical Products. We develop or acquire drug delivery
systems that have the potential to be applied to multiple proteins, peptides and
small molecule pharmaceutical compounds to create new product opportunities. For
example, we have developed the Cereport technology independently and acquired
the ProLease, Medisorb, AIR, DST and RingCap technologies. We currently have
several product candidates utilizing these technologies in development.
Collaborate to Develop and Finance Product Candidates. In addition to
conducting product development activities on our own, we have entered into
collaborations with pharmaceutical and biotechnology companies and others to
develop product candidates incorporating our technologies, to provide capital
for product development independent of capital markets and to share development
risk. Currently, we are collaborating with major pharmaceutical companies,
including ALZA Corporation ("ALZA"), Genentech, Inc. ("Genentech"), Johnson &
Johnson and Janssen Pharmaceutica International ("Janssen").
Apply Drug Delivery Systems to Both Approved Drugs and Drugs in
Development. We are applying our drug delivery technologies to novel
applications and formulations of pharmaceutical products that have already been
approved by the Food and Drug Administration ("FDA") or other
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regulatory authorities. In such cases, we and our partners can develop a novel
dosage form or application with the knowledge of a drug's safety and efficacy
profile and a body of clinical experience from which to draw information for the
design of clinical trials and for regulatory submissions. We are also applying
our technologies to pharmaceuticals that require a sustained release delivery
system for successful development.
Establish Independent Product Development Capabilities. We have
assembled our own product development organization to enable us to develop
product candidates for ourselves and our collaborators based on our drug
delivery technologies. This capability gives us flexibility in structuring
development programs and the ability to conduct both feasibility studies and
clinical development programs for ourselves and our collaborators. For example,
we have developed Cereport independently and are conducting all of the clinical
trials of Nutropin Depot(TM) (ProLease recombinant human growth hormone
("rhGH")) for Genentech. In addition, we are developing two proprietary product
candidates utilizing our AIR technology.
DRUG DELIVERY TECHNOLOGY
Our current focus is on the development of broadly applicable drug
delivery technologies addressing several important drug delivery opportunities,
including injectable sustained release of proteins, peptides and small molecule
pharmaceutical compounds, the pulmonary delivery of both small molecules and
proteins and peptides, drug delivery to the brain across the blood-brain
barrier, and oral drug delivery systems.
ProLease: injectable sustained release of fragile proteins and peptides
ProLease is our proprietary technology for the stabilization and
encapsulation of fragile proteins and peptides in microspheres made of common
medical polymers. Our proprietary expertise in this field lies in our ability to
preserve the biological activity of fragile drugs over an extended period of
time and to manufacture these formulations using components and processes
believed to be suitable for human pharmaceutical use. ProLease is designed to
enable novel formulations of proteins and peptides by replacing frequent
injections with controlled, sustained release over time. We believe ProLease
formulations have the potential to improve patient compliance and ease of use by
reducing the need for frequent self-injection, to lower costs by reducing the
need for frequent office visits and to improve safety and efficacy by reducing
both the variability in drug levels inherent in frequent injections and the
aggregate amount of drug given over the course of therapy. In addition, ProLease
may provide access to important new markets currently inaccessible to drugs that
require frequent injections or are administered orally.
The ProLease formulation process has been designed to assure stability
of fragile compounds during the manufacturing process, during storage and
throughout the release phase in the body. The formulation and manufacturing
process consists of two basic steps. First, the drug is formulated with
stabilizing agents and dried to create a fine powder. Second, the powder is
microencapsulated at very low temperatures. Incorporation of the drug substance
as a stabilized solid under very low temperatures is critical to protecting
fragile molecules from degradation during the manufacturing process and is a key
element of the ProLease technology. The microspheres are suspended in a small
volume of liquid prior to administration to a patient by injection under the
skin or into a muscle. We believe drug release from the ProLease drug delivery
system can be controlled to last from a few days to several months.
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Drug release from the microsphere is controlled by diffusion of the
drug through the microsphere and by biodegradation of the polymer. These
processes can be modulated through a number of formulation and fabrication
variables, including drug substance and microsphere particle sizing and choice
of polymers and excipients.
Our experience with the application of ProLease to a wide range of
proteins and peptides has shown that high incorporation efficiencies and high
drug loads can be achieved. Proteins and peptides incorporated into ProLease
microspheres have maintained their integrity, stability and biological activity
for up to 30 days in in vitro experiments conducted on formulations manufactured
at the preclinical, clinical trial and commercial scale.
Medisorb: injectable sustained release of traditional small molecule
pharmaceuticals
Medisorb is a proprietary technology for encapsulating traditional
small molecule pharmaceuticals in microspheres made of common medical polymers.
Like ProLease, Medisorb is designed to enable novel formulations of
pharmaceuticals by providing controlled, sustained release over time. We believe
Medisorb is suitable for encapsulating stable, water soluble, small molecule
pharmaceuticals at a large scale. We believe that Medisorb formulations may have
superior features of safety, efficacy, compliance and ease of use for drugs
currently administered by frequent injection or administered orally. Drug
release from the microsphere is controlled by diffusion of the pharmaceutical
through the microsphere and by biodegradation of the polymer. These processes
can be modulated through a number of formulation and fabrication variables,
including drug substance and microsphere particle sizing and choice of polymers
and excipients.
The Medisorb drug delivery system uses manufacturing processes
different from the ProLease manufacturing process. The formulation and
manufacturing process consists of three basic steps. First, the drug is combined
with a polymer solution. Second, the drug/polymer solution is mixed in water to
form liquid microspheres (an emulsion). Third, the liquid microspheres are dried
to produce finished product. The microspheres are suspended in a small volume of
liquid prior to administration to a patient by injection under the skin or into
a muscle. We believe drug release from the Medisorb system can be controlled to
last from a few days to several months.
Cereport: drug delivery across the blood-brain barrier
Cereport, a member of a family of Receptor-Mediated Permeabilizers(TM)
("RMPs(TM)"), is a nine amino acid peptide based on bradykinin, a compound
occurring naturally in the body and known to affect vascular permeability.
Cereport is a proprietary, synthetic analog of bradykinin developed by us to
increase transiently the permeability of the blood-brain barrier. Following
injection, Cereport increases permeability by triggering a brief relaxation of
the tight cellular junctions of the blood-brain barrier. During the time the
tight junctions are relaxed, permeability is increased and drug molecules in the
bloodstream can diffuse into the brain in concentrations greater than can
usually be achieved without Cereport. Preclinical and clinical data also suggest
that Cereport increases the uptake of pharmaceuticals in the region of brain
tumor and other pathology.
Cereport exerts a pharmacologic effect on the vasculature of the brain
and does not itself bind to or serve as a carrier for the drug of which it is
facilitating delivery. We are developing Cereport to be manufactured, packaged
and dispensed as a standalone product. In the clinical setting, Cereport is
administered in conjunction with the therapeutic or diagnostic agent. Timing of
Cereport administration
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relative to that of the therapeutic or diagnostic agent is determined on a
drug-by-drug basis to optimize barrier permeability during the time of peak drug
plasma concentrations.
Cereport is intended to be marketed as an independent agent to increase
the utility of other therapeutic and diagnostic compounds given with it. We
believe Cereport may be administered along with cancer chemotherapeutic and
anti-infective agents not currently used in the treatment of central nervous
system disorders because of their limited ability to penetrate the blood-brain
barrier.
AIR: pulmonary drug delivery
The AIR technology is our proprietary pulmonary delivery system that
enables the delivery of both small molecules and macromolecules to the lungs.
Our proprietary technology allows us to formulate drugs into dry powders made up
of highly porous particles with low mass density. These particles can be
efficiently delivered to the deep lung by a small, simple inhaler. The AIR
technology is useful for small molecules, proteins or peptides and allows for
both local delivery to the lungs and systemic delivery via the lungs.
AIR particles can be aerosolized and inhaled efficiently with simple
inhaler devices because low forces of cohesion allow the particles to
deaggregate easily. AIR is developing a family of relatively inexpensive,
compact, easy to use inhalers. The AIR devices are breath activated and made
from injection molded plastic. The powders are designed to quickly discharge
from the device over a range of inhalation flow rates, which may lead to low
patient-to-patient variability and high lung deposition of the inhaled dose. By
varying the ratio and type of excipients used in the formulation, we can deliver
a range of drugs from the device that may provide both immediate and sustained
release.
DST (Dose Sipping Technology) and RingCap(TM): oral drug delivery
systems
Dose Sipping Technology
DST provides a convenient, simple way to administer medication to
patients who have difficulty swallowing tablets or capsules, such as children
and the elderly. This proprietary system works by putting a granulated form of a
drug in a specially designed straw. As the patient draws fluid through the
disposable straw, the drug mixes with the fluid and the patient receives a
precise dose of the drug. The system can be used with a wide variety of drugs in
a granulated form. We manufacture the DST system using specially designed
machinery and granulated drug provided by our collaborative partners.
RingCap
RingCap is a controlled release tablet dosage form which is designed to
reduce the number of times per day that oral drugs must be taken. The RingCap
system is unlike currently available controlled release tablets, which generally
release decreasing amounts of a drug over time. Instead, RingCap is designed to
deliver the total dose evenly over an extended period. The system works by
imprinting the tablet with a series of insoluble rings made of polymers, which
then control the erosion rate of a drug tablet in the gastrointestinal tract. By
varying the number, width and placement of the bands on the tablets, we can
change the release profile of the drug. We believe RingCap may provide a
cost-effective way to manufacture controlled release tablets.
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PRODUCT CANDIDATES IN DEVELOPMENT
The following table summarizes the primary indications, delivery
method, development status and collaborative partner for each of our product
candidates. This table is qualified in its entirety by reference to the more
detailed descriptions appearing elsewhere in this Form 10-K. The results from
preclinical testing and early clinical trials may not be predictive of results
obtained in subsequent clinical trials and there can be no assurance that our or
our collaborators' clinical trials will demonstrate the safety and efficacy of
any product candidates necessary to obtain regulatory approval.
<TABLE>
<CAPTION>
PRODUCT Delivery Collaborative
CANDIDATE Indication Method Status(1) Partner
- --------- ---------- -------- --------- -------------
<S> <C> <C> <C> <C>
PROLEASE
rhGH Growth Hormone Deficiency SR Injection(2) NDA submitted Genentech
in Children
Erythropoietin Anemia SR Injection Clinical trials Johnson & Johnson
Others Undisclosed SR Injection Feasibility Undisclosed
MEDISORB
RISPERDAL Schizophrenia SR Injection Phase III Janssen Pharmaceutica
Others Undisclosed SR Injection Feasibility Undisclosed
CEREPORT(3)
Cereport and Metastatic Brain Tumor Intravenous Phase II Alkermes Clinical
Carboplatin Partners, L.P. (the
"Partnership")
Recurrent Malignant Intravenous Phase II complete Partnership
Glioma Intra-arterial
Pediatric Brain Tumor Intravenous Phase I/II(4) Partnership
PULMONARY - AIR
AlbuLast(TM) Asthma Pulmonary Phase I None
EstroLast(TM) Hormone Replacement Pulmonary Phase I None
Undisclosed Various Pulmonary Preclinical Undisclosed
DST(DOSE SIPPING
TECHNOLOGY)
Undisclosed Various Oral Preclinical Undisclosed
RINGCAP
Undisclosed Various Oral Controlled Release Preclinical None
</TABLE>
- ----------
(1) See "Government Regulation" for definitions of "NDA", "Phase III",
"Phase II" and "Phase I" clinical trials. "Phase I/II" clinical trials
indicates that the compound is being tested in humans for safety and
preliminary indications of biological activity in a limited patient
population. "Preclinical" indicates that we or our partners are
conducting efficacy, pharmacology and/or toxicology testing of a lead
compound in animal models or biochemical assays.
(2) Sustained Release Injection.
(3) ALZA has an option to obtain co-development and worldwide marketing
rights to Cereport pursuant to an agreement entered into in September
1997.
(4) These clinical trials are being sponsored and conducted by the
Pediatric Branch of the National Cancer Institute ("NCI").
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PROLEASE
Product Development Strategy. Our strategy is to generate multiple
product opportunities by applying ProLease technology to the development of
superior formulations of proteins and peptides that we believe address
significant market opportunities. We believe these formulations have the
potential to expand the utilization of these products and improve the
competitive advantage of our collaborators in major markets.
The product development plan for individual ProLease formulations is
expected to proceed in several stages. First, we, either on our own or pursuant
to a collaboration, conduct initial feasibility work to test various ProLease
formulations for a particular drug in vitro and in vivo. Second, following the
successful completion of the feasibility stage, preclinical development and
manufacturing scale-up activities directed toward the initiation of clinical
trials of the ProLease formulation would be conducted in collaboration with a
partner. See "Collaborative Arrangements."
ProLease Recombinant Human Growth Hormone. We are developing a ProLease
formulation of Genentech's rhGH, known as Nutropin Depot, in collaboration with
Genentech. Growth hormone deficiency ("GHD") results in short stature and
potentially other developmental defects. Genentech is the leading supplier of
rhGH in the United States. rhGH is approved for use in the treatment of children
with growth hormone deficiency, Turner's syndrome, chronic renal insufficiency
and other indications and is being tested in additional indications in adults.
rhGH is currently administered frequently, often daily, by subcutaneous
injection.
On June 28, 1999 our collaborator Genentech submitted an NDA to the
FDA for Nutropin Depot for the treatment of children with GHD. In September
1998, we completed a Phase III clinical trial of ProLease rhGH in 74 growth
hormone deficient children at 27 sites in the United States. The Phase III trial
was designed to test the efficacy, safety and tolerability of Nutropin Depot in
the treatment of children with GHD who had not received any previous treatment
with growth hormone. The study evaluated two dosing regimens of Nutropin Depot,
once a month and twice a month, with both groups receiving the same total dose.
There can be no assurance that the FDA will accept the NDA for review
or that Nutropin Depot will be approved in a timely manner, if at all. Any
significant delay or non-approval of the NDA would have a material adverse
effect on our business and financial position.
ProLease Erythropoietin. We are developing a ProLease formulation of
erythropoietin ("EPO") with Johnson & Johnson. EPO is a naturally occurring
protein that stimulates the production of red blood cells. In November 1998,
Johnson & Johnson completed a first probative human study of ProLease EPO.
Following this probative study in human volunteers, both parties agreed to
proceed with the development of an appropriate formulation of ProLease EPO. The
product development program was announced in January 1998 following the
completion of a feasibility study in September 1997. Johnson & Johnson is
conducting the clinical studies for the ProLease EPO program and will be
responsible for further clinical development, if any.
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Additional ProLease Formulations. We continue to develop Prolease
formulations of other unspecified compounds pursuant to feasibility agreements
with several pharmaceutical and biotechnology companies.
MEDISORB
Product Development Strategy. Our strategy is to generate multiple
product opportunities by applying Medisorb technology to the development of
superior formulations of small molecule pharmaceutical products. We believe
these formulations have the potential to expand the utilization of these
products and improve the competitive advantage of our collaborators in major
markets.
The product development plan for individual Medisorb formulations is
expected to proceed in several stages. First, we, either on our own or pursuant
to a collaboration, conduct initial feasibility work to test various Medisorb
formulations for a particular drug in vitro and in vivo. Following the
successful completion of the feasibility stage, preclinical development and
manufacturing scale-up activities directed toward the initiation of clinical
trials of the Medisorb formulation would be conducted in collaboration with a
partner. See "Collaborative Arrangements."
RISPERDAL. We are developing and manufacturing a Medisorb formulation
of Janssen's anti-psychotic drug RISPERDAL. Janssen is an affiliate of Johnson &
Johnson. In April 1999, Janssen announced its intention to proceed with a Phase
III clinical trial of RISPERDAL, after completing Phase I and Phase II clinical
trials. In addition, we have completed scale-up and Phase III manufacturing
activities at the expected commercial scale. We will manufacture the Medisorb
formulation of RISPERDAL for both the clinical trials and commercial sales, if
any. Janssen is responsible for conducting all clinical trials.
CEREPORT
Product Development Strategy. Our strategy to date has been to advance
Cereport through clinical trials while establishing its safety, permeability
effects in humans and efficacy when used in combination with other drugs. To
support the clinical development of Cereport, we formed and transferred
substantially all of our rights to Cereport technology to Alkermes Clinical
Partners, L.P. (the "Partnership"), which completed a $46 million unit offering
in April 1992. We have the option to purchase all of the limited partnership
interests in the Partnership. As of September 30, 1997, we entered into an
agreement with ALZA relating to the development and commercialization of
Cereport. Under the terms of the agreement, ALZA made an upfront payment of
$10.0 million to Alkermes to fund clinical development in return for an option
to obtain exclusive worldwide commercialization rights to Cereport, subject to
the rights of the Partnership. See "Collaborative Arrangements--Alkermes
Clinical Partners, L.P." and "Collaborative Arrangements--ALZA Corporation."
Cereport has the potential to be used in combination with a variety of
agents in various disease settings. Our goal is to expand the applications of
Cereport through our own development activities and, when appropriate,
collaborations with pharmaceutical companies, subject to any commercialization
rights of ALZA. We may collaborate with companies having drugs whose uses could
be expanded to include central nervous system indications. In such cases, we and
our partner could collaborate in the clinical development of the combination
without any exchange of product rights.
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Newly-Diagnosed Brain Tumor. In April 1999, we announced our plans to
discontinue study ALK01-040, which was a Phase III clinical trial of Cereport
and carboplatin for the treatment of newly-diagnosed brain tumor patients. The
study began enrollment in March 1998, and was designed to enroll patients with
high grade primary brain tumors following surgical resection of the tumor and
prior to the initiation of radiotherapy. The discontinuation of the study was
not based on any issues related to the safety or potential efficacy of Cereport
in this indication, but, based on our experience with the trial, we determined
that elements of the study design were inappropriate and that the probability of
successful completion was low. We are not planning to initiate another clinical
trial in this indication in the near future.
Metastatic Brain Tumors. We are conducting a Phase I/II clinical trial
of Cereport and carboplatin in patients with metastatic brain tumors, or tumors
that have spread to the brain from other sites in the body. The study also
includes a dose escalation component, in which progressively larger doses of
Cereport are being investigated in this patient population. The study is
ongoing, and is expected to be completed in 1999. The results are expected to
provide information useful for determining whether to proceed with further
clinical trials in this indication.
Pediatric Brain Tumors. The Pediatric Branch of the National Cancer
Institute is conducting two separate studies of Cereport and carboplatin in
pediatric patients with primary brain tumors. The first study began in August
1996 and enrolled 25 patients. The study is a non-controlled, open label Phase
I/II clinical trial of intravenous Cereport and carboplatin in pediatric brain
tumor patients who have failed other therapies. The second study began in June
1998, and is a Phase II multi-center study, in pediatric brain tumor patients.
Ten centers will enroll up to a total of 146 children over two to four years.
AIR
Product Development Strategy. Our strategy is to generate multiple
product opportunities by applying the AIR technology to the development of
superior pulmonary formulations of small molecules and proteins and peptides. We
believe these formulations have the potential to expand the utilization of these
products and improve the competitive advantage of our collaborators in major
markets.
The product development plan for individual AIR formulations is
expected to proceed in several stages. First, we, either on our own or pursuant
to a collaboration, conduct initial feasibility work to test various AIR
formulations for a particular drug in vitro and in vivo. Following the
successful completion of the feasibility stage, preclinical development and
manufacturing scale-up activities directed toward the initiation of clinical
trials of the AIR formulation would be conducted in collaboration with a
partner.
We are currently collaborating with undisclosed partners on the
development of certain pharmaceutical product candidates. In addition, we are
developing two product candidates on our own that are in clinical trials.
AlbuLast. AIR has formulated and is conducting a Phase I clinical trial
for AlbuLast, its proprietary formulation of albuterol sulfate which is designed
to provide both immediate and long-term relief from asthma symptoms. An
undisclosed pharmaceutical company has an option to develop AlbuLast with AIR in
exchange for certain development funding as well as milestones and royalties.
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EstroLast. We are developing an AIR formulation of the generic drug
estradiol for estrogen replacement therapy. Probative human studies are ongoing.
We retain rights to commercialize all estradiol formulations.
ORAL TECHNOLOGIES
The RingCap and DST technologies, licensed from ALZA in April 1998, are
both in the early stages of development.
COLLABORATIVE ARRANGEMENTS
Our business strategy includes forming collaborations to provide
technological, financial, marketing, manufacturing and other resources. We have
entered into several corporate collaborations.
Genentech, Inc.
In November 1996, we announced the completion of a Phase I clinical
trial of a ProLease rhGH formulation in adults. Based in part on the successful
completion of the Phase I trial, Genentech exercised its option to enter into a
license agreement and obtained from us a license coexclusive in the United
States and exclusive in the rest of the world for a ProLease formulation of
rhGH. In April 1999, Alkermes and Genentech amended and restated the license
agreement to conduct expanded development activities, including clinical trials
in an additional indication, process and formulation development and
manufacturing. We will be responsible for conducting additional clinical trials
and manufacturing for Nutropin Depot and are to receive manufacturing revenues
and royalties on sales.
Genentech has the right to terminate the agreement for any reason upon
90 days' written notice or, if we have begun manufacturing the ProLease product
for commercial sale, upon six months' written notice. In addition, either party
may terminate the agreement upon the other party's material default which is not
cured within 90 days of written notice, or upon the other party's insolvency or
bankruptcy.
In connection with the expanded collaboration in April 1999, Genentech
purchased 3,500 shares of our 1999 Redeemable Convertible Exchangeable Preferred
Stock for an aggregate purchase price of $35 million. We will use the proceeds
from the preferred stock to fund the expanded rhGH program for calendar years
1999 and 2000. See "Market for Our Common Stock and Related Stockholder
Matters."
To fund our activities during the initial phase of the collaboration,
Genentech loaned us the aggregate amount of $3.5 million pursuant to a
Convertible Promissory Note dated January 31, 1995 (the "Note"). The outstanding
principal amount of the Note accrues interest at the prime rate of interest as
reported by the Bank of America NT & SA from time to time and is convertible
into common stock based on the average closing price of the common stock for the
20 trading days ending the day before the conversion date. The outstanding
principal amount of the Note and accrued but unpaid interest thereon becomes due
and payable on January 31, 2000.
Johnson & Johnson - Erythropoietin
In January 1998, we entered into a development and license agreement
and a supply and license agreement with Ortho Pharmaceutical, an affiliate of
Johnson & Johnson, for the development of a
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ProLease formulation of erythropoietin ("ProLease EPO"). We are developing a
sustained release formulation of EPO for the treatment of various types of
anemia.
Pursuant to the development agreement, Johnson & Johnson obtained an
exclusive, worldwide, royalty-bearing license to make, use and sell products
resulting from such agreement. In exchange, Johnson & Johnson is to provide us
with research and development funding, milestone payments and royalty payments
based on sales, if any, of ProLease EPO. Johnson & Johnson will be responsible
for conducting clinical trials, if any, and securing regulatory approvals and,
together with its affiliates, will be responsible for the marketing of any
products that result from the collaboration. We will manufacture any such
products for commercial sale and are to receive manufacturing revenues and
royalties on sales.
Johnson & Johnson may terminate the development agreement for any
reason, upon 90 days' written notice if such termination notice occurs prior to
filing an NDA with the FDA, or upon six months' written notice if such notice
occurs subsequent to such a filing. In addition, either party may terminate the
development agreement and the related supply agreement upon a material default
or breach by the other party of such agreement which is not cured within 60
days' notice, or upon the other party's insolvency or bankruptcy.
Janssen Pharmaceutica International
Pursuant to a development agreement, we are collaborating with Janssen,
an affiliate of Johnson & Johnson, in the development of a sustained release
formulation of RISPERDAL utilizing the Medisorb technology. In October 1996, we
announced the expansion of the development agreement. Under the development
agreement, we are responsible for production of RISPERDAL for clinical trials.
Janssen is responsible for conducting clinical trials of RISPERDAL and securing
all necessary regulatory approvals. Janssen provides development funding to us,
assuming RISPERDAL continues in clinical development. We will manufacture any
such products for commercial sale and are to receive manufacturing revenues and
royalties on sales.
Under related license agreements, Janssen and an affiliate have
exclusive worldwide licenses from us to manufacture, use and sell the Medisorb
formulation of RISPERDAL. If Janssen decides to employ third-party suppliers of
RISPERDAL, we have a right of first refusal for the manufacture and supply of
such product and component bio-absorbable polymers thereof. Under the license
agreements, Janssen is required to pay us certain royalties with respect to all
Medisorb formulations of RISPERDAL sold to customers. Janssen can terminate the
development agreement or the license agreement upon 30 days' prior written
notice.
Alkermes Clinical Partners, L.P.
In April 1992, units consisting of limited partnership interests in the
Partnership and warrants to purchase our Common Stock were sold to investors in
a private placement (the "Private Placement"). The proceeds of the $46 million
Private Placement have been used to fund the further development and clinical
testing of Cereport for human pharmaceutical use in the United States, Canada
and Europe. Such funding was not sufficient to complete clinical trials and seek
regulatory approval of Cereport. Since the completion of funding from the
Partnership, which ended during the quarter ended June 30, 1996, we have used,
and intend to continue to use, our own resources to develop Cereport, but may
seek alternative sources of funding, including additional collaborators.
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Pursuant to a product development agreement, dated March 6, 1992, we
transferred substantially all of our rights to the RMP technology, including
Cereport, to the Partnership. We have an option to purchase all of the limited
partnership interests in the Partnership (the "Purchase Option") and thereby
reacquire the transferred technology. We are required to fund the development of
Cereport to maintain the Purchase Option.
The Partnership may terminate the research program for any or all
products upon the affirmative vote of 75% of the directors of the general
partner of the Partnership, Alkermes Development Corporation II ("ADC II"), one
of our wholly owned subsidiaries, that such research is not feasible or is
uneconomic. The Partnership may terminate the marketing program for any or all
products upon the affirmative vote of 75% of the directors of ADC II based on
the directors' good faith business judgment. The Partnership may also terminate
the research or marketing program if we have materially breached the agreement
and not cured such breach within 30 days' written notice. Both parties may
terminate the research or marketing program upon mutual consent to terminate or
upon the insolvency or bankruptcy of the other party.
The Partnership has granted us an exclusive interim license to
manufacture and market Cereport for human pharmaceutical use in the United
States and Canada. Upon the first marketing approval of Cereport by the FDA, we
are obligated to make a payment to the Partnership equal to 20% of the aggregate
capital contributions of all limited partners. Additionally, we will pay a 12%
royalty on revenues from any sales of Cereport in the United States and Canada
and, in certain circumstances, a 10% royalty on revenues from any sales of
Cereport in Europe. The interim license will terminate if we do not exercise the
Purchase Option. We can exercise the Purchase Option by making a payment to the
Partnership equal to 80% of the aggregate capital contributions of all limited
partners in addition to royalty payments in the same percentages as provided for
under the interim license agreement.
The general partner of the Partnership is ADC II. Fifty percent of the
members of the board of directors of ADC II are persons not affiliated with us.
Such non-affiliated persons were nominated by the sales agent for the Private
Placement. The sales agent will continue to have the right to nominate at least
half of the members of ADC II's board of directors until ADC II or some other
affiliate of Alkermes ceases to be the general partner of the Partnership, the
Partnership terminates in accordance with the terms of the Limited Partnership
Agreement or the sales agent's venture capital investment partnership ceases to
be a limited partner of the Partnership.
ALZA Corporation
In October 1997, we, along with ALZA, announced that we had entered
into an agreement relating to the development and commercialization of Cereport.
Under the terms of the agreement, ALZA made a $10.0 million upfront payment to
us to fund clinical development; in return, ALZA has the option to acquire
exclusive, worldwide, commercialization rights to Cereport, subject to the
rights and obligations of the Partnership. If ALZA chooses to exercise its
option, ALZA will make additional payments to cover costs associated with
advanced clinical development. If Cereport is commercialized successfully by
ALZA, ALZA will pay us certain milestone payments. We would be responsible for
the manufacturing of Cereport and we would share approximately equally in
profits from sales of the product.
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MANUFACTURING
The manufacture of our product candidates for clinical trials and
commercial purposes is subject to current GMP and other federal regulations. We
have never operated an FDA-approved manufacturing facility, and there can be no
assurance that we will obtain necessary approvals for commercial manufacturing.
If we are not able to develop manufacturing capacity and experience or
to continue to contract for manufacturing capabilities on acceptable terms, our
ability to conduct preclinical testing and clinical trials will be compromised.
In addition, delays in obtaining regulatory approvals might result, as well as
delays of commercial sales if approvals are not obtained on a timely basis. Such
delays could materially adversely affect our competitive position and our
business, financial condition and results of operations.
Each of our drug delivery systems utilizes a distinct manufacturing
process.
ProLease
ProLease manufacturing involves microencapsulation of drug substances
provided to us by our collaborators in small polymeric microspheres using
extremely cold processing conditions suitable for fragile molecules. The
ProLease manufacturing process consists of two basic steps. First, the drug is
formulated with stabilizing agents and dried to create a fine powder. Second,
the powder is microencapsulated at very low temperatures. Pursuant to agreements
with certain of our collaborators, we have the right to manufacture ProLease
products for commercial sale.
In October 1998, we completed the construction of a new commercial
scale ProLease manufacturing facility of approximately 32,000 square feet. The
facility includes two manufacturing suites, one of which we plan to dedicate to
the production of Nutropin Depot for commercial scale. We have validated the
facility and completed manufacturing of validation lots as part of the Nutropin
Depot NDA submission, but the facility has not yet been inspected by the FDA.
We also have an in-house clinical production facility that we have
validated for manufacturing in accordance with GMP. The facility is being used
to manufacture product candidates incorporating our ProLease sustained release
delivery system for use in clinical trials.
Medisorb
The Medisorb manufacturing process is significantly different from the
ProLease process and is based on a method of encapsulating small molecule drugs,
provided by our collaborator(s), in polymers using a large-scale emulsification.
The Medisorb manufacturing process consists of three basic steps. First, the
drug is combined with a polymer solution. Second, the drug/polymer solution is
mixed in water to form liquid microspheres (an emulsion). Third, the liquid
microspheres are dried to produce finished product.
In June 1998, we completed construction of a 20,000 square foot
addition to and modification of our GMP manufacturing facility for commercial
scale Medisorb manufacturing in Wilmington, Ohio. We are manufacturing the
Medisorb formulation of RISPERDAL for use by Janssen in clinical trials at this
facility. The facility has not been inspected by the FDA.
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Cereport
Cereport is a small peptide manufactured using standard synthetic
techniques. We rely on an independent European pharmaceutical company for the
manufacture and supply of Cereport. Scale-up of the Cereport manufacturing
process to support international clinical trials and commercial launch has been
completed. Other companies have been identified which could manufacture and
supply our requirements for Cereport.
AIR
The AIR manufacturing process uses spray drying. We take drugs provided
by our partners or purchased from generic manufacturers, combine the drugs with
certain excipients commonly used in other aerosol formulations and spray dry
the solution in commercial spray dryers. During the manufacturing process,
solutions of drugs and excipients are spray dried to form a free flowing powder
and the powder is filled and packaged into final dosage units. AIR has a
manufacturing facility which is part of the 18,000 square foot facility AIR
leases in Cambridge, Massachusetts, where powders and final dosage units are
prepared under GMP for use in clinical trials. Our current manufacturing
facility and equipment have the capacity to produce commercial scale quantities
of certain product candidates. AIR's inhalation device is produced under GMP at
a contract manufacturer in the United States.
DST and RingCap
We currently manufacture DST in our facility in Blue Ash, Ohio. The DST
manufacturing process uses customized machinery which we have installed and
which we currently operate at a scale capable of producing products for
development and market research studies.
The RingCap system combines conventional matrix tablet technology and
capsule banding processes which permit large-scale production. We believe
RingCap can provide a cost-effective way to manufacture controlled release
tablets.
MARKETING
In October 1997, we entered into an agreement with ALZA pursuant to
which ALZA made an upfront payment of $10.0 million to fund clinical development
in exchange for an exclusive option to enter into a worldwide exclusive
commercialization agreement for Cereport. If Cereport is successfully
commercialized by ALZA, ALZA will pay us certain milestone payments. Under the
terms of the agreement, we are responsible for the manufacture of Cereport, and
we will share approximately equally in profits from the sale of the product.
We intend to market any ProLease, Medisorb, AIR, DST or RingCap
products through corporate partners. We have entered into development
agreements, which include sales and marketing arrangements, for ProLease product
candidates with Genentech and Johnson & Johnson, and for the Medisorb
formulation of RISPERDAL with Janssen. See "Collaborative Arrangements."
We currently have no experience in marketing or selling pharmaceutical
products. In order to achieve commercial success for any product candidate
approved by the FDA, we must either develop a marketing and sales force or enter
into arrangements with third parties to market and sell our products. There can
be no assurance that we will successfully develop such experience or that we
will be able to
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enter into marketing and sales agreements with others on acceptable terms, if at
all. If we develop our own marketing and sales capability, we will compete with
other companies that currently have experienced and well funded marketing and
sales operations. To the extent we enter into co-promotion or other sales and
marketing arrangements with other companies, any revenues received by us will be
dependent on the efforts of others, and there can be no assurance that such
efforts will be successful.
COMPETITION
The biotechnology and pharmaceutical industries are subject to rapid
and substantial technological change. We face, and will continue to face,
intense competition in the development, manufacturing, marketing and
commercialization of our product candidates from academic institutions,
government agencies, research institutions, biotechnology and pharmaceutical
companies, including our collaborators, and drug delivery companies. There can
be no assurance that developments by others will not render our product
candidates or technologies obsolete or noncompetitive, or that our collaborators
will not choose to use competing drug delivery methods. At the present time, we
have no sales force or marketing or commercial manufacturing experience. In
addition, many of our competitors and potential competitors have substantially
greater capital resources, manufacturing and marketing experience, research and
development resources and production facilities than we do. Many of these
competitors also have significantly greater experience than we in undertaking
preclinical testing and clinical trials of new pharmaceutical products and
obtaining FDA and other regulatory approvals.
With respect to Cereport, we believe that there are currently no
products approved by the FDA for increasing the permeability of the blood-brain
barrier. There are, however, many novel experimental therapies for the treatment
of brain tumors and central nervous system infections being tested in the United
States and Europe.
With respect to ProLease and Medisorb, we are aware that there are
other companies developing sustained release delivery systems for pharmaceutical
products. With respect to AIR we are aware that there are other companies
marketing or developing pulmonary delivery systems for pharmaceutical products.
There are also numerous companies marketing or developing oral technologies
which will compete with DST and RingCap. In addition, other companies are
developing new chemical entities which, if developed successfully, could compete
against our formulations of the products of our collaborators. These chemical
entities are being designed to have different mechanisms of action or improved
safety and efficacy. In addition, our collaborators may develop, either alone or
with others, products that compete with the development and marketing of our
product candidates.
There can be no assurance that we will be able to compete successfully
with such companies. The existence of products developed by our competitors, or
other products or treatments of which we are not aware, or products or
treatments that may be developed in the future, may adversely affect the
marketability of products developed by us.
PATENTS AND PROPRIETARY RIGHTS
Our success will be dependent, in part, on our ability to obtain patent
protection for our product candidates and those of our collaborators,
maintaining trade secret protection and operating without infringing upon the
proprietary rights of others.
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We have a proprietary portfolio of patent rights and exclusive licenses
to patents and patent applications. We have filed numerous United States and
international patent applications directed to composition of matter as well as
processes of preparation and methods of use, including applications relating to
permeabilizers, certain rights to which have been licensed to the Partnership
and to each of our delivery technologies. We own a total of 42 issued patents.
In the future, we plan to file further United States and foreign patent
applications directed to new or improved products and processes. The United
States patents issued to us will expire between 2000 and 2016. We intend to file
additional patent applications when appropriate and intend to defend our patent
position aggressively.
We have exclusive rights through licensing agreements with several
institutions to twelve issued United States patents, a number of United States
patent applications and corresponding foreign patents and patent applications in
many countries, subject in certain instances to the rights of the United States
government to use the technology covered by such patents and patent
applications. The United States patents that have been licensed to us will
expire between the years 2007 and 2016. Under certain licensing agreements, we
currently pay annual license fees and/or minimum annual royalties. During the
fiscal year ended March 31, 1999, such fees were $127,000. In addition, under
all licensing agreements, we are obligated to pay royalties on future sales of
products, if any, covered by the licensed patents.
We know of several U.S. patents issued to other parties that relate to
our product candidates. One of those parties has asked us to compare our
Medisorb technology to that party's patented technology. The manufacture, use,
offer for sale, sale or importing of these product candidates might infringe on
the claims of these patents. A party might file an infringement action against
us. Our cost of defending such an action is likely to be high and we might not
receive a favorable ruling.
We also know of patent applications filed by other parties in the
United States and various foreign countries that may relate to some of our
product candidates if issued in their present form. If patents are issued to any
of these applicants, we may not be able to manufacture, use, offer for sale, or
sell some of our product candidates without first getting a license from the
patent holder. The patent holder may not grant us a license on reasonable terms
or it may refuse to grant us a license at all. This could delay or prevent us
from developing, manufacturing or selling those of our product candidates that
would require the license.
We try to protect our proprietary position by filing United States and
foreign patent applications related to our proprietary technology, inventions
and improvements that are important to the development of our business. Because
the patent position of biopharmaceutical companies involves complex legal and
factual questions, enforceability of patents cannot be predicted with certainty.
Patents, if issued, may be challenged, invalidated or circumvented. Thus, any
patents that we own or license from others may not provide any protection
against competitors. Our pending patent applications, those we may file in the
future, or those we may license from third parties, may not result in patents
being issued. And, if issued, they may not provide us with proprietary
protection or competitive advantages against competitors with similar
technology. Furthermore, others may independently develop similar technologies
or duplicate any technology that we have developed. The laws of certain foreign
countries do not protect our intellectual property rights to the same extent as
do the laws of the United States.
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We also rely on trade secrets, know-how and technology, which are not
protected by patents, to maintain our competitive position. We try to protect
this information by entering into confidentiality agreements with parties that
have access to it, such as our corporate partners, collaborators, employees and
consultants. Any of these parties may breach the agreement and disclose our
confidential information or our competitors might learn of the information in
some other way. If any trade secret, know-how or other technology not protected
by a patent were to be wrongly disclosed to a competitor, our business and
financial condition could be adversely affected.
GOVERNMENT REGULATION
The manufacture and marketing of pharmaceutical products in the United
States require the approval of the FDA under the Federal Food, Drug and Cosmetic
Act. Similar approvals by comparable agencies are required in most foreign
countries. The FDA has established mandatory procedures and safety standards
which apply to the preclinical testing and clinical trials, manufacture and
marketing of pharmaceutical products. Pharmaceutical manufacturing facilities
are also regulated by state, local and other authorities.
As an initial step in the FDA regulatory approval process, preclinical
studies are typically conducted in animal models to assess the drug's efficacy
and to identify potential safety problems. The results of these studies must be
submitted to the FDA as part of an Investigational New Drug application ("IND"),
which must be reviewed by the FDA before proposed clinical testing can begin.
Typically, clinical testing involves a three-phase process. Phase I trials are
conducted with a small number of subjects and are designed to provide
information about both product safety and the expected dose of the drug. Phase
II trials are designed to provide additional information on dosing and
preliminary evidence of product efficacy. Phase III trials are large scale
studies designed to provide statistical evidence of efficacy and safety in
humans. The results of the preclinical testing and clinical trials of a
pharmaceutical product are then submitted to the FDA in the form of a New Drug
Application ("NDA"), or for a biological product in the form of a Product
License Application ("PLA"), for approval to commence commercial sales.
Preparing such applications involves considerable data collection, verification,
analysis and expense. In responding to an NDA or PLA, the FDA may grant
marketing approval, request additional information or deny the application if it
determines that the application does not satisfy its regulatory approval
criteria.
Prior to marketing, any product developed by us or our collaborators
must undergo an extensive regulatory approval process, which includes
preclinical testing and clinical trials of such product candidate to demonstrate
safety and efficacy. This regulatory process can require many years and the
expenditure of substantial resources. Data obtained from preclinical testing and
clinical trials are subject to varying interpretations, which can delay, limit
or prevent FDA approval. In addition, changes in FDA approval policies or
requirements may occur or new regulations may be promulgated which may result in
delay or failure to receive FDA approval. Similar delays or failures may be
encountered in foreign countries. Delays and costs in obtaining regulatory
approvals would have a material adverse effect on our business, financial
condition and results of operations.
Among the conditions for NDA or PLA approval is the requirement that
the prospective manufacturer's quality control and manufacturing procedures
conform on an ongoing basis with GMP. Before approval of an NDA or PLA, the FDA
will perform a prelicensing inspection of the facility to determine its
compliance with GMP and other rules and regulations. In complying with GMP,
manufacturers must continue to expend time, money and effort in the area of
production and quality
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control to ensure full technical compliance. After the establishment is
licensed, it is subject to periodic inspections by the FDA.
The requirements which we must satisfy to obtain regulatory approval by
governmental agencies in other countries prior to commercialization of its
products in such countries can be as rigorous and costly as those described
above.
We are also subject to various laws and regulations relating to safe
working conditions, laboratory and manufacturing practices, experimental use of
animals and use and disposal of hazardous or potentially hazardous substances,
including radioactive compounds and infectious disease agents, used in
connection with our research. Compliance with laws and regulations relating to
the protection of the environment has not had a material effect on capital
expenditures, earnings or our competitive position. However, the extent of
government regulation which might result from any legislative or administrative
action cannot be accurately predicted.
EMPLOYEES
As of June 10, 1999, we had approximately 300 full-time employees. A
significant number of our management and professional employees have had prior
experience with pharmaceutical, biotechnology or medical product companies. We
believe that we have been highly successful in attracting skilled and
experienced scientific personnel; however, competition for such personnel is
intense. None of our employees are covered by a collective bargaining agreement.
We consider our relations with employees to be good.
EXECUTIVE OFFICERS OF THE REGISTRANT
Our executive officers, who are elected to serve at the pleasure of the
Board of Directors, are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Richard F. Pops 37 Chief Executive Officer and Director
Robert A. Breyer 55 President, Chief Operating Officer and Director
Raymond T. Bartus 52 Senior Vice President, Preclinical Research and
Development
Michael J. Fox 52 Former Senior Vice President, Medical and Regulatory
Affairs
James M. Frates 32 Vice President, Chief Financial Officer and Treasurer
</TABLE>
Mr. Pops has been Chief Executive Officer and a Director since
February 1991. From February 1991 to June 1994, Mr. Pops was also our President.
Mr. Pops currently serves on the Board of Directors of Neurocrine Biosciences,
Inc., the Biotechnology Industry Organization (BIO), The Brain Tumor Society (a
non-profit organization) and Immulogic Pharmaceutical Corporation, a
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biopharmaceutical company. Mr. Pops is President of the Massachusetts
Biotechnology Council (MBC).
Mr. Breyer has been President and Chief Operating Officer and
a Director since July 1994. From August 1991 to December 1993, Mr. Breyer was
President and General Manager of Eli Lilly Italy, a subsidiary of Eli Lilly &
Co.
Dr. Bartus has been Senior Vice President, Preclinical
Research and Development since December 1996. From November 1992 to December
1996, Dr. Bartus served as our Senior Vice President, Neurobiology. He holds an
M.S. in Experimental Psychology and a Ph.D. in Physiological Psychology from
North Carolina State University.
Dr. Fox was the Senior Vice President, Medical and Regulatory Affairs
from July 1998 to April 1999, when he resigned. From 1997 to 1998, he was
President of Healthcare Advisors. From 1991 to 1996 he was employed by Astra AB
most recently as Senior Vice President, Astra USA.
Mr. Frates has been Vice President, Chief Financial Officer
and Treasurer since June 1998. From June 1996 to July 1998, he was employed at
Robertson, Stephens & Company most recently as a Vice President in Investment
Banking. Prior to that time he was employed at Robertson, Stephens & Company and
Morgan Stanley & Co. In June 1996, he obtained his M.B.A. from Harvard
University.
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RISK FACTORS
Any investment in our common stock offering is very risky. An investor
should carefully consider the following risk factors in addition to the
remainder of this annual report on form 10-K before purchasing any of our
securities.
OUR DELIVERY TECHNOLOGIES MAY NOT PRODUCE SAFE, EFFICACIOUS OR COMMERCIALLY
VIABLE PRODUCTS
We do not yet have a product that we can sell commercially and we
cannot guarantee that we will have one in the future. All of our product
candidates, except Nutropin Depot, need significant additional research and
development. Nutropin Depot, like all of our product candidates, requires FDA
approval before it can be marketed. To be profitable, we must develop,
manufacture and market our products, either alone or by collaborating with
others. This could take several years and we may never be successful in bringing
our product candidates to the market. A new drug may appear promising at an
early stage of development or after clinical trials and never reach the market,
or it may reach the market and not sell, for a variety of reasons. The drug may:
- Be shown to be ineffective or to cause harmful side effects
during preclinical testing or clinical trials;
- Fail to receive regulatory approval on a timely basis or at
all;
- Be hard to manufacture on a large scale;
- Be uneconomical;
- Not be prescribed by doctors or accepted by patients; or
- Infringe on proprietary rights of another party.
If our technology fails to generate product candidates that lead to the
successful development and commercialization of products, or if our partners
decide not to pursue one of our product candidates, our business and financial
condition will be materially adversely affected.
THE FDA MAY NOT APPROVE OUR PRODUCT CANDIDATES
Approval from the FDA is required to manufacture and market
pharmaceutical products in the United States. Other countries have similar
requirements. The process that pharmaceutical products must undergo to get this
approval is extensive and includes preclinical testing and clinical trials to
demonstrate safety and efficacy and a review of the manufacturing process to
ensure compliance with good manufacturing practices. This process can last many
years and be very costly and still be unsuccessful. FDA approval can be delayed,
limited or not granted at all for many reasons, including:
- A product candidate may not be safe or effective;
- Data from preclinical testing and clinical trials can be
interpreted by FDA officials in different ways than we
interpret it;
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- The FDA might not approve our manufacturing processes or
facilities;
- The FDA may change its approval policies or adopt new
regulations; and
- A product candidate may not be approved for all the
indications we requested.
The process of getting approvals in foreign countries is subject to delay and
failure for the same reasons. Any delay in, or failure to receive, approval will
have a material adverse effect on our business and financial condition.
Our collaborator Genentech submitted a new drug application for
Nutropin Depot on June 28, 1999. This is the first new drug application
submitted on one of our products. We cannot guarantee that the FDA will accept
this application, that it will be approved in a timely manner, or that it will
be approved at all.
Most of our product candidates are drug delivery systems combined with
a drug in a single formulation to treat a specific condition. In most cases, the
FDA has already approved the drug used in these product candidates for treating
the condition targeted by the product candidate. Cereport is a separate
formulation from the drug it is intended to be used with but must be tested with
that drug. We are conducting clinical trials on Cereport with carboplatin, which
is a chemotherapeutic agent, in patients with a certain type of brain tumor. If
the FDA approves Cereport based on these trials, it will be for its use in
conjunction with carboplatin for the treatment of that type of brain tumor.
Unlike the drugs used with many of our product candidates, the FDA has not
approved carboplatin for treating the type of tumor that we are targeting, and
this could result in the FDA requiring additional clinical trials. However, the
FDA has approved carboplatin for the treatment of other types of cancerous
tumors. Any delay in the approval process for any of our product candidates will
result in increased costs that could materially and adversely affect our
business and financial condition.
Regulatory approval of a product candidate is limited to specific
therapeutic uses for which the product has demonstrated safety and efficacy in
clinical testing. Approval of a product candidate could also be contingent on
post-marketing studies. In addition, any marketed drug and its manufacturer
continue to be subject to strict regulation after approval. Any unforeseen
problems with an approved drug or any violation of regulations could result in
restrictions on the drug, including its withdrawal from the market.
CLINICAL TRIALS FOR OUR PRODUCT CANDIDATES ARE EXPENSIVE AND THEIR OUTCOME IS
UNCERTAIN
Conducting clinical trials is a lengthy, time-consuming and expensive
process. Before obtaining regulatory approvals for the commercial sale of any
products, we or our partners must demonstrate through preclinical testing and
clinical trials that our product candidates are safe and effective for use in
humans. We have incurred and will continue to incur substantial expense for, and
devote a significant amount of time to, preclinical testing and clinical trials.
Historically, the results from preclinical testing and early clinical
trials have often not predicted results of later clinical trials. A number of
new drugs have shown promising results in clinical trials, but subsequently
failed to establish sufficient safety and efficacy data to obtain necessary
regulatory approvals. Data obtained from preclinical and clinical activities are
susceptible to varying interpretations, which may delay, limit or prevent
regulatory approval. In addition, regulatory delays or
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rejections may be encountered as a result of many factors, including changes in
regulatory policy during the period of product development.
Clinical trials conducted by us, by our collaborators or by third
parties on our behalf may not demonstrate sufficient safety and efficacy to
obtain the requisite regulatory approvals for our product candidates. Regulatory
authorities may not permit us to undertake any additional clinical trials for
our product candidates.
Clinical trials of each of our product candidates involve a drug
delivery technology and a drug, either as a single formulation or, as in the
case of Cereport, as two products administered in conjunction with each other.
This makes testing more complex because the outcome of the trials depends on the
performance of our technology in combination with a drug.
We have other product candidates in preclinical development, and we
have not submitted investigational new drug applications or begun clinical
trials for these product candidates. Our preclinical and clinical development
efforts may not be successfully completed. We may not file further
investigational new drug applications. We or our collaborators may not begin
clinical trials as planned.
Completion of clinical trials may take several years or more. The
length of time can vary substantially with the type, complexity, novelty and
intended use of the product candidate. Our commencement and rate of completion
of clinical trials may be delayed by many factors, including:
- Our inability to recruit patients at the expected rate;
- The failure of clinical trials to demonstrate a product
candidate's efficacy;
- Our inability to follow patients adequately after treatment;
- Our inability to predict unforeseen safety issues;
- Our inability to manufacture sufficient quantities of
materials used for clinical trials; and
- The potential for unforeseen governmental or regulatory
delays.
If a product candidate fails to demonstrate safety and efficacy in
clinical trials, this failure may delay development of other product candidates
and hinder our ability to conduct related preclinical testing and clinical
trials. As a result of these failures, we may also be unable to find additional
collaborators or to obtain additional financing. Our business and financial
condition may be materially adversely affected by any delays in, or termination
of, our clinical trials.
WE ANTICIPATE WE WILL INCUR CONTINUED LOSSES FOR THE FORESEEABLE FUTURE
We have had net operating losses since being founded in 1987. At March
31, 1999, our accumulated deficit was $180.9 million (after giving effect to our
acquisition of Advanced Inhalation Research on February 1, 1999 which was
accounted for as a pooling of interests). These losses principally consist of
the costs of research and development, the costs of acquiring rights to research
and development performed by others and general and administrative expenses. The
majority of revenues that we have received have come from collaboration and
development agreements, research grants and
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<PAGE> 24
interest income. We expect to incur substantial additional expenses over the
next several years as our research and development activities, including
clinical trials, accelerate and as we prepare to manufacture products for
commercial sale. Because we do not expect to generate significant revenues from
the sale of products, if any, for several years, we anticipate that additional
expenses will result in losses.
Our future profitability depends, in part, on:
- Obtaining regulatory approval for our product candidates;
- Entering into agreements to develop and commercialize
products;
- Developing the capacity to manufacture and market products or
entering into agreements with others to do so;
- Market acceptance of our products;
- The ability to obtain additional research and development
funding from collaborative partners; and
- The ability to achieve certain product development milestones.
We may not achieve any or all of these goals and, thus, cannot provide
assurances that we will ever achieve significant revenues or profits. Even if we
do receive regulatory approval of one or more of our products, we may not
achieve significant commercial success.
Our recently completed manufacturing facilities in Cambridge and Ohio
require specialized personnel and are expensive to operate and maintain. Any
delay in the approval of product candidates to be manufactured in these
facilities will require us to continue to operate these expensive facilities and
retain the specialized personnel, which may increase our expected losses.
WE NEED TO SPEND SUBSTANTIAL FUNDS TO BECOME PROFITABLE
We believe that our liquid assets, anticipated funding from our
collaborators and interest income will satisfy our capital and operating
requirements for the foreseeable future, but we cannot guarantee that this will
be the case. We will need to spend substantial amounts of money before we can be
profitable, if ever. The amount we will spend, and when we will spend it, will
depend, in part, on:
- How our research and development programs, including clinical
trials, progress;
- How much time and expense will be required to receive FDA
approval for our product candidates;
- The cost of building, operating and maintaining manufacturing
facilities;
- How many product candidates we pursue;
- How much time and money we need to prosecute and enforce
patent rights;
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- How competing technological and market developments affect our
product candidates;
- The cost of possible acquisitions of drug delivery
technologies, products or companies;
- The cost of obtaining licenses to use technology owned by
others; and
- Whether and how we choose to exercise our option to purchase
the limited partnership interests in Alkermes Clinical
Partners.
If we require additional funds to complete any of our programs, we may
seek funds through arrangements with collaborators, by issuing securities or
through debt financing. If we can only raise additional funds on terms that are
not favorable to us, we may have to cut back significantly on one or more of our
programs, give up some of our rights to our technologies or product candidates
or agree to reduced royalty rates from collaborators.
WE RELY HEAVILY ON COLLABORATORS
Our arrangements with collaborators and licensors are critical to our
success in bringing our product candidates to the market. In some cases, we
depend on these parties to conduct preclinical testing and clinical trials and
to provide funding for our development programs. Some of our collaborators can
terminate their agreements with us for no reason and on limited notice. We
cannot guarantee that any of these relationships will continue. Failure to make
or maintain these arrangements or a delay in a collaborator's performance may
materially and adversely affect our business and financial condition.
We cannot control our collaborators' performance or the resources they
devote to our programs. If a collaborator fails to perform, the research,
development or commercialization program on which it is working will be delayed.
If this happens, we may have to use funds, personnel, laboratories and other
resources that we have not budgeted, and may not have, to continue the program,
or we may have to stop the program entirely. The failure of a collaborator to
perform or a loss of a collaborator may materially adversely affect our business
and financial condition.
Disputes may arise between us and a collaborator and may involve the
issue of which of us owns the technology that is developed during a
collaboration. Such a dispute could delay the program on which the collaborator
or we are working. It could also result in expensive arbitration or litigation,
which may not be resolved in our favor.
A collaborator may choose to use its own or other technology to develop
a way to deliver its drug and withdraw its support of our product candidate.
Our collaborators could merge with or be acquired by another company or
experience financial or other setbacks unrelated to our collaboration that
could, nevertheless, adversely affect us.
None of our drug delivery systems can be commercialized as stand-alone
products but must be combined with a drug. To develop any new product candidate
using one of these drug delivery systems, we must obtain the drug from another
party. We cannot provide assurances that we will be able to negotiate any such
drugs on reasonable terms.
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OUR MANUFACTURING EXPERIENCE IS LIMITED AND WE HAVE NEVER MANUFACTURED AN
APPROVED PRODUCT
We currently manufacture each of our product candidates, except for
Cereport. The manufacture of drugs for clinical trials and for commercial sale
is subject to regulation by the FDA under good manufacturing practices (GMP)
regulations and by other regulators under other laws and regulations. We have
manufactured product candidates for use in clinical trials but otherwise have no
manufacturing experience. We cannot assure you that we can successfully
manufacture each of our product candidates in sufficient quantities for
commercial sale, or in a timely or economical manner.
In October 1998, we completed construction of a new commercial
manufacturing plant for Nutropin Depot and future ProLease product candidates.
In June 1998, we completed an expansion of our existing Medisorb manufacturing
facility. Neither of these facilities nor any of our other manufacturing
facilities has been inspected or validated by the FDA, a process by which the
FDA approves a facility for the manufacture of products to be sold. We cannot
guarantee that the FDA will approve either of these facilities or find them to
be in compliance with good manufacturing practices.
We rely on an unrelated party to manufacture Cereport for use in
clinical trials. We expect to rely on the same party to manufacture Cereport for
commercial sale if Cereport receives FDA approval. If we are unable to do so, or
the manufacturer fails to perform as required, we may be unable to secure an
alternative manufacturer on reasonable terms or in a timely manner.
If more of our product candidates progress to late stage development,
we will incur significant expenses in the expansion or construction of
manufacturing facilities and increases in personnel in order to manufacture
product candidates. The development of commercial scale manufacturing processes
is complex and expensive. We can provide no assurances that we will be able to
develop this manufacturing capability in a timely way or at all.
If we fail to develop manufacturing capacity and experience, fail to
continue to contract for manufacturing on acceptable terms, or fail to
manufacture our product candidates at a commercial scale our development
programs will be adversely affected. This may result in delays in receiving FDA
approval for one or more of our product candidates or delays in the commercial
production of a product that has already been approved. Any such delays could
materially and adversely affect our business and financial condition.
WE ARE SUBJECT TO EXTENSIVE GOVERNMENT REGULATIONS AND WE MAY NOT BE ABLE TO
OBTAIN REGULATORY APPROVALS
Our product candidates are subject to extensive and rigorous domestic
government regulation. The FDA regulates, among other things, the development,
testing, manufacture, safety, efficacy, record-keeping, labeling, storage,
approval, advertising, promotion, sale and distribution of biopharmaceutical
products. If our products are marketed abroad, they will also be subject to
extensive regulation by foreign governments. Certain material changes to an
approved product, such as manufacturing changes or additional labeling claims,
are subject to further FDA review and approval. Any required approvals, once
obtained, may be withdrawn. Further, if we fail to comply with FDA and other
regulatory requirements at any stage during the regulatory process, we may be
subject to sanctions, including:
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- Delays, warning letters and fines;
- Product recalls or seizures and injunctions on sales;
- Refusal of the FDA to review pending market approval
applications or supplements to approval applications;
- Total or partial suspension of production;
- Withdrawals of previously approved marketing applications; and
- Civil penalties and criminal prosecutions.
We are also subject to federal, state and local government regulation
in the conduct of our business, including regulations on employee safety and our
handling and disposal of hazardous and radioactive materials. Any new regulation
or change to an existing regulation could require us to implement costly capital
or operating improvements for which we have not budgeted. We cannot assure you
that these regulations will remain the same or that we will maintain compliance
with these regulations.
We and our contract manufacturer of Cereport also are required to
comply with the FDA current good manufacturing practice regulations. Good
manufacturing practice regulations include requirements relating to quality
control, quality assurance and maintenance of records and documentation.
Manufacturing facilities are subject to inspection by the FDA and must be
approved before we can use them in commercial manufacturing of our products. We
or our contract manufacturer may be unable to comply with the applicable good
manufacturing practice requirements and other FDA regulatory requirements. If
Alkermes or our contract manufacturer fail to comply, our business and financial
condition will be materially adversely affected.
WE HAVE ONLY LIMITED RIGHTS TO CEREPORT
We transferred to Alkermes Clinical Partners substantially all of our
rights to certain technology that includes Cereport and then entered into an
agreement with Alkermes Clinical Partners under which we perform research and
development of Cereport. Alkermes Clinical Partners issued securities and used
the proceeds from the sale of those securities to fund our research and
development of Cereport. Funding provided by Alkermes Clinical Partners was
insufficient to complete clinical trials and apply for FDA approval. Since June
1996, we have used our own funds to develop Cereport. So long as we continue
this funding, we have an option to purchase the limited partnership interests in
Alkermes Clinical Partners for cash or our common stock. If this purchase option
terminates, we will have no rights to Cereport or the related technology in the
United States or Canada.
If we exercise this purchase option, we must make a substantial cash
payment or issue a large number of shares of common stock. The exercise of the
option may require us to record significant charges to earnings for the
purchase of in-process research and development. If we acquire rights to the
Cereport technology under the option, we will still be obliged to pay royalties
to the limited partners.
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COMPETITION IN THE BIOTECHNOLOGY INDUSTRY
We can provide no assurance that we will be able to compete
successfully against the competitive forces discussed below in developing,
marketing or selling our products.
WE FACE INTENSE COMPETITION
We face intense competition from academic institutions, government
agencies, research institutions and biotechnology and pharmaceutical companies,
including other drug delivery companies. Some of these competitors are also our
collaborators. These competitors are working to develop and market other drug
delivery systems, vaccines and other methods of preventing or reducing disease,
and new small-molecule and other classes of drugs that can be used without a
drug delivery system.
We know of no products approved by the FDA or foreign regulatory
authorities for increasing the permeability of the blood-brain barrier, which is
the intended use of Cereport. However, there are other companies developing
sustained release drug delivery systems, pulmonary delivery systems and oral
delivery systems. In addition, we know of new chemical entities that are being
developed that, if successful, could compete against our product candidates.
These chemical entities are being designed to work differently than our product
candidates and may turn out to be safer or to work better than our product
candidates. Among the many experimental therapies being tested in the United
States and Europe, there may be some that we do not now know of that may compete
with our drug delivery systems or product candidates. Our collaborators could
choose a competing drug delivery system to use with their drugs instead of one
of our drug delivery systems.
Many of our competitors have much greater capital resources,
manufacturing and marketing experience, research and development resources and
production facilities than we do. Many of them also have much more experience
than we do in preclinical testing and clinical trials of new drugs and in
obtaining FDA and foreign approvals. In addition, they may succeed in obtaining
patents that would make it difficult or impossible for us to compete with their
products.
RAPID TECHNOLOGICAL CHANGE COULD RENDER OUR DRUG DELIVERY SYSTEMS
OBSOLETE OR NONCOMPETITIVE
Major technological changes can happen quickly in the biotechnological
and pharmaceutical industries; and the development by competitors of
technologically improved or different products may make our product candidates
obsolete or noncompetitive.
THE COMPETITIVE NATURE OF OUR INDUSTRY COULD ADVERSELY AFFECT MARKET
ACCEPTANCE OF OUR PRODUCTS
Our product candidates may not gain market acceptance among physicians,
patients, healthcare payors and the medical community. The degree of market
acceptance of any product candidates that we develop will depend on a number of
factors, including:
- Demonstration of their clinical efficacy and safety;
- Their cost-effectiveness;
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- Their potential advantage over alternative treatment methods;
- The marketing and distribution support they receive; and
- Reimbursement policies of government and third-party payors.
Our product candidates, if successfully developed, will compete with a
number of drugs and therapies currently manufactured and marketed by major
pharmaceutical and other biotechnology companies. Our products may also compete
with new products currently under development by others or with products which
may cost less than our products. Physicians, patients, third-party payors and
the medical community may not accept or utilize our products. If our products do
not achieve significant market acceptance, our business and financial condition
will be materially adversely affected.
PATENT PROTECTION FOR OUR PRODUCTS IS IMPORTANT AND UNCERTAIN
The following factors are important to our success:
- Receiving patent protection for our product candidates and
those of our collaborators;
- Maintaining our trade secrets;
- Not infringing on the proprietary rights of others; and
- Preventing others from infringing our proprietary rights.
We will be able to protect our proprietary rights from unauthorized use
by third parties only to the extent that our proprietary rights are covered by
valid and enforceable patents or are effectively maintained as trade secrets.
We know of several U.S. patents issued to other parties that relate to
our product candidates. One of those parties has asked us to compare our
Medisorb technology to that party's patented technology. The manufacture, use,
offer for sale, sale or importing of these product candidates might infringe on
the claims of these patents. A party might file an infringement action against
us. Our cost of defending such an action is likely to be high and we might not
receive a favorable ruling.
We also know of patent applications filed by other parties in the
United States and various foreign countries that may relate to some of our
product candidates if issued in their present form. If patents are issued to any
of these applicants, we may not be able to manufacture, use, offer for sale, or
sell some of our product candidates without first getting a license from the
patent holder. The patent holder may not grant us a license on reasonable terms
or it may refuse to grant us a license at all. This could delay or prevent us
from developing, manufacturing or selling those of our product candidates that
would require the license.
We try to protect our proprietary position by filing United States and
foreign patent applications related to our proprietary technology, inventions
and improvements that are important to the development of our business. Because
the patent position of biopharmaceutical companies involves complex legal and
factual questions, enforceability of patents cannot be predicted with certainty.
Patents, if issued, may be challenged, invalidated or circumvented. Thus, any
patents that we own or
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license from others may not provide any protection against competitors. Our
pending patent applications, those we may file in the future, or those we may
license from third parties, may not result in patents being issued. And, if
issued, they may not provide us with proprietary protection or competitive
advantages against competitors with similar technology. Furthermore, others may
independently develop similar technologies or duplicate any technology that we
have developed. The laws of certain foreign countries do not protect our
intellectual property rights to the same extent as do the laws of the United
States.
We also rely on trade secrets, know-how and technology, which are not
protected by patents, to maintain our competitive position. We try to protect
this information by entering into confidentiality agreements with parties that
have access to it, such as our corporate partners, collaborators, employees and
consultants. Any of these parties may breach the agreement and disclose our
confidential information or our competitors might learn of the information in
some other way. If any trade secret, know-how or other technology not protected
by a patent were to be wrongly disclosed to a competitor, our business and
financial condition could be adversely affected.
EFFORTS TO KEEP DOWN THE COST OF HEALTHCARE MAY THREATEN OUR PROFITABILITY
Third-party payors, which include governments and private health
insurers, are increasingly challenging the prices charged for medical products
and services. In their attempts to reduce healthcare costs, they have also been
limiting their coverage and reimbursement levels for new drugs. In some cases,
they are refusing to cover the costs of drugs that are not new but are being
used for newly approved purposes. Patients who use a product that we may develop
might not be reimbursed for its cost. If third-party payors do not provide
adequate coverage and reimbursement for our products, if and when they reach the
market, doctors may not prescribe them or patients may not use them.
The federal government and various state governments have considered
proposals to regulate the prices of prescription drugs, as is done in certain
foreign countries. We expect that there will be more proposals like these. If
any of these proposals are enacted, we may receive a lower price for our
products, if and when they reach the market, than we currently estimate. Lack of
adequate reimbursement or the enactment of price controls would have a material
adverse effect on our business and financial condition.
WE HAVE NO MARKETING OR SALES EXPERIENCE
We currently have no experience in marketing or selling pharmaceutical
products. To achieve commercial success for any product that may be approved by
the FDA, we must either develop a marketing and sales force or contract with
another party to perform these services for us. In either case, we will be
competing with companies that have experienced and well-funded marketing and
sales operations. We may not be successful in developing a marketing and sales
force or in contracting with a third party on acceptable terms in selling our
products at all.
WE ARE EXPOSED TO PRODUCT LIABILITY CLAIMS
We may be exposed to liability claims arising from the use of our
product candidates in clinical trials and the commercial sale of any products.
These claims may be brought by consumers, our collaborators or parties selling
the products. We currently carry liability insurance for claims arising from the
use of our product candidates during clinical trials in the amount of up to $10
million per occurrence
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and $10 million in the aggregate. However, we cannot provide any assurance that
this coverage will be sufficient to satisfy any liabilities that may arise. As
our development activities progress, this coverage will be inadequate; and we
may be unable to get adequate coverage at an acceptable cost or we may be unable
to get adequate coverage at all. This could prevent or limit our
commercialization of our product candidates. Even if we are able to continue to
carry insurance that we believe is adequate, our financial condition may be
materially and adversely affected by a product liability claim.
WE MUST MEET CERTAIN FINANCIAL TESTS OR WE WILL DEFAULT UNDER OUR LOAN
AGREEMENTS
We must maintain minimum levels of working capital, net worth and
liquid assets under the terms of our loan agreements.
WE MAY NOT BE ABLE TO RETAIN OUR KEY EXECUTIVES AND RESEARCH AND DEVELOPMENT
PERSONNEL
Our success depends on the services of key employees in executive and
research and development positions. The loss of the services of one or more of
these employees could have a material adverse effect on us.
WE DO NOT ANTICIPATE PAYING DIVIDENDS ON OUR COMMON STOCK
We have not paid cash dividends on our common stock and do not expect
to do so in the foreseeable future. We currently have outstanding 2,303,500
shares of preferred stock in two separate series. We must pay cash dividends to
the holders of the preferred stock, and any dividends that we do not pay will
accrue and remain owing to the holders of the preferred stock but will not bear
interest. We must pay the accumulated, unpaid dividends on 2,300,000 shares of
the preferred stock before we can declare or pay cash dividends on the common
stock.
WE MAY ISSUE MORE COMMON STOCK
As discussed above under "We Need to Spend Substantial Funds to Become
Profitable," we may issue additional equity securities to raise funds, thus
reducing the ownership share of the company of current holders of our common
stock which may adversely affect the market price of the common stock. In
addition, for consideration that we have already received, we must issue common
stock to certain security holders and other parties under the circumstances
described below. Any of these parties could sell all or a large number of its
shares, which could adversely affect the market price of our common stock. Even
if none of these sales happen, the perception by investors that sales might
occur could adversely affect the market price of our common stock.
CONVERTIBLE PREFERRED STOCK
We may exchange our $3.25 convertible exchangeable preferred stock in
whole for debentures, but have no current plans to do so. Any holder of this
series of preferred stock, or the debentures for which it may have been
exchanged, may convert its shares or debentures into shares of common stock. We
have already registered for resale shares of our common stock for this purpose.
Each share of this series of preferred stock is currently convertible into
1.6878 shares of common stock for a total of 3,881,940 shares of common stock.
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Any holder of our 1999 redeemable convertible exchangeable preferred
stock may convert its shares into common stock (and non-voting common stock
which is convertible into common stock) at any time after September 1, 1999 that
our common stock is trading above $45 per share for at least ten consecutive
trading days. In addition, we may redeem all or a portion of the shares of this
series of preferred stock for cash or common stock (and non-voting common stock
which is convertible into common stock). We are obligated to register for resale
all shares of common stock after conversion or redemption for common stock. Each
share of this series of preferred stock is convertible into shares of common
stock based on an average of the closing price of common stock over a ten-day
period.
CONVERTIBLE NOTE HELD BY GENENTECH
In January 1995, we issued a Convertible Promissory Note in the
principal amount of $3.5 million to Genentech, Inc. We have the option to pay in
cash or convert the amount due on this note to our common stock. Under certain
circumstances, Genentech can require us to convert the amount due to common
stock and to register that stock. This note is due in January 2000.
CONVERTIBLE NOTE HELD BY SCHERING
In October 1998, we issued a promissory note in the principal amount of
$6 million to Schering Corporation. We have the option to pay in cash or convert
the amount due on this note to our common stock. If we convert the amount due
into common stock, we must register the common stock. This note is due in
October 2001.
STOCK OPTIONS AND AWARDS; WARRANTS
At June 10, 1999, we were obligated to issue the following shares of
common stock under the circumstances described:
- 3,231,804 shares upon the exercise of stock options and
vesting of awards; and
- 832,738 shares upon the exercise of warrants.
We have already registered these shares.
COMMON STOCK OWNED BY ALZA CORPORATION
We issued and registered for resale 2 million shares of common stock to
ALZA Corporation, of which they held 1,750,000 shares as of June 8, 1999. ALZA
also has the right to include these shares in any underwritten public offering
of our common stock. ALZA may sell all or any portion of these shares at any
time.
OUR COMMON STOCK PRICE IS HIGHLY VOLATILE
The realization of any of the risks described in these "Risk Factors"
or other unforeseen risks could have a dramatic and adverse effect on the market
price of our common stock. Additionally, market prices for securities of
biotechnology and pharmaceutical companies, including ours, have historically
been very volatile. The market for these securities has from time to time
experienced significant price and volume fluctuations for reasons that were
unrelated to the operating performance of
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any one company. In particular and in addition to circumstances described
elsewhere under "Risk Factors," the following factors can adversely affect the
market price of our common stock:
- Announcements of technological innovations or new therapeutic
products by us or others;
- Public concern as to the safety of drugs developed by us or
others;
- General market conditions;
- Changes in government regulations or patent decisions; and
- Developments of our corporate partners.
ANTI-TAKEOVER PROVISIONS MAY NOT BENEFIT SHAREHOLDERS
We are a Pennsylvania corporation. Anti-takeover provisions of
Pennsylvania law could make it more difficult for a person or group to acquire
control of us, even if the change in control would be beneficial to
shareholders. Our articles of incorporation and bylaws also contain certain
provisions that could have a similar effect. The articles provide that our board
of directors may issue, without shareholder approval, preferred stock having
such voting rights, preferences and special rights as the board of directors may
determine. The issuance of preferred stock could make it more difficult for a
third party to acquire us.
OUR SYSTEMS MAY NOT BE YEAR 2000 COMPLIANT
The Year 2000 problem concerns the application of computer systems
written using six (e.g., 12/31/99) versus eight (e.g., 12/31/1999) digits to
define the applicable date. This could result, among other things, in computer
systems recognizing "00" as the year 1900 rather than the year 2000. Computer
hardware, software and embedded chip equipment are potentially affected, and, if
such systems and components are not remediated satisfactorily, could lead to
operational interruptions and business misinformation. We are addressing the
Year 2000 problem in these systems and continue our analysis of the Year 2000
readiness of key third parties. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Year 2000."
Our computer systems are complex, highly interdependent and there are a
number of risks associated with the complexity and high degree of integration of
the systems. For example, an incorrect classification of the importance of a
system or systems, or the cumulative effect of a number of low priority systems
that have not been remediated, could result in an unpredicted failure or
shutdown in one or more of our business, processing or manufacturing systems,
which could have a material adverse effect on production or cost of operations.
Our current belief is that this has a relatively low probability of occurring.
To minimize these risks, we are utilizing our skilled and knowledgeable internal
resources and have employed contract personnel in our decision-making processes
and to perform integrated systems testing.
If the Year 2000 problem causes suppliers and utility providers to fail
to deliver essential materials and services, multiple disruptions of our
operations, computer infrastructure or telecommunications systems could result.
Because of the inherent uncertainties associated with the Year 2000 problem,
including understanding the Year 2000 readiness of these key third parties, it
is not
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possible to quantify the potential impact at this time. However, failure of key
suppliers, utility providers or us to address properly and timely the Year 2000
problem could have a material adverse effect on our financial condition, results
of operations or liquidity. Furthermore, there can be no guarantee that any
contingency plans developed by us will prevent such failures from having a
material adverse effect. We believe that there is a low probability that these
multiple failures are likely to occur.
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ITEM 2. PROPERTIES
We lease and occupy approximately 120,000 square feet of laboratory,
manufacturing and office space in Cambridge, Massachusetts under nine leases
expiring in the years 2001 to 2008. Several of the leases contain provisions
permitting us to extend the term of such leases for up to ten years. We have a
GMP clinical suite at our Massachusetts facility, which is for the manufacture
of product candidates incorporating the ProLease delivery system. We completed
construction of a new 32,000 square foot commercial scale ProLease manufacturing
facility in Cambridge, Massachusetts in October 1998. We operate a GMP
manufacturing facility for our AIR technology at one of our Cambridge,
Massachusetts facilities. We believe that our Massachusetts facilities are
adequate for our preclinical, clinical and commercial operations.
We do not manufacture and do not expect to manufacture Cereport for
clinical trials. We have engaged a third party to manufacture preclinical,
clinical and commercial supplies of Cereport.
Alkermes Europe, Ltd., one of our wholly owned subsidiaries, leases and
occupies approximately 4,600 square feet of office space in Cambridge, England
under a lease expiring in the year 2002.
We own and occupy approximately 35,000 square feet of manufacturing,
office and laboratory space in Wilmington, Ohio. The facility contains a
state-of-the-art GMP sterile production facility specifically designed for the
production of Medisorb microspheres. Construction of a 20,000 square foot
addition and renovation of this facility to support commercial scale manufacture
of Medisorb product candidates was completed in June of 1998. We believe that
our Wilmington facility is adequate for its preclinical, clinical and commercial
operations.
We also lease and occupy approximately 30,000 square feet of laboratory
and office space in Blue Ash, Ohio under a lease expiring in 2001. We operate
clinical scale manufacturing for our DST and RingCap technologies at this
facility. We believe that the Blue Ash facility is adequate for our operations.
ITEM 3. LEGAL PROCEEDINGS
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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PART II
ITEM 5. MARKET FOR OUR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Our common stock is traded on the Nasdaq National Market under the
symbol ALKS. There are no shares of our non-voting common stock issued or
outstanding. Set forth below for the indicated periods are the high and low sale
prices for our common stock.
<TABLE>
<CAPTION>
Fiscal 1999 Fiscal 1998
--------------- --------------------
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
1st Quarter $26 3/8 $16 3/4 $17 5/8 $10 3/8
2nd Quarter 21 7/8 10 1/8 23 3/8 12 1/2
3rd Quarter 23 7/8 11 25 15 7/8
4th Quarter 33 1/2 22 1/8 27 5/8 19
</TABLE>
The number of shareholders of record on June 10, 1999 was 512. No
dividends have been paid on the common stock to date and we do not expect to
pay cash dividends thereon in the foreseeable future.
1999 Preferred Stock
On April 14, 1999, we issued and sold 3,500 shares of 1999 Redeemable
Convertible Exchangeable Preferred Stock, par value $.01 per share (the "1999
Preferred Stock"), to Genentech, Inc. for an aggregate purchase price of
$35,000,000.
The 1999 Preferred Stock was issued and sold in a transaction exempt
from the registration requirements of the Securities Act of 1933, as amended
(the "Securities Act") pursuant to Rule 506 of Regulation D promulgated under
the Securities Act. We reasonably believed that Genentech, Inc. was and is an
accredited investor, based on representations made to us by Genentech and by our
review of Genentech's filings with the SEC under the Securities Exchange Act of
1934, as amended.
Dividends on the 1999 Preferred Stock are cumulative from the date of
original issue and are payable quarterly each March 1, June 1, September 1 and
December 1, at the rate of the three-month London Interbank Offer Rate (LIBOR)
and commenced June 1, 1999. The 1999 Preferred Stock has a liquidation
preference of $10,000 per share, plus accrued and unpaid dividends.
The 1999 Preferred Stock is redeemable at our option, in whole or in
part, at any time at the redemption price of $10,000 per share plus accrued and
unpaid dividends, if any (the "1999 Redemption Price"). There will be a
mandatory redemption of any outstanding shares of the 1999 Preferred Stock on
January 1, 2009 at the 1999 Redemption Price. The 1999 Redemption Price may be
paid in cash or shares of our common stock or non-voting common stock at our
option.
The holders of 1999 Preferred Stock are entitled to convert their
shares of 1999 Preferred Stock into shares of common stock and non-voting common
stock during any period after September 1, 1999 that the closing price of the
common stock on The Nasdaq National Market is listed above $45 per share for at
least 10 consecutive trading days. We have the option to redeem the 1999
Preferred Stock for cash
36
<PAGE> 37
prior to conversion. Each share of 1999 Preferred Stock would be converted into
that number of shares of common stock and non-voting common stock obtained by
dividing $10,000 plus accrued and unpaid dividends by the average closing price
of the common stock for the 10 consecutive trading days prior to notice of
conversion. Non-voting common stock is convertible into shares of common stock
at the option of the holder and automatically upon the sale by the holder to a
non-affiliate.
In no event are we required to issue, for redemption for stock or on
conversion, greater than 4,976,220 shares of common stock and non-voting common
stock, unless we obtain the prior approval of our shareholders.
We are obligated to register for resale any shares of common stock
issued upon conversion or redemption upon such issuance.
AIR Transaction
As of February 1, 1999, we issued 3,680,508 shares of our common stock
(the "AIR Shares") to the stockholders of Advanced Inhalation Research, Inc.
("AIR") in connection with the merger of one of our wholly owned subsidiaries
with and into AIR. Each share of the common stock of AIR was converted into
1.1829754 shares of our common stock on the effective date of the merger. As of
March 31, 1999, approximately 1,341,000 of the AIR Shares are restricted under
various restricted stock purchase agreements and cannot be resold until such
shares vest over a four year period at different amounts for each shareholder.
The AIR Shares were issued in a transaction exempt from the
registration requirements of the Securities Act pursuant to Rule 506 of
Regulation D promulgated under the Securities Act to persons reasonably believed
to be accredited investors or investors who, alone or with their purchaser
representatives had such knowledge and experience in financial and business
matters that he or she was capable of evaluating the merits and risks of the
investment. The AIR Shares were issued to 34 purchasers.
On April 2, 1999, we filed a registration statement on Form S-3 to
register for resale the AIR Shares, which was declared effective on May 13,
1999.
Also in February 1999 and in connection with the merger, we assumed
stock options previously granted to certain persons by AIR. On April 2, 1999, we
filed a registration statement on Form S-3 to register 119,454 shares of our
common stock issuable upon exercise of such stock options, which was declared
effective on May 13, 1999.
$3.25 Preferred Stock
In March 1998, we issued and sold 2,300,000 shares of $3.25 Convertible
Exchangeable Preferred Stock, par value $.01 per share (the "$3.25 Preferred
Stock"), to certain initial purchasers (the "Initial Purchasers"). The aggregate
purchase price was $115,000,000, of which $4,025,000 constituted the
underwriting discounts and commissions. The Initial Purchasers were BancAmerica
Robertson Stephens, NationsBanc Montgomery Securities LLC, Cowen & Company,
Credit Suisse First Boston Corporation, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, J. P. Morgan Securities Inc., PaineWebber Incorporated and Smith
Barney Inc.
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<PAGE> 38
The $3.25 Preferred Stock was issued and sold in transactions exempt
from the registration requirements of the Securities Act to persons reasonably
believed by the managers who placed the $3.25 Preferred Stock, the Initial
Purchasers, to be "qualified institutional buyers" (as defined in Rule 144A
under the Securities Act) (each a "QIB") or institutional accredited investors
or sophisticated investors.
Dividends on the 2,300,000 shares of the $3.25 Preferred Stock are
cumulative from the date of original issue and are payable quarterly each
March 1, June 1, September 1 and December 1, at the annual rate of $3.25 per
share of $3.25 Preferred Stock and commenced June 1, 1998. Prior to March 6,
2001, the $3.25 Preferred Stock is not redeemable at our option. Thereafter the
$3.25 Preferred Stock is redeemable at our option, in whole or in part, at
declining redemption prices, together with accrued dividends. The $3.25
Preferred Stock has a liquidation preference of $50 per share, plus accrued and
unpaid dividends.
The $3.25 Preferred Stock is exchangeable, in whole but not in part, at
our option on any dividend payment date beginning March 1, 1999 (the "Exchange
Date") for its 6-1/2% Convertible Subordinated Debentures (the "Debentures") at
the rate of $50 principal amount of Debentures for each share of $3.25 Preferred
Stock. The Debentures, if issued, will mature on the tenth anniversary of the
Exchange Date. The Debentures, if issued, will contain conversion and optional
redemption provisions substantially identical to those of the $3.25 Preferred
Stock.
Holders of the $3.25 Preferred Stock are entitled at any time, subject
to prior redemption or repurchase, to convert any of the $3.25 Preferred Stock
or portions thereof into common stock, at an initial conversion rate of 1.6878
shares of common stock for each share of $3.25 Preferred Stock, subject to
certain adjustments.
On April 15, 1998, we filed a registration statement on Form S-3 to
register the 2,300,000 shares of the $3.25 Preferred Stock, the $115,000,000
Debentures and 3,881,940 shares of common stock, issuable upon conversion of the
$3.25 Preferred Stock or upon conversion of the Debentures, if the Preferred
Stock is exchanged for Debentures. The effective date of such registration
statement was April 29, 1998.
38
<PAGE> 39
ITEM 6. SELECTED FINANCIAL DATA
ALKERMES, INC. AND SUBSIDIARIES
(In thousands, except per share data)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------------------------------------------
1999 1998 1997 1996 1995
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Total revenues $ 43,716 $ 31,367 $ 19,827 $ 15,919 $ 13,903
--------- --------- --------- -------- --------
Research and development expenses 48,457 31,762 29,554 21,586 18,955
--------- --------- --------- -------- --------
Total expenses (1) (2) 84,772 43,949 38,625 29,666 25,807
--------- --------- --------- -------- --------
Net loss (1) (2) $ (41,056) $ (12,582) $ (18,798) $(13,747) $(11,904)
--------- --------- --------- -------- --------
Basic and diluted loss per common share $ (1.98) $ (0.55) $ (1.03) $ (0.93) $ (0.88)
--------- --------- --------- -------- --------
Weighted average number of common shares outstanding 24,558 23,019 18,288 14,775 13,535
--------- --------- --------- -------- --------
</TABLE>
<TABLE>
<CAPTION>
MARCH 31,
-----------------------------------------------------------
1999 1998 1997 1996 1995
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents and short-term investments $ 163,419 $ 194,257 $ 85,297 $ 32,374 $ 21,351
--------- --------- --------- -------- --------
Total assets 213,452 220,977 104,697 45,752 36,708
--------- --------- --------- -------- --------
Long-term obligations 28,417 12,933 10,914 9,876 8,376
--------- --------- --------- -------- --------
Shareholders' equity 156,206 181,455 79,151 23,513 21,163
--------- --------- --------- -------- --------
</TABLE>
(1) Includes noncash compensation charges of $16,239, $2,183, $173, $179 and
$331, respectively.
(2) Includes a $3,221 nonrecurring charge in fiscal 1999 for RingCap and DST
technologies licensed from ALZA Corporation.
39
<PAGE> 40
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
ALKERMES, INC. AND SUBSIDIARIES
INTRODUCTION
Alkermes is developing innovative pharmaceutical products based on
sophisticated drug delivery systems. The Company has several areas of focus: (i)
controlled, sustained release of injectable drugs lasting several days to
several weeks, utilizing its ProLease(R) and Medisorb(R) technologies; (ii) the
delivery of drugs into the brain past the blood-brain barrier, utilizing the
Cereport(TM) technology; (iii) oral delivery of drugs using its RingCap(TM) and
dose sipping technologies ("DST"); and (iv) the development of pharmaceutical
products based on proprietary pulmonary drug delivery technologies utilizing its
Advanced Inhalation Research, Inc. ("AIR") technology. Since its inception in
1987, the Company has devoted substantially all of its resources to its research
and development programs. Alkermes has not received any revenue from the sale of
products. The Company has been unprofitable since inception and expects to incur
substantial additional operating losses over the next few years. At March 31,
1999, the Company had an accumulated deficit of $180.9 million.
The consolidated financial statements give retroactive effect to the
acquisition of AIR on February 1, 1999 (see Note 3 to the Consolidated Financial
Statements), which has been accounted for as a pooling of interests.
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
generally develops 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, Medisorb or AIR product candidates or
clinical trials could be delayed; (ii) product candidates could be
40
<PAGE> 41
ineffective or unsafe during clinical trials; (iii) the Company's collaborators
could elect to terminate or delay development programs; (iv) even if product
candidates appear promising at an early stage of development, product candidates
could fail to receive necessary regulatory approvals, be difficult to
manufacture on a large scale, be uneconomical, fail to achieve market
acceptance, be precluded from commercialization by proprietary rights of third
parties or experience substantial competition in the marketplace; (v) the
Company could incur difficulties or set-backs in obtaining the substantial
additional funding required to continue research and development programs and
clinical trials; (vi) even if clinical trials are completed and the data is
submitted to the Food and Drug Administration ("FDA") as a New Drug Application
("NDA") for marketing approval and to other health authorities as a marketing
authorization application, the NDA or marketing authorization application could
fail to be accepted, or upon acceptance, could fail to receive approval on a
timely basis, if at all; (vii) technological change in the biotechnology or
pharmaceutical industries could render the Company's product candidates obsolete
or noncompetitive; (viii) disputes with collaborators, termination of
collaborations or failure to negotiate acceptable new collaborative arrangements
for ProLease, Medisorb, AIR, RingCap or DST technologies, which are not
generally developed independently, or for Cereport, could occur; (ix) disputes
with Clinical Partners over rights to Cereport and related technology could
occur; and (x) difficulties or set-backs in obtaining and enforcing Alkermes'
patents and difficulties with the patent rights of others could occur.
RESULTS OF OPERATIONS
The Company's research and development revenue under collaborative
arrangements was $33,892,107, $25,585,058 and $15,968,317 for the fiscal years
ended in 1999, 1998 and 1997, respectively. The increase in such revenue for
fiscal 1999 as compared to fiscal 1998 was mainly a result of the increased
funding and milestones earned under collaborative agreements related to the
Company's ProLease technology. The increase in such revenue for fiscal 1998 as
compared to fiscal 1997 was mainly the result of the increased funding and
milestones achieved under new or expanded collaborative agreements related to
the Company's ProLease, Medisorb and Cereport technologies. The Company's
research and development revenue under collaborative arrangement with related
party ended during fiscal 1997. This revenue was received from Clinical Partners
under a product development agreement entered into in March 1992.
Interest and other income was $9,823,479, $5,781,511 and $2,443,317 for
the fiscal years ended in 1999, 1998 and 1997, respectively. The increase in
such revenue for fiscal 1999 as compared to fiscal 1998 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 increase in such
revenue for fiscal 1998 as compared to fiscal 1997 was primarily a result of the
interest income earned on $49.7 million of net proceeds from the sale of
2,000,000 shares of the Company's common stock to ALZA Corporation ("ALZA") in
March 1997.
41
<PAGE> 42
The Company's total operating expenses were $84,771,956 for the fiscal
year ended in 1999 as compared to $43,948,770 and $38,624,765 for the fiscal
years ended in 1998 and 1997, respectively. As part of total operating expenses
in fiscal 1999, the Company recorded a $3.2 million nonrecurring charge in
fiscal 1999 for RingCap and DST technologies licensed from ALZA which are not
yet commercially viable. The total operating expenses for the Company also
included noncash compensation expenses of $16,239,311, $2,183,373 and $173,094
during fiscal years ended 1999, 1998 and 1997, respectively. These noncash
compensation charges primarily relate to equity transactions in the Company's
subsidiary, AIR, with respect to common stock issued and stock options granted
to certain employees, consultants and others.
The Company's research and development expenses were $48,456,824 for
the fiscal year ended in 1999 compared to $31,761,541 and $29,553,988 for the
fiscal years ended in 1998 and 1997, respectively. The increase for fiscal 1999
as compared to fiscal 1998 was mainly the result of expanded clinical and
manufacturing work performed by the Company and the 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. In addition, the Company had an
increase in occupancy costs and depreciation and amortization expense related to
the expansion of its Medisorb manufacturing facility in Wilmington, Ohio and the
construction of its new ProLease manufacturing facility in Cambridge,
Massachusetts (see Liquidity and Capital Resources below). The increase for
fiscal 1998 as compared to fiscal 1997 was mainly as a result of an increase in
salary and related benefits and other costs as the Company advanced its product
candidates through development and clinical trials and prepared for process
development and commercial scale manufacturing.
General and administrative expenses were $14,556,102, $8,374,931 and
$7,516,531 for the fiscal years ended in 1999, 1998 and 1997, respectively. The
increase for fiscal 1999 as compared to fiscal 1998 was mainly the result of an
increase in salary and related benefits and other costs relating primarily to an
increase in the number of employees of the Company, as well as an increase in
professional fees and consulting costs. In addition, the Company recorded
approximately $1.3 million in merger costs as a result of its acquisition of AIR
in February 1999. The increase for fiscal 1998 as compared to fiscal 1997 was
mainly the result of an increase in salary and related benefits and consulting
costs.
The 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
$163.4 million at March 31, 1999 as compared to $194.3 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 dividends on the Company's
Preferred Stock. In addition, Investments include $7 million principal amount of
high grade corporate notes with maturities ranging from 13 to 17 months. The
Company invests in cash equivalents, U.S. Government obligations, high grade
corporate notes and commercial paper. The Company's investment objectives taken
as a whole are, first, to assure conservation of capital and liquidity, and
second, to obtain investment income.
42
<PAGE> 43
During fiscal 1999, the Company amended its loan agreement with a bank
to increase the principal amount of the loan by an aggregate of $20 million 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.
Subsequent to year end, the Company amended its license agreement with
Genentech, Inc. to expand their collaboration for Nutropin Depot(TM), an
injectable sustained release formulation of Genentech's human growth hormone
based on Alkermes' ProLease drug delivery system. The expanded agreement
includes potential milestone payments to the Company of approximately $40
million. The terms of the collaboration included the purchase by Genentech of
$35 million (3,500 shares) of redeemable convertible exchangeable preferred
stock of the Company (the "1999 Preferred Stock"). The 1999 Preferred Stock is
convertible at Genentech's option into shares of common stock during any period
after September 1, 1999 that the closing price of the Company's common stock is
above $45 per share for at least 10 consecutive trading days. The 1999 Preferred
Stock may be redeemed at any time by the Company at a liquidation preference of
$10,000 per share in cash, common stock or non-voting common stock, at the
Company's option. Dividends on the 1999 Preferred Stock are payable quarterly at
a floating three-month LIBOR rate.
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
additional 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 $5.8 million has
been recorded as deferred revenue at March 31, 1999. 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 $24.1 million for the year
ended March 31, 1999, principally reflecting the costs of the expansion of the
Wilmington, Ohio facility and related equipment purchases and the cost of
construction of the new commercial scale ProLease manufacturing facility in
Cambridge, Massachusetts, both of which properties were completed in fiscal
1999. 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.
43
<PAGE> 44
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 believes its current cash and cash equivalents and
short-term investments, combined with anticipated interest income and research
and development revenues under collaborative arrangements, will be sufficient to
meet its anticipated capital requirements through at least March 31, 2001.
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.
As disclosed in Note 2 to the Consolidated Financial Statements, the
Company's adoption of Statement of Financial Accounting Standards ("SFAS") No.
133, "Accounting for Derivative Instruments and Hedging Activities," during
fiscal 2001 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities. The Company has not yet assessed the
impact of SFAS No. 133 on its financial position and results of operations.
YEAR 2000
The Year 2000 problem concerns the application of computer systems
written using six (e.g., 12/31/99) versus eight (e.g., 12/31/1999) digits to
define the applicable date. This could result, among other things, in computer
systems recognizing "00" as the year 1900 rather than the year 2000. Computer
hardware, software and embedded chip equipment are potentially affected, and, if
such systems and components are not remediated satisfactorily, could lead to
operational interruptions and business misinformation.
The Company has identified its mission critical and medium priority
internal systems which will require remediation to provide for the Company's
continuing business operations after January 1, 2000. The remaining systems are
considered to be of low priority because they are judged to have no direct
impact on safety or the business. The Company's Year 2000 Compliance Plan
provides for a four-phase process: inventory, assessment, remediation and
preparation of contingency plans.
44
<PAGE> 45
The initial inventory phase is essentially completed. The assessment
phase is substantially completed, except for information not yet received from
external suppliers, vendors and manufacturers. Progress continues to be made in
the remediation phase of the Company's plan in which systems that are not Year
2000 compliant are repaired, replaced or retired, and remediated systems are
tested and returned to active use. There has been a 50% response rate to the
Company's requests for information sent to vendors and manufacturers of
equipment, hardware and software. Based on the responses received as of June 16,
1999, the Company has confirmed that 4% of its mission critical systems are not
compliant. The Company has requested all suppliers of mission critical equipment
containing embedded chip technology to provide the Company with each supplier's
Year 2000 testing methodology and results and/or the Company has performed
in-house testing on such equipment. For the 4% of noncompliant mission critical
systems, the Company has determined what is required to make the system
compliant and is either in the process of remediation or will begin remediation
soon.
The Company believes its mission critical and medium priority internal
computer systems will be Year 2000 compliant in a timely manner. However, the
Company's computer systems are complex, highly interdependent and there are a
number of risks associated with the complexity and high degree of integration of
the systems. For example, an incorrect classification of the importance of a
system or systems, or the cumulative effect of a number of low priority systems
that have not been remediated, could result in an unpredicted failure or
shutdown in one or more of the Company's business, processing or manufacturing
systems, which could have a material adverse effect on production or cost of
operations. The Company's current belief is that this has a relatively low
probability of occurring. To minimize these risks, the Company is utilizing its
skilled and knowledgeable internal resources and has employed contract personnel
in its decision-making processes and to perform integrated systems testing.
The Company is continuing a process of requesting and assessing
compliance information from its key suppliers, including strategic partners and
organizations with which the Company does business. Certain of these suppliers
may refuse to respond to a readiness survey or request for information. It is
possible that these suppliers may, in fact, be prepared to address Year 2000
concerns, but simply refuse to respond. Conversely, various suppliers may
respond that they are Year 2000 ready, when, in fact, they are not ready. As of
June 16, 1999, approximately 83% of key supplier recipients have responded to
the survey. Approximately 80% of those surveyed have responded that they are or
will be Year 2000 compliant on a timely basis.
If the Year 2000 problem causes suppliers and utility providers to fail
to deliver essential materials and services, multiple disruptions in the
Company's operations, computer infrastructure or telecommunications systems
could result. Because of the inherent uncertainties associated with the Year
2000 problem, including understanding the Year 2000 readiness of these key third
parties, it is not possible to quantify the potential impact at this time.
However, failure of key suppliers, utility providers or the Company to address
properly and timely the Year 2000 problem could have a material adverse effect
on the Company's financial condition, results of operations or liquidity.
Furthermore, there can be no guarantee that any contingency plans developed by
the Company will prevent such failures from having a material adverse effect.
The Company believes that there is a low probability that these multiple
failures are likely to occur.
45
<PAGE> 46
Contingency plans are being formulated by each of the Company's various
departments. The plans are to be completed by September 30, 1999 for each of the
Company's mission critical systems. These plans may be updated or revised during
the remainder of 1999. The Company currently expects total external expenditures
to become Year 2000 compliant to be less than $1 million. In addition, the
Company has dedicated significant internal resources, including staff and
equipment, to Year 2000 projects, but does not track such costs and therefore
cannot provide an estimate of the amount of such internal costs. The Company
will fund Year 2000 expenditures from cash and expects that total remediation
costs, including the reallocation of internal resources, will not have a
material adverse effect on the Company's financial condition, results of
operations or liquidity.
The foregoing information reflects management's best estimates. These
estimates are based upon many assumptions, including: assumptions about cost,
availability and ability of resources to identify and classify systems properly;
properly identifying them as needing remediation; locating, remediating and
modifying affected systems; and making various assessments of Year 2000
readiness of key third parties. Based upon its activities to date, the Company
does not believe that these factors will cause its current cost and timetable
projections to differ significantly from those estimated. However, the Company
cannot reasonably estimate the potential impact on its financial condition,
results of operations or liquidity if critical third parties, including
suppliers and governments, do not become Year 2000 compliant on a timely basis.
46
<PAGE> 47
ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK
Our Investments consist of U.S. Treasuries and other government
securities, commercial paper and corporate notes. Substantially all Investments
mature within one year, are not callable by the issuer and have fixed interest
rates. A 10% decline in the average yield of the Investments would not have a
material effect on our results of operations or cash flows. Our debt instruments
approximate fair value and generally have fixed interest rates. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources."
47
<PAGE> 48
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ALKERMES, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH 31, 1999 AND 1998
AND FOR EACH OF THE THREE YEARS IN THE PERIOD
ENDED MARCH 31, 1999 AND INDEPENDENT AUDITORS' REPORT
48
<PAGE> 49
INDEPENDENT AUDITORS' REPORT
The Board of Directors of Alkermes, Inc.:
We have audited the accompanying consolidated balance sheets of Alkermes, Inc.
and subsidiaries as of March 31, 1999 and 1998, and the related consolidated
statements of operations, comprehensive loss, shareholders' equity, and cash
flows for each of the three years in the period ended March 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. The consolidated financial statements give retroactive effect to the
acquisition of Advanced Inhalation Research, Inc., which has been accounted for
as a pooling of interests as described in Note 3 of notes to the consolidated
financial statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Alkermes, Inc. and subsidiaries as
of March 31, 1999 and 1998, and the results of their operations and their cash
flows for each of the three years in the period ended March 31, 1999, in
conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
May 21, 1999
Boston, Massachusetts
49
<PAGE> 50
ALKERMES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1999 AND 1998
- -------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS 1999 1998
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 9,115,432 $ 3,699,950
Short-term investments 154,303,220 190,556,898
Prepaid expenses and other current assets 5,745,047 8,562,166
------------- -------------
Total current assets 169,163,699 202,819,014
------------- -------------
PROPERTY, PLANT AND EQUIPMENT:
Land 235,000 235,000
Building 3,483,862 1,275,000
Furniture, fixtures and equipment 31,302,274 15,332,236
Leasehold improvements 12,635,756 2,507,973
Construction in progress -- 4,275,985
------------- -------------
47,656,892 23,626,194
Less accumulated depreciation and amortization (14,292,146) (9,620,769)
------------- -------------
33,364,746 14,005,425
------------- -------------
INVESTMENTS 8,436,067 3,422,726
------------- -------------
OTHER ASSETS 2,487,757 730,112
------------- -------------
$ 213,452,269 $ 220,977,277
============= =============
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY 1999 1998
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 6,642,005 $ 7,311,843
Accrued interest 1,570,201 121,933
Deferred revenue 9,587,933 7,478,480
Long-term obligations - current portion 10,700,000 4,604,533
------------- -------------
Total current liabilities 28,500,139 19,516,789
------------- -------------
LONG-TERM OBLIGATIONS 28,416,625 12,933,333
------------- -------------
OTHER LONG-TERM LIABILITIES 329,614 2,072,212
------------- -------------
DEFERRED REVENUE -- 5,000,000
------------- -------------
COMMITMENTS (Note 10)
SHAREHOLDERS' EQUITY:
Capital stock, par value $.01 per share:
authorized, 2,700,000 shares; none issued
Convertible exchangeable preferred stock, par value $.01 per share:
authorized and issued, 2,300,000 shares at March 31, 1999 and 1998
(liquidation preference of $115,000,000) 23,000 23,000
Common stock, par value $.01 per share:
authorized, 40,000,000 shares; issued, 24,982,459
and 24,027,976 shares at March 31, 1999 and 1998, respectively 249,825 240,280
Additional paid-in capital 346,849,432 316,592,909
Deferred compensation (9,932,199) (2,926,484)
Accumulated other comprehensive loss (46,873) (48,138)
Accumulated deficit (180,937,294) (132,426,624)
------------- -------------
Total shareholders' equity 156,205,891 181,454,943
------------- -------------
$ 213,452,269 $ 220,977,277
============= =============
</TABLE>
See notes to consolidated financial statements.
50
<PAGE> 51
ALKERMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
YEARS ENDED MARCH 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
CONSOLIDATED STATEMENTS
OF OPERATIONS:
REVENUES:
Research and development revenue under
collaborative arrangements $ 33,892,107 $ 25,585,058 $ 15,968,317
Research and development revenue under
collaborative arrangement with related party -- -- 1,415,313
Interest and other income 9,823,479 5,781,511 2,443,317
------------ ------------ ------------
Total revenues 43,715,586 31,366,569 19,826,947
------------ ------------ ------------
EXPENSES:
Research and development 48,456,824 31,761,541 29,553,988
General and administrative 14,556,102 8,374,931 7,516,531
Noncash compensation expense 16,239,311 2,183,373 173,094
Interest expense 2,298,466 1,628,925 1,381,152
Purchase of in-process research and development 3,221,253 -- --
------------ ------------ ------------
Total expenses 84,771,956 43,948,770 38,624,765
------------ ------------ ------------
NET LOSS (41,056,370) (12,582,201) (18,797,818)
PREFERRED STOCK DIVIDENDS 7,454,300 -- --
------------ ------------ ------------
NET LOSS ATTRIBUTABLE TO COMMON
SHAREHOLDERS $(48,510,670) $(12,582,201) $(18,797,818)
============ ============ ============
BASIC AND DILUTED LOSS PER COMMON
SHARE $ (1.98) $ (0.55) $ (1.03)
============ ============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 24,557,500 23,018,876 18,288,334
============ ============ ============
CONSOLIDATED STATEMENTS OF
COMPREHENSIVE LOSS:
NET LOSS $(41,056,370) $(12,582,201) $(18,797,818)
Cumulative foreign currency translation adjustments (36,235) 6,231 7,485
Carrying value adjustments (37,500) -- --
Unrealized loss on marketable securities -- (108,750) (431,250)
------------ ------------ ------------
COMPREHENSIVE LOSS $(41,130,105) $(12,684,720) $(19,221,583)
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
51
<PAGE> 52
ALKERMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED MARCH 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RECEIVABLE FOR
CONVERTIBLE EXCHANGEABLE ADDITIONAL WARRANTS AND
PREFERRED STOCK COMMON STOCK PAID-IN DEFERRED
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION
<S> <C> <C> <C> <C> <C> <C>
BALANCE, APRIL 1, 1996 -- $ -- 15,966,942 $159,669 $124,239,023 $ (317,682)
Issuance of common stock, April 1996
through March 1997, net of
issuance costs of $390,705 -- -- 4,751,848 47,519 74,605,168 --
Amortization of receivable for warrants -- -- -- -- -- 34,687
Amortization of noncash compensation -- -- -- -- -- 173,094
Cumulative foreign currency translation
adjustments -- -- -- -- -- --
Unrealized loss on marketable securities -- -- -- -- -- --
Net loss for year -- -- -- -- -- --
---------- ---------- ---------- -------- ------------ -------------
BALANCE, MARCH 31, 1997 -- -- 20,718,790 207,188 198,844,191 (109,901)
Issuance of common stock, April 1997
through March 1998 -- -- 3,309,186 33,092 2,230,210 --
Issuance of convertible exchangeable preferred
stock, March 1998, net of issuance costs
of $441,043 2,300,000 23,000 -- -- 110,510,956 --
Noncash compensation -- -- -- -- 5,007,552 (5,007,552)
Amortization of noncash compensation -- -- -- -- -- 2,190,969
Cumulative foreign currency translation
adjustments -- -- -- -- -- --
Unrealized loss on marketable securities -- -- -- -- -- --
Net loss for year -- -- -- -- -- --
---------- ---------- ---------- -------- ------------ -------------
BALANCE, MARCH 31, 1998 2,300,000 23,000 24,027,976 240,280 316,592,909 (2,926,484)
</TABLE>
<TABLE>
<CAPTION>
OTHER COMPREHENSIVE
INCOME (LOSS)
----------------------------
FOREIGN UNREALIZED
CURRENCY GAIN (LOSS) ON
TRANSLATION MARKETABLE ACCUMULATED
ADJUSTMENTS SECURITIES DEFICIT TOTAL
<S> <C> <C> <C> <C>
BALANCE, APRIL 1, 1996 $(24,354) $ 502,500 $(101,046,605) $ 23,512,551
Issuance of common stock, April 1996
through March 1997, net of
issuance costs of $390,705 -- -- -- 74,652,687
Amortization of receivable for warrants -- -- -- 34,687
Amortization of noncash compensation -- -- -- 173,094
Cumulative foreign currency translation
adjustments 7,485 -- -- 7,485
Unrealized loss on marketable securities -- (431,250) -- (431,250)
Net loss for year -- -- (18,797,818) (18,797,818)
-------- --------- ------------- -------------
BALANCE, MARCH 31, 1997 (16,869) 71,250 (119,844,423) 79,151,436
Issuance of common stock, April 1997
through March 1998 -- -- -- 2,263,302
Issuance of convertible exchangeable preferred
stock, March 1998, net of issuance costs
of $441,043 -- -- -- 110,533,956
Noncash compensation -- -- -- --
Amortization of noncash compensation -- -- -- 2,190,969
Cumulative foreign currency translation
adjustments 6,231 -- -- 6,231
Unrealized loss on marketable securities -- (108,750) -- (108,750)
Net loss for year -- -- (12,582,201) (12,582,201)
-------- --------- ------------- -------------
BALANCE, MARCH 31, 1998 (10,638) (37,500) (132,426,624) 181,454,943
</TABLE>
(Continued)
52
<PAGE> 53
ALKERMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED MARCH 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RECEIVABLE FOR
CONVERTIBLE EXCHANGEABLE ADDITIONAL WARRANTS AND
PREFERRED STOCK COMMON STOCK PAID-IN DEFERRED
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION
<S> <C> <C> <C> <C> <C> <C>
BALANCE, MARCH 31, 1998
(CARRIED FORWARD) 2,300,000 23,000 24,027,976 240,280 316,592,909 (2,926,484)
Issuance of common stock, April 1998 through
March 1999 -- -- 954,483 9,545 7,011,497 --
Noncash compensation -- -- -- -- 23,245,026 (23,245,026)
Amortization of noncash compensation -- -- -- -- -- 16,239,311
Cumulative foreign currency translation
adjustments -- -- -- -- -- --
Carrying value adjustments -- -- -- -- -- --
Net loss for year -- -- -- -- -- --
Preferred stock dividends -- -- -- -- -- --
--------- ------- ---------- -------- ------------ ------------
BALANCE, MARCH 31, 1999 2,300,000 $23,000 24,982,459 $249,825 $346,849,432 $ (9,932,199)
========= ======= ========== ======== ============ ============
</TABLE>
<TABLE>
<CAPTION>
OTHER COMPREHENSIVE
INCOME (LOSS)
------------------------------
FOREIGN UNREALIZED
CURRENCY GAIN (LOSS) ON
TRANSLATION MARKETABLE ACCUMULATED
ADJUSTMENTS SECURITIES DEFICIT TOTAL
<S> <C> <C> <C> <C>
BALANCE, MARCH 31, 1998
(CARRIED FORWARD) (10,638) (37,500) (132,426,624) 181,454,943
Issuance of common stock, April 1998 through
March 1999 -- -- -- 7,021,042
Noncash compensation -- -- -- --
Amortization of noncash compensation -- -- -- 16,239,311
Cumulative foreign currency translation
adjustments (36,235) -- -- (36,235)
Carrying value adjustments -- 37,500 -- 37,500
Net loss for year -- -- (41,056,370) (41,056,370)
Preferred stock dividends -- -- (7,454,300) (7,454,300)
-------- -------- ------------- -------------
BALANCE, MARCH 31, 1999 $(46,873) $ -- $(180,937,294) $ 156,205,891
======== ======== ============= =============
</TABLE>
See notes to consolidated financial statements. (Concluded)
53
<PAGE> 54
ALKERMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(41,056,370) $ (12,582,201) $(18,797,818)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization 5,385,404 2,601,793 2,358,843
Amortization of amounts receivable for warrants and compensation relating
to issuance of common stock and grant of stock options and awards made 16,239,311 2,190,969 207,781
Adjustments to other assets 250,500 60,026 14,502
Gain on sale of equipment (5,375) (567,623) --
Changes in assets and liabilities:
Prepaid expenses and other current assets 2,820,972 (3,992,733) (2,617,365)
Accounts payable and accrued expenses 766,069 2,785,413 1,143,447
Deferred revenue 2,109,453 7,478,480 --
Other long-term liabilities (759,306) 641,380 515,591
------------ ------------- ------------
Net cash used by operating activities (14,249,342) (1,384,496) (17,175,019)
------------ ------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (24,064,521) (8,544,168) (2,243,476)
Disposals of equipment 5,375 1,080,815 --
Maturities (purchases) of short-term investments, net 36,253,678 (108,058,959) (50,568,725)
(Purchases) maturities of long-term investments, net (5,013,341) 1,943,565 (3,993,502)
(Increase) decrease in other assets (2,638,025) (17,320) 10,500
------------ ------------- ------------
Net cash provided by (used by) investing activities 4,543,166 (113,596,067) (56,795,203)
------------ ------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of convertible exchangeable
preferred stock, net -- 110,533,956 --
Proceeds from issuance of common stock, net 7,021,042 2,263,302 74,652,687
Proceeds from issuance of long-term debt 20,000,000 7,000,000 5,000,000
Payment of preferred stock dividends (7,454,300) -- --
Payment of long-term obligations (4,404,648) (3,923,366) (3,338,054)
------------ ------------- ------------
Net cash provided by financing activities 15,162,094 115,873,892 76,314,633
------------ ------------- ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (40,436) 7,609 9,451
------------ ------------- ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 5,415,482 900,938 2,353,862
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 3,699,950 2,799,012 445,150
------------ ------------- ------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 9,115,432 $ 3,699,950 $ 2,799,012
============ ============= ============
SUPPLEMENTARY INFORMATION:
Interest paid $ 2,513,208 $ 915,808 $ 788,102
============ ============= ============
Deferred revenue and accrued interest converted to long-term obligations $ 5,983,292 $ -- $ --
============ ============= ============
</TABLE>
See notes to consolidated financial statements.
54
<PAGE> 55
ALKERMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1999, 1998 AND 1997
1. FORMATION OF THE COMPANY
Alkermes, Inc. (the "Company") was incorporated in July 1987 and is a
leader in the development of products based on sophisticated drug delivery
technologies. The Company has several areas of focus: (i) controlled,
sustained release of injectable drugs lasting several days to several
weeks, utilizing its ProLease(R) and Medisorb(R) technologies; (ii) the
delivery of drugs into the brain past the blood-brain barrier, utilizing
the Cereport(TM) technology; (iii) oral delivery of drugs using its
RingCap(TM) and dose sipping technologies ("DST"); and (iv) the
development of pharmaceutical products based on proprietary pulmonary drug
delivery technologies utilizing its Advanced Inhalation Research, Inc.
("AIR") technology.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION - The consolidated financial statements give
retroactive effect to the acquisition of AIR on February 1, 1999 (see Note
3), which has been accounted for as a pooling of interests.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of Alkermes, Inc. and its wholly owned subsidiaries,
Alkermes Controlled Therapeutics, Inc. ("ACTI"), Alkermes Controlled
Therapeutics Inc. II ("ACT II"), Alkermes Investments, Inc., Alkermes
Development Corporation II ("ADC II"), Alkermes Europe, Ltd. and AIR. ADC
II serves as the one percent general partner of Alkermes Clinical
Partners, L.P. ("Clinical Partners"), a limited partnership engaged in a
research and development project with the Company (see Note 8). ADC II's
investment in Clinical Partners is accounted for under the equity method
of accounting. Such carrying value was zero at March 31, 1999 and 1998
(see Note 8). All significant intercompany balances and transactions have
been eliminated.
USE OF ESTIMATES - The preparation of the Company's consolidated financial
statements in conformity with generally accepted accounting principles
necessarily requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS - Statement of Financial Accounting
Standards ("SFAS") No. 107, "Disclosures About Fair Value of Financial
Instruments," requires disclosure of the fair value of certain financial
instruments. The carrying amounts of cash, cash equivalents, accounts
payable and accrued expenses approximate fair value because of their
short-term nature. Marketable equity securities are recorded in the
consolidated financial statements at fair value. The carrying amounts of
the Company's debt instruments approximate fair value.
55
<PAGE> 56
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET LOSS PER SHARE - Basic and diluted net loss per share are computed
using the weighted average number of common shares outstanding during the
period.
The Company accounts for earnings per share in accordance with the
provisions of SFAS No. 128, "Earnings per Share." Basic earnings per share
exclude any dilutive effect from stock options, warrants and convertible
exchangeable preferred stock. The Company continues to be in a net loss
position and, therefore, diluted earnings per share is the same amount as
basic earnings per share. Stock options and warrants (see Notes 8 and 11)
were not included in the computation of diluted earnings per share because
to do so would have been antidilutive for all periods presented.
RESEARCH AND DEVELOPMENT REVENUES - Research and development revenues are
recorded as services are performed. Revenue earned upon the achievement of
research and development milestones is recorded when achieved.
RESEARCH AND DEVELOPMENT EXPENSES - Research and development expenses are
charged to operations as incurred.
NONCASH COMPENSATION EXPENSE - Noncash compensation expense primarily
relates to equity transactions in the Company's subsidiary, Advanced
Inhalation Research, Inc., and has been recorded at the difference between
fair market value at the measurement date and the issuance price for
common stock issued and stock options granted to certain employees,
consultants and others. In addition, the Company has also recorded noncash
charges for stock options and stock awards granted to certain other
employees, consultants and others for the difference between fair market
value at the measurement date and the issuance price. The measurement date
is generally the issuance date for employees and the vesting date for
consultants. The noncash charge has been recorded in the statements of
operations upon issuance or over the vesting period of the common stock,
stock option or award.
INCOME TAXES - The Company accounts for income taxes under SFAS No. 109,
"Accounting for Income Taxes." SFAS No. 109 requires the recognition of
deferred tax assets and liabilities relating to the expected future tax
consequences of events that have been recognized in the Company's
consolidated financial statements and tax returns (see Note 7).
CASH EQUIVALENTS - Cash equivalents, with purchased maturities of three
months or less, consist of money market accounts, mutual funds and an
overnight repurchase agreement. The repurchase agreement is fully
collateralized by U.S. Government securities.
INVESTMENTS - Debt securities that the Company has the positive intent and
ability to hold to maturity are reported at amortized cost and are
classified as "held-to-maturity."
All Short-Term Investments and Investments consist of U.S. Treasury and
other government securities, commercial paper and corporate notes and are
classified as "held-to-maturity" and reported at amortized cost.
Short-Term Investments have maturity dates within one year of the balance
sheet date. Investments classified as long-term have maturity dates up to
sixteen months from March 31, 1999 and include securities held as
collateral. The carrying value of all Short-Term Investments and
Investments, individually and in the aggregate, approximated market value
at March 31, 1999 and 1998.
56
<PAGE> 57
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are recorded
at cost. Depreciation and amortization are provided using the
straight-line method over the following estimated useful lives of the
assets: buildings - 25 years; furniture, fixtures and equipment - 3 to 7
years; or, in the case of leasehold improvements, over the lease terms - 2
to 10 years.
DEFERRED REVENUE - SHORT-TERM - During fiscal 1998, the Company received a
$10,000,000 upfront payment from ALZA Corporation ("ALZA") to fund
clinical development of Cereport. This amount has been recorded as
deferred revenue and is being amortized based on actual costs incurred for
the clinical development of Cereport. In addition, the Company received
prepayments for research and development costs under other collaborative
research projects which are being amortized over the minimum term of the
agreements using the straight-line method.
DEFERRED REVENUE - LONG-TERM - During fiscal 1996, the Company received a
$5,000,000 prepayment of royalties under a collaborative agreement. This
amount was recorded as deferred revenue at March 31, 1998 and accrued
interest (included in other long-term liabilities) at a rate (6.16875% at
March 31, 1998) equal to 0.20% above the one-year LIBOR rate. During
fiscal 1999, the principal and accrued interest were converted to a note
payable (see Note 6).
PURCHASED PATENTS - Purchased patents, included in other assets, are
amortized on a straight-line basis over a period of five years.
DEFERRED COMPENSATION - Deferred compensation is related to awards under
the Company's 1991 Restricted Common Stock Award Plan, compensatory stock
options and common stock and is amortized over vesting periods ranging
from one to five years.
401(k) PLAN - The Company's 401(k) Retirement Savings Plan (the "401(k)
Plan") covers substantially all of its employees. Eligible employees may
contribute up to 17% of their eligible compensation, subject to certain
Internal Revenue Service limitations. The Company began matching a portion
of employee contributions on April 1, 1998. The match is equal to 50% of
the first 6% of deferrals and is fully vested when made. During fiscal
1999, the Company provided approximately $307,000 to match employee
deferrals under the 401(k) Plan.
RECLASSIFICATIONS - Certain reclassifications have been made in fiscal
1998 and 1997 to conform to the presentation used in fiscal 1999.
COMPREHENSIVE INCOME - The Company adopted SFAS No. 130, "Reporting
Comprehensive Income," 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 did 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 in shareholders' equity, to be included in other
comprehensive income.
57
<PAGE> 58
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SEGMENTS - The Company adopted SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information," on April 1, 1998. Under SFAS
No. 131, the Company's operations are treated as one operating segment
reporting to the chief operating decision-makers of the Company.
Accordingly, the adoption of SFAS No. 131 did not have an effect on the
Company's financial position or results of operations or its footnotes
disclosures.
NEW ACCOUNTING PRONOUNCEMENTS - In June 1998, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," effective for fiscal years beginning
after June 15, 1999. SFAS No. 133 establishes accounting and reporting
standards for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities. It
requires companies to recognize all derivatives as either assets or
liabilities on the balance sheet and to measure those instruments at fair
value. Gains or losses resulting from changes in the values of those
derivatives would be accounted for depending on the use of the derivative
and whether it qualifies for hedge accounting under SFAS No. 133.
Management has not yet assessed the impact of SFAS No. 133 on its
financial position and results of operations.
3. ACQUISITION OF ADVANCED INHALATION RESEARCH, INC. ("AIR")
In February 1999 the Company acquired AIR, a private company focused on
the development of pharmaceutical products based on proprietary pulmonary
drug delivery technologies. The acquisition was accomplished by merging a
newly formed, wholly owned subsidiary of the Company with and into AIR and
has been accounted for as a tax-free pooling of interests. No adjustments
to conform accounting policies of AIR were required. The Company has
recorded merger costs of approximately $1,300,000 which have been charged
to operations primarily in the quarter ended March 31, 1999. Pursuant to
the merger agreement, the Company issued 3,680,508 shares of its common
stock to the stockholders of AIR (see Note 5). An additional 119,474
shares of common stock were reserved for issuance upon the exercise of
unvested stock options granted to employees and consultants of AIR which
were assumed by the Company.
Revenues and net loss of AIR for the periods before the merger were
approximately $40,000 and $2,811,000, respectively, for the period from
May 7, 1997 (date of incorporation) through March 31, 1998 and were
$1,286,000 and $16,033,000, respectively, for the period April 1, 1998 to
February 1, 1999, the date the merger was consummated. For the same
periods, the net loss included noncash compensation charges of
approximately $2,100,000 and $13,115,000, respectively.
4. ALZA AGREEMENT
In April 1998, Alkermes entered into an exclusive license agreement with
ALZA, a pharmaceutical and drug delivery company, for two of ALZA's oral
drug delivery technologies: RingCap and DST. The Company also acquired
equipment to be used in the development of the technologies. A
nonrecurring charge of approximately $3,200,000 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 in-process research
and development.
58
<PAGE> 59
5. SHAREHOLDERS' EQUITY
RESTRICTED STOCK PURCHASE AGREEMENTS/COMMON STOCK - During fiscal 1999,
the Company issued 3,680,508 shares of its common stock in conjunction
with its acquisition of AIR. Of these shares, 2,401,115 shares of common
stock were issued to key employees and consultants of AIR and are subject
to restricted stock purchase agreements. The Company assumed these
restricted stock purchase agreements entered into by AIR. The agreements
state that if the consulting or employment relationship terminates within
four years of issuance, the Company shall have the right, but not the
obligation, to repurchase the nonvested shares from the shareholder at the
share price initially paid by the shareholder. The restricted stock vests
quarterly over a four-year period at different amounts for each
shareholder. At March 31, 1999 and 1998, approximately 1,060,000 and
447,000 shares of restricted stock, respectively, had vested.
In May 1996, the Company completed a direct public offering of 2,300,000
shares of its common stock at $10.00 per share. Net proceeds to the
Company were approximately $22,900,000.
In March 1997, the Company completed a private placement of 2,000,000
shares of its common stock at $25.00 per share. Net proceeds to the
Company were approximately $49,700,000.
PREFERRED STOCK - In March 1998, the Company completed a private placement
of 2,300,000 shares of its convertible exchangeable preferred stock (the
"Preferred Stock") at $50.00 per share. Net proceeds to the Company were
approximately $110,500,000.
The Preferred Stock is convertible at the option of the holder at any
time, unless previously redeemed or exchanged, into the Company's common
stock at an initial conversion rate of 1.6878 shares of common stock for
each share of Preferred Stock. The initial conversion rate is subject to
adjustment in certain events. The Company has reserved 3,881,940 shares of
its common stock for issuance upon conversion.
Dividends on the Preferred Stock will be cumulative from the date of
original issue and have been paid quarterly, commencing June 1, 1998 and
payable each September 1, December 1, March 1 and June 1 thereafter, at
the annual rate of $3.25 per share of Preferred Stock. Prior to March 6,
2001, the Preferred Stock is not redeemable at the option of the Company.
Thereafter the Preferred Stock is redeemable at the option of the Company,
in whole or in part, at declining redemption prices, together with accrued
dividends. If redeemed during the 12-month period beginning March 1
(beginning March 6, 2001 and ending on February 28, 2002, in the case of
the first such period) the per share redemption prices are $52.275 in
2001, $51.950 in 2002, $51.625 in 2003, $51.300 in 2004, $50.975 in 2005,
$50.650 in 2006, $50.325 in 2007 and $50 at March 1, 2008 and thereafter.
The Preferred Stock has a liquidation preference of $50 per share, plus
accrued and unpaid dividends.
The Preferred Stock is exchangeable, in whole but not in part, at the
option of the Company on any dividend payment date beginning March 1, 1999
(the "Exchange Date") for the Company's 6-1/2% Convertible Subordinated
Debentures (the "Debentures") at the rate of $50 principal amount of
Debentures for each share of Preferred Stock. The Debentures, if issued,
will mature on the tenth anniversary of the Exchange Date and will contain
conversion and optional redemption provisions substantially identical to
those of the Preferred Stock.
59
<PAGE> 60
6. LONG-TERM OBLIGATIONS
Long-term obligations at March 31 consist of:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Notes payable to a bank bearing interest at fixed rates
(6.97%-8.58%), payable in monthly or quarterly installments,
maturing in fiscal 2001 through 2004 $28,133,333 $10,533,333
Note payable to a bank bearing interest at a fixed rate
(7.96%), payable in quarterly installments
of $375,000, maturing in fiscal 2000 1,500,000 3,000,000
Note payable to a corporate partner bearing interest at
the prime rate (7.75% at March 31, 1999), maturing in
fiscal 2000 3,500,000 3,500,000
Note payable to a corporate partner bearing interest at 2.5% above
the one-year LIBOR (7.72% at March 31, 1999),
maturing in fiscal 2002 5,983,292 --
Notes payable - stockholders bearing interest at 7%,
payable on demand -- 500,000
Other -- 4,533
----------- -----------
39,116,625 17,537,866
Less current portion 10,700,000 4,604,533
----------- -----------
$28,416,625 $12,933,333
=========== ===========
</TABLE>
The first bank note listed above is secured by a building and real
property pursuant to a mortgage and certain of the Company's equipment
pursuant to security agreements. One tranche of this bank loan totalling
$11,000,000 is payable in seventeen equal quarterly installments of
$275,000 and a balloon payment of $6,325,000 due on September 30, 2003.
The loan is also secured by cash collateral (included in long-term
investments at March 31, 1999) having a minimum market value of the lesser
of $1,000,000 or the outstanding principal amount of the loan. Under the
terms of the loan agreement, the Company is required to maintain a minimum
unencumbered balance of cash and permitted investments and a minimum ratio
of unencumbered cash and net quick assets to total liabilities as well as
a minimum consolidated capital base.
The second bank note listed above requires the Company to maintain a
minimum net worth, a maximum ratio of total liabilities to net worth, a
minimum current ratio and a minimum unencumbered balance of cash and
permitted investments. Upon the breach of any of these financial covenants
or the occurrence of any other event of default under the loan agreement,
the Company would be required to deposit an amount equal to the then
outstanding principal balance of the loan plus three months' interest into
a restricted account at the bank. Under the terms of the loan agreement,
the bank would have the right to liquidate such account and apply the
proceeds to repayment of the loan if the Company's unencumbered cash and
investment balance falls below $5,000,000.
60
<PAGE> 61
6. LONG-TERM OBLIGATIONS (CONTINUED)
In January 1995, the Company borrowed $3,500,000 from a corporate partner.
The principal amount of the loan, together with interest, is payable in
the Company's common stock or cash, at the Company's option.
In October 1998, the Company converted a prepayment of royalties from a
former corporate partner, plus accrued interest, to a promissory note in
the principal amount of $5,983,292 as a result of the discontinuation of a
collaboration. The principal amount of the note, together with interest,
is payable in the Company's common stock or cash, at the Company's option.
At March 31, 1999, the maturities of the long-term obligations are as
follows:
<TABLE>
<CAPTION>
NOTES PAYABLE
AND OTHER
<S> <C>
2000 $10,700,000
2001 5,625,000
2002 10,966,625
2003 4,025,000
2004 7,800,000
-----------
$39,116,625
===========
</TABLE>
7. INCOME TAXES
At March 31, 1999, the Company has approximately $76,995,000 of net
operating loss ("NOL") carryforwards for U.S. federal income tax purposes
and approximately $7,884,000 of research and development tax credits
available to offset future federal income tax, subject to limitations for
alternative minimum tax. The NOL and research and development credit
carryforwards are subject to examination by the tax authorities and expire
in various years from 2002 through 2019.
The components of the net deferred income tax assets at March 31 are as
follows:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Acquired technology $ -- $ 884,000
Capitalized research and development
expenses, net of amortization 11,750,000 13,471,000
NOL carryforwards, federal and state 30,120,000 24,525,000
Tax credit carryforwards 11,220,000 6,961,000
Alkermes Europe NOL carryforward 4,120,000 3,030,000
Other 5,154,000 1,064,000
Less valuation allowance (62,364,000) (49,935,000)
------------ ------------
$ -- $ --
============ ============
</TABLE>
The valuation allowance has been provided because of the uncertainty of
realizing the future benefits of the net deferred income tax assets. The
valuation allowance increased by $4,959,000 from March 31, 1997 to March
31, 1998.
61
<PAGE> 62
7. INCOME TAXES (CONTINUED)
The ACTI NOL and research and development credit carryforwards (included
in the table above) of approximately $4,780,000 and $790,000,
respectively, acquired from Enzytech, Inc. are only available to offset
future taxable income of ACTI.
8. RELATED-PARTY TRANSACTIONS
On April 10, 1992, the Company and Clinical Partners, a limited
partnership of which ADC II is the general partner, sold in a private
placement (i) 920 Class A units, each unit (a "Class A Unit") consisting
of one Class A limited partnership interest in Clinical Partners, a 1992
warrant (a "Class A 1992 Warrant") to purchase 2,800 shares of the
Company's common stock and a 1995 warrant (a "Class A 1995 Warrant") to
purchase 300 shares of the Company's common stock; and (ii) one Class B
unit (the "Class B Unit"), consisting of one Class B limited partnership
interest in Clinical Partners, a 1992 warrant (the "Class B 1992 Warrant")
to purchase 5,600 shares of the Company's common stock and a 1995 warrant
(the "Class B 1995 Warrant") to purchase 600 shares of the Company's
common stock. The purchase price was $50,000 for each Class A Unit and
$100,000 for the Class B Unit.
The Company completed an exchange offer on January 27, 1995 with respect
to the warrants issued in 1992 in connection with the formation of
Clinical Partners. Pursuant to the exchange offer, Class A limited
partners had the option to exchange both their Class A 1992 Warrants and
Class A 1995 Warrants for a new 1994 Class A Warrant to purchase, at $5.00
per share, and during the period beginning on April 1, 1995 and ending on
March 31, 2000, 1,700 shares of the Company's common stock for every 3,100
shares of common stock issuable upon exercise of the Class A 1992 Warrant
and Class A 1995 Warrant exchanged therefor. The Class B limited partner
had the option to exchange both the Class B 1992 and Class B 1995 Warrants
for a new 1994 Class B Warrant to purchase 3,400 shares of the Company's
common stock at $5.00 per share. The 1994 Class B Warrant is exercisable
during the same period as the 1994 Class A Warrants.
The net proceeds of the offering were used primarily to fund the further
development and clinical testing of a family of molecules designated by
the Company as Receptor-Mediated Permeabilizers(TM) ("RMPs"(TM)),
including Cereport, for human pharmaceutical use in the United States and
Canada. Proprietary RMP(TM) molecules developed by the Company may enhance
the passage of small drug molecules from the bloodstream into the brain.
Pursuant to the Product Development Agreement entered into in March 1992,
the Company licensed to Clinical Partners certain of its technology
relating to RMPs. Research and development of RMPs is being conducted by
the Company for Clinical Partners pursuant to the Product Development
Agreement. The Company was reimbursed by Clinical Partners for its actual
costs incurred in conducting such research and development and also
received a management fee of 10% of such costs. Such funding ended during
the quarter ended June 30, 1996. None of the partners of Clinical Partners
is obligated to make any further capital contributions. Since the funding
was not sufficient to complete clinical trials and seek regulatory
approval of Cereport, Alkermes has used its own resources, and intends to
continue to use its own resources, to develop Cereport. Alkermes has
obtained and intends to continue to obtain such resources through equity
offerings, bank borrowings and collaborative arrangements. The Company is
required to fund the development of Cereport to maintain its Purchase
Option, as defined below, with the limited partners.
62
<PAGE> 63
8. RELATED-PARTY TRANSACTIONS (CONTINUED)
Clinical Partners has granted the Company an exclusive interim license to
manufacture and market RMPs for human pharmaceutical use in the United
States and Canada. Upon the first marketing approval of an RMP product by
the United States Food and Drug Administration, the Company is obligated
to make a payment (approximately $8,300,000) to Clinical Partners equal to
20% of the aggregate capital contributions of all partners (the "milestone
payment"). Additionally, the Company will make royalty payments to
Clinical Partners equal to 12% of United States and Canadian revenues and
10% of European revenues, in certain circumstances, from any sales of RMPs
by the Company. The interim license will terminate if the Company does not
exercise the Purchase Option.
The 1992 Warrants, the 1995 Warrants (collectively, the "Class A
Warrants"), the Class B 1992 Warrant and the Class B 1995 Warrant
(collectively, the "Class B Warrants") were issued by the Company in
consideration of the grant by each limited partner to the Company of an
option to purchase (the "Purchase Option"), under certain circumstances,
the limited partnership interests in Clinical Partners held by such
limited partner. Upon exercise of such Purchase Option, each Class A
limited partner will be entitled to receive an initial payment, at the
Company's option, of $40,000 in cash or approximately $42,100 in the
Company's common stock, as well as certain additional payments (which are
subject to certain limitations) based on the Company's net revenues from
sales of RMPs in the United States, Canada and Europe as follows:
- 12% of net revenues to the Company on sales of RMPs in the United
States and Canada and 10% of net revenues to the Company on sales of
RMPs in Europe, until each Class A limited partner has received an
aggregate of $400,000 per interest from the initial payment and the
royalty stream; thereafter,
- 9% of net revenues to the Company on sales of RMPs in the United
States, Canada and Europe, until each Class A limited partner has
received an aggregate of $500,000 per interest from the initial
payment and the royalty stream; and thereafter,
- 4% of net revenues to the Company on sales of RMPs in the United
States, Canada and Europe.
63
<PAGE> 64
8. RELATED-PARTY TRANSACTIONS (CONTINUED)
Royalties on sales of RMPs in Europe will be payable only to the extent
necessary to pay projected distributions in any year. If royalties on
sales of RMPs in the United States and Canada in any year equal or exceed
the projected distributions for such year, no royalties on European sales
will be paid in that year.
At March 31, 1999, warrants to purchase shares of the Company's common
stock were outstanding as follows:
<TABLE>
<CAPTION>
EXERCISE
NUMBER OF COMMON PRICE
SHARES ISSUABLE UPON EXPIRATION WARRANT PER
EXERCISE OF WARRANTS DATE CLASS SHARE
<S> <C> <C> <C>
137,200 July 31, 1999 Class A 1992 Warrants $ 20.03
760,694 March 31, 2000 1994 Class A and B Warrants 5.00
13,950 April 14, 2000 Class A 1995 Warrants 3.54
-------
911,844
=======
</TABLE>
9. RESEARCH AND DEVELOPMENT ARRANGEMENTS
The Company has entered into several collaborative agreements with
corporate partners (the "Partners") to provide research and development
activities relating to the partners' products. In connection with these
agreements, the Company has granted certain licenses or the right to
obtain certain licenses to technology developed by the Company. In return
for such grants, the Company will receive certain payments upon the
achievement of certain milestones and will receive royalties on sales of
products developed under the terms of the agreements. Additionally, the
Company has or may obtain the right to manufacture and supply products
developed under certain of these agreements.
During fiscal 1999, 1998 and 1997, research and development revenue under
collaborative arrangements from Genentech, Inc. ("Genentech") amounted to
33%, 30% and 28%, and Johnson & Johnson amounted to 28%, 36% and 47%,
respectively, of total revenues.
64
<PAGE> 65
10. COMMITMENTS
LEASE COMMITMENTS - The Company leases certain of its offices, research
laboratories and manufacturing facilities under operating leases with
initial terms of two to ten years expiring between 2001 and 2008. Several
of the leases contain provisions for extensions for up to ten years. Total
annual future minimum lease payments are as follows:
<TABLE>
<S> <C>
2000 $ 3,564,000
2001 2,486,000
2002 1,470,000
2003 396,000
2004 322,000
Thereafter 1,339,000
</TABLE>
Rent expense charged to operations was approximately $4,237,000,
$3,618,000 and $3,342,000 for the years ended March 31, 1999, 1998 and
1997, respectively.
Additionally, a U.S. Treasury Bill with a total principal amount of
$250,000 is being held by a bank in the Company's name as a security
deposit on the leases and, accordingly, has been classified as a long-term
investment at March 31, 1999.
LICENSE AND ROYALTY COMMITMENTS - The Company has entered into license
agreements with certain corporations and universities which require the
Company to pay annual license fees and royalties based on a percentage of
revenues from sales of certain products and royalties from sublicenses
granted by the Company. Amounts paid under these agreements were
approximately $127,000, $112,000 and $92,000 for the years ended March 31,
1999, 1998 and 1997, respectively.
11. STOCK OPTIONS AND AWARDS
The Company's Stock Option Plans (the "Plans") include the Amended and
Restated 1989 Non-Qualified Stock Option Plan (the "1989 Plan"), the
Amended and Restated 1990 Omnibus Stock Option Plan, as amended (the "1990
Plan"), the 1992 Non-Qualified Stock Option Plan (the "1992 Plan") and the
1998 Equity Incentive Plan (the "1998 Plan") which provide for the
granting of stock options to employees, officers and directors of, and
consultants to, the Company. In addition, the Stock Option Plan for
Non-Employee Directors (the "Director Plan") provides for the granting of
stock options to nonemployee directors of the Company. Nonqualified
options to purchase up to 225,000 shares of the Company's common stock may
be granted under the 1989 Plan, nonqualified and incentive options to
purchase up to 3,250,000 shares of the Company's common stock may be
granted under the 1990 Plan, nonqualified options to purchase up to
1,000,000 shares of the Company's common stock may be granted under the
1992 Plan, nonqualified and incentive stock options and restricted stock
to purchase up to 591,487 shares may be granted under the 1998 Plan and
nonqualified options to purchase up to 150,000 shares of the Company's
common stock may be granted under the Director Plan. Unless sooner
terminated, the 1989 Plan will terminate on July 18, 1999, the 1990 Plan
will terminate on September 19, 2000, the 1992 Plan will terminate on
November 11, 2002, the 1998 Plan will terminate on April 1, 2008 and the
Director Plan will terminate on March 18, 2006. The Company has reserved a
total of 4,211,033 shares of common stock for options outstanding and
available for future grant under the six plans.
65
<PAGE> 66
11. STOCK OPTIONS AND AWARDS (CONTINUED)
The Compensation Committee of the Board of Directors administers the Plans
and determines who is to receive options and the exercise price and terms
of such options. The Compensation Committee has delegated its authority to
the Compensation Sub-Committee to make grants and awards under the Plans
to "officers." The Board of Directors administers the Director Plan. The
option exercise price of stock options granted under the 1989 Plan, the
1990 Plan, the 1998 Plan and the Director Plan may not be less than 100%
of the fair market value of the common stock on the date of grant. Under
the terms of the 1992 Plan, the option exercise price may be below the
fair market value, but not below par value, of the underlying stock at the
time the option is granted.
The 1989 Plan, the 1990 Plan and the 1992 Plan also provide that the
Compensation Committee may grant Limited Stock Appreciation Rights
("LSARs") with respect to all or any portion of the shares covered by
stock options granted to directors and executive officers. LSARs may be
granted with the grant of a nonqualified stock option or at any time
during the term of such option but may only be granted with the grant of
an incentive stock option. The grant of LSARs will not be effective until
six months after their date of grant. Upon the occurrence of certain
triggering events, including a change of control, the options with respect
to which LSARs have been granted shall become immediately exercisable and
the persons who have received LSARs will automatically receive a cash
payment in lieu of shares. At March 31, 1999, there are 400,750 LSARS
outstanding which have been granted under the 1990 Plan. No LSARS were
granted during fiscal 1999, 1998 and 1997.
The Company has also adopted the 1991 Restricted Common Stock Award Plan
(the "Award Plan"). The Award Plan provides for the award to certain
eligible employees, officers and directors of, and consultants to, the
Company of up to a maximum of 250,000 shares of common stock. The Award
Plan is administered by the Compensation Committee. Awards generally vest
over five years. During fiscal 1999, 1998 and 1997, no shares of common
stock were awarded under the Award Plan and 2,850, 2,400 and 2,400 shares,
respectively, ceased to be subject to forfeiture and were issued. In
addition, 2,000, 1,800 and zero shares were canceled during the years
ended March 31, 1999, 1998 and 1997, respectively. At March 31, 1999, 1998
and 1997 there were 30,400, 35,250 and 35,200 awards outstanding under the
Award Plan, respectively. The Award Plan will terminate on November 15,
2001, unless sooner terminated by the Board of Directors.
The Company has elected to continue to follow Accounting Principles Board
("APB") No. 25 for accounting for its employee stock options. Under APB
No. 25, no compensation expense is recognized with respect to the grant of
any stock options to employees if the exercise price of the Company's
employee stock options equals the fair market price of the underlying
stock on the date the option is granted.
Pro forma information regarding net loss and basic and diluted loss per
common share in fiscal 1999, 1998 and 1997 has been determined as if the
Company had accounted for its employee stock options under the fair value
method prescribed by SFAS No. 123. The resulting effect on pro forma net
loss and basic and diluted loss per common share is not necessarily likely
to be representative of the effects on net loss and basic and diluted loss
per common share on a pro forma basis in future years, due to (i) grants
made prior to fiscal 1996 being excluded from the calculation and (ii) the
uncertainty regarding the magnitude of future grants. The fair value of
options was estimated at the date of grant using the Black-Scholes option
pricing model with the following weighted average assumptions: risk-free
interest rates ranging from 4.79% - 5.68% for fiscal 1999, 5.56% - 5.90%
for fiscal 1998 and 6.60% - 6.84% for fiscal 1997; dividend yields of 0%
in fiscal 1999, 1998 and 1997; volatility factors of the expected market
price of the Company's common stock of 67% in fiscal 1999, 65% in fiscal
1998 and 67% in fiscal 1997; and a weighted average expected life of 4
years in fiscal 1999 and 5 years in fiscal years 1998 and 1997. Using the
Black-Scholes option pricing model, the weighted average fair value of
options granted in fiscal 1999, 1998 and 1997 was $7.90, $10.39 and $8.00,
respectively.
66
<PAGE> 67
11. STOCK OPTIONS AND AWARDS (CONTINUED)
For purposes of pro forma disclosures, the estimated fair value of options
is amortized to pro forma expense over the vesting period of the option.
Pro forma information for the years ended March 31 is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Net loss - as reported $ (48,510,670) $ (12,582,201) $ (18,797,818)
Net loss - pro forma (53,654,009) (15,112,287) (19,971,317)
Basic and diluted loss per common share - as reported (1.98) (0.55) (1.03)
Basic and diluted loss per common share - pro forma (2.18) (0.66) (1.09)
</TABLE>
A summary of option activity under the 1989, 1990, 1992, 1998 and Director
Plans is as follows:
<TABLE>
<CAPTION>
EXERCISE WEIGHTED
NUMBER PRICE AVERAGE
OF PER EXERCISE
SHARES SHARE PRICE
<S> <C> <C> <C>
Balance, April 1, 1996 1,736,004 $0.56 - $14.875 $ 3.78
Granted 449,650 9.31 - 28.75 14.53
Exercised (142,575) 0.56 - 14.875 3.43
Canceled (70,670) 1.00 - 14.88 4.90
--------- --------------- ------
Balance, March 31, 1997 1,972,409 0.56 - 28.75 6.22
Granted 487,800 12.81 - 26.94 17.33
Exercised (183,648) 0.56 - 14.75 5.02
Canceled (153,613) 2.13 - 28.75 13.58
--------- --------------- ------
Balance, March 31, 1998 2,122,948 0.56 - 27.69 8.34
Granted 1,331,967 0.59 - 31.84 14.83
Exercised (68,408) 0.56 - 23.00 4.26
Canceled (74,691) 0.59 - 25.25 18.21
--------- --------------- ------
Balance, March 31, 1999 3,311,816 $0.56 - $31.84 $10.81
========= ================ ======
</TABLE>
Options granted generally vest over four years, except options granted
under the Director Plan which vest after six months.
67
<PAGE> 68
11. STOCK OPTIONS AND AWARDS (CONTINUED)
The following table summarizes information concerning outstanding and
exercisable options at March 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------- ----------------------
WEIGHTED
AVERAGE
REMAINING WEIGHTED WEIGHTED
CONTRACTUAL AVERAGE AVERAGE
RANGE OF NUMBER LIFE EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING (IN YEARS) PRICE EXERCISABLE PRICE
<S> <C> <C> <C> <C> <C>
$ 0.56 - $ 6.50 1,186,589 5.07 $ 3.38 1,111,463 $ 3.29
6.88 - 14.31 1,144,202 8.92 12.19 186,716 12.32
14.44 - 31.84 981,025 8.74 18.19 181,094 16.83
---------------- --------- ----- ------- --------- ------
$ 0.56 - $31.84 3,311,816 7.49 $ 10.81 1,479,273 $ 6.09
================ ========= ===== ======= ========= ======
</TABLE>
12. SUBSEQUENT EVENT
GENENTECH AGREEMENT, 1999 PREFERRED STOCK - In April 1999, the Company
amended its license agreement with Genentech to expand their collaboration
for Nutropin Depot(TM), an injectable sustained release formulation of
Genentech's human growth hormone based on Alkermes' ProLease drug delivery
system. Under the agreement, the companies will conduct expanded
development activities, including clinical trials in an additional
indication, process and formulation development and manufacturing. The
agreement includes potential milestone payments to the Company of
approximately $40 million.
The terms of the collaboration included the purchase by Genentech of $35
million (3,500 shares) of newly issued redeemable convertible exchangeable
preferred stock of the Company (the "1999 Preferred Stock"). The 1999
Preferred Stock is convertible at Genentech's option into shares of common
stock and non-voting common stock during any period after September 1,
1999 that the closing price of the Company's common stock is above $45 per
share for at least 10 consecutive trading days. The Company has the option
to redeem the 1999 Preferred Stock, in whole or in part, at any time at
the redemption price of $10,000 per share plus accrued and unpaid
dividends (the "1999 Redemption Price"). There will be a mandatory
redemption of any outstanding shares of the 1999 Preferred Stock on
January 1, 2009 at the 1999 Redemption Price. The Company has the option
to pay the 1999 Redemption Price in cash, common stock or non-voting
common stock.
The 1999 Preferred Stock will be junior to the Company's outstanding $115
million of convertible exchangeable preferred stock that was issued by the
Company in March 1998. The 1999 Preferred Stock has a liquidation
preference of $10,000 per share, plus accrued and unpaid dividends.
Dividends on the 1999 Preferred Stock are payable quarterly at a floating
three-month LIBOR rate.
* * * * * *
68
<PAGE> 69
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Directors. The information with respect to directors required by
this item is incorporated herein by reference to pages 2, 3, 4, 13, 20 and 21 of
our Proxy Statement for our annual shareholders' meeting to be held on August 6,
1999 (the "1999 Proxy Statement").
(b) Executive Officers. The information with respect to executive
officers required by this item is set forth in Part I of this Report.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by
reference to pages 10 through 19 of the 1999 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated herein by
reference to pages 20 and 21 of the 1999 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated herein by
reference to page 22 of the 1999 Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as part of the Report:
(1) Consolidated Financial Statements of the
Registrant and Independent Auditors' Report
thereon:
Consolidated Balance Sheets, March 31, 1999
and 1998.
Consolidated Statements of Operations and
Comprehensive Loss for the Years Ended March
31, 1999, 1998 and 1997.
69
<PAGE> 70
Consolidated Statements of Shareholders'
Equity for the Years Ended March 31, 1999,
1998 and 1997.
Consolidated Statements of Cash Flows for
the Years Ended March 31, 1999, 1998 and
1997.
Notes to Consolidated Financial Statements.
(2) Financial Statement Schedules:
Schedules have been omitted because of the
absence of conditions under which they are
required or because the required information
is included in the financial statements or
the notes thereto.
(3) Exhibits
Exhibit No.
3.1(a) Second Amended and Restated Articles of Incorporation of
Alkermes, Inc. effective July 23, 1991. (Incorporated by
reference to Exhibit 4.1(a) to the Registrant's Report on Form
10-Q for the quarter ended June 30, 1991.)
3.1(b) Statement of Change of Registered Office of Alkermes, Inc.
effective July 23, 1991. (Incorporated by reference to Exhibit
4.1(b) to the Registrant's Report on Form 10-Q for the quarter
ended June 30, 1991.)
3.1(c) Amendment to Second Amended and Restated Articles of
Incorporation, as filed with the Pennsylvania Secretary of
State on November 1, 1991. (Incorporated by reference to
Exhibit 4.1(c) to the Registrant's Report on Form 10-Q for the
quarter ended September 30, 1991.)
3.1(d) Amendment to the Second Amended and Restated Articles of
Incorporation, as amended, as filed with the Pennsylvania
Secretary of State on February 12, 1993. (Incorporated by
reference to Exhibit 4.1(d) to the Registrant's Report on Form
10-Q for the quarter ended December 31, 1992.)
3.1(e) Amendment to the Second Amended and Restated Articles of
Incorporation, as filed with the Pennsylvania Secretary of
State on February 26, 1998. (Incorporated by reference to
Exhibit 4.6 to the Registrant's Registration Statement on Form
S-3, as amended (File No. 333-50157).)
3.1(f) Amendment to Second Amended and Restated Articles of
Incorporation, as filed with the Pennsylvania Secretary of
State on April 12, 1999 (1999 Preferred Stock Terms).
70
<PAGE> 71
3.1(g) Amendment to Second Amended and Restated Articles of
Incorporation, as filed with the Pennsylvania Secretary of
State on April 12, 1999 (Non-Voting Common Stock Terms).
3.2 Amended and Restated By-Laws of Alkermes, Inc., effective as
of June 2, 1999.
4.1 Specimen of Common Stock Certificate of Alkermes, Inc.
(Incorporated by reference to Exhibit 4 to the Registrant's
Registration Statement on Form S-1, as amended (File No.
33-40250).)
4.2 Specimen of Preferred Stock Certificate of Alkermes, Inc.
(Incorporated by reference to Exhibit 4.1 to the Registrant's
Registration Statement on Form S-3, as amended (File No.
333-50157).)
4.3 Specimen of 1999 Preferred Stock Certificate of Alkermes, Inc.
4.4 Specimen of Non-Voting Common Stock Certificate of Alkermes,
Inc.
4.5 Form of 1992 Warrant to purchase 2,800 shares of the
Registrant's Common Stock. (Incorporated by reference to
Exhibit 4.2 to the Registrant's Report on Form 10-K for the
fiscal year ended March 31, 1992.)
4.6 Form of 1995 Warrant to purchase 300 shares of the
Registrant's Common Stock. (Incorporated by reference to
Exhibit 4.3 to the Registrant's Report on Form 10-K for the
fiscal year ended March 31, 1992.)
4.7 Form of Global Warrant Certificate for 1994 Class A Warrants.
(Incorporated by reference to Exhibit 4.6 to the Registrant's
Report on Form 10-Q for the quarter ended December 31, 1994.)
4.8 Form of Global Warrant Certificate for 1994 Class B Warrants.
(Incorporated by reference to Exhibit 4.7 to the Registrant's
Report on Form 10-Q for the quarter ended December 31, 1994.)
4.9 Form of Global Warrant Certificate for 1994 Affiliate
Warrants. (Incorporated by referenced to Exhibit 4.8 to the
Registrant's Report on Form 10-Q for the quarter ended
December 31, 1994.)
4.10 Form of Global Warrant Certificate for 1994 Incentive
Warrants. (Incorporated by reference to Exhibit 4.9 to the
Registrant's Report on Form 10-Q for the quarter ended
December 31, 1994.)
4.11 Warrant Agreement, dated as of November 18, 1994, by and
between the Registrant and The First National Bank of Boston.
(Incorporated by reference to Exhibit 4.10 to the Registrant's
Report on Form 10-Q for the quarter ended December 31, 1994.)
71
<PAGE> 72
4.12 Indenture, dated as of March 1, 1998, between Alkermes, Inc.
and State Street Bank and Trust Company, as Trustee.
(Incorporated by reference to Exhibit 4.7 to the Registrant's
Registration Statement on Form S-3, as amended (File No.
333-50157).)
10.1 Amended and Restated 1989 Non-Qualified Stock Option Plan, as
amended. (Incorporated by reference to Exhibit 4.2(c) to the
Registrant's Registration Statement on Form S-8 (File No.
33-44752).)+
10.2 Amended and Restated 1990 Omnibus Stock Option Plan, as
amended. (Incorporated by reference to Exhibit 10.2 to the
Registrant's Report on Form 10-K for the fiscal year ended
March 31, 1998.)+
10.3 1991 Restricted Common Stock Award Plan. (Incorporated by
reference to Exhibit 4.2(a) to the Registrant's Registration
Statement on Form S-8 (File No. 33-58330).)+
10.4 1992 Non-Qualified Stock Option Plan. (Incorporated by
reference to Exhibit 10.26 to the Registrant's Registration
Statement on Form S-4, as amended (File No. 33-54932).)+
10.5 Stock Option Plan for Non-Employee Directors. (Incorporated by
reference to Exhibit 10.5 to the Registrant's Report on Form
10-K for the fiscal year ended March 31, 1996.)+
10.6 Alkermes, Inc. 1998 Equity Incentive Plan.+
10.7 1999 Stock Option Plan.+
10.8 Lease, dated as of September 18, 1991, between Forest City 64
Sidney Street, Inc. and the Registrant. (Incorporated by
reference to Exhibit 10.19 to the Registrant's Report on Form
10-K for the fiscal year ended March 31, 1992.)
10.8(a) First Amendment of Lease, dated September 18, 1992, between
Forest City 64 Sidney Street, Inc. and the Registrant.
(Incorporated by reference to Exhibit 10.24 to the
Registrant's Registration Statement on Form S-4, as amended
(File No. 33-54932).)
10.9 Lease, dated as of March 16, 1990, between Forest City 64
Sidney Street, Inc. and Enzytech, Inc. (Incorporated by
reference to Exhibit 10.25 to the Registrant's Registration
Statement on Form S-4, as amended (File No. 33-54932).)
10.10 Lease, dated July 26, 1993, between the Massachusetts
Institute of Technology and Alkermes, Inc. (Incorporated by
reference to Exhibit 10.8 to the Registrant's Report on Form
10-K for the fiscal year ended March 31, 1997.)
10.10(a) First Amendment of Lease, dated June 9, 1997, between the
Massachusetts Institute of Technology and Alkermes, Inc.
(Incorporated by reference to Exhibit 10.8(a) to the
Registrant's Report on Form 10-K for the fiscal year ended
March 31, 1997.)
72
<PAGE> 73
10.11 Product Development Agreement, dated as of March 6, 1992,
between the Partnership and the Registrant. (Incorporated by
reference to Exhibit 10.21 to the Registrant's Report on Form
10-K for the fiscal year ended March 31, 1992.)
10.12 Purchase Agreement, dated as of March 6, 1992, by and among
the Registrant and each of the Limited Partners, from time to
time, of the Partnership. (Incorporated by reference to
Exhibit 10.22 to the Registrant's Report on Form 10-K for the
fiscal year ended March 31, 1992.)
10.13 Alkermes Clinical Partners, L.P. Agreement of Limited
Partnership, dated as of February 7, 1992. (Incorporated by
reference to Exhibit 10.23 to the Registrant's Report on Form
10-K for the fiscal year ended March 31, 1992.)
10.13(a) Amendment No. 1 to Alkermes Clinical Partners, L.P. Agreement
of Limited Partnership, dated as of September 29, 1992.
(Incorporated by reference to Exhibit 10.22(a) to the
Registrant's Registration Statement on Form S-4, as amended
(File No. 33-54932).)
10.13(b) Amendment No. 2 to Alkermes Clinical Partners, L.P. Agreement
of Limited Partnership, dated as of March 30, 1993.
(Incorporated by reference to Exhibit 10.22(b) to the
Registrant's Registration Statement on Form S-3, as amended
(File No. 33-64964).)
10.14 Class A Note of Alkermes Development Corporation II, dated
April 10, 1992, to PaineWebber Development Corporation in the
amount of $100.00. (Incorporated by reference to Exhibit 10.24
to the Registrant's Report on Form 10-K for the fiscal year
ended March 31, 1992.)
10.15 License Agreement, dated February 5, 1990, between Enzytech,
Inc. and Massachusetts Institute of Technology. (Incorporated
by reference to Exhibit 10.36 to the Registrant's Registration
Statement on Form S-4, as amended (File No. 33-54932).)*
10.16 Note Purchase Agreement, dated as of January 9, 1995, by and
between the Registrant and Genentech, Inc. (Incorporated by
reference to Exhibit 10.28 to the Registrant's Report on Form
10-Q for the quarter ended December 31, 1994.)
10.17 Convertible Promissory Note of the Registrant dated January
31, 1995. (Incorporated by reference to Exhibit 10.28 to the
Registrant's Report on Form 10-Q for the quarter ended
December 31, 1994.)
10.18 License Agreement, dated as of April 14, 1999, by and between
Genentech, Inc. and Alkermes Controlled Therapeutics, Inc.
(Diamond)
10.19 Discontinuation Agreement, dated as of April 14, 1999, by and
between the Registrant and Genentech, Inc. (Diamond)
73
<PAGE> 74
10.20 Development Agreement, dated as of December 23, 1993, between
Medisorb Technologies International L.P. and Janssen
Pharmaceutica International. (Incorporated by reference to
Exhibit 10.18 to the Registrant's Report on Form 10-K for the
fiscal year ended March 31, 1996.)(Cross)
10.20(a) First Amendment to Development Agreement, dated as of December
23, 1993, between Medisorb Technologies International L.P. and
Janssen Pharmaceutica International. (Incorporated by
reference to Exhibit 10.18(a) to the Registrant's Report on
Form 10-K for the fiscal year ended March 31, 1996.)(Cross)
10.20(b) Second Amendment to the Development Agreement, dated April 28,
1997, by and between Alkermes Controlled Therapeutics Inc. II,
Janssen Pharmaceutica International and Janssen Pharmaceutica
Inc. (Incorporated by reference to Exhibit 10.22(b) to the
Registrant's Report on Form 10-K for the fiscal year ended
March 31, 1997.)
10.21 License Agreement, dated as of February 13, 1996, between
Medisorb Technologies International L.P. and Janssen
Pharmaceutica International (United States). (Incorporated by
reference to Exhibit 10.19 to the Registrant's Report on Form
10-K for the fiscal year ended March 31, 1996.)(Cross)
10.22 License Agreement, dated as of February 21, 1996, between
Medisorb Technologies International L.P. and Janssen
Pharmaceutica International (worldwide except United States).
(Incorporated by reference to Exhibit 10.20 to the
Registrant's Report on Form 10-K for the fiscal year ended
March 31, 1996.)(Cross)
10.23 Development and License Agreement, dated as of January 19,
1998, between The R.W. Johnson Pharmaceutical Research
Institute, a division of Ortho Pharmaceutical Corporation,
Alkermes, Inc. and Alkermes Controlled Therapeutics, Inc.
(Incorporated by reference to Exhibit 10.25 to the
Registrant's Report on Form 10-K for the fiscal year ended
March 31, 1998.) +++
10.24 Supply and License Agreement dated as of January 19, 1998,
between The R.W. Johnson Pharmaceutical Research Institute, a
division of Ortho Pharmaceutical Corporation, Janssen
Pharmaceutica International, a division of Cilag AG
International, Alkermes, Inc. and Alkermes Controlled
Therapeutics, Inc. (Incorporated by reference to Exhibit 10.26
of the Registrant's Report on Form 10-K for the fiscal year
ended March 31, 1998.)+++
10.25 Patent License Agreement, dated as of August 11, 1997, between
Massachusetts Institute of Technology and Advanced Inhalation
Research, Inc., as amended. (Diamond)
10.26 Loan Agreement, dated December 30, 1993, among the Registrant,
Alkermes Investments, Inc. and The Daiwa Bank, Limited.
(Incorporated by reference to Exhibit 10.33 to the
Registrant's Report on Form 10-Q for the quarter ended
December 31, 1993.)
74
<PAGE> 75
10.26(a) Amendment No. 1 to Loan Agreement, dated as of December 31,
1994, among the Registrant, Alkermes Investments, Inc. and The
Daiwa Bank, Limited. (Incorporated by reference to Exhibit
10.21(a) to the Registrant's Report on Form 10-K for the
fiscal year ended March 31, 1996.)
10.26(b) Amendment to Loan Agreement, dated as of December 29, 1995, by
and among Registrant, Alkermes Investments, Inc. and The Daiwa
Bank, Limited (Incorporated by reference to Exhibit 10.3 to
the Registrant's Report on Form 10-Q for the quarter ended
December 31, 1995.)
10.26(c) Omnibus Amendment to Loan Documents, dated as of July 26,
1996, among the Registrant, Alkermes Investments, Inc. and The
Sumitomo Bank, Limited (as assignee of The Daiwa Bank,
Limited). (Incorporated by reference to Exhibit 10.4 to the
Registrant's Report on Form 10-Q for the quarter ended
December 31, 1996.)
10.27 Second Amended and Restated Note, dated July 26, 1996, by
Registrant and Alkermes Investments, Inc. to The Sumitomo
Bank, Limited. (Incorporated by reference to Exhibit 10.5 to
the Registrant's Report on Form 10-Q for the quarter ended
December 31, 1996.)
10.28 Letter Agreement, dated September 27, 1996, by and among Fleet
National Bank, Alkermes Controlled Therapeutics, Inc.,
Alkermes Controlled Therapeutic Inc. II and the Registrant.
(Incorporated by reference to Exhibit 10.3 to the Registrant's
Report on Form 10-Q for the quarter ended September 30,
1996.)++
10.28(a) Loan Supplement and Modification Agreement, dated as of June
2, 1997, by and among Fleet National Bank, Alkermes Controlled
Therapeutics, Inc., Alkermes Controlled Therapeutics Inc. II
and the Registrant. (Incorporated by reference to Exhibit
10.27(a) to the Registrant's Report on Form 10-K for the
fiscal year ended March 31, 1997.)
10.28(b) Second Loan Supplement and Modification Agreement, dated as of
March 19, 1998, by and among Fleet National Bank, Alkermes
Controlled Therapeutics, Inc., Alkermes Controlled
Therapeutics Inc. II and the Registrant. (Incorporated by
reference to Exhibit 10.29(b) to the Registrant's Report on
Form 10-K for the fiscal year ended March 31, 1998.)
10.28(c) 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 Registrant. (Incorporated by
reference to Exhibit 10.1 to the Registrant's Report on Form
10-Q for the quarter ended September 30, 1998.)
10.29 Security Agreement, dated as of September 27, 1996, from the
Registrant, Alkermes Controlled Therapeutics, Inc. and
Alkermes Controlled Therapeutic Inc. II to Fleet National
Bank. (Incorporated by reference to Exhibit 10.4 to the
Registrant's Report on Form 10-Q for the quarter ended
September 30, 1996.)
75
<PAGE> 76
10.30 Pledge Agreement, dated as of September 27, 1996, from the
Registrant to Fleet National Bank. (Incorporated by reference
to Exhibit 10.5 to the Registrant's Report on Form 10-Q for
the quarter ended September 30, 1996.)
10.31 Mortgage and Security Agreement, dated as of September 27,
1996, from Alkermes Controlled Therapeutics Inc. II to Fleet
National Bank. (Incorporated by reference to Exhibit 10.6 to
the Registrant's Report on Form 10-Q for the quarter ended
September 30, 1996.)
10.32 Environmental Indemnity Agreement, dated as of September 27,
1996, from the Registrant and Alkermes Controlled Therapeutics
Inc. II to Fleet National Bank. (Incorporated by reference to
Exhibit 10.7 to the Registrant's Report on Form 10-Q for the
quarter ended September 30, 1996.)
10.33 Promissory Note of the Registrant, dated December 23, 1994, to
Fleet Bank of Massachusetts, N.A. (Incorporated by reference
to Exhibit 10.20 to the Registrant's Report on Form 10-Q for
the quarter ended December 31, 1994.)
10.33(a) Allonge to Promissory Note, dated as of September 27, 1996,
executed by Fleet National Bank, Alkermes Controlled
Therapeutics, Inc. and the Registrant. (Incorporated by
reference to Exhibit 10.1 to the Registrant's Report on Form
10-Q for the quarter ended September 30, 1996.)
10.34 Promissory Note, dated December 19, 1995, by Registrant to
Fleet Bank of Massachusetts, N.A. (Incorporated by reference
to Exhibit 10.2 to the Registrant's Report on Form 10-Q for
the quarter ended December 31, 1995.)
10.34(a) Allonge to Promissory Note, dated as of September 27, 1996,
executed by Fleet National Bank, Alkermes Controlled
Therapeutics, Inc. and the Registrant. (Incorporated by
reference to Exhibit 10.2 to the Registrant's Report on Form
10-Q for the quarter ended September 30, 1996.)
10.35 Promissory Note, dated September 27, 1996, from the Registrant
and Alkermes Controlled Therapeutics Inc. II to Fleet National
Bank. (Incorporated by reference to Exhibit 10.8 to the
Registrant's Report on Form 10-Q for the quarter ended
September 30, 1996.)
10.36 Promissory Note, dated June 2, 1997, from the Registrant,
Alkermes Controlled Therapeutics, Inc. and Alkermes Controlled
Therapeutics Inc. II to Fleet National Bank. (Incorporated by
reference to Exhibit 10.35 to the Registrant's Report on Form
10-K for the fiscal year ended March 31, 1997.)
10.37 Promissory Note, dated March 19, 1998, from the Registrant,
Alkermes Controlled Therapeutics, Inc. and Alkermes Controlled
Therapeutics Inc. II to Fleet National Bank. (Incorporated by
reference to Exhibits 10.38 to the Registrant's Report on Form
10-K for the fiscal year ended March 31, 1998.)
76
<PAGE> 77
10.38 Promissory Note, dated September 24, 1998, from the
Registrant, Alkermes Controlled Therapeutics, Inc. and
Alkermes Controlled Therapeutics Inc. II to Fleet National
Bank ($11,000,000). (Incorporated by reference to Exhibit 10.2
to the Registrant's Report on Form 10-Q for the quarter ended
September 30, 1998.)
10.39 Promissory Note, dated September 24, 1998, from the
Registrant, Alkermes Controlled Therapeutics, Inc. and
Alkermes Controlled Therapeutics Inc. II to Fleet National
Bank ($9,000,000). (Incorporated by reference to Exhibit 10.3
to the Registrant's Report on Form 10-Q for the quarter ended
September 30, 1998.)
10.40 Employment Agreement, entered into as of February 7, 1991,
between Richard F. Pops and the Registrant. (Incorporated by
reference to Exhibit 10.12 to the Registrant's Registration
Statement on Form S-1, as amended (File No. 33-40250).)+
10.41 Employment Agreement, entered into as of June 13, 1994, by and
between Robert A. Breyer and the Registrant. (Incorporated by
reference to Exhibit 10.28 to the Registrant's Report on Form
10-K for the fiscal year ended March 31, 1994.)+
10.42 Incentive Loan Program.+
21 Subsidiaries of the Registrant.
23 Consent of Deloitte & Touche LLP.
27 Financial Data Schedule.
* Confidential status has been granted for certain provisions thereof
pursuant to a Commission Order granted January 8, 1993. Such provisions
have been filed separately with the Commission.
(Cross) Confidential status has been granted for certain portions thereof
pursuant to a Commission Order granted September 3, 1996. Such
provisions have been filed separately with the Commission.
++ Confidential status has been granted for certain portions thereof
pursuant to a Commission Order granted April 17, 1997. Such provisions
have been filed separately with the Commission.
77
<PAGE> 78
+++ Confidential status has been granted for certain portions thereof
pursuant to a Commission Order granted August 7, 1998. Such provisions
have been filed separately with the Commission.
(Diamond) Confidential status has been requested for certain portions
thereof pursuant to a Confidential Treatment Request filed
June 29, 1999. Such provisions have been filed separately
with the Commission.
+ Constitutes a management contract or compensatory plan required to be
filed as an Exhibit to this Report pursuant to Item 14(c) of Form
10-K.
(b) Since the beginning of the quarter ended March 31,
1999, the Registrant filed a report on Form 8-K,
dated February 1, 1999, amended by Forms 8-K/A filed
on April 19, 1999 and May 12, 1999, and reports on
Form 8-K, dated April 7, 1999 and April 15, 1999.
78
<PAGE> 79
UNDERTAKING
For the purposes of complying with the amendments to the rules
governing Form S-8 (effective July 13, 1990) under the Securities Act of 1933,
the undersigned Registrant hereby undertakes as follows, which undertaking shall
be incorporated by reference into Registrant's Registration Statements on Form
S-8, Nos. 33-44752, 33-58330, 33-97468, 333-13283, 333-50357 and 333-71011 and
on Form S-3, Nos. 333-75645, 333-75649, 333-50157, 333-19955 and 33-90736.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
79
<PAGE> 80
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ALKERMES, INC.
June 29, 1999 By: /s/ Richard F. Pops
--------------------------------
Richard F. Pops
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Michael A. Wall Director and Chairman of the June 29, 1999
- ------------------------- Board
Michael A. Wall
/s/ Richard F. Pops Director and Chief Executive Officer June 29, 1999
- ------------------------- (Principal Executive Officer)
Richard F. Pops
/s/ James M. Frates Vice President, Chief June 29, 1999
- ------------------------- Financial Officer and
James M. Frates Treasurer (Principal
Financial and Accounting
Officer)
/s/ Floyd E. Bloom Director June 29, 1999
- -------------------------
Floyd E. Bloom
/s/ Robert A. Breyer President and Chief Operating June 29, 1999
- ------------------------- Officer and Director
Robert A. Breyer
/s/ John K. Clarke Director June 29, 1999
- -------------------------
John K. Clarke
</TABLE>
80
<PAGE> 81
<TABLE>
<S> <C> <C>
/s/ Alexander Rich Director June 29, 1999
- -------------------------
Alexander Rich
/s/ Paul Schimmel Director June 29, 1999
- -------------------------
Paul Schimmel
</TABLE>
81
<PAGE> 82
EXHIBIT INDEX
3.1(a) Second Amended and Restated Articles of Incorporation of
Alkermes, Inc. effective July 23, 1991. (Incorporated by
reference to Exhibit 4.1(a) to the Registrant's Report on Form
10-Q for the quarter ended June 30, 1991.)
3.1(b) Statement of Change of Registered Office of Alkermes, Inc.
effective July 23, 1991. (Incorporated by reference to Exhibit
4.1(b) to the Registrant's Report on Form 10-Q for the quarter
ended June 30, 1991.)
3.1(c) Amendment to Second Amended and Restated Articles of
Incorporation, as filed with the Pennsylvania Secretary of
State on November 1, 1991. (Incorporated by reference to
Exhibit 4.1(c) to the Registrant's Report on Form 10-Q for the
quarter ended September 30, 1991.)
3.1(d) Amendment to the Second Amended and Restated Articles of
Incorporation, as amended, as filed with the Pennsylvania
Secretary of State on February 12, 1993. (Incorporated by
reference to Exhibit 4.1(d) to the Registrant's Report on Form
10-Q for the quarter ended December 31, 1992.)
3.1(e) Amendment to the Second Amended and Restated Articles of
Incorporation, as filed with the Pennsylvania Secretary of
State on February 26, 1998. (Incorporated by reference to
Exhibit 4.6 to the Registrant's Registration Statement on Form
S-3, as amended (File No. 333-50157).)
3.1(f) Amendment to Second Amended and Restated Articles of
Incorporation, as filed with the Pennsylvania Secretary of
State on April 12, 1999 (1999 Preferred Stock Terms).
3.1(g) Amendment to Second Amended and Restated Articles of
Incorporation, as filed with the Pennsylvania Secretary of
State on April 12, 1999 (Non-Voting Common Stock Terms).
3.2 Amended and Restated By-Laws of Alkermes, Inc., effective as
of June 2, 1999.
4.1 Specimen of Common Stock Certificate of Alkermes, Inc.
(Incorporated by reference to Exhibit 4 to the Registrant's
Registration Statement on Form S-1, as amended (File No.
33-40250).)
4.2 Specimen of Preferred Stock Certificate of Alkermes, Inc.
(Incorporated by reference to Exhibit 4.1 to the Registrant's
Registration Statement on Form S-3, as amended (File No.
333-50157).)
4.3 Specimen of 1999 Preferred Stock Certificate of Alkermes, Inc.
4.4 Specimen of Non-Voting Common Stock Certificate of Alkermes,
Inc.
82
<PAGE> 83
4.5 Form of 1992 Warrant to purchase 2,800 shares of the
Registrant's Common Stock. (Incorporated by reference to
Exhibit 4.2 to the Registrant's Report on Form 10-K for the
fiscal year ended March 31, 1992.)
4.6 Form of 1995 Warrant to purchase 300 shares of the
Registrant's Common Stock. (Incorporated by reference to
Exhibit 4.3 to the Registrant's Report on Form 10-K for the
fiscal year ended March 31, 1992.)
4.7 Form of Global Warrant Certificate for 1994 Class A Warrants.
(Incorporated by reference to Exhibit 4.6 to the Registrant's
Report on Form 10-Q for the quarter ended December 31, 1994.)
4.8 Form of Global Warrant Certificate for 1994 Class B Warrants.
(Incorporated by reference to Exhibit 4.7 to the Registrant's
Report on Form 10-Q for the quarter ended December 31, 1994.)
4.9 Form of Global Warrant Certificate for 1994 Affiliate
Warrants. (Incorporated by referenced to Exhibit 4.8 to the
Registrant's Report on Form 10-Q for the quarter ended
December 31, 1994.)
4.10 Form of Global Warrant Certificate for 1994 Incentive
Warrants. (Incorporated by reference to Exhibit 4.9 to the
Registrant's Report on Form 10-Q for the quarter ended
December 31, 1994.)
4.11 Warrant Agreement, dated as of November 18, 1994, by and
between the Registrant and The First National Bank of Boston.
(Incorporated by reference to Exhibit 4.10 to the Registrant's
Report on Form 10-Q for the quarter ended December 31, 1994.)
4.12 Indenture, dated as of March 1, 1998, between Alkermes, Inc.
and State Street Bank and Trust Company, as Trustee.
(Incorporated by reference to Exhibit 4.7 to the Registrant's
Registration Statement on Form S-3, as amended (File No.
333-50157).)
10.1 Amended and Restated 1989 Non-Qualified Stock Option Plan, as
amended. (Incorporated by reference to Exhibit 4.2(c) to the
Registrant's Registration Statement on Form S-8 (File No.
33-44752).)+
10.2 Amended and Restated 1990 Omnibus Stock Option Plan, as
amended. (Incorporated by reference to Exhibit 10.2 to the
Registrant's Report on Form 10-K for the fiscal year ended
March 31, 1998.)+
10.3 1991 Restricted Common Stock Award Plan. (Incorporated by
reference to Exhibit 4.2(a) to the Registrant's Registration
Statement on Form S-8 (File No. 33-58330).)+
10.4 1992 Non-Qualified Stock Option Plan. (Incorporated by
reference to Exhibit 10.26 to the Registrant's Registration
Statement on Form S-4, as amended (File No. 33-54932).)+
83
<PAGE> 84
10.5 Stock Option Plan for Non-Employee Directors. (Incorporated by
reference to Exhibit 10.5 to the Registrant's Report on Form
10-K for the fiscal year ended March 31, 1996.)+
10.6 Alkermes, Inc. 1998 Equity Incentive Plan.+
10.7 1999 Stock Option Plan.+
10.8 Lease, dated as of September 18, 1991, between Forest City 64
Sidney Street, Inc. and the Registrant. (Incorporated by
reference to Exhibit 10.19 to the Registrant's Report on Form
10-K for the fiscal year ended March 31, 1992.)
10.8(a) First Amendment of Lease, dated September 18, 1992, between
Forest City 64 Sidney Street, Inc. and the Registrant.
(Incorporated by reference to Exhibit 10.24 to the
Registrant's Registration Statement on Form S-4, as amended
(File No. 33-54932).)
10.9 Lease, dated as of March 16, 1990, between Forest City 64
Sidney Street, Inc. and Enzytech, Inc. (Incorporated by
reference to Exhibit 10.25 to the Registrant's Registration
Statement on Form S-4, as amended (File No. 33-54932).)
10.10 Lease, dated July 26, 1993, between the Massachusetts
Institute of Technology and Alkermes, Inc. (Incorporated by
reference to Exhibit 10.8 to the Registrant's Report on Form
10-K for the fiscal year ended March 31, 1997.)
10.10(a) First Amendment of Lease, dated June 9, 1997, between the
Massachusetts Institute of Technology and Alkermes, Inc.
(Incorporated by reference to Exhibit 10.8(a) to the
Registrant's Report on Form 10-K for the fiscal year ended
March 31, 1997.)
10.11 Product Development Agreement, dated as of March 6, 1992,
between the Partnership and the Registrant. (Incorporated by
reference to Exhibit 10.21 to the Registrant's Report on Form
10-K for the fiscal year ended March 31, 1992.)
10.12 Purchase Agreement, dated as of March 6, 1992, by and among
the Registrant and each of the Limited Partners, from time to
time, of the Partnership. (Incorporated by reference to
Exhibit 10.22 to the Registrant's Report on Form 10-K for the
fiscal year ended March 31, 1992.)
10.13 Alkermes Clinical Partners, L.P. Agreement of Limited
Partnership, dated as of February 7, 1992. (Incorporated by
reference to Exhibit 10.23 to the Registrant's Report on Form
10-K for the fiscal year ended March 31, 1992.)
10.13(a) Amendment No. 1 to Alkermes Clinical Partners, L.P. Agreement
of Limited Partnership, dated as of September 29, 1992.
(Incorporated by reference to Exhibit 10.22(a) to the
Registrant's Registration Statement on Form S-4, as amended
(File No. 33-54932).)
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10.13(b) Amendment No. 2 to Alkermes Clinical Partners, L.P. Agreement
of Limited Partnership, dated as of March 30, 1993.
(Incorporated by reference to Exhibit 10.22(b) to the
Registrant's Registration Statement on Form S-3, as amended
(File No. 33-64964).)
10.14 Class A Note of Alkermes Development Corporation II, dated
April 10, 1992, to PaineWebber Development Corporation in the
amount of $100.00. (Incorporated by reference to Exhibit 10.24
to the Registrant's Report on Form 10-K for the fiscal year
ended March 31, 1992.)
10.15 License Agreement, dated February 5, 1990, between Enzytech,
Inc. and Massachusetts Institute of Technology. (Incorporated
by reference to Exhibit 10.36 to the Registrant's Registration
Statement on Form S-4, as amended (File No. 33-54932).)*
10.16 Note Purchase Agreement, dated as of January 9, 1995, by and
between the Registrant and Genentech, Inc. (Incorporated by
reference to Exhibit 10.28 to the Registrant's Report on Form
10-Q for the quarter ended December 31, 1994.)
10.17 Convertible Promissory Note of the Registrant dated January
31, 1995. (Incorporated by reference to Exhibit 10.28 to the
Registrant's Report on Form 10-Q for the quarter ended
December 31, 1994.)
10.18 License Agreement, dated as of April 14, 1999, by and between
Genentech, Inc. and Alkermes Controlled Therapeutics, Inc.
(Diamond)
10.19 Discontinuation Agreement, dated as of April 14, 1999, by and
between the Registrant and Genentech, Inc. (Diamond)
10.20 Development Agreement, dated as of December 23, 1993, between
Medisorb Technologies International L.P. and Janssen
Pharmaceutica International. (Incorporated by reference to
Exhibit 10.18 to the Registrant's Report on Form 10-K for the
fiscal year ended March 31, 1996.) (Cross)
10.20(a) First Amendment to Development Agreement, dated as of December
23, 1993, between Medisorb Technologies International L.P. and
Janssen Pharmaceutica International. (Incorporated by
reference to Exhibit 10.18(a) to the Registrant's Report on
Form 10-K for the fiscal year ended March 31, 1996.) (Cross)
10.20(b) Second Amendment to the Development Agreement, dated April 28,
1997, by and between Alkermes Controlled Therapeutics Inc. II,
Janssen Pharmaceutica International and Janssen Pharmaceutica
Inc. (Incorporated by reference to Exhibit 10.22(b) to the
Registrant's Report on Form 10-K for the fiscal year ended
March 31, 1997.)
10.21 License Agreement, dated as of February 13, 1996, between
Medisorb Technologies International L.P. and Janssen
Pharmaceutica International (United States).
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<PAGE> 86
(Incorporated by reference to Exhibit 10.19 to the
Registrant's Report on Form 10-K for the fiscal year ended
March 31, 1996.) (Cross)
10.22 License Agreement, dated as of February 21, 1996, between
Medisorb Technologies International L.P. and Janssen
Pharmaceutica International (worldwide except United States).
(Incorporated by reference to Exhibit 10.20 to the
Registrant's Report on Form 10-K for the fiscal year ended
March 31, 1996.) (Cross)
10.23 Development and License Agreement, dated as of January 19,
1998, between The R.W. Johnson Pharmaceutical Research
Institute, a division of Ortho Pharmaceutical Corporation,
Alkermes, Inc. and Alkermes Controlled Therapeutics, Inc.
(Incorporated by reference to Exhibit 10.25 to the
Registrant's Report on Form 10-K for the fiscal year ended
March 31, 1998.)+++
10.24 Supply and License Agreement dated as of January 19, 1998,
between The R.W. Johnson Pharmaceutical Research Institute, a
division of Ortho Pharmaceutical Corporation, Janssen
Pharmaceutica International, a division of Cilag AG
International, Alkermes, Inc. and Alkermes Controlled
Therapeutics, Inc. (Incorporated by reference to Exhibit
10.26 of the Registrant's Report on Form 10-K for the fiscal
year ended March 31, 1998.)+++
10.25 Patent License Agreement, dated as of August 11, 1997, between
Massachusetts Institute of Technology and Advanced Inhalation
Research, Inc., as amended. (Diamond)
10.26 Loan Agreement, dated December 30, 1993, among the Registrant,
Alkermes Investments, Inc. and The Daiwa Bank, Limited.
(Incorporated by reference to Exhibit 10.33 to the
Registrant's Report on Form 10-Q for the quarter ended
December 31, 1993.)
10.26(a) Amendment No. 1 to Loan Agreement, dated as of December 31,
1994, among the Registrant, Alkermes Investments, Inc. and The
Daiwa Bank, Limited. (Incorporated by reference to Exhibit
10.21(a) to the Registrant's Report on Form 10-K for the
fiscal year ended March 31, 1996.)
10.26(b) Amendment to Loan Agreement, dated as of December 29, 1995, by
and among Registrant, Alkermes Investments, Inc. and The Daiwa
Bank, Limited (Incorporated by reference to Exhibit 10.3 to
the Registrant's Report on Form 10-Q for the quarter ended
December 31, 1995.)
10.26(c) Omnibus Amendment to Loan Documents, dated as of July 26,
1996, among the Registrant, Alkermes Investments, Inc. and The
Sumitomo Bank, Limited (as assignee of The Daiwa Bank,
Limited). (Incorporated by reference to Exhibit 10.4 to the
Registrant's Report on Form 10-Q for the quarter ended
December 31, 1996.)
10.27 Second Amended and Restated Note, dated July 26, 1996, by
Registrant and Alkermes Investments, Inc. to The Sumitomo
Bank, Limited. (Incorporated by reference to Exhibit 10.5 to
the Registrant's Report on Form 10-Q for the quarter ended
December 31, 1996.)
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<PAGE> 87
10.28 Letter Agreement, dated September 27, 1996, by and among Fleet
National Bank, Alkermes Controlled Therapeutics, Inc.,
Alkermes Controlled Therapeutic Inc. II and the Registrant.
(Incorporated by reference to Exhibit 10.3 to the Registrant's
Report on Form 10-Q for the quarter ended September 30,
1996.)++
10.28(a) Loan Supplement and Modification Agreement, dated as of June
2, 1997, by and among Fleet National Bank, Alkermes Controlled
Therapeutics, Inc., Alkermes Controlled Therapeutics Inc. II
and the Registrant. (Incorporated by reference to Exhibit
10.27(a) to the Registrant's Report on Form 10-K for the
fiscal year ended March 31, 1997.)
10.28(b) Second Loan Supplement and Modification Agreement, dated as of
March 19, 1998, by and among Fleet National Bank, Alkermes
Controlled Therapeutics, Inc., Alkermes Controlled
Therapeutics Inc. II and the Registrant. (Incorporated by
reference to Exhibit 10.29(b) to the Registrant's Report on
Form 10-K for the fiscal year ended March 31, 1998.)
10.28(c) 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 Registrant. (Incorporated by
reference to Exhibit 10.1 to the Registrant's Report on Form
10-Q for the quarter ended September 30, 1998.)
10.29 Security Agreement, dated as of September 27, 1996, from the
Registrant, Alkermes Controlled Therapeutics, Inc. and
Alkermes Controlled Therapeutic Inc. II to Fleet National
Bank. (Incorporated by reference to Exhibit 10.4 to the
Registrant's Report on Form 10-Q for the quarter ended
September 30, 1996.)
10.30 Pledge Agreement, dated as of September 27, 1996, from the
Registrant to Fleet National Bank. (Incorporated by reference
to Exhibit 10.5 to the Registrant's Report on Form 10-Q for
the quarter ended September 30, 1996.)
10.31 Mortgage and Security Agreement, dated as of September 27,
1996, from Alkermes Controlled Therapeutics Inc. II to Fleet
National Bank. (Incorporated by reference to Exhibit 10.6 to
the Registrant's Report on Form 10-Q for the quarter ended
September 30, 1996.)
10.32 Environmental Indemnity Agreement, dated as of September 27,
1996, from the Registrant and Alkermes Controlled Therapeutics
Inc. II to Fleet National Bank. (Incorporated by reference to
Exhibit 10.7 to the Registrant's Report on Form 10-Q for the
quarter ended September 30, 1996.)
10.33 Promissory Note of the Registrant, dated December 23, 1994, to
Fleet Bank of Massachusetts, N.A. (Incorporated by reference
to Exhibit 10.20 to the Registrant's Report on Form 10-Q for
the quarter ended December 31, 1994.)
10.33(a) Allonge to Promissory Note, dated as of September 27, 1996,
executed by Fleet National Bank, Alkermes Controlled
Therapeutics, Inc. and the Registrant.
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<PAGE> 88
(Incorporated by reference to Exhibit 10.1 to the Registrant's
Report on Form 10-Q for the quarter ended September 30, 1996.)
10.34 Promissory Note, dated December 19, 1995, by Registrant to
Fleet Bank of Massachusetts, N.A. (Incorporated by reference
to Exhibit 10.2 to the Registrant's Report on Form 10-Q for
the quarter ended December 31, 1995.)
10.34(a) Allonge to Promissory Note, dated as of September 27, 1996,
executed by Fleet National Bank, Alkermes Controlled
Therapeutics, Inc. and the Registrant. (Incorporated by
reference to Exhibit 10.2 to the Registrant's Report on Form
10-Q for the quarter ended September 30, 1996.)
10.35 Promissory Note, dated September 27, 1996, from the Registrant
and Alkermes Controlled Therapeutics Inc. II to Fleet National
Bank. (Incorporated by reference to Exhibit 10.8 to the
Registrant's Report on Form 10-Q for the quarter ended
September 30, 1996.)
10.36 Promissory Note, dated June 2, 1997, from the Registrant,
Alkermes Controlled Therapeutics, Inc. and Alkermes Controlled
Therapeutics Inc. II to Fleet National Bank. (Incorporated by
reference to Exhibit 10.35 to the Registrant's Report on Form
10-K for the fiscal year ended March 31, 1997.)
10.37 Promissory Note, dated March 19, 1998, from the Registrant,
Alkermes Controlled Therapeutics, Inc. and Alkermes Controlled
Therapeutics Inc. II to Fleet National Bank. (Incorporated by
reference to Exhibits 10.38 to the Registrant's Report on Form
10-K for the fiscal year ended March 31, 1998.)
10.38 Promissory Note, dated September 24, 1998, from the
Registrant, Alkermes Controlled Therapeutics, Inc. and
Alkermes Controlled Therapeutics Inc. II to Fleet National
Bank ($11,000,000). (Incorporated by reference to Exhibit 10.2
to the Registrant's Report on Form 10-Q for the quarter ended
September 30, 1998.)
10.39 Promissory Note, dated September 24, 1998, from the
Registrant, Alkermes Controlled Therapeutics, Inc. and
Alkermes Controlled Therapeutics Inc. II to Fleet National
Bank ($9,000,000). (Incorporated by reference to Exhibit 10.3
to the Registrant's Report on Form 10-Q for the quarter ended
September 30, 1998.)
10.40 Employment Agreement, entered into as of February 7, 1991,
between Richard F. Pops and the Registrant. (Incorporated by
reference to Exhibit 10.12 to the Registrant's Registration
Statement on Form S-1, as amended (File No. 33-40250).)+
10.41 Employment Agreement, entered into as of June 13, 1994, by and
between Robert A. Breyer and the Registrant. (Incorporated by
reference to Exhibit 10.28 to the Registrant's Report on Form
10-K for the fiscal year ended March 31, 1994.)+
10.42 Incentive Loan Program.+
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<PAGE> 89
21 Subsidiaries of the Registrant.
23 Consent of Deloitte & Touche LLP.
27 Financial Data Schedule.
* Confidential status has been granted for certain provisions thereof
pursuant to a Commission Order granted January 8, 1993. Such
provisions have been filed separately with the Commission.
(Cross) Confidential status has been granted for certain portions thereof
pursuant to a Commission Order granted September 3, 1996. Such
provisions have been filed separately with the Commission.
++ Confidential status has been granted for certain portions thereof
pursuant to a Commission Order granted April 17, 1997. Such provisions
have been filed separately with the Commission.
+++ Confidential status has been granted for certain portions thereof
pursuant to a Commission Order granted August 7, 1998. Such provisions
have been filed separately with the Commission.
(Diamond) Confidential status has been requested for certain portions thereof
pursuant to a Confidential Treatment Request filed June 29, 1999. Such
provisions have been filed separately with the Commission.
+ Constitutes a management contract or compensatory plan required to be
filed as an Exhibit to this Report pursuant to Item 14(c) of Form
10-K.
89
<PAGE> 1
Exhibit 3.1(f)
ALKERMES, INC.
EXHIBIT A TO STATEMENT WITH RESPECT TO SHARES
RESOLUTIONS ESTABLISHING 1999 REDEEMABLE
CONVERTIBLE EXCHANGEABLE PREFERRED STOCK
($.01 Par Value)
(Cumulative Dividend, Liquidation Preference $10,000 per Share)
----------
RESOLVED, that pursuant to authority expressly granted to and vested in
the Board of Directors of Alkermes, Inc. (the "Company"), a Pennsylvania
corporation, by the provisions of the Second Amended and Restated Articles of
Incorporation, as amended, of the Company (the "Articles of Incorporation"),
there is hereby established a series of the preferred stock, par value $.01 per
share, which shall consist of 3,500 of the 700,000 unissued shares of the
preferred stock class of the Company, and which shall have the following
designation and voting rights, preferences, limitations and special rights:
1. NUMBER OF SHARES AND DESIGNATION. 3,500 shares of the
preferred stock, par value $.01 per share, of the Company are hereby constituted
as a series of the preferred stock designated as 1999 Redeemable Convertible
Exchangeable Preferred Stock (the "1999 Preferred Stock").
2. DEFINITIONS. For purposes of the 1999 Preferred Stock, in
addition to those terms otherwise defined herein, the following terms shall have
the meanings indicated:
"AFFILIATE" of any specified person shall mean any other
person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified person. For the purposes of this
definition, "control," when used with respect to any specified person means the
power to direct or cause the direction of the management and policies of such
person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"BOARD OF DIRECTORS" shall mean the Board of Directors of the
Company or a committee of such Board duly authorized to act for it hereunder.
"BOARD RESOLUTION" means a copy of a resolution certified by
the Secretary or an Assistant Secretary of the Company to have been duly adopted
by the Board of Directors and to be in full force and effect on the date of such
certification, and delivered to the Transfer Agent.
<PAGE> 2
"BUSINESS DAY" means each Monday, Tuesday, Wednesday, Thursday
and Friday which is not a day on which the banking institutions in the City of
New York, New York or Boston, Massachusetts are authorized or obligated by law
or executive order to close or be closed.
"CLOSING PRICE" with respect to any securities on any day
shall mean the closing sale price on such day or, in case no such sale takes
place on such day, the average of the reported closing bid and asked prices, in
each case on The Nasdaq National Market or New York Stock Exchange, as
applicable, or, if such security is not listed or admitted to trading on such
National Market or Exchange, on the principal national security exchange or
quotation system on which such security is quoted or listed or admitted to
trading, or, if not quoted or listed or admitted to trading on any national
securities exchange or quotation system, the average of the closing bid and
asked prices of such security on the over-the-counter market on the day in
question as reported by the National Quotation Bureau Incorporated, or a similar
generally accepted reporting service, or if not so available, in such manner as
furnished by any New York Stock Exchange member firm selected from time to time
by the Board of Directors for that purpose, or a price determined in good faith
by the Board of Directors, whose determination shall be conclusive and described
in a Board Resolution.
"COMMON STOCK" shall mean the class of capital stock of the
Company designated as Common Stock, par value $.01 per share, at the date
hereof.
"COMPANY" shall mean Alkermes, Inc., a Pennsylvania
corporation, and, shall include its successors and assigns.
"CONVERSION PRICE" shall mean the average Closing Price of the
Common Stock on The Nasdaq National Market or a national securities exchange
registered as such pursuant to the Exchange Act and on which the Common Stock is
listed for the 10 consecutive Trading Days immediately preceding the date of
notice of conversion or optional redemption, or January 1, 2009 in the case of
mandatory redemption, of shares of 1999 Preferred Stock into or for shares of
Common Stock in accordance with Section 5 or Section 7 hereof.
"DEBENTURES" shall mean the Company's 1999 Redeemable
Convertible Subordinated Debentures, issued under an indenture to be negotiated,
authorized and executed pursuant to Section 11 (the "Indenture").
"DIVIDEND PAYMENT DATE" shall have the meaning specified in
Section 3(a).
"DIVIDEND PAYMENT RECORD DATE" shall have the meaning
specified in Section 3(a).
"DIVIDEND PERIODS" shall mean quarterly dividend periods
commencing on the first day of March, June, September and December of each year
and ending on and including
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<PAGE> 3
the day preceding the first day of the next succeeding Dividend Period (other
than the initial Dividend Period which shall commence on the Issue Date and end
on and include May 31, 1999 and the final Dividend Period which shall conclude
on the day preceding the day that the last outstanding share of 1999 Preferred
Stock is converted or redeemed).
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"EXCHANGE DATE" shall have the meaning specified in Section
11(b).
"HOLDER," "HOLDER OF SHARES OF 1999 PREFERRED STOCK," or
"HOLDER OF 1999 PREFERRED STOCK," as applied to any share of 1999 Preferred
Stock, or other similar terms (but excluding the term "beneficial holder"),
shall mean any person in whose name at the time a particular share of 1999
Preferred Stock is registered on the Company's stock records, which shall
include the books of the Transfer Agent in respect of the Company and any stock
transfer books of the Company.
"ISSUE DATE" shall mean the first date on which shares of 1999
Preferred Stock are issued.
"LIBOR RATE" shall mean, for a particular quarter, the
three-month London Interbank Offer Rate (LIBOR) published in the eastern edition
of THE WALL STREET JOURNAL on January 25, April 25, July 25 or October 25 (or
the next succeeding business day) in such quarter or 15 business days prior to
the last day of the final Dividend Period.
"NON-VOTING COMMON STOCK" shall mean the class of capital
stock of the Company designated as Non-Voting Common Stock, par value $.01 per
share, at the date hereof.
"PERSON" shall mean a corporation, an association, a
partnership, an individual, a joint venture, a joint stock company, a trust, a
limited liability company, an unincorporated organization or a government or an
agency or a political subdivision thereof.
"RULE 144(k)" means Rule 144(k) as promulgated under the
Securities Act, or any successor rule.
"SECURITIES ACT" means the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
"SUBSIDIARY" means a corporation more than 50% of the
outstanding voting stock of which is owned, directly or indirectly, by the
Company or by one or more other Subsidiaries, or by the Company and one or more
other Subsidiaries. For the purposes of this definition, "voting stock" means
stock which ordinarily has voting power for the election of
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<PAGE> 4
directors, whether at all times or only so long as no senior class of stock has
such voting power by reason of any contingency.
"TRADING DAY" shall mean (x) if the applicable security is
listed or admitted for trading on the New York Stock Exchange or another
national security exchange, a day on which the New York Stock Exchange or
another national security exchange is open for business or (y) if the applicable
security is quoted on The Nasdaq National Market, a day on which trades may be
made thereon or (z) if the applicable security is not so listed, admitted for
trading or quoted, any day other than a Saturday or Sunday or a day on which
banking institutions in the State of New York are authorized or obligated by law
or executive order to close.
"TRANSFER AGENT" means BankBoston, N.A. or such other agent or
agents of the Company as may be designated by the Board of Directors of the
Company as the transfer agent for the 1999 Preferred Stock.
3. DIVIDENDS.
(a) Holders of 1999 Preferred Stock are entitled to
receive, when, as and if declared by the Board of Directors, out of the funds of
the Company legally available therefor, cash dividends per share of 1999
Preferred Stock at the LIBOR Rate, payable on March 1, June 1, September 1 and
December 1 (each a "Dividend Payment Date"), commencing June 1, 1999 (and, in
the case of any accrued but unpaid dividends, at such additional times and for
such interim periods, if any, as determined by the Board of Directors). If June
1, 1999 or any other Dividend Payment Date shall be on a day other than a
Business Day, then the Dividend Payment Date shall be on the next succeeding
Business Day. Dividends on the 1999 Preferred Stock will be cumulative from the
Issue Date, whether or not in any Dividend Period or Periods there shall be
funds of the Company legally available for the payment of such dividends and
whether or not such dividends are declared, and will be payable to holders of
record as they appear on the stock books of the Company on such record dates
(each such date, a "Dividend Payment Record Date"), which shall be not more than
60 days nor less than 10 days preceding the Dividend Payment Dates thereof, as
shall be fixed by the Board of Directors. Dividends on the 1999 Preferred Stock
shall accrue (whether or not declared) on a daily basis from the Issue Date, and
accrued dividends for each Dividend Period shall accumulate to the extent not
paid on the Dividend Payment Date first following the Dividend Period for which
they accrue. As used herein, the term "accrued" with respect to dividends
includes both accrued and accumulated dividends.
(b) The amount of dividends payable for each Dividend
Period on the 1999 Preferred Stock shall be computed on the basis of actual days
elapsed. Holders of shares of 1999 Preferred Stock called for redemption on a
redemption date falling between the close of business on a Dividend Payment
Record Date and the opening of business on the corresponding Dividend Payment
Date shall, in lieu of receiving such dividend on the
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<PAGE> 5
Dividend Payment Date fixed therefor, receive such dividend payment together
with all other accrued and unpaid dividends on the date fixed for redemption
(unless such holders convert such shares in accordance with Section 7 hereof).
Holders of shares of 1999 Preferred Stock shall not be entitled to any
dividends, whether payable in cash, property or stock, in excess of cumulative
dividends, as herein provided. No interest, or sum of money in lieu of interest,
shall be payable in respect of any dividend payment or payments on the 1999
Preferred Stock which may be in arrears.
(c) Notwithstanding the accumulation of dividends on the
1999 Preferred Stock, whether or not declared or paid, the Company may (i)
declare or pay or set apart for payment dividends, in cash or shares of capital
stock, on any class or series of stock of the Company; (ii) redeem, purchase or
otherwise acquire for any consideration (or any monies paid to or made available
for a sinking fund or otherwise for the purchase or redemption of any shares of
any such stock) any other capital stock of the Company.
4. LIQUIDATION PREFERENCE.
(a) In the event of any voluntary or involuntary
dissolution, liquidation or winding up of the Company (for the purposes of this
Section 4, a "Liquidation"), before any distribution of assets shall be made to
the holders of Common Stock or the holders of any other stock of the Company
that ranks junior to the 1999 Preferred Stock upon Liquidation, the holder of
each share of 1999 Preferred Stock then outstanding shall be entitled to be paid
out of the assets of the Company available for distribution to its shareholders,
an amount equal to liquidation preference of $10,000 per share plus all
dividends accrued and unpaid on such share up to the date of distribution of the
assets of the Company to the holders of 1999 Preferred Stock, and the holders of
any class or series of preferred stock ranking on a parity with the 1999
Preferred Stock as to Liquidation shall be entitled to receive the full
respective liquidation preferences (including any premium) to which they are
entitled and shall receive all accrued and unpaid dividends with respect to
their respective shares through and including the date of distribution.
(b) If upon any Liquidation of the Company, the assets
available for distribution to the holders of 1999 Preferred Stock and any other
stock of the Company ranking on a parity with the 1999 Preferred Stock upon
Liquidation which shall then be outstanding shall be insufficient to pay the
holders of all outstanding shares of 1999 Preferred Stock and all other such
parity stock the full amounts (including all dividends accrued and unpaid) of
the liquidating distribution to which they shall be entitled, then the holders
of each series of such stock will share ratably in any such distribution of
assets first in proportion to their respective liquidation preferences
(including accrued and unpaid dividends in the case of 1999 Preferred Stock)
until such preferences are paid in full, and then in proportion to their
respective amounts of accrued but unpaid dividends. After payment of any such
liquidating preference and accrued dividends, the holders of shares of 1999
Preferred Stock will not be entitled to any further participation in any
distribution of assets by the Company.
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<PAGE> 6
(c) For purposes of this Section 4, a Liquidation shall
not include (i) any consolidation or merger of the Company with or into any
other corporation, (ii) any liquidation, dissolution, winding up or
reorganization of the Company immediately followed by reincorporation of another
corporation or (iii) a sale or other disposition of all or substantially all of
the Company's assets to another corporation unless in connection therewith the
Liquidation of the Company is specifically approved.
(d) The holder of any shares of 1999 Preferred Stock
shall not be entitled to receive any payment owed for such shares under this
Section 4 until such holder shall cause to be delivered to the Company (i) the
certificate(s) representing such shares of 1999 Preferred Stock and (ii)
transfer instrument(s) satisfactory to the Company and sufficient to transfer
such shares of 1999 Preferred Stock to the Company free of any adverse interest.
No interest shall accrue on any payment upon Liquidation after the due date
thereof.
5. REDEMPTION.
(a) OPTIONAL REDEMPTION. The Company, at its option, may
redeem the shares of 1999 Preferred Stock, in whole or in part, out of funds
legally available therefor, at any time or from time to time, subject to the
notice provisions and provisions for partial redemption described below at the
redemption price of $10,000 per share plus an amount equal to accrued and unpaid
dividends, if any, to (but excluding) the date fixed for redemption, whether or
not earned or declared in cash or by delivering fully paid and nonassessable
shares of Common Stock, and Non-Voting Common Stock, if any, on the terms and
conditions in this Section 5 and Section 8, or any combination thereof at the
sole option of the Company; PROVIDED that, if the applicable redemption date is
a Dividend Payment Date, the quarterly payment of dividends becoming due on such
date shall be payable to the holders of such shares of 1999 Preferred Stock
registered as such on the relevant record date subject to the terms and
provisions of Section 3.
If fewer than all the outstanding shares of the 1999 Preferred
Stock are to be redeemed, shares to be redeemed shall be selected by the Company
from outstanding shares of 1999 Preferred Stock not previously called for
redemption by lot or pro rata (as near as may be) or by any other equitable
method determined by the Company in its sole discretion. If fewer than all the
shares of 1999 Preferred Stock represented by any certificate are redeemed, a
new certificate shall be issued representing the unredeemed shares without cost
to the holder thereof. If a part of a share of 1999 Preferred Stock is redeemed,
then the Company will issue a certificate representing a fractional share of
1999 Preferred Stock evidencing the remaining interest of such holder.
(b) MANDATORY REDEMPTION. On January 1, 2009, the Company
will redeem all of the outstanding shares of the 1999 Preferred Stock, out of
funds legally available therefor, at the redemption price of $10,000 per share
plus an amount equal to accrued and unpaid dividends, if any, to (but excluding)
the date fixed for redemption, whether or not
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<PAGE> 7
earned or declared, in cash or by delivering shares of Common Stock, and
Non-Voting Common Stock, if any, on the terms and conditions in this Section 5
and Section 8, or any combination thereof at the sole option of the Company.
(c) No sinking fund or other similar provision shall
apply to the 1999 Preferred Stock.
(d) In case the Company shall desire to exercise the
right to redeem the shares of 1999 Preferred Stock, in whole or in part,
pursuant to Section 5(a), it shall fix a date for redemption. In the case of any
redemption, the Company will notify, at least two (2) Business Days prior the
date fixed for redemption, the Transfer Agent and the holders of 1999 Preferred
Stock so to be redeemed at their last addresses and facsimile numbers as the
same appear on the Company's stock records. Such mailing shall be by facsimile
and by overnight courier. The notice if delivered in the manner herein provided
shall be conclusively presumed to have been duly given, whether or not the
holder receives such notice. In any case, failure to give such notice by courier
or any defect in the notice to the holder of any share of 1999 Preferred Stock
designated for redemption shall not affect the validity of the proceedings for
the redemption of any other share of 1999 Preferred Stock.
Each such notice of redemption shall specify the number of
shares of 1999 Preferred Stock to be redeemed, the date fixed for redemption,
the redemption price at which such shares of 1999 Preferred Stock are to be
redeemed, the place or places of payment, that payment will be made upon
presentation and surrender of certificate or certificates representing such
shares of 1999 Preferred Stock and in what form consideration will be paid, that
dividends accrued to (but excluding) the date fixed for redemption will be paid
as specified in said notice, and that on and after said date dividends thereon
or on the portion thereof to be redeemed will cease to accrue. If payment of the
redemption price shall be in shares of Common Stock, and Non-Voting Common
Stock, if any, such notice shall also state the Conversion Price applicable to
the redemption and the date on which the right to convert such shares of 1999
Preferred Stock into Common Stock, and Non-Voting Common Stock, if any, will
expire.
(e) REDEMPTION IN CASH. If payment will be made in cash,
the following terms shall apply:
On or prior to the redemption date specified in the notice of
redemption given as provided in Section 5(d), the Company will deposit with the
Transfer Agent, or a bank or trust company acting as escrow agent for the
Company an amount of money sufficient to redeem on the redemption date all of
the shares of 1999 Preferred Stock so called for redemption at the appropriate
redemption price, together with accrued dividends (whether or not declared) to
(but excluding) the date fixed for redemption. The Company shall be entitled to
make any deposit of funds contemplated by this Section 5 under arrangements
designed to permit such funds to generate interest or other income for the
Company, and the Company
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<PAGE> 8
shall be entitled to receive all interest and other income earned by any funds
while they shall be deposited as contemplated by this Section 5.
(f) REDEMPTION IN COMMON STOCK. If payment will be made
in shares of Common Stock, and Non-Voting Common Stock, if any, the following
terms shall apply:
On the redemption date specified in the notice of redemption
given as provided in Section 5(b), the Company will deliver to holders of 1999
Preferred Stock either (x) a certificate for Common Stock, and Non-Voting Common
Stock, if any, registered in the name(s) of each holder of 1999 Preferred Stock
or (y) a confirmation issued by the Transfer Agent to the effect that Common
Stock, and Non-Voting Common Stock, if any, in uncertificated form has been
registered in the name(s) of each holder of 1999 Preferred Stock on the books of
the Company, in either case evidencing or confirming the registration of that
full number of shares which, when multiplied by the Conversion Price, shall
equal the sum of the redemption price, together with accrued dividends (whether
or not declared) to (but excluding) the date fixed for redemption. No fractional
shares of Common Stock or NonVoting Common Stock shall be issued by the Company.
If any fractional share of Common Stock or Non-Voting Common Stock otherwise
would be issuable upon the redemption of the 1999 Preferred Stock, the Company
shall make an adjustment therefor in an amount of cash (without interest)
determined by multiplying such fraction by the Conversion Price of one share of
Common Stock.
(g) TERMS APPLICABLE TO REDEMPTION IN CASH OR COMMON
STOCK. If notice of redemption has been given as above provided, on and after
the date fixed for redemption (unless the Company shall default in the payment
of the redemption price, together with accrued and unpaid dividends to (but
excluding) said date), dividends on such shares of 1999 Preferred Stock so
called for redemption shall cease to accrue and such shares of 1999 Preferred
Stock shall be deemed no longer outstanding and the holders thereof shall have
no right in respect of such shares of 1999 Preferred Stock except the right to
receive the redemption price thereof and accrued and unpaid dividends (whether
or not declared) to (but excluding) the date fixed for redemption, without
interest thereon. On presentation and surrender of certificate or certificates
representing such shares of 1999 Preferred Stock to the Transfer Agent or escrow
agent, which shall be specified in the notice to holders, such shares of 1999
Preferred Stock to be redeemed shall be redeemed by the Company at the
applicable redemption price, together with dividends accrued thereon (whether or
not declared) to (but excluding) the date fixed for redemption; PROVIDED that,
if the applicable redemption date is a Dividend Payment Date, the quarterly
payment of dividends becoming due on such date shall be payable to the holders
of such shares of 1999 Preferred Stock registered as such on the relevant record
date subject to the terms and provisions of Section 3.
6. SHARES TO BE RETIRED. Any share of 1999 Preferred Stock
converted, redeemed or otherwise acquired by the Company shall be retired and
canceled and shall upon cancellation be restored to the status of authorized but
unissued shares of 1999 Preferred
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<PAGE> 9
Stock, subject to reissuance by the Board of Directors as shares of 1999
Preferred Stock of one or more series.
7. CONVERSION. Holders of shares of 1999 Preferred Stock shall
have the right to convert all or a portion of such shares into shares of Common
Stock, and Non-Voting Common Stock, if any, as follows:
(a) Subject to and upon compliance with the provisions of
this Section 7 and Section 8, a holder of shares of 1999 Preferred Stock shall
have the right, at his option, after September 1, 1999 and during any period
that the Closing Price of Common Stock on The Nasdaq National Market or a
national securities exchange registered as such pursuant to the Exchange Act and
on which the Common Stock is listed is above $45 per share for at least 10
consecutive Trading Days (except that, with respect to shares of 1999 Preferred
Stock which shall be called for redemption, such right shall terminate at the
close of business on the next succeeding Business Day after the date notice is
sent to the holders, unless the Company shall default in payment due upon
redemption thereof) to convert any share of 1999 Preferred Stock into that
number of fully paid and nonassessable shares of Common Stock, and Non-Voting
Common Stock, if any, (as such shares shall then be constituted) obtained by
dividing $10,000 plus any accrued dividends (whether or not declared) to (but
excluding) the date fixed for conversion by the Conversion Price, by surrender
of certificate or certificates representing such share of 1999 Preferred Stock
so to be converted in the manner provided in Section 7(b); PROVIDED that, in the
event that a third party, who is not an affiliate of the Company, acquires
greater than 49% of the voting stock of the Company and the holder could
otherwise convert his shares of 1999 Preferred Stock, the holder may convent
such shares of 1999 Preferred Stock prior to September 1, 1999. If a part of a
share of 1999 Preferred Stock is converted, then the Company shall convert such
share into the appropriate number of shares of Common Stock, and Non-Voting
Common Stock, if any, and issue a certificate representing a fractional share of
1999 Preferred Stock evidencing the remaining interest of such holder. A holder
of 1999 Preferred Stock is not entitled to any rights of a holder of Common
Stock or Non-Voting Common Stock until such holder has converted his 1999
Preferred Stock to Common Stock or Non-Voting Common Stock and only to the
extent such 1999 Preferred Stock is deemed to have been converted to Common
Stock or Non-Voting Common Stock under this Section 7.
(b) In order to exercise the conversion right, the holder
of 1999 Preferred Stock who intends to convert shall send a written notice (the
"Conversion Notice"), at least thirty (30) Business Days prior to an intended
conversion, to the Company and the Transfer Agent of his, her or its election to
convert such number of shares of 1999 Preferred Stock specified in said notice.
The holder of the 1999 Preferred Stock to be converted shall surrender
certificate or certificates (with the Conversion Notice, the form of which is
set forth in Section 15(a), on the reverse of the certificate or certificates
duly completed) representing the number of shares to be so converted, duly
endorsed, to the Transfer Agent. The Conversion Notice shall also state the name
or names (with address) in which the certificate or certificates for shares of
Common Stock, and Non-Voting Common Stock, if any, issuable on
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<PAGE> 10
such conversion shall be issued, and shall be accompanied by transfer taxes, if
required pursuant to Section 8(b). Each such share of 1999 Preferred Stock
surrendered for conversion shall, unless the shares of Common Stock, and
Non-Voting Common Stock, if any, issuable on conversion are to be issued in the
same name in which such share of 1999 Preferred Stock is registered, be duly
endorsed by, or be accompanied by instruments of transfer in form satisfactory
to the Company duly executed by, the holder or his duly authorized attorney.
As promptly as practicable after satisfaction of the
requirements for conversion set forth above, the Company shall issue and shall
deliver to such holder or, if shares of Common Stock, and Non-Voting Common
Stock, if any, issuable on conversion are to be issued in a name other than that
in which such share of 1999 Preferred Stock to be converted is registered (as if
such transfer were a transfer of the share of 1999 Preferred Stock so
converted), to such other person, at the Transfer Agent, certificate or
certificates representing the number of shares of Common Stock, and Non-Voting
Common Stock, if any, issuable upon the conversion of such share of 1999
Preferred Stock or a portion thereof in accordance with the provisions of this
Section 7 and a check or cash in respect of any fractional interest in respect
of a share of Common Stock or Non-Voting Common Stock, if any, arising upon such
conversion, as provided in Section 7(c) (which payment, if any, shall be paid no
later than five Business Days after satisfaction of the requirements for
conversion set forth above).
Each conversion shall be deemed to have been effected on the
date on which the requirements set forth above in the first paragraph of this
Section 7(b) have been satisfied as to such share of 1999 Preferred Stock so
converted, and the person in whose name any certificate or certificates for the
shares of Common Stock, and Non-Voting Common Stock, if any, shall be issuable
upon such conversion shall be deemed to have become on said date the holder of
record of the shares represented thereby; PROVIDED, HOWEVER, that if any such
surrender occurs on any date when the stock transfer books of the Company shall
be closed, the conversion shall be effected on the next succeeding day on which
such stock transfer books are open, and the person in whose name the
certificates are to be issued shall be the record holder thereof for all
purposes, but such conversion shall be at the Conversion Price.
In the case of any share of 1999 Preferred Stock which is
converted after any Dividend Payment Record Date with respect to the payment of
a dividend on the 1999 Preferred Stock and prior to the close of business on the
Business Day prior to the next succeeding Dividend Payment Date, the dividend
due on such Dividend Payment Date shall be payable on such Dividend Payment Date
to the holder of record of such share as of such Dividend Payment Record Date
notwithstanding such conversion. Except as provided in this paragraph, no
payment or adjustment shall be made upon any conversion on account of any
dividends accrued on shares of 1999 Preferred Stock surrendered for conversion
or on account of any dividends on the Common Stock or Non-Voting Common Stock
issued upon conversion.
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<PAGE> 11
(c) In connection with the conversion of any shares of
1999 Preferred Stock, a portion of such shares may be converted; however no
fractional shares of Common Stock or Non-Voting Common Stock or scrip
representing fractional shares shall be issued upon conversion of the 1999
Preferred Stock. If any fractional share of stock otherwise would be issuable
upon the conversion of the 1999 Preferred Stock, the Company shall make an
adjustment therefor in an amount of cash (without interest) determined by
multiplying such fraction by the Conversion Price of one share of Common Stock.
If more than one share shall be surrendered for conversion at one time by the
same holder, the number of full shares of Common Stock, and Non-Voting Common
Stock, if any, issuable upon conversion thereof shall be computed on the basis
of the aggregate number of shares of 1999 Preferred Stock so surrendered.
(d) Upon receipt of a holder's notice of its intention to
convert (as provided in Section 7(b)), the Company shall have the option, in its
sole discretion, of redeeming the 1999 Preferred Stock to be converted into
Common Stock, and Non-Voting Common Stock, if any, for cash prior to such
conversion.
8. TERMS OF ISSUANCE OF COMMON STOCK, AND NON-VOTING COMMON
STOCK, IF ANY, ON REDEMPTION OR CONVERSION.
(a) SHARE ISSUANCE LIMITATION. In no event shall the
Company issue or be required to issue, for redemption for stock or on
conversion, greater than 4,976,220 shares of Common Stock, and Non-Voting Common
Stock, if any, unless the Company has obtained the prior approval of a majority
of the holders of Common Stock (excluding any shares issued to holders of 1999
Preferred Stock hereunder), which approval the Company may seek in its sole
discretion at any time.
(b) LIMITATION ON COMMON STOCK ISSUANCE; ISSUANCE OF
NON-VOTING COMMON STOCK. In the event of a redemption for stock or conversion,
whether in whole or in part, the Company shall issue only that number of shares
of Common Stock so that the holder of 1999 Preferred Stock shall beneficially
own, together with any other shares of the Company's stock entitled to vote for
the election of directors ("Voting Stock"), (a) no more than 49.99% of the
issued and outstanding shares of Voting Stock and (b) an amount of Voting Stock,
the aggregate value (as defined in the Hart-Scott-Rodino Antitrust Improvement
Act (16 C.F.R. Section 801.10)) of which, is no greater than $15 million. In the
event that the number of shares of Common Stock issued in accordance with the
foregoing limitation do not equal the full amount of shares of Common Stock
otherwise issuable to such holder upon such conversion or redemption, then the
Company shall issue that number of shares of Non-Voting Common Stock which makes
up the difference between the number of shares of Common Stock actually issued
and the number of shares issuable.
(c) The issue of stock certificates representing the
shares of Common Stock, and Non-Voting Common Stock, if any, on conversions or
redemption of the 1999 Preferred
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<PAGE> 12
Stock shall be made without charge to the relevant holder of 1999 Preferred
Stock for any tax in respect of the issue thereof. The Company shall not,
however, be required to pay any tax which may be payable in respect of any
transfer involved in the issue and delivery of stock in any name other than the
name in which the shares of 1999 Preferred Stock with respect to which such
shares of Common Stock, and Non-Voting Common Stock, if any, are issued are
registered, and the Company shall not be required to issue or deliver any such
stock certificate unless and until the person or persons requesting the issue
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid.
(d) The Company covenants that all shares of Common Stock
and NonVoting Common Stock which may be delivered upon conversion or redemption
of shares of 1999 Preferred Stock will upon delivery be duly and validly issued
and fully paid and non-assessable, free of all liens and charges and not subject
to any preemptive rights.
(e) The Company covenants that it will at all times
reserve and keep available, free from preemptive rights, out of the aggregate of
its authorized but unissued shares of Common Stock and Non-Voting Common Stock
or its issued shares of Common Stock held in its treasury, or both, a sufficient
number of shares of Common Stock and NonVoting Common Stock for the purpose of
effecting conversions of shares of 1999 Preferred Stock not theretofore
converted into Common Stock or Non-Voting Common Stock. For purposes of this
reservation of Common Stock and Non-Voting Common Stock, the number of shares of
Common Stock and Non-Voting Common Stock which shall be deliverable upon the
conversion of all outstanding shares of 1999 Preferred Stock shall be computed
as if at the time of computation all outstanding shares of 1999 Preferred Stock
were held by a single holder. The issuance of shares of Common Stock, and
Non-Voting Common Stock, if any, upon conversion or redemption of shares of 1999
Preferred Stock is authorized in all respects. The Company shall from time to
time, in accordance with the laws of the Commonwealth of Pennsylvania, use its
best efforts to increase the authorized number of shares of Common Stock or
Non-Voting Common Stock if at any time the number of shares of authorized and
unissued Common Stock or Non-Voting Common Stock shall not be sufficient to
permit the conversion or redemption of all the then outstanding shares of 1999
Preferred Stock.
(f) The Company further covenants that if at any time the
Common Stock shall be listed on The Nasdaq National Market or any other national
securities exchange or automated quotation system the Company will, if permitted
by the rules of such exchange or automated quotation system, list and keep
listed, so long as the Common Stock shall be so listed on such exchange or
automated quotation system, all Common Stock issuable upon conversion or
redemption upon such conversion into or redemption for Common Stock.
12
<PAGE> 13
9. RANKING.
(a) the 1999 Preferred Stock ranks junior to the $3.25
Convertible Exchangeable Preferred Stock and prior to the Common Stock and the
Non-Voting Common Stock as to dividends (except as provided in Section 3(c)
hereof) or as to distribution of assets upon liquidation, dissolution or winding
up;
(b) As to any future classes of capital stock of the
Company, as to dividends or as to the distribution of assets upon liquidation,
dissolution or winding up, the 1999 Preferred Stock will rank prior to, on
parity with or junior to, such capital stock if the Second Amended and Restated
Articles of Incorporation, as amended from time to time, provide that the
holders of such capital stock are entitled to receipt of dividends or of amounts
distributable upon liquidation, dissolution or winding up, as the case may be,
in preference to, on a parity with, or junior to the holders of shares of 1999
Preferred Stock.
10. VOTING RIGHTS.
(a) The holders of 1999 Preferred Stock will not have any
voting rights except as set forth below or as otherwise from time to time
required by law. In connection with any right to vote, each holder of 1999
Preferred Stock will have one vote for each share of 1999 Preferred Stock held.
Any shares of 1999 Preferred Stock held by the Company or any entity controlled
by the Company shall not have voting rights hereunder and shall not be counted
in determining the presence of a quorum.
(b) So long as the 1999 Preferred Stock is outstanding,
the Company shall not, without the affirmative vote or consent of the holders of
at least a majority (unless a higher percentage shall then be required by
applicable law) of all outstanding shares of 1999 Preferred Stock voting
separately as a class, amend, alter or repeal any provision of the Articles of
Incorporation (including, without limitation, these resolutions) or the Bylaws
of the Company so as to affect adversely the relative rights, preferences,
qualifications, limitations or restrictions of the 1999 Preferred Stock;
PROVIDED, HOWEVER, that no such vote shall be required to create, authorize or
issue, or reclassify any authorized stock of the Company into, or increase the
authorized amount of, any class or series of the Company's capital stock ranking
senior to, on parity with, or junior to the 1999 Preferred Stock as to dividends
or as to distributions of assets upon liquidation, dissolution or winding up of
the Company, whether voluntary or involuntary, or any obligation or security
convertible into shares of such a class or series. In addition, so long as the
1999 Preferred Stock is outstanding, the Company shall not, without the
affirmative vote or consent of the holders of at least a majority (unless a
higher percentage shall then be required by applicable law) of all outstanding
shares of 1999 Preferred Stock voting separately as a class, enter into a share
exchange pursuant to which the 1999 Preferred Stock would be exchanged for any
other securities or merge or consolidate with or into any other person or permit
any other person to merge or consolidate with or into
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<PAGE> 14
the Company, unless in such case each share of 1999 Preferred Stock shall remain
outstanding or unaffected or shall be converted into or exchanged for redeemable
convertible exchangeable preferred stock of the surviving entity having voting
rights, preferences, limitations or special rights thereof substantially similar
(but no less favorable) to a share of 1999 Preferred Stock. A class vote on the
part of the 1999 Preferred Stock shall, without limitation, specifically not be
deemed to be required (except as otherwise required by law or resolution of the
Company's Board of Directors) in connection with the authorization, issuance or
increase in the amount of any bonds, mortgages, debentures or other obligations
of the Company.
11. EXCHANGE.
(a) The 1999 Preferred Stock shall be exchangeable, in
whole but not in part, at the option of the Company on any Dividend Payment Date
beginning June 1, 1999, for the Debentures at the rate of $10,000 principal
amount of Debentures for each share of 1999 Preferred Stock outstanding at the
time of exchange; PROVIDED that the Debentures will be issuable in denominations
of $10,000 and integral multiples thereof. If the exchange results in an amount
of Debentures that is not an integral multiple of $10,000, the amount in excess
of the closest integral multiple of $10,000 will be paid in cash by the Company.
(b) The Company will mail to each record holder of 1999
Preferred Stock written notice of its intention to exchange the 1999 Preferred
Stock for the Debentures no less than 60 days prior to the proposed date of the
exchange (the "Proposed Exchange Date"). The notice shall include the proposed
form of indenture which shall have terms substantially similar to the terms of
the 1999 Preferred Stock with such other terms as are reasonable or customary in
indentures for corporate debt and shall specify the Proposed Exchange Date, the
place or places where certificates for shares of 1999 Preferred Stock are to be
surrendered for Debentures and shall state that dividends on the 1999 Preferred
Stock will cease to accrue on and after the actual date of the exchange (the
"Exchange Date"). Upon receipt of the notice and the form of indenture, the
holders shall promptly and in good faith review and negotiate the indenture with
the understanding that time is of the essence. While the Company, the holders
and proposed trustee are negotiating the indenture, the Company may set a new
Proposed Exchange Date by notifying the holders.
(c) If (i) the holders have agreed to the terms of the
indenture, which shall not be unreasonably withheld, (ii) the Company and a
reputable trustee have properly authorized and executed the indenture and (iii)
the Company has caused the Debentures to be authenticated on or prior to the
Exchange Date and has complied with the other provisions of this Section 11,
then, notwithstanding that any certificates for shares of 1999 Preferred Stock
have not been surrendered for exchange, on the Exchange Date dividends shall
cease to accrue on the 1999 Preferred Stock and at the close of business on the
Exchange Date the holders of 1999 Preferred Stock shall cease to be shareholders
with respect to the 1999 Preferred Stock and shall have no interest in or other
claims against the Company by virtue thereof and shall have no voting or other
rights with respect to the 1999 Preferred Stock, except the right to
14
<PAGE> 15
receive the Debentures issuable upon such exchange and the right to accumulated
and unpaid dividends as of the Exchange Date, without interest thereon, upon
surrender (and endorsement, if required by the Company) of their certificates,
and the shares evidenced thereby shall no longer be deemed outstanding for any
purpose. The Company will cause the Debentures to be authenticated on or before
the Exchange Date, and the Company will pay interest on the Debentures at the
rate and on the dates specified in such Indenture from and after the Exchange
Date.
(d) Notwithstanding the foregoing, if notice of exchange
has been given pursuant to this Section 11 and any holder of shares of 1999
Preferred Stock shall, prior to the close of business on the Exchange Date, give
written notice to the Company pursuant to Section 7 of the conversion of any or
all of the shares held by the holder (accompanied by a certificate or
certificates for such shares, duly endorsed or assigned to the Company), then
the exchange shall not become effective as to the shares to be converted and the
conversion shall become effective as provided in Section 7.
(e) The Debentures will be delivered to the persons
entitled thereto upon surrender to the Company or its agent appointed for that
purpose of the certificates for the shares of 1999 Preferred Stock being
exchanged therefor.
(f) Notwithstanding the other provisions of this Section
11, if on the Exchange Date the Company has not paid full cumulative dividends
on the 1999 Preferred Stock (or set aside a sum therefor) or an Event of Default
under the Indenture shall have occurred and be continuing, the Company may not
exchange the 1999 Preferred Stock for the Debentures and any notice previously
given pursuant to this Section 11 shall be of no effect.
(g) Prior to the Exchange Date, the Company will comply
with any applicable securities and blue sky laws with respect to the exchange of
the 1999 Preferred Stock for the Debentures.
(h) Dividends with respect to the shares of 1999
Preferred Stock to be exchanged which are due on the quarterly Dividend Payment
Date on which the exchange is effected will be mailed to holders in the regular
course.
12. RECORD HOLDERS. The Company and the Transfer Agent may deem
and treat the record holder of any shares of 1999 Preferred Stock as the true
and lawful owner thereof for all purposes and neither the Company nor the
Transfer Agent shall be affected by any notice to the contrary.
13. NOTICE. Except as may otherwise be provided for herein, all
notices referred to herein shall be in writing, and all notices hereunder shall
be deemed to have been given upon the earlier of receipt of such notice or three
Business Days after the mailing of such notice if sent by registered mail
(unless first-class mail shall be specifically permitted for such notice
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<PAGE> 16
under the terms of this resolution) with postage prepaid, addressed, if to the
Company, to its offices at 64 Sidney Street, Cambridge, Massachusetts 02139-4136
(Attention: Chief Financial Officer) or to an agent of the Company designated as
permitted by this certificate, or, if to any holder of 1999 Preferred Stock, to
such holder at the address of such holder of 1999 Preferred Stock as listed in
the Company's stock records or to such other address as the Company or holder,
as the case may be, shall have designated by notice similarly given.
14. RESTRICTIONS ON TRANSFER.
(a) RESTRICTED SECURITIES. The shares of 1999 Preferred
Stock have not been registered under the Securities Act and therefore are
"restricted securities" under the federal securities laws. Under such laws and
applicable regulations, such shares may be resold without registration under the
Securities Act only in certain limited circumstances pursuant to the resale
limitations imposed thereby.
(b) LIMITATIONS ON DISPOSITIONS. Under the Securities
Act, dispositions of all or any portion of the shares of 1999 Preferred Stock
cannot be made unless and until:
(i) There is then in effect a registration
statement under the Securities Act covering such proposed disposition and such
disposition is made in accordance with such registration statement; or
(ii) There exists an exemption under the
Securities Act so that such disposition will not require registration of such
shares under the Securities Act, including a disposition made in accordance with
Rule 144.
(d) LEGEND. Certificates evidencing the shares of 1999
Preferred Stock may bear the following legend: "The Securities evidenced by this
certificate have not been registered under the Securities Act of 1933, as
amended (the "Act"), and are "restricted securities" as defined in Rule 144
promulgated under the Act. The securities may not be sold or offered for sale or
otherwise distributed except (i) pursuant to an effective registration statement
for the securities under the Act; (ii) in compliance with Rule 144; or (iii)
after receipt of an opinion of counsel reasonably satisfactory to Alkermes that
such registration or compliance is not required as to said sale, offer or
distribution."
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<PAGE> 17
15. FORM OF NOTICE OF CONVERSION. The following is the form of
Conversion Notice to be set forth on the reverse of the 1999 Preferred Stock
certificate:
[FORM OF CONVERSION NOTICE]
CONVERSION NOTICE
To: Alkermes, Inc.
BankBoston, N.A.
The undersigned registered owner of the 1999 Preferred Stock hereby
irrevocably exercises the option to convert the 1999 Preferred Stock, or the
portion hereof below designated, into shares of Common Stock or Non-Voting
Common Stock in accordance with the terms of the 1999 Preferred Stock Statement,
and directs that the shares issuable and deliverable upon such conversion,
together with any check in payment for fractional shares and any 1999 Preferred
Stock representing any unconverted amount of shares hereof, be issued and
delivered to the registered holder hereof unless a different name has been
indicated below. If shares or any portion of the 1999 Preferred Stock not
converted are to be issued in the name of a person other than the undersigned,
the undersigned will pay all transfer taxes payable with respect thereto.
Dated:
Signature(s)
Signature(s) must be guaranteed by an
eligible Guarantor Institution (banks, stock
brokers, savings and loan associations and
credit unions) with membership in an
approved signature guarantee medallion
program pursuant to Securities and Exchange
Commission Rule 17AD-15 if shares of Common
Stock are to be issued, or the 1999
Preferred Stock to be delivered, other than
to and in the name of the registered holder.
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<PAGE> 18
Signature Guarantee
Fill in for registration of shares if to be issued, and the 1999 Preferred Stock
if to be delivered, other than to and in the name of the registered holder:
- ------------------------------------
(Name)
- ------------------------------------
(Street Address)
- ------------------------------------
(City, State and Zip Code)
Please print name and address
Number of shares to be converted (if less
than all):
-----------------------------------------
Social Security or Other Taxpayer
Identification Number
18
<PAGE> 1
Exhibit 3.1(g)
ALKERMES, INC.
EXHIBIT A TO STATEMENT WITH RESPECT TO SHARES
RESOLUTIONS ESTABLISHING NON-VOTING COMMON STOCK
($.01 Par Value)
----------
RESOLVED, that pursuant to authority expressly granted to and vested in
the Board of Directors of Alkermes, Inc. (the "Company"), a Pennsylvania
corporation, by the provisions of the Second Amended and Restated Articles of
Incorporation, as amended, of the Company (the "Articles of Incorporation"),
there is hereby established a series of common stock, par value $.01 per share,
which shall consist of 450,000 of the 2,000,000 shares of the undesignated and
unissued capital stock of the Company, and which shall have the following
designation and voting rights, limitations and special rights:
1. NUMBER OF SHARES AND DESIGNATION. 450,000 shares of capital
stock, par value $.01 per share, of the Company are hereby constituted as a
series of the common stock designated as Non-Voting Common Stock (the
"Non-Voting Common Stock").
2. VOTING RIGHTS.
(a) The holders of Non-Voting Common Stock will not have
any voting rights except as set forth below or as otherwise from time to time
required by law. In connection with any right to vote, each holder of Non-Voting
Common Stock will have one vote for each share of Non-Voting Common Stock held.
Any shares of Non-Voting Common Stock held by the Company or any entity
controlled by the Company shall not have voting rights hereunder and shall not
be counted in determining the presence of a quorum.
(b) So long as the Non-Voting Common Stock is
outstanding, the Company shall not, without the affirmative vote or consent of
the holders of at least a majority (unless a higher percentage shall then be
required by applicable law) of all outstanding shares of Non-Voting Common Stock
voting separately as a class, amend, alter or repeal any provision of the
Articles of Incorporation (including, without limitation, these resolutions) or
the Bylaws of the Company so as to affect adversely the rights of the Non-Voting
Common Stock; PROVIDED, HOWEVER, that no such vote shall be required to create,
authorize or issue, or reclassify any authorized stock of the Company into, or
increase the authorized amount of, any class or series of the Company's capital
stock ranking senior to, or on parity with, the Non-Voting Common Stock as to
dividends or as to distributions of assets upon liquidation, dissolution or
winding up of the Company, whether voluntary or involuntary, or any obligation
or security convertible into shares of such a class or series.
3. DIVIDEND, LIQUIDATION AND OTHER RIGHTS; SUBDIVISION AND
COMBINATIONS. The holders of shares of Non-Voting Common Stock (a) shall be
entitled to receive the same
<PAGE> 2
dividends or distributions, in cash, shares of stock or other property, as the
holders of Common Stock receive; (b) shall be entitled to the same liquidation
rights as, and on a parity with, the holders of Common Stock; and (c) shall be
entitled to any other rights or privileges as, and on a parity with, the holders
of the Common Stock. If the outstanding shares of Common Stock shall be
subdivided into a greater number of shares of Common Stock, or shall be combined
into a smaller number of shares of Common Stock, the shares of Non-Voting Common
Stock shall be similarly subdivided or combined.
4. AUTOMATIC CONVERSION. Each share of Non-Voting Common Stock
shall automatically be converted into one share of Common Stock immediately upon
the transfer of ownership by the initial holder or an "affiliate" of the initial
holder to a third party which is not an "affiliate" of such holder. In the event
of such an automatic conversion, the outstanding shares of Non-Voting Common
Stock shall be converted automatically without any further action by the holder
of such shares and whether or not the certificates representing such shares are
surrendered to the Company or its transfer agent. The Company shall not be
obligated to issue certificates evidencing the shares of Common Stock issuable
upon such automatic conversion unless the certificates evidencing such shares of
Non-Voting Common Stock are delivered to the Company or its transfer agent. Such
conversion shall be deemed to have been made on the date of transfer to such
third party holder and the person(s) entitled to receive shares of Common Stock
issuable upon conversion shall be treated for all purposes as the record holder
or holders of such shares of Common Stock as of such date. For purposes of this
section 4, "affiliate" means a person or an entity that directly or indirectly
controls, is controlled by or is under common control with the holder, where
"control" means the direct or indirect ownership of fifty percent or more of the
stock having the right to vote for directors thereof or the ability to otherwise
control the management of the holder.
5. CONVERSION AT HOLDER'S OPTION. (a) Subject to the limitation
in Section 5(c) below, each share of Non-Voting Common Stock shall be
convertible, at the option of the holder of such share, into one share of Common
Stock, by surrender of certificate or certificates representing the share or
shares of Non-Voting Common Stock to be converted in the manner provided in
Section 5(b). A holder of Non-Voting Common Stock is not entitled to any rights
of a holder of Common Stock until such holder has converted his Non-Voting
Common Stock to Common Stock and only to the extent such Non-Voting Common Stock
is deemed to have been converted to Common Stock under this Section 5.
(b) In order to exercise the conversion right, the holder
of Non-Voting Common Stock who intends to convert shall send a written notice
(the "Conversion Notice"), at least thirty (30) business days prior to an
intended conversion, to the Company and the Transfer Agent of his, her or its
election to convert such number of shares of Non-Voting Common Stock specified
in said notice. The holder of the Non-Voting Common Stock to be converted shall
surrender certificate or certificates (with the Conversion Notice) representing
the number of shares to be so converted, duly endorsed, to the Transfer Agent.
The Conversion Notice shall also state the name or names (with address) in which
the certificate or certificates for shares of Common Stock issuable on such
conversion shall be issued, and shall be accompanied by
<PAGE> 3
transfer taxes, if required. Each such share of Non-Voting Common Stock
surrendered for conversion shall, unless the shares of Common Stock issuable on
conversion are to be issued in the same name in which such share of Non-Voting
Common Stock is registered, be duly endorsed by, or be accompanied by
instruments of transfer in form satisfactory to the Company duly executed by,
the holder or his duly authorized attorney.
As promptly as practicable after satisfaction of the
requirements for conversion set forth above, the Company shall issue and shall
deliver to such holder or, if shares of Common Stock issuable on conversion are
to be issued in a name other than that in which such share of Non-Voting Common
Stock to be converted is registered (as if such transfer were a transfer of the
share of Non-Voting Common Stock so converted), to such other person, at the
Transfer Agent, certificate or certificates representing the number of shares of
Common Stock issuable upon the conversion of such share of Non-Voting Common
Stock in accordance with the provisions of this Section 5.
Each conversion shall be deemed to have been effected on the
date on which the requirements set forth above in the first paragraph of this
Section 5(b) have been satisfied as to such share of Non-Voting Common Stock so
converted, and the person in whose name any certificate or certificates for the
shares of Common Stock shall be issuable upon such conversion shall be deemed to
have become on said date the holder of record of the shares represented thereby;
PROVIDED, HOWEVER, that if any such surrender occurs on any date when the stock
transfer books of the Company shall be closed, the conversion shall be effected
on the next succeeding day on which such stock transfer books are open, and the
person in whose name the certificates are to be issued shall be the record
holder thereof for all purposes.
(c) Any holder of Non-Voting Common Stock may only
convert into Common Stock that number of shares of Non-Voting Common Stock so
that such converting holder of Non-Voting Common Stock shall beneficially own,
together with any other shares of the Company's stock entitled to vote for the
election of directors ("Voting Stock"), (a) no more than 49.99% of the issued
and outstanding shares of Voting Stock and (b) an amount of Voting Stock, the
aggregate value (as defined in the Hart-Scott-Rodino Antitrust Improvement Act
(16 C.F.R. Section 801.10)) of which, is no greater than $15 million.
<PAGE> 1
Exhibit 3.2
As amended and restated and
approved by the Board of Directors
at a meeting held June 2, 1999
BY-LAWS OF
ALKERMES, INC.
SHAREHOLDERS' MEETINGS
----------------------
1.1 PLACE. Meetings of shareholders shall be held at the principal
office of the Corporation or at such other place within or without the
Commonwealth of Pennsylvania as may be fixed by the Board of Directors.
1.2 ANNUAL MEETING. An annual meeting of shareholders for the
election of directors and the transaction of such other business as may properly
come before the meeting shall be held in each calendar year. The Board of
Directors shall, by resolution, set the date, time and place of the annual
meeting.
1.3 SPECIAL MEETINGS. Special meetings of shareholders may be
called at any time by the Chief Executive Officer or by the Board of Directors.
1.4 NOTICE. Written notice, stating the place, day and hour of
each meeting of shareholders and, in the case of a special meeting, the general
nature of the business to be transacted, shall be given by, or at the direction
of, the person calling the meeting to each shareholder of record entitled to
vote at the meeting at least five days prior to the day named for the meeting,
or ten days in the case of a meeting that will
<PAGE> 2
consider a fundamental change under Chapter 19 of the Pennsylvania Business
Corporation Law of 1988, as amended.
1.5 QUORUM, ADJOURNMENT AND ACTION BY SHAREHOLDERS. A quorum at
any meeting of shareholders shall consist of the presence, in person or by
proxy, of shareholders entitled to cast at least a majority of the votes which
all shareholders are entitled to cast on a particular matter, except that in the
case of a meeting called for the election of directors and adjourned for the
lack of a quorum, shareholders entitled to vote who attend a second adjourned
meeting, although less than a quorum, shall constitute a quorum for the election
of directors. When a quorum is present, except as may be otherwise specified in
the Articles of Incorporation, these by-laws, or provided by law, each matter
shall be decided by the vote of the holders of a majority of the votes cast on
such matter by the shareholders present in person or by proxy at the meeting and
entitled to vote thereon. The Board of Directors may provide by resolution with
respect to a specific meeting or with respect to a class of meetings that
shareholders may participate in any shareholders' meeting by means of conference
telephone or other communications equipment by which all persons participating
in the meeting can hear each other. Shareholders so participating shall be
deemed present at the meeting.
1.6 SHAREHOLDERS LIST. The officer or agent having charge of the
transfer books for shares of the Corporation shall make a complete list of the
shareholders entitled to vote at any meeting of shareholders, arranged in
alphabetical order with the
2
<PAGE> 3
address of and the number of shares held by each such shareholder. The list
shall be subject to the inspection of any shareholder during the whole time of
the meeting for the purposes thereof.
1.7 RECORD DATE. The Board of Directors may fix a time, not more
than ninety days prior to a) the date of any meeting of shareholders, b) the
date fixed for the payment of any dividend or distribution, c) the date for the
allotment of rights or d) the date when any change or conversion or exchange of
shares will be made or will go into effect, as a record date for the
determination of the shareholders i) entitled to notice of or to vote at any
such meeting, ii) entitled to receive payment of any such dividend or
distribution, iii) entitled to receive any such allotment of rights or iv)
entitled to exercise the rights in respect to any such change, conversion or
exchange of shares.
DIRECTORS
---------
2.1 BOARD OF DIRECTORS. The business and affairs of the
Corporation shall be managed under the direction of a Board of Directors, which
shall consist of not more than fifteen (15) nor less than five (5) natural
persons at least eighteen (18) years of age as fixed from time to time by the
Board of Directors.
2.2 ELECTION AND TERM OF OFFICE. Except as provided herein,
directors shall be elected by the shareholders at each annual meeting to hold
office until the next succeeding annual
3
<PAGE> 4
meeting and until their successors shall have been elected and qualified.
2.3 VACANCIES. Vacancies in the Board of Directors, including
vacancies resulting from an increase in the number of directors, shall be filled
by a majority of the remaining directors though less than a quorum. A director
elected to fill a vacancy shall serve until the next annual meeting of
shareholders and until his successor is elected and qualified.
2.4 ANNUAL MEETING. An annual meeting of the Board of Directors
shall be held each year as soon as practicable after the annual meeting of
shareholders, at the place where such meeting of shareholders was held or at
such other place as the Board of Directors or the Chairman may determine, for
the purpose of organization of the Board, election of officers and the
transaction of any other business as may properly be brought before the meeting.
No notice of any kind of the annual meeting of the Board of Directors need be
given to either old or new directors.
2.5 REGULAR MEETINGS. Regular meetings of the Board of Directors
may be held without notice at such times and at such places as the directors may
determine from time to time. Notice of regular meetings need not be given.
2.6 SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by the Chairman, the Chief Executive Officer or by a majority of
the directors then in office and shall be held on notice by letter or telegram
mailed or delivered for transmission not later than on the second day
immediately
4
<PAGE> 5
preceding the day of such meeting, or by word of mouth or telephone or other
means received not later than during the day immediately preceding the day of
such meeting. Neither the business to be transacted at nor the purpose of any
special meeting of the Board of Directors need be specified in the notice or
waiver of notice of such meeting.
2.7 TELEPHONE MEETINGS. The Board of Directors may participate in
meetings of the Board by conference telephone or similar communications
equipment by means of which all persons participating in the meetings can hear
each other. Directors so participating will be deemed present.
2.8 QUORUM. A majority of the directors in office shall be
necessary to constitute a quorum for the transaction of business, and the acts
of a majority of the directors present and voting at a meeting at which a quorum
is present shall be the acts of the Board of Directors.
2.9 UNANIMOUS CONSENT. Any action which may be taken at a meeting
of the directors, or members of one of the committees appointed by the Board,
may be taken without a meeting if, prior or subsequent to the action, a consent
or consents in writing setting forth the action so taken shall be signed by all
the directors or members of the Committee, as the case may be, and shall be
filed with the Secretary of the Corporation.
2.10 PAYMENTS TO DIRECTORS. The directors may be reimbursed for the
expenses of attending Board meetings and committee meetings and may be paid a
fixed sum for attendance at each meeting or such other compensation for their
services as
5
<PAGE> 6
may, from time to time, be fixed by the Board of Directors. No such payment
shall preclude any director from serving the Corporation in any other capacity
and receiving compensation therefor.
2.11 SALARIES. The salaries and other compensation of officers and
assistant officers shall be fixed by the Board of Directors.
2.12 DIVIDENDS. The directors may, subject to the laws of the
Commonwealth of Pennsylvania, declare and pay dividends from time to time.
2.13 LIABILITY OF DIRECTORS. A director of the Corporation shall
not be personally liable, as such, for monetary damages for any action taken, or
any failure to take any action, on or after January 27, 1987 unless he has
breached or failed to perform the duties of his office as provided for under
Section 1713 of the Pennsylvania Business Corporation Law of 1988, as amended,
and the breach or failure to perform constitutes self-dealing, willful
misconduct or recklessness. Any repeal, amendment, or modification of this
Section shall be prospective only and shall not increase, but may decrease a
director's liability with respect to actions or failures to act occurring prior
to such change.
2.14 NOMINATIONS. Nominations for election to the Board of
Directors may be made by the Board of Directors, or if delegated by the Board to
such committee, by a Nominating Committee of the Board of Directors, or by any
holder of any outstanding shares of the Corporation entitled to vote for the
6
<PAGE> 7
election of directors. Nominations, other than those made by or on behalf of the
Board of Directors, shall be made in writing and shall be delivered or mailed to
the Chairman of the Board not later than 90 days in advance of the anniversary
date of the Corporation's proxy statement for the Corporation's annual meeting
of shareholders in the previous calendar year. Such notification shall contain
the following information to the extent known to the notifying shareholder(s):
(a) the name and address of each proposed nominee; (b) the principal occupation
of each proposed nominee; (c) the total number of shares of the Corporation's
voting stock that will be voted for each proposed nominee by the notifying
shareholder(s); (d) the name and residence address of the notifying
shareholder(s); (e) the number of shares of the Corporation owned by the
notifying shareholder(s); (f) such other information about each nominee proposed
by such shareholder(s) as would be required to be included in a proxy statement
filed pursuant to the proxy rules of the Securities and Exchange Commission had
the nominee been nominated or intended to be nominated by the Board of
Directors; and (g) the consent of each nominee to serve as a director of the
Corporation if so elected. Nominations not made in accordance herewith shall be
disregarded by the Chairman of the meeting and votes cast for such nominee shall
not be counted.
7
<PAGE> 8
COMMITTEES
----------
3.1 ELECTION. The by-laws or the Board of Directors may establish
one or more committees consisting in each case of one or more directors, and may
designate one or more directors as alternate members of such a committee. Any
such committee shall have power to manage the business and affairs of the
Corporation to the extent provided in the resolution by which it is established,
provided, however, that no such committee shall have any power to a) submit to
the shareholders any action requiring approval of the shareholders under the
Pennsylvania Business Corporation Law of 1988, as amended, b) create or fill
vacancies on the Board, c) amend or repeal these by-laws or adopt new by-laws,
d) amend or repeal any resolution of the Board that by its terms is amendable or
repealable only by the Board or e) act on any matter committed by these by-laws
or by resolution of the Board to another committee of the Board. In the absence
or disqualification of any member of a committee, the other member or members
who are not themselves disqualified, whether or not they constitute a quorum,
may unanimously appoint another director to act at the meeting in place of the
absent or disqualified member.
3.2 QUORUM. A majority of the directors appointed to a committee
shall constitute a quorum for the transaction of business, and the acts of a
majority of the directors appointed to a committee present at a meeting of the
committee at which a quorum is present shall be the acts of the committee.
8
<PAGE> 9
3.3 MEETINGS AND NOTICES. A committee may, by resolution, fix
regular meeting dates of which no notice need be given to members of the
committee. Special meetings of a committee may be held at the call of the
chairman of the committee upon such notice as is provided in these by-laws for
special meetings of the Board of Directors.
3.4 BOARD SUBMISSION. All action taken by the committees shall be
reported to the Board not later than the next succeeding regular meeting of the
Board.
OFFICERS
--------
4.1 NUMBER. The officers of the Corporation shall be a Chairman of
the Board, a Chief Executive Officer, a President, a Secretary, a Treasurer and,
in addition, may include one or more Vice Presidents and such other officers and
assistant officers as the Board of Directors may elect. Any two or more offices
may be held by the same person. None of the officers need be a member of the
Board of Directors.
4.2 ELECTION. The officers and assistant officers shall be elected
by the Board of Directors at its annual meeting, or as soon thereafter as
possible, and shall hold office until their successors are elected and qualified
or until their death, resignation or removal by the Board of Directors.
4.3 VACANCIES. A vacancy by reason of death, resignation or
removal of any officer or assistant officer or by reason of the creation of a
new office may be filled by the Board of Directors.
9
<PAGE> 10
4.4 GENERAL DUTIES. All officers and assistant officers, as
between themselves and the Corporation, shall have such authority and perform
such duties in the management of the property and affairs of the Corporation as
may be provided in these by-laws and as may be determined by resolution of the
Board of Directors not inconsistent with these by-laws.
4.5 CHAIRMAN OF THE BOARD. The Chairman of the Board ("Chairman")
shall preside at all meetings of the Board of Directors. The Chairman shall, in
general, perform all other duties incident to the office of Chairman of the
Board and such other duties as may be assigned by the Board of Directors.
4.6 CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall
preside at all meetings of the shareholders. The Chief Executive Officer shall,
in general, perform all duties incident to the office of the chief executive and
such other duties as may be assigned by the Board of Directors. In the absence
or disability of the Chairman, he shall preside at all meetings of the Board of
Directors and shall otherwise perform the duties and exercise the powers of the
Chairman.
4.7 PRESIDENT. The President shall be the Chief Operating Officer
of the Corporation. The President shall, in the absence or disability of the
Chief Executive Officer, perform the duties and exercise the powers of the Chief
Executive Officer and shall perform such other duties and have such other powers
as the Board of Directors or the Chief Executive Officer may from time to time
prescribe.
10
<PAGE> 11
4.8 VICE PRESIDENTS. The Vice President, or if there shall be more
than one, the Vice Presidents in the order determined by the Board of Directors,
shall, in the absence or disability of the President, perform the duties and
exercise the powers of the President and shall perform such other duties and
have such other powers as the Board of Directors or the Chief Executive Officer
may from time to time prescribe.
4.9 SECRETARY. The Secretary shall be custodian of the books and
records of the Corporation other than those in the custody of the Treasurer. He
shall be custodian of the seal and is hereby authorized to affix the seal to all
documents, the execution and delivery of which are duly authorized. The
Secretary shall record the minutes of all meetings of shareholders and of the
Board of Directors and shall be responsible for the giving of all notices of
such meetings in accordance with these by-laws. The Secretary shall, in general,
perform such other duties as are incident to the office of Secretary and as may
be assigned to him by the Board of Directors or by the Chief Executive Officer.
4.10 TREASURER. The Treasurer shall be the financial officer of the
Corporation. He shall have charge and custody of, and be responsible for, all
funds of the Corporation and the books and records relating to the same, and
shall deposit all such funds in the name of the Corporation in depositories
selected by the Board of Directors. He shall render to the Chief Executive
Officer and the Board of Directors, upon request, an account of all his
transactions as Treasurer and of the financial
11
<PAGE> 12
condition of the Corporation. The Treasurer shall, in general, perform such
other duties as are incident to the office of Treasurer and as may be assigned
to him by the Board of Directors or by the Chief Executive Officer. The
Treasurer shall, if required to do so by the Board of Directors, furnish a bond
in such form and amount and to cover such risks as the Board of Directors may
determine.
INDEMNIFICATION OF DIRECTORS, OFFICERS, AND OTHER PERSONS
---------------------------------------------------------
5.1 INDEMNIFICATION OF DIRECTORS, OFFICERS, AND OTHER PERSONS. The
Corporation shall indemnify any director, officer, employee or agent of the
Corporation or any of its subsidiaries who was or is an "authorized
representative" of the Corporation (which shall mean, for the purpose of this
Article, a director or officer of the Corporation, or a person serving at the
request of the Corporation as a director, officer, partner, fiduciary or trustee
of another corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise) and who was or is a "party" (which shall include for
purposes of this Article the giving of testimony or similar involvement) or is
threatened to be made a party to any "proceeding" (which shall mean for purposes
of this Article any threatened, pending or completed action, suit, appeal or
other proceeding of any nature, whether civil, criminal, administrative or
investigative, whether formal or informal, and whether brought by or in the
right of the Corporation, its shareholders or otherwise) by reason of the fact
that such person was or is an authorized representative of the
12
<PAGE> 13
Corporation to the fullest extent permitted by law, including without limitation
indemnification against expenses (which shall include for purposes of this
Article attorneys' fees and disbursements), damages, punitive damages,
judgments, penalties, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such proceeding unless the
act or failure to act giving rise to the claim is finally determined by a court
to have constituted willful misconduct or recklessness. If an authorized
representative is not entitled to indemnification in respect of a portion of any
liabilities to which such person may be subject, the Corporation shall
nonetheless indemnify such person to the maximum extent for the remaining
portion of the liabilities.
5.2 ADVANCEMENT OF EXPENSES. The Corporation shall pay the
expenses (including attorneys' fees and disbursements) actually and reasonably
incurred in defending a proceeding on behalf of any person entitled to
indemnification under Section 5.1 in advance of the final disposition of such
proceeding upon receipt of an undertaking by or on behalf of such person to
repay such amount if it shall ultimately be determined that such person is not
entitled to be indemnified by the Corporation as authorized in this Article and
may pay such expenses in advance on behalf of any employee or agent on receipt
of a similar undertaking. The financial ability of such authorized
representative to make such repayment shall not be prerequisite to the making of
an advance.
13
<PAGE> 14
5.3 EMPLOYEE BENEFIT PLANS. For purposes of this Article, the
Corporation shall be deemed to have requested an officer, director, employee or
agent to serve as fiduciary with respect to an employee benefit plan where the
performance by such person of duties to the Corporation also imposes duties on,
or otherwise involves services by, such person as a fiduciary with respect to
the plan; excise taxes assessed on an authorized representative with respect to
any transaction with an employee benefit plan shall be deemed "fines"; and
action taken or omitted by such person with respect to an employee benefit plan
in the performance of duties for a purpose reasonably believed to be in the
interest of the participants and beneficiaries of the plan shall be deemed to be
for a purpose which is not opposed to the best interests of the Corporation.
5.4 SECURITY FOR INDEMNIFICATION OBLIGATIONS. To further effect,
satisfy or secure the indemnification obligations provided herein or otherwise,
the Corporation may maintain insurance, obtain a letter of credit, act as
self-insurer, create a reserve, trust, escrow, cash collateral or other fund or
account, enter into indemnification agreements, pledge or grant a security
interest in any assets or properties of the Corporation, or use any other
mechanism or arrangement whatsoever in such amounts, at such costs, and upon
such other terms and conditions as the Board of Directors shall deem
appropriate.
5.5 RELIANCE UPON PROVISIONS. Each person who shall act as an
authorized representative of the Corporation shall be
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<PAGE> 15
deemed to be doing so in reliance upon the rights of indemnification provided by
this Article.
5.6 AMENDMENT OR REPEAL. All rights of indemnification under this
Article shall be deemed a contract between the Corporation and the person
entitled to indemnification under this Article pursuant to which the Corporation
and each such person intend to be legally bound. Any repeal, amendment or
modification hereof shall be prospective only and shall not limit, but may
expand, any rights or obligations in respect of any proceeding whether commenced
prior to or after such change to the extent such proceeding pertains to actions
or failures to act occurring prior to such change.
5.7 SCOPE OF ARTICLE. The indemnification, as authorized by this
Article, shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled under any
statute, agreement, vote of shareholders or disinterested directors or
otherwise, both as to action in an official capacity and as to action in any
other capacity while holding such office. The indemnification and advancement of
expenses provided by, or granted pursuant to, this Article shall continue as to
a person who has ceased to be an officer, director, employee or agent in respect
of matters arising prior to such time, and shall inure to the benefit of the
heirs, executors and administrators of such person.
15
<PAGE> 16
FINANCIAL STATEMENTS TO SHAREHOLDERS
------------------------------------
6.1 FINANCIAL STATEMENTS. Except as otherwise provided in this
section, shareholders shall not be entitled to receive annual financial
statements from the Company. Nevertheless, the Board of Directors may, from time
to time in its discretion, and will, so long as it is obligated under any
agreement or contract with its shareholders, cause the Company to send financial
statements to the shareholders. Such financial statements may be consolidated
with the financial statements of one or more of the Company's subsidiaries and
may present such financial data regarding the Company as the Board of Directors
may determine in its discretion. Except as otherwise provided by agreement with
its shareholders, such financial statements shall not be required to be prepared
on the basis of generally accepted accounting principles, shall not be required
to be audited or reviewed and shall not be required to be accompanied by either
a report of a public accountant engaged to audit or review such financial
statements or a statement of the person in charge of the financial records of
the Company.
CERTIFICATES
------------
7.1 ISSUANCE. Any or all classes or series of shares or other
securities of the Corporation, or any part thereof, may be represented by
certificates or may be uncertificated securities, provided, however, that
securities represented by a certificate may not be uncertificated until such
certificate is surrendered to the Corporation. Certificates shall be signed by
the Chief Executive Officer, the President or any Vice President
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<PAGE> 17
and the Secretary or Assistant Secretary or the Treasurer or Assistant
Treasurer, or by such other officers as the Board of Directors may direct, and
shall be sealed with the corporate seal which may be a facsimile, engraved or
printed. Where the certificates are signed by a transfer agent or a registrar,
the signature of any officer of the Corporation appearing thereon may be a
facsimile, engraved or printed. The fact that an officer whose signature, manual
or in facsimile, appears on any certificate shall cease to be an officer of the
Corporation, either before or after such certificate is issued, shall not
invalidate such certificate.
7.2 LOSS OR DESTRUCTION OF CERTIFICATES. In case of loss or
destruction of a certificate, no new certificate shall be issued in lieu thereof
except upon satisfactory proof to the Board of Directors of such loss or
destruction and, in the discretion of the Board of Directors, upon the posting
of a bond or other indemnity in an amount satisfactory to the Board.
NOTICES
-------
8.1 WAIVER OF NOTICE. Any notice required to be given under these
by-laws may be effectively waived by the person entitled thereto by written
waiver signed before or after the meeting to which such notice would relate or
by attendance at such meeting otherwise than for the express purpose of
objecting at the beginning of the meeting to the transaction of any business
because the meeting was not lawfully called or convened.
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<PAGE> 18
8.2 MANNER OF GIVING NOTICE. Whenever written notice is required
to be given to any person, it may be given to such person either personally or
by sending a copy thereof by first class or express mail, postage prepaid, or by
telegram with messenger service specified, telex or TWX (with answerback
received) or courier service, charges prepaid, or by facsimile transmission to
the address (or the telex, TWX or facsimile number) appearing on the books of
the Corporation next to his name or to the address supplied by him to the
Corporation for the purpose of notice. If the notice is sent by mail or by
telegraph or by courier service, it shall be deemed to have been given to the
person entitled thereto when deposited in the United States mail or with a
telegraph office or courier service for delivery to such person or, in the case
of telex or TWX, when dispatched. Such notice shall specify the place, day and
hour of the meeting and, in the case of a special meeting of shareholders, the
general nature of the business to be transacted.
MISCELLANEOUS PROVISIONS
------------------------
9.1 SIGNING AUTHORITY. All checks or demands for money and notes
of the Corporation shall be signed by such officer or officers as the Board of
Directors may from time to time designate.
9.2 FISCAL YEAR. The fiscal year of the Corporation shall be fixed
by resolution of the Board of Directors.
9.3 SHARE STATUS. The Board of Directors may, by resolution,
restore any or all of the previously issued shares of
18
<PAGE> 19
the Corporation owned by it to the status of authorized but unissued shares.
AMENDMENTS
----------
10.1 AMENDMENTS. These by-laws may be altered, amended or repealed
and new by-laws may be adopted a) at any annual, regular or special meeting of
the Board of Directors by the vote of a majority of all the directors of the
Corporation in office or b) by a majority of the votes cast at any annual,
regular or special meeting of shareholders, after notice to the shareholders or
directors, as the case may be, of that purpose; PROVIDED, HOWEVER, that, no
alteration, amendment or repeal of these by-laws that limits indemnification
rights, increases the liability of directors or changes the manner or vote
required to make such alteration, amendment or repeal, shall be made except by
the affirmative vote of the shareholders entitled to cast at least a majority of
the votes which all shareholders are entitled to cast thereon.
19
<PAGE> 1
Exhibit 4.3
INCORPORATED UNDER THE LAWS OF THE
COMMONWEALTH OF PENNSYLVANIA
NUMBER SHARES
SPECIMEN SPECIMEN
ALKERMES, INC.
1999 Redeemable Convertible Exchangeable Preferred Stock
3,500 Shares Authorized
$.01 Par Value
THIS CERTIFIES THAT ___ SPECIMEN ___ is the registered holder of _______________
___________________________________________________________ Shares of the 1999
Redeemable Convertible Exchangeable Preferred Stock of ALKERMES, Inc.
transferable only on the books of the Corporation by the holder hereof in person
or by Attorney upon surrender of this Certificate properly endorsed.
In Witness Whereof, the said Corporation has caused this Certificate to
be signed by its duly authorized officers and its Corporate Seal to be hereunto
affixed this _______________ day of _________________________ A.D. ________.
________________________________ __________________________________
Secretary Chief Executive Officer
[SEAL]
<PAGE> 2
THE CORPORATION WILL FURNISH TO ANY SHAREHOLDER, UPON REQUEST AND WITHOUT
CHARGE, A STATEMENT OF THE DESIGNATIONS, VOTING RIGHTS, PREFERENCES, LIMITATIONS
AND SPECIAL RIGHTS OF THE SHARES OF EACH CLASS OR SERIES AUTHORIZED TO BE ISSUED
SO FAR AS THEY HAVE BEEN FIXED AND DETERMINED AND THE AUTHORITY OF THE BOARD OF
DIRECTORS TO FIX AND DETERMINE THE DESIGNATIONS, VOTING RIGHTS, PREFERENCES,
LIMITATIONS AND SPECIAL RIGHTS OF THE CLASSES AND SERIES OF SHARES OF THE
CORPORATION.
For Value Received, _____________________________ hereby sell, assign
and transfer unto_______________________________________________________________
________________________________________________________________________ Shares
represented by the within Certificate, and do hereby irrevocably constitute and
appoint:
__________________________________________________________________ Attorney
to transfer the said Shares on the books of the within named Corporation with
full power of substitution in the premises.
Dated: ____________________
In presence of _______________________________________________________
_______________________________________________________________________________
NOTICE. THE SIGNATURE OF THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE, IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER.
2
<PAGE> 1
Exhibit 4.4
INCORPORATED UNDER THE LAWS OF THE
COMMONWEALTH OF PENNSYLVANIA
NUMBER SHARES
SPECIMEN SPECIMEN
ALKERMES, INC.
Non-Voting Common Stock
450,000 Shares Authorized
$.01 Par Value
THIS CERTIFIES THAT ___ SPECIMEN ___ is the registered holder of________________
________________________________ Shares of the Non-Voting Common Stock of
ALKERMES, Inc. transferable only on the books of the Corporation by the holder
hereof in person or by Attorney upon surrender of this Certificate properly
endorsed.
In Witness Whereof, the said Corporation has caused this Certificate to
be signed by its duly authorized officers and its Corporate Seal to be hereunto
affixed this _______________ day of _________________________ A.D. ________.
________________________________ __________________________________
Secretary Chief Executive Officer
[SEAL]
<PAGE> 2
THE CORPORATION WILL FURNISH TO ANY SHAREHOLDER, UPON REQUEST AND WITHOUT
CHARGE, A STATEMENT OF THE DESIGNATIONS, VOTING RIGHTS, PREFERENCES, LIMITATIONS
AND SPECIAL RIGHTS OF THE SHARES OF EACH CLASS OR SERIES AUTHORIZED TO BE ISSUED
SO FAR AS THEY HAVE BEEN FIXED AND DETERMINED AND THE AUTHORITY OF THE BOARD OF
DIRECTORS TO FIX AND DETERMINE THE DESIGNATIONS, VOTING RIGHTS, PREFERENCES,
LIMITATIONS AND SPECIAL RIGHTS OF THE CLASSES AND SERIES OF SHARES OF THE
CORPORATION.
For Value Received, _____________________________ hereby sell, assign
and transfer unto_______________________________________________________________
________________________________________________________________________ Shares
represented by the within Certificate, and do hereby irrevocably constitute and
appoint:
__________________________________________________________________ Attorney
to transfer the said Shares on the books of the within named Corporation with
full power of substitution in the premises.
Dated: ____________________
In presence of _______________________________________________________
_______________________________________________________________________________
NOTICE. THE SIGNATURE OF THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE, IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER.
2
<PAGE> 1
Exhibit 10.6
This Plan was initially approved on April 3, 1998 and, as assumed by the
Company, was approved by its Board of Directors on April 7, 1999.
ALKERMES, INC.
1998 EQUITY INCENTIVE PLAN
1. Purpose
The purpose of the Alkermes, Inc. 1998 Equity Incentive Plan (the
"PLAN") is to attract and retain key employees and consultants of the Company
and its Affiliates, to provide an incentive for them to achieve long-range
performance goals, and to enable them to participate in the long-term growth of
the Company by granting Awards with respect to the Company's Common Stock.
Certain capitalized terms used herein are defined in Section 8 below.
2. Administration
The Plan shall be administered by the Committee. The Committee shall
select the Participants to receive Awards and shall determine the terms and
conditions of the Awards. The Committee shall have authority to adopt, alter and
repeal such administrative rules, guidelines and practices governing the
operation of the Plan as it shall from time to time consider advisable, and to
interpret the provisions of the Plan. The Committee's decisions shall be final
and binding. To the extent permitted by applicable law, the Committee may
delegate to one or more executive officers of the Company the power to make
Awards to Participants who are not Covered Employees.
3. Eligibility
All employees and consultants of the Company or any Affiliate capable
of contributing significantly to the successful performance of the Company,
other than a person who has irrevocably elected not to be eligible, are eligible
to be Participants in the Plan. Incentive Stock Options were granted only to
persons eligible to receive such Options under the Code.
4. Stock Available for Awards
(a) Amount. Subject to adjustment under subsection (b), Awards may
be made under the Plan for up to 591,487 shares of Common Stock, of which shares
Options to purchase 119,474 shares of Common Stock and 53,327 shares of
Restricted Stock were awarded prior to the assumption of the Plan, leaving
418,686 shares of Common Stock available for Awards. If any Award expires or is
terminated unexercised or is forfeited or settled in a manner that results in
fewer shares outstanding than were awarded, the shares subject to such Award, to
the extent of such expiration, termination, forfeiture or decrease, shall again
be available for award under the Plan. Common Stock issued through the
assumption or substitution of outstanding grants from an acquired company shall
not reduce the shares available for Awards under the Plan. Shares issued under
the Plan may consist in whole or in part of authorized but unissued shares or
treasury shares.
<PAGE> 2
(b) Adjustment. In the event that the Committee determines that
any stock dividend, extraordinary cash dividend, recapitalization,
reorganization, merger, consolidation, split-up, spin-off, combination, exchange
of shares or other transaction affects the Common Stock such that an adjustment
is required in order to preserve the benefits intended to be provided by the
Plan, then the Committee (subject in the case of Incentive Stock Options to any
limitation required under the Code) shall equitably adjust any or all of (i) the
number and kind of shares in respect of which Awards may be made under the Plan,
(ii) the number and kind of shares subject to outstanding Awards, (iii) the
exercise price with respect to any of the foregoing, provided that the number of
shares subject to any Award shall always be a whole number, and (iv) if
considered appropriate, the Committee may make provision for a cash payment with
respect to an outstanding Award; provided that in the case (i) or (ii) above the
number of shares subject to any Award shall always be a whole number.
5. Stock Options
(a) Grant of Options. Subject to the provisions of the Plan, after
the assumption of the Plan by the Company the Committee may grant options
("OPTIONS") to purchase shares of Common Stock not intended to comply with the
requirements of Section 422 of the Code or any successor provision and any
regulations thereunder ("NONSTATUTORY STOCK OPTIONS"). The Committee shall
determine the number of shares subject to each Option and the exercise price
therefor. Prior to the date of the assumption of the Plan by the Company,
Options to purchase shares of Common Stock complying with the requirements of
Section 422 of the Code or any successor provision and any regulations
thereunder ("INCENTIVE STOCK OPTIONS") were granted as authorized under the Plan
and such granted Incentive Stock Options remain in full force and effect.
Incentive Stock Options had or shall have an exercise price of at least
100% of the Fair Market Value of the Common Stock on the date of grant. No
Incentive Stock Option may be granted hereunder after the effective date of the
assumption of the Plan by the Company.
(b) Terms and Conditions. Each Option shall be exercisable at such
times and subject to such terms and conditions as the Committee may specify in
the applicable grant or thereafter. The Committee may impose such conditions
with respect to the exercise of Options, including conditions relating to
applicable federal or state securities laws, as it considers necessary or
advisable.
(c) Payment. No shares shall be delivered pursuant to any exercise
of an Option until payment in full of the exercise price therefor is received by
the Company. Such payment for shares to be delivered pursuant to any exercise of
an Option may be made in whole or in part in cash or, to the extent permitted by
the Committee at or after the grant of the Option, by delivery of a note or
other commitment satisfactory to the Committee or shares of Common Stock owned
by the optionee, including Restricted Stock, or by retaining shares otherwise
issuable pursuant to the Option, in each case valued at their Fair Market Value
on the date of delivery or retention, or such other lawful consideration,
including a payment commitment of a financial or brokerage institution, as the
Committee may determine.
6. Restricted Stock
(a) Grant of Restricted Stock. Subject to the provisions of the
Plan, the Committee may grant shares of Common Stock subject to forfeiture
("RESTRICTED STOCK") and determine the duration of the period (the "RESTRICTED
PERIOD") during which, and the conditions under which, the shares may be
forfeited to the Company and the other terms and conditions of such Awards.
Shares of Restricted Stock may be issued for no cash consideration, such minimum
consideration as may be required by applicable law or such other consideration
as the Committee may determine.
2
<PAGE> 3
(b) Restrictions. Shares of Restricted Stock (may not be sold,
assigned, transferred, pledged or otherwise encumbered, except as permitted by
the Committee, during the Restricted Period. Shares of Restricted Stock shall be
evidenced in such manner as the Committee may determine. Any certificates issued
in respect of shares of Restricted Stock shall be registered in the name of the
Participant and unless otherwise determined by the Committee, deposited by the
Participant, together with a stock power endorsed in blank, with the Company. At
the expiration of the Restricted Period, the Company shall deliver such
certificates to the Participant or if the Participant has died, to the
Participant's Designated Beneficiary.
7. General Provisions Applicable to Awards
(a) Documentation. Each Award under the Plan shall be evidenced by
a writing, delivered to the Participant specifying the terms and conditions
thereof and containing such other terms and conditions not inconsistent with the
provisions of the Plan as the Committee considers necessary or advisable to
achieve the purposes of the Plan or to comply with applicable tax and regulatory
laws and accounting principles.
(b) Committee Discretion. Each type of Award may be made alone, in
addition to or in relation to any other Award. The terms of each type of Award
need not be identical, and the Committee need not treat Participants uniformly.
Except as otherwise provided by the Plan or a particular Award, any
determination with respect to an Award may be made by the Committee at the time
of grant or at any time thereafter.
(c) Dividends and Cash Awards. In the discretion of the Committee,
any Award under the Plan may provide the Participant with (i) dividends or
dividend equivalents payable (in cash or in the form of Awards under the Plan)
currently or deferred with or without interest and (ii) cash payments in lieu of
or in addition to an Award.
(d) Termination of Employment. The Committee shall determine the
effect on an Award of the disability, death, retirement or other termination of
employment of a Participant and the extent to which, and the period during
which, the Participant's legal representative, guardian or Designated
Beneficiary may receive payment of an Award or exercise rights thereunder.
(e) Change in Control. In order to preserve a Participant's rights
under an Award in the event of a "CHANGE IN CONTROL" (as defined by the
Committee) of the Company, the Committee in its discretion may, at the time an
Award is made or at any time thereafter, take one or more of the following
actions: (i) provide for the acceleration of any time period relating to the
exercise or payment of the Award, (ii) provide for payment to the Participant of
cash or other property with a Fair Market Value equal to the amount that would
have been received upon the exercise or payment of the Award had the Award been
exercised or paid upon the change in control, (iii) adjust the terms of the
Award in a manner determined by the Committee to reflect the change in control,
(iv) cause the Award to be assumed, or new rights substituted therefor, by
another entity, or (v) make such other provision as the Committee may consider
equitable to Participants and in the best interests of the Company.
(f) Loans. The Committee may authorize the making of loans or
cash payments to Participants in connection with the grant or exercise of any
Award under the Plan, which loans may be secured by any security, including
Common Stock, underlying or related to such Award (provided that the loan shall
not exceed the Fair Market Value of the security subject to such Award), and
which may be forgiven upon such terms and conditions as the Committee may
establish at the time of such loan or at any time thereafter.
3
<PAGE> 4
(g) Transferability. In the discretion of the Committee, any Award
may be made transferable upon such terms and conditions and to such extent as
the Committee determines, provided that Incentive Stock Options may be
transferable only to the extent permitted by the Code. The Committee may in its
discretion waive any restriction on transferability.
(h) Withholding Taxes. The Participant shall pay to the Company,
or make provision satisfactory to the Committee for payment of, any taxes
required by law to be withheld in respect of Awards under the Plan no later than
the date of the event creating the tax liability. The Company and its Affiliates
may, to the extent permitted by law, deduct any such tax obligations from any
payment of any kind otherwise due to the Participant. In the Committee's
discretion, such tax obligations may be paid in whole or in part in shares of
Common Stock, including shares retained from the Award creating the tax
obligation, valued at their Fair Market Value on the date of delivery. The
Company and its Affiliates may, to the extent permitted by law, deduct any such
tax obligations from any payment of any kind otherwise due to the Participant.
(i) Foreign Nationals. Awards may be made to Participants who are
foreign nationals or employed outside the United States on such terms and
conditions different from those specified in the Plan as the Committee considers
necessary or advisable to achieve the purposes of the Plan or to comply with
applicable laws.
(j) Amendment of Award. The Committee may amend, modify or
terminate any outstanding Award, including substituting therefor another Award
of the same or a different type, changing the date of exercise or realization
and converting an Incentive Stock Option to a Nonstatutory Stock Option,
provided that the Participant's consent to such action shall be required unless
the Committee determines that the action, taking into account any related
action, would not materially and adversely affect the Participant.
8. Certain Definitions
"AFFILIATE" means any business entity in which the Company owns
directly or indirectly 50% or more of the total voting power or has a
significant financial interest as determined by the Committee.
"AWARD" means any Option or Restricted Stock granted under the Plan,
provided, that after the date of the assumption of the Plan by the Company,
"Award" shall not mean granting of Incentive Stock Options.
"BOARD" means the Board of Directors of the Company.
"CODE" means the Internal Revenue Code of 1986, as amended from time to
time, or any successor law.
"COMMITTEE" means the Board or one or more committees each comprised of
not less than two members of the Board appointed by the Board to administer the
Plan or a specified portion thereof.
"COMMON STOCK" or "STOCK" means the Common Stock, par value $0.01, of
the Company.
"COMPANY" means Alkermes, Inc., a Pennsylvania corporation.
"COVERED EMPLOYEE" means a "covered employee" within the meaning of
Section 162(m) of the Code.
4
<PAGE> 5
"DESIGNATED BENEFICIARY" means the beneficiary designated by a
Participant, in a manner determined by the Committee, to receive amounts due or
exercise rights of the Participant in the event of the Participant's death. In
the absence of an effective designation by a Participant, "DESIGNATED
BENEFICIARY" means the Participant's estate.
"FAIR MARKET VALUE" means, with respect to Common Stock or any other
property, the fair market value of such property as determined by the Committee
in good faith or in the manner established by the Committee from time to time.
"PARTICIPANT" means a person selected by the Committee to receive an
Award under the Plan.
9. Miscellaneous
(a) No Right To Employment. No person shall have any claim or
right to be granted an Award. Neither the Plan nor any Award hereunder shall be
deemed to give any employee the right to continued employment or to limit the
right of the Company to discharge any employee at any time.
(b) No Rights As Shareholder. Subject to the provisions of the
applicable Award, no Participant or Designated Beneficiary shall have any rights
as a shareholder with respect to any shares of Common Stock to be distributed
under the Plan until he or she becomes the holder thereof. A Participant to whom
Common Stock is awarded shall be considered the holder of the Stock at the time
of the Award except as otherwise provided in the applicable Award.
(c) Effective Date. The Plan shall be effective as of April 1,
1998.
(d) Assumption Date. The outstanding Awards granted under the Plan
were assumed by the Company in connection with the merger transaction among the
Company, Advanced Inhalation Research, Inc. and Alkermes Acquisition Sub, Inc.
effective February 1, 1999, and the Plan was assumed by the Company on April 7,
1999.
(e) Amendment of Plan. The Board may amend, suspend or terminate
the Plan or any portion thereof at any time, subject to such shareholder
approval as the Board determines to be necessary or advisable to comply with any
tax or regulatory requirement.
(f) Governing Law. The provisions of the Plan shall be governed by
and interpreted in accordance with the laws of Pennsylvania.
5
<PAGE> 6
EXHIBIT L-1
No. ISO-___ _____ Shares
ALKERMES, INC.
1998 EQUITY INCENTIVE PLAN
INCENTIVE STOCK OPTION CERTIFICATE*
Alkermes, Inc. (the "Company"), a Pennsylvania corporation, hereby
grants to the person named below an option to purchase shares of Common Stock,
par value $0.01, of the Company (the "Option") under and subject to the
Company's 1998 Equity Incentive Plan (the "Plan") exercisable on the following
terms and conditions and those set forth on the reverse side of this
certificate:
Name of Optionholder: _________________________
Address: _________________________
Social Security No. _________________________
Number of Shares: ____________________
Option Price: ____________________
Date of Grant: ____________________
Exercisability Schedule: [to be set at the time of Grant]
Expiration Date: [not more than ten years from
the Date of Grant as stated above]
This Option is intended to be treated as an Incentive Stock Option
under section 422 of the Internal Revenue Code of 1986, as amended (the "Code").
By acceptance of this Option, the Optionholder agrees to, the terms and
conditions hereof.
ALKERMES, INC.
By:_______________________________
* To be used after the assumption of the Plan by the Company only to reflect the
exchange of Incentive Stock Options of the Company for Incentive Stock Options
previously granted by Advanced Inhalation Research, Inc. pursuant to the Plan.
<PAGE> 7
ALKERMES, INC. 1998 EQUITY INCENTIVE PLAN
Incentive Stock Option Terms And Conditions
1. PLAN INCORPORATED BY REFERENCE . This option is issued
pursuant to the terms of the Plan and may be amended as provided in the Plan.
Capitalized terms used and not otherwise defined in this certificate have the
meanings given to them in the Plan. This certificate does not set forth all of
the terms and conditions of the Plan, which are incorporated herein by
reference. The Committee administers the Plan and its determinations regarding
the operation of the Plan are final and binding. Copies of the Plan may be
obtained upon written request without charge from the Company.
2. OPTION PRICE. The price to be paid for each share of Common
Stock issued upon exercise of the whole or any part of this Option is the Option
Price set forth on the face of this certificate.
3. EXERCISABILITY SCHEDULE. This Option may be exercised at any
time and from time to time for the number of shares and in accordance with the
exercisability schedule set forth on the face of this certificate, but only for
the purchase of whole shares. This Option may not be exercised as to any shares
after the Expiration Date.
4. METHOD OF EXERCISE. To exercise this Option. the Optionholder
shall deliver written notice of exercise to the Company specifying the number of
shares with respect to which the Option is being exercised accompanied by
payment of the Option Price for such shares in cash, by certified check or in
such other form, including shares of Common Stock of the Company valued at their
Fair Market Value on the date of delivery or a payment commitment of a financial
or brokerage institution. Promptly following such notice, the Company will
deliver to the Optionholder a certificate representing the number of shares with
respect to which the Option is being exercised.
5. RIGHTS AS A SHAREHOLDER OR EMPLOYEE. The Optionholder shall
not have any rights in respect of shares as to which the Option shall not have
been exercised and payment made as provided above. The Optionholder is an
employee-at-will unless, and only to the extent, provided in a separate written
agreement executed by the chief executive officer of the Company or his duly
authorized designee, and neither the Plan nor the grant of this Option shall be
deemed to give the Optionholder the right to continued employment or to limit
the right of the Company to discharge the Optionholder at any time.
6. RECAPITALIZATION, MERGERS, ETC. As provided in the Plan, in
the event of corporate transactions affecting the Company's outstanding Common
Stock, the Committee shall equitably adjust the number and kind of shares
subject to this Option and the exercise price hereunder or make provision for a
cash payment. If such transaction involves a consolidation or merger of the
Company with another entity, the sale, lease or exchange of all or substantially
all of the assets of the Company or a reorganization or liquidation of the
Company, then in lieu of the foregoing, the Committee may upon written notice to
the Optionholder provide that this Option may terminate on a date not less than
20 days after the date of such notice unless theretofore exercised. In
connection with such notice the Committee may accelerate or waive any deferred
exercise period.
7. OPTION NOT TRANSFERABLE. This Option is not transferable by
the Optionholder otherwise than by will or the laws of descent and distribution,
and is exercisable, during the Optionholder's lifetime, only by the
Optionholder. The naming of a Designated Beneficiary does not constitute a
transfer.
8. EXERCISE OF 0PTION AFTER TERMINATION OF EMPLOYMENT. If the
Optionholder's employment with (a) the Company, (b) an Affiliate, or (c) a
corporation (or parent or subsidiary corporation of such corporation) issuing or
assuming a stock option in a transaction to which section 424(a) of the Code
applies, is terminated for any reason other than by disability (within the
meaning of section 22(e)(3) of the Code) or death, the Optionholder may exercise
the rights which were available to the Optionholder at the time of such
termination only within three months from the date of termination. If the
Optionholder's employment is terminated as a result of disability, such rights
may be exercised within twelve months from the date of termination. Upon the
death of the Optionholder, his or her Designated Beneficiary shall have the
right, at any time within twelve months after the date of death, to exercise in
whole or in part any rights that were available to the Optionholder at the time
of death. Notwithstanding the foregoing, no rights under this Option may be
exercised after the Expiration Date.
9. COMPLIANCE WITH SECURITIES LAWS. It shall be a condition to
the Optionholder's right to purchase shares of Common Stock hereunder that the
Company may, in its discretion, require (a) that the shares of Common Stock
reserved for issue upon the exercise of this Option shall have been duly listed,
upon official notice of issuance, upon any national securities exchange or
automated quotation system on which the Company's Common Stock may then be
listed or quoted, (b) that either (i) a registration statement under the
Securities Act of 1933 with respect to the shares shall be in effect, or (ii) in
the opinion of counsel for the Company, the proposed purchase shall be exempt
from registration under that Act and the Optionholder shall have made such
undertakings and agreements with the Company as the Company may reasonably
require, and (c) that such other steps, if any, as counsel for the Company shall
consider necessary to comply with any laws applicable to the issue of such
shares by the Company shall have been taken by the Company or the Optionholder,
or both. The certificates representing the shares purchased under this Option
may contain such legends as counsel for the Company shall consider necessary to
comply with any applicable law.
10. PAYMENT OF TAXES. The Optionholder shall pay to the Company,
or make provision satisfactory to the Company for payment of, any taxes required
by law to be withheld with respect to the exercise of this Option. The Committee
may, in its discretion, require any other Federal or state taxes imposed on the
sale of the shares to be paid by the Optionholder. In the Committee's
discretion, such tax obligations may be paid in whole or in part in shares of
Common Stock, including shares retained from the exercise of this Option, valued
of their Fair Market Value on the date of delivery. The Company and its
Affiliates may, to the extent permitted by law, deduct any such tax obligations
from any payment of any kind otherwise due to the Optionholder.
11. NOTICE OF SALE OF SHARES REQUIRED. The Optionholder agrees to
notify the Company in writing within 30 days of the disposition of any shares
purchased upon exercise of this Option if such disposition occurs within two
years of the date of the grant of this Option or within one year after such
purchase.
<PAGE> 8
No. NSO-____ _____ Shares
ALKERMES, INC.
1998 EQUITY INCENTIVE PLAN
NONSTATUTORY STOCK OPTION CERTIFICATE
Alkermes, Inc. (the "Company"), a Pennsylvania corporation, hereby grants to the
person named below an option to purchase shares of Common Stock, par value
$0.01, of the Company (the "Option") under and subject to the Company's 1998
Equity Incentive Plan (the "Plan") exercisable on the following terms and
conditions and those set forth on the reverse side of this certificate:
Name of Optionholder: _________________________
Address: _________________________
[Social Security No. _________________________]
Number of Shares: ____________________
Option Price: ____________________
Date of Grant: ____________________
Exercisability Schedule: [to be set at the time of Grant)
Expiration Date: [not more than ten years from the
Date of Grant as stated above)
This Option shall not be treated as an Incentive Stock Option under
section 422 of the Internal Revenue Code of 1986, as amended (the "Code").
By acceptance of this Option, the Optionholder agrees to the terms and
conditions hereof.
ALKERMES, INC.
By: ______________________________
<PAGE> 9
ALKERMES, INC. 1998 EQUITY INCENTIVE PLAN
Nonstatutory Stock Option Terms And Conditions
1. PLAN INCORPORATED BY REFERENCE. This Option is issued pursuant
to the terms of the Plan and may be amended as provided in the Plan. Capitalized
terms used and not otherwise defined in this certificate have the meanings given
to them in the Plan. This certificate does not set forth all of the terms and
conditions of the Plan, which are incorporated herein by reference. The
Committee administers the Plan and its determinations regarding the operation of
the Plan are final and binding. Copies of the Plan may be obtained upon written
request without charge from the Company.
2. OPTION PRICE. The price to be paid for each share of Common
Stock issued upon exercise of the whole or any part of this Option is the Option
Price set forth on the face of this certificate.
3. EXERCISABILITY SCHEDULE. This Option may be exercised at any
time and from time to time for the number of shares and in accordance with the
exercisability schedule set forth on the face of this certificate, but only for
the purchase of whole shares. This Option may not be exercised as to any shares
after the Expiration Date.
4. METHOD OF EXERCISE. To exercise this Option, the Optionholder
shall deliver written notice of exercise to the Company specifying the number of
shares with respect to which the Option is being exercised accompanied by
payment of the Option Price for such shares in cash, by certified check or in
such other form. including shares of Common Stock of the Company valued at their
Fair Market Value on the date of delivery or a payment commitment of a financial
or brokerage institution. Promptly following such notice, the Company will
deliver to the Optionholder a certificate representing the number of shares with
respect to which the Option is being exercised.
5. RIGHTS AS A SHAREHOLDER OR EMPLOYEE. The Optionholder shall
not have any rights in respect of shares as to which the Option shall not have
been exercised and payment made as provided above. The Optionholder is an
employee-at-will unless, and only to the extent, provided in a separate written
agreement executed by the chief executive officer of the Company or his duly
authorized designee, and neither the Plan nor the grant of this Option shall be
deemed to give the Optionholder the right to continued employment or to limit
the right of the Company to discharge the Optionholder at any time.
6. RECAPITALIZATION, MERGERS, ETC. As provided in the Plan, in
the event of corporate transactions affecting the Company's outstanding Common
Stock, the number and kind of shares subject to this Option and the exercise
price hereunder shall be equitably adjusted. If such transaction involves a
consolidation or merger of the Company with another entity, the sale, lease or
exchange of all or substantially all of the assets of the Company or a
reorganization or liquidation of the Company, then in lieu of the foregoing, the
Committee may upon written notice to the Optionholder provide that this Option
may terminate on a date not less than 20 days after the date of such notice
unless theretofore exercised. In connection with such notice, the Committee may
accelerate or waive any deferred exercise period.
7. OPTION NOT TRANSFERABLE. This Option is not transferable by
the Optionholder otherwise than to the extent permitted by the Plan, and is
exercisable. during the Optionholder's lifetime, only by the Optionholder or the
Optionholder's immediate transferee as permitted by the Plan. The naming of a
Designated Beneficiary does not constitute a transfer.
8. EXERCISE OF OPTION AFTER TERMINATION OF EMPLOYMENT. If the
Optionholder's status as an employee or consultant of (a) the Company, (b) an
Affiliate, or (c) a corporation (or parent or subsidiary corporation of such
corporation) issuing or assuming a stock option in a transaction to which
section 424(a) of the Code applies, is terminated for any reason other than by
disability (within the meaning of section 22(e) (3) of the Code) or death, the
Optionholder may exercise the rights which were available to the Optionholder at
the time of such termination only within three months from the date of
termination. If such status is terminated as a result of disability, such rights
may be exercised within twelve months from the date of termination. Upon the
death of the Optionholder, his or her Designated Beneficiary shall have the
right, at any time within twelve months after the date of death, to exercise in
whole or in part any rights that were available to the Optionholder at the time
of death. Notwithstanding the foregoing, no rights under this Option may be
exercised after the Expiration Date.
9. COMPLIANCE WITH SECURITIES LAWS. It shall be a condition to
the Optionholder's right to purchase shares of Common Stock hereunder that the
Company may, in its discretion, require (a) that the shares of Common Stock
reserved for issue upon the exercise of this Option shall have been duty listed,
upon official notice of issuance, upon any national securities exchange or
automated quotation system on which the Company's Common Stock may then be
listed or quoted, (b) that either (i) a registration statement under the
Securities Act of 1933 with respect to the shares shall be in effect, or (ii) in
the opinion of counsel for the Company, the proposed purchase shall be exempt
from registration under that Act and the Optionholder shall have made such
undertakings and agreements with the Company as the Company may reasonably
require, and (c) that such other steps, if any, as counsel for the Company shall
consider necessary to comply with any law applicable to the issue of such shares
by the Company shall have been taken by the Company or the Optionholder, or
both. The certificates representing the shares purchased under this Option may
contain such legends as counsel for the Company shall consider necessary to
comply with any applicable law.
10. PAYMENT OF TAXES. The Optionholder shall pay to the Company,
or make provision satisfactory to the Company for payment of, any taxes required
by law to be withheld with respect to the exercise of this Option. The Committee
may, in its discretion, require any other Federal or state taxes imposed on the
sale of the shares to be paid by the Optionholder. In the Committee's
discretion, such tax obligations may be paid in whole or in part in shares of
Common Stock, including shares retained from the exercise of this Option, valued
at their Fair Market Value on the date of delivery. The Company and its
Affiliates may, to the extent permitted by law, deduct any such tax obligations
from any payment of any kind otherwise due to the Optionholder.
<PAGE> 1
Exhibit 10.7
ALKERMES, INC.
1999 STOCK OPTION PLAN
ARTICLE I
PURPOSE
The purpose of the 1999 Stock Option Plan (the "Plan") is to enable
Alkermes, Inc. (the "Company") to offer to certain officers, employees,
directors and consultants of the Company or any of its Subsidiaries options to
acquire equity interests in the Company, thereby helping to attract, retain and
reward such persons, and strengthen the mutuality of interests between such
persons and the Company's shareholders.
ARTICLE II
DEFINITIONS
For purposes of the Plan, the following terms shall have the following
meanings:
2.1 "ADMINISTRATOR" shall mean the Board or, if the Board has
delegated its responsibility to administer the Plan pursuant to Section 3.1, the
committee and/or subcommittee of the Board to which such responsibility has been
delegated.
2.2 "BOARD" shall mean the Board of Directors of the Company.
2.3 "CHANGE OF CONTROL" shall mean (a) the consolidation or merger
of the Company or any of its Subsidiaries holding or controlling a majority of
the assets relating to the business of the Company, with or into any third party
(other than a Subsidiary); (b) the assignment, sale, transfer, lease or other
disposition of all or substantially all of the assets of the Company and its
Subsidiaries taken as a whole; or (c) the acquisition by any third party or
group of third parties acting in concert, of beneficial ownership (within the
meaning of Rule 13d-3 of the Securities and Exchange Commission ("SEC") under
the Securities Exchange Act of 1934, as amended) of shares of voting stock of
the Company, the result of which in the case of any transaction described in
clauses (a), (b) and (c) above is that immediately after the transaction the
shareholders of the Company immediately before the transaction own less than
fifty percent
<PAGE> 2
(50%) of the outstanding shares of the surviving corporation in a transaction
specified in clause (a) above or the acquiror in a transaction specified in
clause (b) or (c) above.
2.4 "CODE" shall mean the Internal Revenue Code of 1986, as
amended.
2.5 "COMMON STOCK" shall mean the Common Stock, par value $.01 per
share, of the Company.
2.6 "DISABILITY" shall mean a disability that results in a
Participant's Termination of Employment, as determined pursuant to standard
Company procedures.
2.7 "EFFECTIVE DATE" shall mean the date on which the Plan is
adopted by the Board.
2.8 "FAIR MARKET VALUE" for purposes of the Plan, unless otherwise
required by any applicable provision of the Code or any regulations issued
thereunder, shall mean, as of any date, the average of the high and low sales
prices of a share of Common Stock as reported on the principal national
securities exchange on which the Common Stock is listed or admitted to trading,
or, if not listed or traded on any such exchange, on the Nasdaq Stock Market
("Nasdaq"), or, if such sales prices are not available, the average of the bid
and asked prices per share reported on Nasdaq, or, if such quotations are not
available, the fair market value as determined by the Board, which determination
shall be conclusive.
2.9 "INCENTIVE STOCK OPTION" shall mean any Stock Option that is
intended to be and is designated as an "incentive stock option" within the
meaning of Section 422 of the Code.
2.10 "NON-QUALIFIED STOCK OPTION" shall mean any Stock Option that
is not an Incentive Stock Option.
2.11 "PARTICIPANT" shall mean an officer, employee, director or
consultant of the Company or a Subsidiary to whom an Option has been granted
under the Plan.
2.12 "STOCK OPTION" or "OPTION" shall mean any option to purchase
shares of Common Stock granted pursuant to Article VI of the Plan.
2.13 "SUBSIDIARY" shall mean any corporation, limited partnership,
limited liability company or any other entity of which the Company owns more
than 50% of the voting stock or equity or a controlling interest.
2.14 "TERMINATION OF EMPLOYMENT" shall mean, as appropriate, (a)
the termination of a Participant's employment with the Company and its
subsidiaries for reasons
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other than a military or personal leave of absence granted by the Company, (b)
termination of a Participant's consulting relationship with the Company or (c)
termination of a Participant's service as a member of the Board.
ARTICLE III
ADMINISTRATION
3.1 THE ADMINISTRATOR. The Plan shall be administered and
interpreted by the Board; provided, however, that the Board may delegate this
responsibility to a committee and/or a subcommittee comprised of two or more
members of the Board.
3.2 AWARDS. The Administrator shall have full authority to grant,
pursuant to the terms of the Plan, Stock Options to persons eligible under
Article V. In particular, the Administrator shall have the authority:
(a) to select the officers, employees, directors and
consultants to whom Stock Options may from time to time be granted;
(b) to determine whether and to what extent Stock Options
are to be granted to one or more officers, employees, directors and consultants
eligible to receive Options under Article V;
(c) to determine the number of shares of Common Stock to
be covered by each Option granted pursuant to Article VI; and
(d) to determine the terms and conditions, not
inconsistent with the terms of the Plan, of any Option granted under Article VI
(including, but not limited to, the option price, the option term, installment
exercise or waiting period provisions and provisions relating to the waiver or
acceleration thereof).
3.3 GUIDELINES. Subject to Article VII hereof, the Administrator
shall have the authority to adopt, alter and repeal such administrative rules,
guidelines and practices governing the Plan as it shall, from time to time, deem
advisable; to interpret the terms and provisions of the Plan and any Option
granted under the Plan (and any agreements relating thereto); and to otherwise
supervise the administration of the Plan. The Administrator may correct any
defect, supply any omission or reconcile any inconsistency in the Plan or in any
Option in the manner and to the extent it shall deem necessary to carry the Plan
into effect. Notwithstanding the foregoing, no action of the Administrator under
this Section 3.3 shall impair the rights of any Participant without the
Participant's consent, unless otherwise required by law.
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3.4 DECISIONS FINAL. Any decision, interpretation or other action
made or taken in good faith by the Administrator arising out of or in connection
with the Plan shall be final, binding and conclusive on the Company, all
Participants, officers, employees, directors and consultants, and their
respective heirs, executors, administrators, successors and assigns.
ARTICLE IV
SHARE LIMITATION
4.1 SHARES. The maximum aggregate number of shares of Common Stock
that may be issued under the Plan in each calendar year is Two Million Five
Hundred Thousand (2,500,000) (subject to increase or decrease pursuant to
Section 4.2), which may be either authorized and unissued shares of Common Stock
or issued Common Stock which have been reacquired by the Company. If any Option
granted under the Plan shall expire, terminate or be cancelled for any reason
without having been exercised in full, the number of shares with respect to
which the Option has not been exercised shall again be available for the
purposes of the Plan.
4.2 CHANGES. In the event of any merger, reorganization,
consolidation, recapitalization, dividend (other than a regular cash dividend),
stock split, or other change in corporate structure affecting the Common Stock,
such substitution or adjustment shall be made in the maximum aggregate number of
shares which may be issued under the Plan, the maximum number of shares with
respect to which Options may be granted to any individual during any year, and
the number and option price of shares subject to outstanding Options, as may be
determined to be appropriate by the Board, in its sole discretion, provided that
the number of shares subject to any Option shall always be a whole number.
ARTICLE V
ELIGIBILITY
5.1 EMPLOYEES. Officers and other employees of the Company or any
of its Subsidiaries are eligible to be granted both Incentive Stock Options and
Non-Qualified Stock Options under the Plan.
5.2 DIRECTORS AND CONSULTANTS. Directors and consultants of the
Company or any of its Subsidiaries are eligible to be granted Non-Qualified
Stock Options, but may not receive Incentive Stock Options unless they are
employees of the Company or a Subsidiary corporation within the meaning of
Section 424 of the Code.
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ARTICLE VI
GRANT OF STOCK OPTIONS
6.1 GRANTS. The Administrator shall have the authority to grant to
any person, to the extent eligible under Article V, one or more Incentive Stock
Options, Non-Qualified Stock Options, or both types of Stock Options. To the
extent that any Stock Option does not qualify as an Incentive Stock Option
(whether because of its provisions or the time or manner of its exercise or
otherwise), such Stock Option or the portion thereof which does not qualify as
an Incentive Stock Option shall constitute a separate Non-Qualified Stock
Option.
6.2 INCENTIVE STOCK OPTIONS. Anything in the Plan to the contrary
notwithstanding, no term of this Plan relating to Incentive Stock Options shall
be interpreted, amended or altered, nor shall any discretion or authority
granted under the Plan be exercised, so as to disqualify the Plan under Section
422 of the Code, or, without the consent of the Participants affected, to
disqualify any Incentive Stock Option under such Section 422.
6.3 TERMS OF OPTIONS. Options granted under the Plan shall be
subject to the following terms and conditions and shall contain such additional
terms and conditions, not inconsistent with the terms of the Plan, as the
Administrator shall deem desirable:
(a) STOCK OPTION CERTIFICATE. Each Stock Option shall be
evidenced by, and subject to the terms of, a Stock Option Certificate executed
by the Company. The Stock Option Certificate shall specify whether the Option is
an Incentive Stock Option or a Non-Qualified Stock Option, the number of shares
of Common Stock subject to the Stock Option, the option price, the option term,
and the other terms and conditions applicable to the Stock Option.
(b) OPTION PRICE. The option price per share of Common
Stock to be delivered upon exercise of a Stock Option shall be determined by the
Administrator at the time of grant, but shall not be less than 100% of the Fair
Market Value of a share of Common Stock on the date the Option is granted.
(c) OPTION TERM. The term of each Stock Option shall be
fixed by the Administrator at the time of grant, but no Stock Option shall be
exercisable more than ten years after the date it is granted.
(d) EXERCISABILITY. Stock Options shall be exercisable at
such time or times and subject to such terms and conditions as shall be
determined by the Administrator at the time of grant; provided, however, that
the Administrator may waive any installment
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<PAGE> 6
exercise or waiting period provisions, in whole or in part, at any time after
the date of grant, based on such factors as the Administrator shall deem
appropriate in its sole discretion.
(e) METHOD OF EXERCISE. Subject to such installment
exercise and waiting period provisions as may be imposed by the Administrator,
Stock Options may be exercised in whole or in part at any time during the option
term by delivering to the Company written notice of exercise specifying the
number of shares of Common Stock to be purchased and the aggregate option price
therefor. The notice of exercise shall be accompanied by payment in full of the
option price and, if requested by the Company, by the representation described
in Section 9.2. Payment of the option price may be made (i) in cash or by check
payable to the Company, (ii) unless otherwise provided by the Administrator on
the date of grant, in shares of Common Stock duly owned by the Participant (and
for which the Participant has good title, free and clear of any liens and
encumbrances) or (iii) unless otherwise provided by the Administrator on the
date of grant, by reduction in the number of shares of Common Stock issuable
upon such exercise, based, in each case, on the Fair Market Value of the Common
Stock on the date of exercise. Upon payment in full of the option price and
satisfaction of the other conditions provided herein, a stock certificate
representing the number of shares of Common Stock to which the Participant is
entitled shall be issued and delivered to the Participant.
(f) DEATH. Unless otherwise determined by the
Administrator on or after the date of grant, in the event of a Participant's
Termination of Employment by reason of death, any Stock Option held by such
Participant which was exercisable on the date of death may thereafter be
exercised by the legal representative of the Participant's estate until the
earlier of one year after the date of death or the expiration of the stated term
of such Stock Option, and any Stock Option not exercisable on the date of death
shall be forfeited.
(g) DISABILITY. Unless otherwise determined by the
Administrator on or after the date of grant, in the event of a Participant's
Termination of Employment by reason of Disability, any Stock Option held by such
Participant that was exercisable on the date of such Termination of Employment
may thereafter be exercised by the Participant until the earlier of one year
after such date or the expiration of the stated term of such Stock Option, and
any Stock Option not exercisable on the date of Termination of Employment shall
be forfeited. If the Participant dies during such one-year period, any
unexercised Stock Options held by the Participant at the time of death may
thereafter be exercised by the legal representative of the Participant's estate
until the earlier of one year after the date of the Participant's death or the
expiration of the stated term of such Stock Option. If an Incentive Stock Option
is exercised after the expiration of the exercise periods that apply for
purposes of Section 422 of the Code, such Stock Option will thereafter be
treated as a Non-Qualified Stock Option.
(h) TERMINATION OF EMPLOYMENT. Unless otherwise
determined by the Administrator on or after the date of grant, in the event of a
Participant's Termination of
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<PAGE> 7
Employment by reason of retirement or for any reason other than death or
Disability, any Stock Option held by such Participant which was exercisable on
the date of such Termination of Employment may thereafter be exercised by the
Participant until the earlier of three months after such date or the expiration
of the stated term of such Stock Option, and any Stock Option not exercisable on
the date of Termination of Employment shall be forfeited.
(i) CHANGE OF CONTROL. In the event of a Change of
Control, all outstanding Stock Options shall immediately become fully
exercisable, and upon payment by the Participant of the option price (and, if
requested, delivery of the representation described in Section 9.2), a stock
certificate representing the Common Stock covered thereby shall be issued and
delivered to the Participant; provided, however, that the exercisability of the
Stock Options shall not be accelerated if, in the opinion of the Board, such
acceleration would prevent pooling of interests accounting for the change of
control transaction and such accounting treatment is desired by the parties to
such transaction.
(j) NON-TRANSFERABILITY OF OPTIONS. Unless otherwise
determined by the Administrator on or after the date of grant, Stock Options
shall not be transferrable by the Participant otherwise than by will or by the
laws of descent and distribution, and all Stock Options shall be exercisable,
during the Participant's lifetime, only by the Participant.
(k) INCENTIVE STOCK OPTION LIMITATIONS. To the extent
that the aggregate Fair Market Value (determined as of the date of grant) of the
Common Stock with respect to which Incentive Stock Options are exercisable for
the first time by the Participant during any calendar year under the Plan and/or
any other stock option plan of the Company or any Subsidiary or parent
corporation (within the meaning of Section 424 of the Code) exceeds $100,000,
such Options shall be treated as Options which are not Incentive Stock Options.
Should any of the foregoing provisions not be
necessary in order for the Stock Options to qualify as Incentive Stock Options,
or should any additional provisions be required, the Board may amend the Plan
accordingly, without the necessity of obtaining the approval of the shareholders
of the Company.
(l) TEN-PERCENT SHAREHOLDER RULE. Notwithstanding any
other provision of the Plan to the contrary, no Incentive Stock Option shall be
granted to any person who, immediately prior to the grant, owns stock possessing
more than ten percent of the total combined voting power of all classes of stock
of the Company or any Subsidiary or parent corporation (within the meaning of
Section 424 of the Code), unless the option price is at least 110% of the Fair
Market Value of the Common Stock on the date of grant and the Option, by its
terms, expires no later than five years after the date of grant.
6.4 RIGHTS AS SHAREHOLDER. A Participant shall not be deemed to be
the holder of Common Stock, or to have any of the rights of a holder of Common
Stock, with
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<PAGE> 8
respect to shares subject to an Option, unless and until the Option is exercised
and a stock certificate representing such shares of Common Stock is issued to
the Participant.
ARTICLE VII
TERMINATION OR AMENDMENT
7.1 TERMINATION OR AMENDMENT OF PLAN. The Board may at any time
amend, discontinue or terminate the Plan or any part thereof (including any
amendment deemed necessary to ensure that the Company may comply with any
regulatory requirement referred to in Article IX) or amend any Option previously
granted, prospectively or retroactively (subject to Article IV); provided,
however, that, in either case unless otherwise required by law, the rights of a
Participant with respect to Options granted prior to such amendment,
discontinuance or termination may not be impaired without the consent of such
Participant and, provided further, that the Company will seek the approval of
the Company's shareholders for any amendment if such approval is necessary to
comply with the Code, Federal or state securities laws or any other applicable
rules or regulations.
ARTICLE VIII
UNFUNDED PLAN
8.1 UNFUNDED STATUS. The Plan is intended to constitute an
"unfunded" plan for incentive compensation. With respect to any payment not yet
made to a Participant by the Company, nothing contained herein shall give any
such Participant any rights that are greater than those of a general creditor of
the Company.
ARTICLE IX
GENERAL PROVISIONS
9.1 NONASSIGNMENT. Except as otherwise provided in the Plan, any
Option granted hereunder and the rights and privileges conferred thereby may not
be sold, transferred, assigned, pledged or hypothecated in any way (whether by
operation of law or otherwise), and shall not be subject to execution,
attachment or similar process. Upon any attempt to transfer, assign, pledge,
hypothecate or otherwise dispose of an Option, right or privilege contrary to
the provisions hereof, or upon the levy of any attachment or similar process
thereon, such Option and the rights and privileges conferred thereby shall
immediately terminate and the Option shall immediately be forfeited to the
Company.
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<PAGE> 9
9.2 LEGEND. The Company may require each person acquiring shares
upon exercise of an Option to represent to the Company in writing that the
Participant is acquiring the shares for the Participant's own account and
without a view to the distribution thereof. The stock certificates representing
such shares may include any legend which the Company deems appropriate to
reflect any restrictions on transfer.
All certificates representing shares of Common Stock delivered under
the Plan shall be subject to such stop transfer orders and other restrictions as
the Company may deem advisable under the rules, regulations and other
requirements of the Securities and Exchange Commission, any stock exchange or
stock market upon which the Common Stock is then listed or traded, any
applicable Federal or state securities law, and any applicable corporate law,
and the Company may cause a legend or legends to be put on any such certificates
to make appropriate reference to such restrictions.
9.3 OTHER PLANS. Nothing contained in the Plan shall prevent the
Company from adopting other or additional compensation arrangements, and such
arrangements may be either generally applicable or applicable only in specific
cases.
9.4 NO RIGHT TO EMPLOYMENT. Neither the Plan nor the grant of any
Option shall give any Participant or other officer, employee, consultant or
director any right with respect to continuance of office, employment, consulting
relationship or directorship, as the case may be, with the Company or any
Subsidiary, nor shall the Plan impose any limitation on the right of the Company
or any Subsidiary by which a Participant is employed to terminate a
Participant's office, employment or consulting relationship at any time. Neither
the Plan nor the grant of any Option shall give any director the right to
continue as a member of the Board or obligate the Company to nominate any
director for reelection by the Company's shareholders.
9.5 WITHHOLDING OF TAXES. The Company shall have the right to
reduce the number of shares of Common Stock otherwise deliverable upon exercise
of an Option by an amount that would have a Fair Market Value equal to the
amount of all Federal, state and local taxes required to be withheld, or to
deduct the amount of such taxes from any cash payment otherwise to be made to
the Participant, pursuant to the Plan or otherwise. In connection with such
withholding, the Company may make such arrangements as are consistent with the
Plan as it may deem appropriate.
9.6 LISTING AND OTHER CONDITIONS.
(a) If the Common Stock is listed on a national
securities exchange or Nasdaq, the issuance of any shares of Common Stock upon
exercise of an Option shall be conditioned upon such shares being listed on such
exchange or Nasdaq. The Company shall have no obligation to issue any shares of
Common Stock unless and until such shares are so
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<PAGE> 10
listed, and the right to exercise any Option shall be suspended until such
listing has been effected.
(b) If at any time counsel to the Company shall be of the
opinion that any sale or delivery of shares of Common Stock upon exercise of an
Option is or may in the circumstances be unlawful or result in the imposition of
excise taxes under the statutes, rules or regulations of any applicable
jurisdiction, the Company shall have no obligation to make such sale or
delivery, or to make any application or to effect or to maintain any
qualification or registration under the Securities Act of 1933, as amended, or
otherwise with respect to shares of Common Stock or Options, and the right to
exercise any Option shall be suspended until, in the opinion of such counsel,
such sale or delivery shall be lawful or shall not result in the imposition of
excise taxes.
(c) Upon termination of any period of suspension under
this Section 9.6, any Option affected by such suspension which shall not then
have expired or terminated shall be reinstated as to all shares available before
such suspension and as to shares which would otherwise have become available
during the period of such suspension, but no such suspension shall extend the
term of any Option.
9.7 GOVERNING LAW. The Plan and actions taken in connection
herewith shall be governed and construed in accordance with the laws of the
Commonwealth of Pennsylvania without regard to the conflict of law principles
thereof.
9.8 CONSTRUCTION. Wherever any words are used in the Plan in the
masculine gender they shall be construed as though they were also used in the
feminine gender in all cases where they would so apply, and wherever any words
are used herein in the singular form they shall be construed as though they were
also used in the plural form in all cases where they would so apply.
9.9 LIABILITY OF THE BOARD. No member of the Board nor any
employee of the Company or any of its Subsidiaries shall be liable for any act
or action hereunder, whether of omission or commission, by any other member of
the Board or officer or employee or by any agent to whom duties in connection
with the administration of the Plan have been delegated or, except in
circumstances involving bad faith, gross negligence or fraud, for anything done
or omitted to be done by himself or herself.
9.10 COSTS. The Company shall bear all expenses incurred in
administering the Plan, including expenses related to the issuance of Common
Stock upon exercise of Options.
9.11 SEVERABILITY. If any part of the 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 the Plan which shall continue
in full force and effect.
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9.12 SUCCESSORS. The Plan shall be binding upon and inure to the
benefit of any successor or successors of the Company.
9.13 HEADINGS. Article and section headings contained in the Plan
are included for convenience only and are not to be used in construing or
interpreting the Plan.
ARTICLE X
TERM OF PLAN
10.1 EFFECTIVE DATE. The Plan shall be effective as of the
Effective Date, but the grant of any Option hereunder is subject to the express
condition that the Plan be approved by the shareholders of the Company within 12
months after the Effective Date.
10.2 TERMINATION DATE. Unless sooner terminated, the Plan shall
terminate ten years after the Effective Date and no Options may be granted
thereafter. Termination of the Plan shall not affect Options granted before such
date.
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Exhibit 10.17
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "X" AND HAS BEEN FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
LICENSE AGREEMENT
THIS LICENSE AGREEMENT is entered into effective as of April 14, 1999,
(the "Effective Date") between ALKERMES CONTROLLED THERAPEUTICS, INC. a
Pennsylvania corporation ("Alkermes"), located at 64 Sidney Street, Cambridge,
Massachusetts 02139 and GENENTECH, INC., a Delaware corporation ("Genentech"),
located at 1 DNA Way, South San Francisco, California 94080.
Alkermes and Genentech entered into a License Agreement, effective
November 13, 1996, and as amended June 16, 1997, December 29, 1998, and March
31, 1999 (the "1996 License Agreement"), under which they have been
collaborating for the development of a 1st generation formulation of recombinant
human growth hormone for use in human beings using Alkermes' technology,
currently known as the ProLease(R) delivery system, consisting of patents and
knowhow, that permits PLGA encapsulation of particular molecules leading to
sustained release of such molecules when injected under the skin.
Alkermes and Genentech wish to continue their collaboration to complete
the development of the 1st generation formulation and to incorporate Alkermes'
ProLease technology into a 2nd generation formulation of recombinant human
growth hormone for use in human beings under the terms and conditions of this
Agreement.
Genentech wishes to provide Alkermes with funding to support the
collaborative development of the 1st and 2nd generation formulations of Licensed
Product as specifically set forth in this Agreement. In order to provide
Alkermes with such funding, Genentech and Alkermes, Inc. a Pennsylvania
corporation and the parent corporation of Alkermes ("Alkermes Parent"), have
entered into that certain Stock Purchase Agreement of even date herewith (the
"Stock Purchase Agreement") pursuant to which Genentech agrees to buy and
Alkermes Parent agrees to sell shares of its Preferred Stock.
Therefore, Alkermes and Genentech agree as follows:
1. DEFINITIONS
1.1 "AFFILIATE" shall mean an entity that, directly or indirectly,
through one or more intermediaries, is controlled by Alkermes or Genentech. As
used herein, the term "control" will mean the direct or indirect ownership of
fifty percent (50%) or more of the stock having the right to vote for directors
thereof or the ability to otherwise control the management of the corporation or
other business entity.
<PAGE> 2
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "X" AND HAS BEEN FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
1.2 "ALKERMES KNOWHOW" shall mean any and all proprietary information,
data, test results, safety and efficacy data, knowledge, discoveries,
inventions, materials, specifications, designs, regulatory filings, methods,
processes and techniques which on or after November 13, 1996 were, or are now or
hereafter owned by or in the possession or control of Alkermes and which
Alkermes has the right to transfer or sublicense and which are related to the
encapsulation of proteins in microspheres utilizing the ProLease(R) delivery
system and any improvements thereto. Alkermes Knowhow does not include any of
the foregoing which is generally ascertainable from publicly available
information or which was known to Genentech prior to disclosure to Genentech by
Alkermes, as evidenced by prior competent proof or which Genentech obtained
independently or in collaboration with another partner and not in violation of
any obligation of confidentiality.
1.3 "ALKERMES PATENTS" shall mean the patents and patent applications
listed on Exhibit A hereto and their foreign counterparts and all patents
(including inventor's certificates) and patent applications containing claims to
the encapsulation of proteins in microspheres and substitutions, extensions,
reissues, renewals, divisions, continuations or continuation-in-parts of any of
the foregoing, which Alkermes presently or hereafter owns or controls, either
solely or jointly with Genentech or a third party, and which Alkermes now has or
hereafter shall have the right to grant sublicenses to. Alkermes shall use its
best efforts to amend Exhibit A by December 31 of each year to include any
Alkermes Patents that have arisen in the period since the Effective Date or
since the last amendment to Exhibit A; provided, however, that if Alkermes does
not so amend Exhibit A by December 31 of any year, Alkermes shall so amend
Exhibit A within thirty (30) days after receipt of a written request from
Genentech to do so.
1.4 "ALKERMES TECHNOLOGY" shall mean the Alkermes Patents and the
Alkermes Knowhow.
1.5 "BONUS MILESTONE PAYMENT" shall mean the sum of XXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX.
1.6 "CLOSING PRICE" shall mean with respect to any securities on any
day the closing sales price on such day or, in case no sale takes place on such
day, the average of the reported closing bid and asked prices, in each case on
the Nasdaq National Market or New York Stock Exchange, as applicable, or, if
such security is not listed or admitted to trading on such National Market or
Exchange, on the principal national security exchange or quotation system on
which such security is quoted or listed or admitted to trading, or, if not
quoted or listed or admitted to trading on any
2
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THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "X" AND HAS BEEN FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
national securities exchange or quotation system, the average of the closing bid
and asked prices of such security on the over-the-counter market on the day in
question as reported by the National Quotation Bureau Incorporated, or a similar
generally accepted reporting service, or if not so available, in such manner as
furnished by any New York Stock Exchange member firm selected from time to time
by the Board of Directors of Alkermes, Inc. for that purpose, or a price
determined in good faith by such Board of Directors, whose determination shall
be conclusive and described in a Board resolution.
1.7 "COMMERCIAL INTRODUCTION" shall mean the date of first commercial
sale of a Licensed Product by Genentech.
1.8 "COMMON STOCK" shall mean the class of capital stock of Alkermes
Parent designated as Common Stock, par value $.01 per share, at the date hereof.
1.9 "DEVELOPMENT FUNDS" shall mean (i) the proceeds from the sale of
the Preferred Stock to Genentech to be spent by Alkermes in accordance with the
1999/2000 Development Budget, plus (ii) any development expenses incurred by
Alkermes in the years 1999 or 2000 that are included in the 1999/2000
Development Budget and that exceed such proceeds.
1.10 "DEVELOPMENT PLANS" shall mean the development plans for
preclinical research, clinical development, manufacturing scale-up and supply of
clinical and commercial Licensed Products as set forth in Exhibits B and C
attached hereto.
1.11 "FULLY BURDENED MANUFACTURING COST" shall mean the sum of: (i) the
cost of goods produced, determined in accordance with generally accepted
accounting principles in the United States as consistently applied by a Party,
including but not limited to direct labor, material and product testing costs of
the Licensed Product, as well as allocable overhead, (ii) any intellectual
property acquisition and licensing costs directly allocable to the manufacture,
use or sale of Licensed Products by a Party, as determined in accordance with
generally accepted accounting principles in the United States as consistently
applied by a Party, and (iii) any other costs borne by a Party for the
transport, customs clearance, and storage of the Licensed Product (e.g.,
freight, duties, insurance and warehousing).
1.12 "FIELD OF USE" shall mean the prevention, treatment, and diagnosis
of any human disease or condition using any Licensed Product.
1.13 "GENENTECH KNOWHOW" shall mean any and all proprietary
information, data, test results, safety and efficacy data, knowledge,
discoveries, inventions, materials, specifications, and designs and other
information owned or controlled by or in
3
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THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "X" AND HAS BEEN FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
the possession of Genentech and which Genentech has the right to transfer or
sublicense which is specifically and only directed at the manufacture of a
Licensed Product (including all research, preclinical, clinical data specific
for or a Licensed Product), but only to the extent derived by Genentech pursuant
to or in the course of research conducted pursuant to the 1996 License Agreement
and this Agreement. Genentech Knowhow does not include any of the foregoing,
which are generally ascertainable from publicly available information.
1.14 "GENENTECH PATENTS" shall mean any patents (including inventor's
certificates) and patent applications containing claims to the composition or
use of Licensed Products, as well as substitutions, extensions, reissues,
renewals, divisions, continuations, or continuations-in-part of any of the
foregoing, which Genentech own or control, either solely or jointly with
Alkermes, and as to which Genentech now has or hereafter shall have the right to
grant sublicenses.
1.15 "GENENTECH TECHNOLOGY" shall mean the Genentech Patents and the
Genentech Knowhow.
1.16 "GHD" shall mean growth hormone deficiency.
1.17 "INTEREST INCOME" shall mean for each period ending February 28,
May 31, August 31 and November 30 of each year that the Preferred Stock is
outstanding, the amount equal to the product of (i) the LIBOR Rate for the
period ending on such date and (ii) the balance of the unexpended net proceeds
from the issuance of the Preferred Stock at the end of such period.
1.18 "LIBOR RATE" shall mean, for a particular quarter, the three-month
London Interbank Offer Rate (LIBOR) published in the eastern edition of The Wall
Street Journal on January 25, April 25, July 25 or October 25 (or the next
succeeding business day) in such quarter.
1.19 "LICENSED PRODUCT(S)" shall mean any pharmaceutical formulation
for use in or for humans which contains human growth hormone or analogues
thereof or contains nucleic acids meant to be incorporated into cells, causing
production of human growth hormone or analogues thereof, and (i) which, but for
the license granted herein, cannot be manufactured, used or sold without
infringing a Valid Claim which is contained in an Alkermes Patent, or (ii) which
utilizes or was made utilizing, contains, is based upon, is derived from, or
could not have been made but for, the Alkermes Technology. "Licensed Product(s)"
includes, but is not limited to, the 1st Generation Formulation and the 2nd
Generation Formulation.
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THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "X" AND HAS BEEN FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
1.20 "MAJOR MARKET COUNTRY" shall include each of the following:
Germany, France, Italy, Japan, the United Kingdom or Spain.
1.21 "NDA" shall mean a New Drug Application as that term is used in
Title 21 of the Code of Federal Regulations.
1.22 "NET DIVIDEND EXPENSE" shall mean the dollar amount equal to the
difference of (i) the total cumulative dividend accrued (whether or not paid) on
the Preferred Stock held by Genentech on the date prior to the payment of the
Bonus Milestone Payment less (ii) the total cumulative amount of Interest
Income.
1.23 "NET SALES" shall mean the gross invoiced sales price charged for
all Licensed Products sold or commercially disposed of for value by Genentech or
by Sumitomo Pharmaceuticals ("Sumitomo"), Schwarz Pharma AG ("Schwarz") or any
other entities which may replace Sumitomo or Schwarz and perform substantially
similar services directly for Genentech (collectively, "Genentech's
Distributors"), in arm's length sales to independent third parties after
deduction of the following items, to the extent such items are incurred,
provided that such items are included in the gross price charged and do not
exceed reasonable and customary amounts for each such item in the market in
which such sale occurred:
(a) trade, cash and quantity discounts or rebates actually
allowed and taken;
(b) credits or allowances given or made for rejection or
return of, and for uncollectible amounts on, a previously sold Licensed Product
or for retroactive price reductions;
(c) any tax or government charge (including any tax such as a
value added or similar tax or government charge other than an income tax) levied
on the sale, transportation or delivery of a Licensed Product and borne by the
seller thereof; and
(d) any charges allowed or prepaid for freight or insurance
billed to the final customer.
In the event Alkermes is receiving royalties under this Agreement from
any Licensed Product sold in a form containing in addition to simple Licensed
Product, at least one other ingredient which is Therapeutically Active but
excluding diluents, vehicles or specific adjuvants, Net Sales for such
combination Licensed Product will be calculated by multiplying actual Net Sales
of such combination Licensed Product by the fraction A/(A+B) where A is the
invoice price of the Licensed Product if sold separately,
5
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THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "X" AND HAS BEEN FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
and B is the total invoice price of any other ingredient which is
Therapeutically Active in the combination, if sold separately. If, on a
country-by-country basis, the other ingredient which is Therapeutically Active
in the combination is not sold separately in said country, Net Sales for the
purpose of determining royalties of the combination Licensed Product shall be
calculated by multiplying actual Net Sales of such combination Licensed Product
by the fraction A/C where A is the invoice price of the Licensed Product, if
sold separately, and C is the invoice price of the combination Licensed Product.
If, on a country-by-country basis, neither the Licensed Product nor the other
ingredient which is Therapeutically Active of the combination Licensed Product
is sold separately in said country, Net Sales for the purpose of determining
royalties of the combination Product shall be determined by the Parties in good
faith. For purposes of this Section 1.23, "Therapeutically Active" shall mean
biologically active but shall not include diluents, vehicles or specific
adjuvants or any other ingredient (other than a Licensed Product) which does not
have any, or only incidental, therapeutic properties when present alone.
In general, the Parties agree to negotiate in good faith for an
equitable determination of Net Sales of Licensed Product, on a
country-by-country basis, in the event that Genentech or its distributors sell
Licensed Product in such a manner that gross sales of the same are not readily
identifiable.
1.24 "NUTROPIN DEPOT" shall mean the ProLease sustained release
formulation of Genentech's somatropin recombinant human growth hormone, the
manufacture and clinical investigation of which has been conducted under
Investigational New Drug (IND) number 49,177 held by Alkermes.
1.25 "PARTY" shall mean Genentech or Alkermes and , when used in the
plural, shall mean Genentech and Alkermes.
1.26 "PREFERRED STOCK" shall mean the 1999 Redeemable Convertible
Exchangeable Preferred Stock, par value $0.01 per share, of Alkermes Parent
purchased by Genentech under the Stock Purchase Agreement.
1.27 "REGULATORY APPROVAL" means any approvals (including pricing and
reimbursement approvals), licenses, registrations or authorizations of any
federal, state or local regulatory agency, department, bureau or other
governmental entity, necessary for the manufacture and sale of a Licensed
Product in a regulatory jurisdiction.
1.28 "TERRITORY" shall mean all of the countries in the world except
the United States.
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THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "X" AND HAS BEEN FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
1.29 "TRADING DAY" shall mean (i) if the applicable security is listed
or admitted for trading on the New York Stock Exchange or another national
security exchange, a day on which the New York Stock exchange or another
national security exchange is open for business or (ii) if the applicable
security is quoted on the Nasdaq National Market, a day on which trades may be
made thereon or (iii) if the applicable security is not so listed, admitted for
trading or quoted, any day other than a Saturday or Sunday or a day on which
banking institutions in the State of New York are authorized or obligated by law
or executive order to close.
1.30 "VALID CLAIM" shall mean a subsisting claim of an issued and
unexpired Alkermes Patent (i) that has not been declared invalid, unpatentable
or unenforceable by a decision of a governmental body or court of competent
jurisdiction, (ii) that is unappealable or unappealed within the time allowed
for appeal, (iii) that has not been rendered unenforceable through disclaimer or
otherwise, and (iv) that is not subject to an interference claim.
1.31 "1ST GENERATION FORMULATION" shall mean Nutropin Depot.
1.32 "2ND GENERATION FORMULATION" shall mean a reformulation of
Nutropin Depot meeting the specifications described in Exhibit B, or as agreed
upon in writing by the Parties.
1.33 "1999/2000 DEVELOPMENT BUDGET" shall mean any budget for the years
1999 and 2000 agreed upon in writing by the Parties for the development expenses
to be incurred by Alkermes or on its behalf, and to be paid for by Genentech
through the purchase of Preferred Stock, and the payment for the Bonus Milestone
Payment, if any, for the collaborative development of the 1st and 2nd Generation
Formulations of Licensed Product. The 1999/2000 Development Budget is attached
hereto as Exhibit D.
1.34 "2001/2002 DEVELOPMENT BUDGET" shall mean any budget for the years
2001 and 2002 agreed upon in writing by the Parties for the development expenses
to be incurred by Alkermes or on its behalf, for the collaborative development
of any Licensed Product. The proposed 2001/2002 Development Budget is attached
hereto as Exhibit E.
1A. 1996 License Agreement Amended and Restated. This Agreement amends and
restates in full the provisions of the 1996 License Agreement.
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THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "X" AND HAS BEEN FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
2. LICENSES AND OPTIONS TO GENENTECH AND ALKERMES
2.1 GRANT OF LICENSE RIGHT TO GENENTECH. Alkermes hereby grants to
Genentech (i) a coexclusive right and license along with Alkermes within the
United States and within the Field of Use through December 14, 2000, (ii) an
exclusive right and license (even as to Alkermes) within the United States and
within the Field of Use after December 14, 2000 and (iii) an exclusive right and
license (even as to Alkermes) within the Territory and within the Field of Use,
all under the Alkermes Patents and the Alkermes Knowhow to perform research and
development on, to manufacture and have manufactured, use, import, offer for
sale and sell any Licensed Product containing human growth hormone. Genentech
may not sublicense any of the rights granted in this Section 2.1. Alkermes
hereby agrees not to grant any further licenses to the rights it retains through
December 14, 2000 pursuant to this Section 2.1.
2.2 GRANT OF LICENSE RIGHT TO ALKERMES. Genentech hereby grants to
Alkermes a coexclusive royalty-free right and license along with Genentech
within the United States, under the Genentech Technology and, after December 14,
2000, under the Alkermes Patents and Knowhow, to perform research and
development on and to manufacture any Licensed Product pursuant to Section 5
hereof.
3. PAYMENTS TO ALKERMES
3.1 MILESTONE PAYMENTS
(a) Genentech shall pay Alkermes the amounts specified below
upon the first occurrence of each event set forth below with respect to the 1st
Generation Formulation of Licensed Product:
EVENTS MILESTONE PAYMENT
- ------ -----------------
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX $XXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXX $XXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
(b) In addition to the amounts specified above, Genentech will
make the Bonus Milestone Payment to Alkermes upon the achievement of the later
to occur of (x) and (y):
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THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "X" AND HAS BEEN FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
(x) XXXXXXXXXXXXXXXX:
1. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
2. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
3. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX.
XXXXXXXXXXXXXXXXXX
(c) Subject to prior notification to Alkermes, Genentech shall
pay the Bonus Milestone Amount (i) in cash, (ii) by surrendering some or all of
the Preferred Stock (including accrued dividends) held by Genentech pursuant to
the following terms and conditions, or (iii) some combination of (i) and (ii):
1. Any surrender by Genentech of some or all of the
Preferred Stock to Alkermes to pay the Bonus Milestone Amount in whole or in
part shall be a redemption in accordance with Alkermes Parent's Second Amended
and Restated Articles of Incorporation, as amended, and, in the event of such a
surrender, Alkermes shall credit against the Bonus Milestone Amount an amount
equal to the redemption price of the shares of Preferred Stock surrendered by
Genentech; provided that any such surrender and redemption is subject to the
legal availability of funds therefor under Section 1551 of the Pennsylvania
Business Corporation Law, as amended; and
2. In the event that the Closing Price of the Common
Stock is at or above XXXXXXXXXXXXXXXXXX per share for the twenty (20)
consecutive Trading Days immediately preceding the date of payment of the Bonus
Milestone Amount, Alkermes can, at its option, instruct Genentech, when paying
the Bonus Milestone Amount, to surrender no more than XXXXXXXXXXXXXXXXX of the
Preferred Stock originally issued to Genentech under the Stock Purchase
Agreement in lieu of cash and to make a cash payment for the remaining Bonus
Milestone Amount; and
3. In the event Genentech surrenders some or all of
the Preferred Stock to Alkermes to pay the Bonus Milestone Amount in whole or in
part, Genentech shall deliver to Alkermes at the time of such surrender a
certificate
9
<PAGE> 10
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "X" AND HAS BEEN FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
representing the shares of Preferred Stock surrendered and any other documents
or certificates reasonably requested by Alkermes.
3.2 ROYALTIES
(a) ROYALTIES PAYABLE BY GENENTECH. Genentech shall pay
royalties to Alkermes of XXXXXXXXXXXXXXXXX of Net Sales of Licensed Products
sold by Genentech or by Genentech's Distributors, in each country in the United
States and the Territory.
(b) OFFSETS FOR THIRD PARTY ROYALTIES. The royalties otherwise
payable by Genentech hereunder shall be reduced by XXXXXXXXXXXXXXXXXXXX of the
amounts that Genentech must pay to any third party due to manufacture, use, or
sale of Licensed Products and caused by the fact that the Licensed Product
incorporates the Alkermes Technology, on a country-by-country basis; provided,
however, that in no event shall the royalties payable hereunder be reduced by
more than XXXXXXXXXXXXXXXXXXX.
(c) MILESTONE CREDITS. XXXXXXXXXXXXXXXXXXX of the milestone
payments marked with an asterisk made with respect to the events described in
Section 3.1 shall be creditable by Genentech against future royalties to be paid
to Alkermes pursuant to this Section 3.2.
(d) ROYALTY REDUCTION. Until December 14, 2000, the royalties
otherwise payable by Genentech hereunder shall be reduced to XXXXXXXXXXXXXXX of
Net Sales of Licensed Products sold by Genentech or by Genentech's Distributors,
effective automatically if (and when) Alkermes commences development and
commercialization, outside of the scope of the collaboration with Genentech
pursuant to this Agreement, of any pharmaceutical formulation of human growth
hormone using any Alkermes Technology and any human growth hormone or analogues
thereof (or nucleic acids meant to be incorporated into cells, causing
production of human growth hormone or analogues thereof) not within the
Genentech Technology. Any such pharmaceutical formulation is referred to herein
as a "Competing Product". Such development and commercialization shall be deemed
to include commencement of any human clinical trial of any Competing Product,
and Alkermes shall be required to notify Genentech of the commencement of any
such trial not later than the date of enrollment of the first subject in such
trial. However, the automatic royalty reduction herein shall apply even if
Alkermes fails to provide such notice, and if Genentech continues to pay
royalties at the higher rate under Section 3.2(a) for any time period during
which it later learns that Alkermes had commenced development and
commercialization of a Competing Product, Genentech shall be entitled to offset
against any future payments owed under
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THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "X" AND HAS BEEN FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
this Agreement the full amount of any excess royalties paid to Alkermes during
such time period that the reduced royalty rate herein should have applied (plus
interest thereon at a rate equal to XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX.
3.3 MODE OF PAYMENT OF ROYALTIES. For purposes of determining when a
sale of a Licensed Product occurs, the sale shall be deemed to occur on the
earlier of: (i) the date the Licensed Product is shipped, or (ii) the date of
the invoice to the purchaser of the Licensed Product. All royalty payments shall
be made within ninety (90) days of the end of each calendar quarter in which the
sale was made. Such royalty payments shall be accompanied by a detailed
statement that shall include for each country in which sales of Licensed
Products occurred: the gross sales (if available) and Net Sales in each
country's currency or in the Euro, if applicable; the applicable royalty rate;
the royalties payable in each country's currency or the Euro, if applicable,
including an accounting of all deductions taken in the calculation of Net Sales
and a separate accounting for all Combination Products sold and the formulas
used in the calculation of royalties owed thereon; the applicable exchange rate
to convert from each country's currency or the Euro, if applicable, to United
States Dollars; and the royalties payable in United States Dollars. Royalty
payments shall first be calculated in the currency in which sales took place or
in the Euro, if applicable, and then converted to United States Dollars based on
the spot rate as reported by Reuters at the end of each calendar quarter in
which the sale was made. All royalty payments hereunder shall be made to
Alkermes in United States Dollars by bank wire transfer in immediately available
funds to such account designated by Alkermes. Genentech shall provide notice at
least five (5) days prior to the wire transfer date of the amount of payment,
the nature of the payment (with reference to the applicable section of this
Agreement) and the date of receipt of good funds. Such notice should be given to
the Treasurer of Alkermes at the address set forth in the Notices and Deliveries
Section of this Agreement or such other address directed by Alkermes. All
payments hereunder shall be made net of any withholding taxes, duties, levies,
fees or charges required to be withheld under the law, on behalf of the other
party. Genentech shall make any withholding payments due on behalf of Alkermes
and shall promptly provide Alkermes with written documentation of any such
payment sufficient to satisfy any requirements of the United States Internal
Revenue Service related to an application by Alkermes for a foreign tax credit
for such payment. Genentech agrees to take reasonable and lawful steps as
Alkermes may request to minimize the amount of tax to which payments to Alkermes
are subject, if such steps are not detrimental to Genentech.
3.4 RESTRICTIONS ON PAYMENT. If by law, regulations or fiscal policy of
a particular country, remittance of royalties in United States Dollars is
restricted or
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THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "X" AND HAS BEEN FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
forbidden, notice thereof will be promptly given to Alkermes, and payment of the
royalty shall be made by the deposit thereof in local currency to the credit of
Alkermes in a recognized banking institution designated by Alkermes. When in any
country the law or regulations prohibit both the transmittal and deposit of
royalties on sales in such a country, royalty payments shall be suspended for as
long as such prohibition is in effect and as soon as such prohibition ceases to
be in effect, all royalties that Genentech would have been under obligation to
transmit or deposit but for the prohibition, shall forthwith be deposited or
transmitted promptly to the extent allowable. Genentech will first obtain
written agreement from Alkermes before selling a Licensed Product in a country
known to Genentech to restrict or forbid remittance of royalties in United
States Dollars.
3.5 RECORDS RETENTION. Genentech agrees to keep for at least three (3)
years, records of all sales of Licensed Products in sufficient detail to permit
Alkermes to confirm the accuracy of Genentech's royalty calculations. At the
request of, upon at least five (5) days' prior written notice, and at the
expense of Alkermes, Genentech shall permit a nationally recognized,
independent, certified public accountant appointed by Alkermes and reasonably
acceptable to Genentech to examine these records solely to the extent necessary
to verify such calculations, provided that such accountant has entered into a
confidentiality agreement with Genentech substantially similar to the
confidentiality provisions of this Agreement, limiting the use and disclosure of
such information to purposes germane to this Section 3.5. Results of any such
examination shall be made available to Alkermes and to Genentech. If such
examination reveals an underpayment of royalties by ten percent (10%) or more,
Genentech shall pay all costs of such examination. In the event such accountant
concludes that additional royalties are owed, the additional royalties shall be
paid within thirty (30) days of the date Alkermes delivers to Genentech the
accountant's written report reflecting such conclusion. This Section 3.5 shall
survive any termination of this Agreement for three (3) years.
3.6 MILESTONE PAYMENTS FOR CLINICAL DEVELOPMENT AND PROCESS SCALE-UP.
Genentech shall pay Alkermes the amounts specified below if the listed events
are completed on or before the listed dates and Alkermes performs the clinical
development and process scale-up work necessary for the completion of the
particular event.
EVENT DATE PAYMENT
------------------------ --------------------- -------
1. XXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXX XXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXX
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THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "X" AND HAS BEEN FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
4. DEVELOPMENT PLAN
The Parties have established a Joint Development Committee ("JDC") to
provide oversight on all aspects of product development and to review the
progress of preclinical development, clinical development and regulatory
filings. The JDC will have three representatives appointed by each of Genentech
and Alkermes. Such representatives will have expertise in any of the areas of
clinical development, process sciences, manufacturing, marketing or regulatory
affairs; however, the JDC members will not be personally responsible for
implementing the Development Plans. Either Party may replace any or all of its
representatives at any time upon written notice to the other Party. The JDC will
meet at least once each calendar quarter or at such other times as directed by
Genentech. While the Alkermes representatives may comment on any development and
regulatory filing plans, Genentech shall have the final say and shall direct the
process, except that Alkermes shall make the final determination if there is a
disagreement on a matter that would lead to a substantial increase in the total
manpower committed by Alkermes or the scheduling of Alkermes critical facilities
when the scheduling is less than one year in advance.
4.1 CLINICAL DEVELOPMENT OF 1ST GENERATION LICENSED PRODUCT BY
ALKERMES. Alkermes shall assemble all data and documentation and Genentech shall
file for Regulatory Approval with the FDA in the United States for the 1st
Generation Formulation of Licensed Product. The Parties agree that obtaining
Regulatory Approval in the United States for the 1st Generation Formulation is
the highest priority activity for both Parties under this Agreement. Exhibit C
sets forth the activities to be completed with respect to the NDA filing.
Changes in the project scope, timelines or costs shall be brought to the
attention of the JDC for review and the JDC shall make recommendations regarding
appropriate changes or additions to Exhibit C. Genentech shall make all final
decisions on any changes or additions to Exhibit C.
4.2 PRECLINICAL DEVELOPMENT OF 2ND GENERATION LICENSED PRODUCT.
Alkermes shall perform Preclinical Research for the 2nd Generation Formulation
of the Licensed Product as set forth in Exhibit B attached hereto. Changes in
the project scope, timelines or costs shall be brought to the attention of the
JDC for review and the JDC shall make recommendations regarding appropriate
changes or additions to Exhibit B. Genentech shall make all final decisions on
any changes or additions to Exhibit B. Genentech shall file and hold the IND for
the 2nd Generation Formulation of Licensed Product as described in Exhibit B.
4.3 CLINICAL DEVELOPMENT OF 2ND GENERATION LICENSED PRODUCT
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THE SECURITIES AND EXCHANGE COMMISSION.
(a) Alkermes shall sponsor clinical trials for the 2nd
Generation Formulation as provided in Exhibit B (the "Clinical Trials").
Alkermes shall be solely responsible for and shall use its commercially
reasonable efforts to perform the Clinical Trials as described in Exhibit B. For
the purposes of this Agreement, "commercially reasonable" efforts shall mean
those efforts expended by Alkermes on its own high priority projects. Alkermes
shall prepare in collaboration with Genentech all documentation necessary for
associated filings with regulatory agencies and Genentech shall make all such
filings as described in Exhibit B. However, Genentech may, in its sole
discretion, determine to have Alkermes make filings for Regulatory Approval. The
JDC will oversee clinical development and regulatory filings and carry out plans
for clinical development and regulatory filings communicated to it by Genentech.
Exhibit B sets forth the Clinical Trials to be conducted, along with the
anticipated timeline, requirements and estimated costs for the Clinical Trials
and associated regulatory filings. If there are changes in project scope,
timelines or costs, the JDC shall be informed and shall review and suggest
necessary changes or additions. Genentech shall make all final decisions on any
changes or additions to Exhibit B.
(b) At any time, if, in Genentech's sole discretion, Genentech
believes that Alkermes is not using its commercially reasonable efforts to
complete or is not capable of completing any of the clinical development tasks
for which Alkermes is given responsibility, Genentech may so notify Alkermes and
complete such task itself.
4.4 SUPPLY OF CLINICAL MATERIAL BY ALKERMES. Alkermes shall be
responsible for, and shall use its commercially reasonable efforts to, supply
all clinical needs and requirements of the 1st and 2nd Generation Formulations
of Licensed Product. Such Licensed Product shall be produced under GMP and all
other applicable laws and regulations. Exhibit B attached hereto sets forth
Alkermes' estimated timeline, requirements, and costs for supplying the 2nd
Generation Formulation of the Licensed Product for the Clinical Trials. Alkermes
will provide, and the Parties will agree upon, additions to Exhibit B for other
clinical trials of Licensed Products. Exhibit C attached hereto sets forth
Alkermes' estimated timeline, requirements, and costs for supplying the 1st
Generation Formulation of Licensed Products for ongoing clinical studies and
qualification lots for NDA submission.
4.5 SCALE-UP OF THE MANUFACTURING PROCESS BY ALKERMES. Alkermes shall
be responsible for, and shall use its commercially reasonable efforts to, scale
up the process for producing the 1st and 2nd Generation Formulations of Licensed
Product for both clinical and (unless Genentech manufactures commercial Licensed
Product pursuant to Section 5) commercial requirements, provided that Genentech
supplies sufficient quantities of human growth hormone (at Genentech's expense)
to enable
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THE SECURITIES AND EXCHANGE COMMISSION.
Alkermes to do so. Exhibit B attached hereto sets forth the anticipated
timeline, requirements and costs for scaling-up the manufacturing process for
making the 2nd Generation Formulation of Licensed Product for clinical and
commercial use. Genentech shall not be responsible for any of Alkermes' capital
cost of its facilities except as otherwise set forth in Exhibit B or approved by
the JDC for the facility in which commercial Licensed Product(s) are to be
manufactured. The Parties will prepare and agree upon a separate document
setting forth the anticipated timeline, requirements and costs for scaling-up
the manufacturing process for other applications of the Licensed Product.
4.6 FUNDING FOR PRECLINICAL DEVELOPMENT, CLINICAL DEVELOPMENT, SUPPLY
AND SCALE-UP OF LICENSED PRODUCTS.
(a) In connection with the development of the Licensed
Products, the 1999/2000 Budget is attached hereto as Exhibit D and the proposed
2001/2002 Development Budget is attached hereto as Exhibit E. The 2001/2002
Development Budget shall be reviewed by the JDC prior to the fourth calendar
quarter of the year 2000 and the JDC shall approve such budget or make
recommendations for changes or additions. Genentech shall make the final
decision regarding any changes or additions to the 2001/2002 Development Budget.
(b) Genentech shall fund XXXXXXXXXXXXXXXXXXXXXXXXXXXXX towards
activities related to the filing for Regulatory Approval with the FDA of the 1st
Generation Formulation of the Licensed Product and for the development of the
2nd Generation Formulation of the Licensed Product in accordance with the agreed
upon Development Plans and 1999/2000 Development Budget. This amount shall be
funded to Alkermes through the purchase of Preferred Stock under the Stock
Purchase Agreement and the payment of the Bonus Milestone Payment, if any. The
1999/2000 Budget shall be reviewed by the Parties on a quarterly basis to update
the budget forecast and to assess the need for additional funding. Any increase
in the amount of funding shall require the agreement of both Parties and such
funding shall be through the purchase of additional Preferred Stock. Alkermes
shall submit a detailed monthly report to Genentech within four (4) weeks after
the end of each month during which it expends Development Funds in 1999 and
2000. Such report shall set forth the activities completed, including
development and scale-up efforts and supply of 1st and 2nd Generation
Formulations for clinical use, the Full Time Equivalent (FTE) utilization rate
broken down by functional area and the costs for such activities, which shall be
reasonably in accordance with amounts previously agreed upon in the 1999/2000
Development Budget by the JDC for such activities. In the event of a change of
control as described in Section 9.9 herein, exercise of the rights described in
the Discontinuation Agreement prior to December 31, 2000 shall result in the
funding of the
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THE SECURITIES AND EXCHANGE COMMISSION.
Development Plans pursuant to paragraph (c) below rather than through this
paragraph (b).
(c) Genentech shall reimburse the costs incurred by Alkermes
in accordance with the Development Plans and the 2001/2002 Development Budget,
and for 1st and 2nd Generation Formulations of Licensed Product supplied for
clinical use in 2001 and 2002, at Alkermes' actual cost, as determined by
Alkermes in accordance with the FTE rate agreed upon for such years by the JDC
at the beginning of each Alkermes fiscal year, to be consistently applied
throughout such years, plus the external costs of performing any clinical trials
agreed upon by the JDC. In 2001 and 2002, Alkermes shall submit a detailed
monthly report to Genentech as described in Section 4.6 (b) above, together with
an invoice for the total amount to be reimbursed by Genentech, which shall be
reasonably in accordance with the amounts agreed upon by the JDC for the
2001/2002 Development Budget. Genentech shall reimburse Alkermes' costs within
thirty (30) days of receiving each invoice. With regard to supply of Licensed
Product for clinical use by Genentech, Alkermes will only ship to an invoice
Genentech for Licensed Product ordered by Genentech pursuant to binding purchase
orders.
(d) Alkermes will keep reasonably detailed records of its
costs of performing the obligations set forth in this Agreement, as determined
by Alkermes consistent with the FTE rate methods used by Alkermes in connection
with the prior research and development activities conducted in collaboration
with Genentech plus other external costs as agreed upon by the JDC.
4.7 DEVELOPMENT DUE DILIGENCE. Alkermes shall use its commercially
reasonable efforts to meet the timelines set forth in the Development Plans.
5. MANUFACTURE OF LICENSED PRODUCT
5.1 MANUFACTURE BY ALKERMES. Alkermes shall be responsible for, and
shall use its commercially reasonable efforts to, supply all clinical and
commercial requirements of Licensed Product in either final vial form or bulk
form as agreed upon by the Parties. The provisions governing production of
material for clinical trials are set forth in Section 4.4. The provisions
governing the production of commercial material shall be set forth in a Supply
Agreement to be entered into by the Parties on or before June 30, 1999. The
price of supply of commercial material in the Supply Agreement will be a
purchase price per vial (or similar quantity) of XX of the gross invoiced sales
price per vial (or similar quantity) used in the calculation of Net Sales less
the deductions used in the calculation of Net Sales. Prior to Commercial
Introduction, the purchase price will be based on the expected gross invoiced
sales price and expected deductions
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upon Commercial Introduction. If Alkermes supplies only bulk product in this
situation, Genentech shall be entitled to deduct its Fully Burdened
Manufacturing Cost of filling and finishing Licensed Product from the amount
otherwise payable to Alkermes. Genentech will supply the necessary amount of
growth hormone free-of-charge to enable Alkermes to fulfill its supply
obligations. Alkermes will permit Genentech representatives to review
periodically Alkermes' quality control procedures and records, and to visit
Alkermes' facilities, upon prior written notice to Alkermes and at reasonable
times for quality assurance purposes.
5.2 MANUFACTURE BY GENENTECH. If in Genentech's reasonable opinion,
Alkermes is unable to manufacture all clinical and commercial quantities of any
Licensed Product, Alkermes shall transfer to and fully enable Genentech with the
then most current version of all materials, regulatory filings, knowhow,
reagents and expertise necessary for Genentech to undertake the manufacture of
Licensed Products. All transfers of materials and information to Genentech shall
be free of charge to Genentech if the transfer occurs due to a breach of this
Agreement by Alkermes. If the transfer occurs due to any other inability to
perform of Alkermes, Genentech shall reimburse Alkermes for all reasonable costs
of transfer of materials and information. Alkermes shall continue to manufacture
Licensed Product until, in Genentech's reasonable opinion, Genentech is fully
enabled to manufacture. Manufacture of Licensed Product may be done partially by
Alkermes and partially by Genentech in this situation. If that is the case, and
the situation is caused by a breach of this Agreement by Alkermes, the price
otherwise payable by Genentech to Alkermes under the provisions of Section 5.1
shall be reduced to XXXX of the gross invoiced sales price per vial (or similar
quantity) used in the calculation of Net Sales less the deductions used in the
calculation of Net Sales. Otherwise, the price otherwise payable will be
prorated based on the percentage of the total manufacture of Licensed Product
being done by each Party.
6. COMMERCIALIZATION. Genentech agrees to pursue a diligent sales and marketing
effort for a Licensed Product to be sold by Genentech relative to other products
of similar commercial potential that are being sold and marketed by Genentech. A
default by Genentech with respect to pursuing a diligent sales and marketing
effort for a Licensed Product in one country shall not constitute a default by
Genentech with respect to any other country.
7. REPRESENTATIONS AND WARRANTIES
7.1 REPRESENTATIONS AND WARRANTIES OF ALKERMES. Alkermes hereby
represents and warrants that:
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THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "X" AND HAS BEEN FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
(a) the execution and delivery of this Agreement and the
performance of the transactions contemplated hereby have been duly authorized by
all appropriate Alkermes corporate action;
(b) this Agreement is a legal and valid obligation binding
upon Alkermes and enforceable in accordance with its terms. The execution,
delivery and performance of the Agreement by Alkermes does not conflict with any
agreement, instrument or understanding, oral or written, to which it is a party
or by which it is bound, nor violate any law or regulation of any court,
governmental body or administrative or other agency having jurisdiction over it;
(c) Alkermes has the right to grant the licenses granted in
Section 2.1, and has no knowledge of any rights of any third parties that would
interfere with the practice of the Alkermes Technology by Genentech as
contemplated under this License Agreement; and
(d) to the best of its knowledge, Alkermes is not obligated
under any agreement as of the date hereof to pay any third party royalties with
respect to the Alkermes Technology;
7.2 REPRESENTATIONS AND WARRANTIES OF GENENTECH. Genentech represents
and warrants that:
(a) the execution and delivery of this Agreement and the
performance of the transactions contemplated hereby have been duly authorized by
all appropriate Genentech corporate action;
(b) this Agreement is a legal and valid obligation binding
upon Genentech and enforceable in accordance with its terms. The execution,
delivery and performance of the Agreement by Genentech does not conflict with
any agreement, instrument or understanding, oral or written, to which it is a
party or by which it is bound, nor violate any law or regulation of any court,
governmental body or administrative or other agency having jurisdiction over it;
and
(c) Genentech has the right to grant the license granted
herein.
8. CONFIDENTIALITY
8.1 DISCLOSED CONFIDENTIAL INFORMATION. In the course of performance of
this Agreement, one Party may disclose to the other or receive written
information from the other relating to the subject matter of this Agreement
which information, if so
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REQUEST. REDACTED MATERIAL IS MARKED WITH "X" AND HAS BEEN FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
identified in writing either pursuant to this Section 8.1 or otherwise upon
disclosure, shall be considered the disclosing Party's "Disclosed Confidential
Information." Each Party agrees that it will take the same steps to protect the
confidentiality of the other Party's Disclosed Confidential Information as it
takes to protect its own proprietary and confidential information. Each Party
shall protect and keep confidential and shall not use, publish or otherwise
disclose to any third party, except as contemplated by this Agreement or with
the other Party's written consent, the other Party's Disclosed Confidential
Information for a period of five (5) years from the date of termination of this
Agreement.
8.2 SHARED CONFIDENTIAL INFORMATION. In the course of performance of
this Agreement, the Parties may jointly develop, invent or discover information,
substances or processes, which shall be considered the "Shared Confidential
Information" except as otherwise set forth in Section 9.6. Each Party agrees
that it will take the same steps to protect the confidentiality of the Shared
Confidential Information as it takes to protect its own proprietary and
confidential information. Each Party shall protect and keep confidential and
shall not publish or otherwise disclose to any third party, except as
contemplated by this Agreement or with the other Party's written consent, the
Shared Confidential Information for a period of five (5) years from the date of
termination of this Agreement. Each Party may, however, use any Shared
Confidential Information for any purpose; provided that such use shall not be
deemed a license or a grant of any additional right or license other than or in
addition to the right and license granted in Section 2 of this Agreement.
8.3 PERMITTED DISCLOSURE. In addition, each Party shall be entitled to
disclose, under a binder of confidentiality containing provisions as protective
as this Section 8, "Confidential Information," which shall include Disclosed
Confidential Information and Shared Confidential Information, to consultants and
other third parties for any purpose provided for in this Agreement. The Parties
shall consult prior to the submission of any manuscript for publication if the
publication will contain any Confidential Information of the other Party unless
the laws and regulations applicable to the third party submitting such
manuscript prohibit such consultation. Such consultation shall include providing
a copy of the proposed manuscript to the other Party at least sixty (60) days
prior to the proposed date of submission to a publisher, incorporating
appropriate changes proposed by the other Party into the manuscript submission
and deletion of all Confidential Information of which such Party does not agree
to the publication. The foregoing notwithstanding, Confidential Information may
be disclosed as a part of a patent application filed on inventions made under
this Agreement and during any official proceeding before a court or governmental
agency if reasonably related and necessary to that proceeding. For the purpose
of this Agreement, Confidential Information shall not include such information
that:
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REQUEST. REDACTED MATERIAL IS MARKED WITH "X" AND HAS BEEN FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
(i) was known to the receiving Party at the time of
disclosure; or
(ii) was generally available to the public or was otherwise
part of the public domain at the time of disclosure or became generally
available to the public or otherwise part of the public domain after disclosure
other than through any act or omission of the receiving Party in breach of this
Agreement; or
(iii) became known to the receiving Party after disclosure
from a source that had a lawful right to disclose such information to others; or
(iv) was independently developed by the receiving Party where
such independent development can be established by written documentation.
8.4 INTEGRATION. This Section 8 supersedes any confidential disclosure
agreement between the Parties as to the subject matter hereof. Any confidential
information under any such agreement shall be treated as Confidential
Information hereunder.
9. TERM; TERMINATION
9.1 TERM; TERMINATION AT FULL TERM. This Agreement shall commence as of
the Effective Date and, except as provided in the next sentence or unless sooner
terminated as provided hereunder, shall terminate on a country-by-country basis
on the later of (i) 10 years after Commercial Introduction in that country, or
(ii) the expiration of the last Valid Claim of an Alkermes Patent in that
country. Notwithstanding any termination at the full term of this Agreement,
which shall occur upon termination as described in the preceding sentence in the
United States and each country in the Territory, or termination as otherwise
provided in this Section 9, the provisions of Sections 8, 10, 11 and 12 will not
terminate on said date but will continue in full effect. Upon termination of the
royalty obligations in any country, Genentech shall thereafter have in
perpetuity a fully paid up, royalty-free exclusive license in that country under
the Alkermes Technology to import, make, have made, use, offer for sale and sell
Licensed Products in the Field of Use without any accounting to Alkermes.
9.2 UNILATERAL TERMINATION. Genentech shall have the right following
ninety (90) days written notice to Alkermes to terminate this Agreement at any
time for any reason except for material breach by Alkermes, which shall be
governed by Section 9.3 hereof. In the event that a Licensed Product has
received Regulatory Approval and Alkermes is manufacturing such Licensed Product
for commercial sale, Genentech may so terminate this Agreement only after
providing six (6) months written notice. In any
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THE SECURITIES AND EXCHANGE COMMISSION.
event, Alkermes shall be allowed to spend Development Funds or, if all
Development Funds have been expended, receive reimbursement from Genentech, for
any non-cancelable obligations it has incurred for which Genentech would
otherwise be obligated to support under the Development Budget(s) if this
Agreement had not been terminated. If manufacturing technology has been
transferred to Genentech by Alkermes other than by reason of a material breach
by Alkermes, then Genentech shall transfer all such technology back to Alkermes,
at Alkermes' expense. If Genentech terminates this Agreement pursuant to this
Section 9.2, all rights granted hereunder by Alkermes to Genentech shall
immediately revert to Alkermes and neither Party shall have any further
obligation to the other hereunder except to the extent otherwise accrued or
provided for under this Agreement. In the event Genentech terminates this
Agreement pursuant to this Section 9.2 prior to payment of the Bonus Milestone
Payment, Genentech shall make the Bonus Milestone Payment on the termination
date.
9.3 BREACH. Failure by either Party to comply with any of the material
obligations contained in this Agreement shall entitle the other Party (the
"Non-Defaulting Party") to give to the Party (the "Defaulting Party") in default
written notice specifying the nature of the default and requiring it to make
good such default. If such default is not cured within ninety (90) days after
the receipt of such notice, the Non-Defaulting Party shall be entitled, without
prejudice to any of its other rights conferred on it by this Agreement, in
addition to any other remedies available to it by law or in equity, immediately
to terminate this Agreement by giving written notice to the Defaulting Party.
With respect to either party, a default with respect to its obligations in one
country shall not constitute a default with respect to its obligations in any
other country. The termination of this Agreement by Alkermes as a result of
Genentech's breach under this Section 9.3 shall terminate all rights granted to
it hereunder, except that Genentech shall pay the Bonus Milestone Payment. The
right of a Party to terminate this Agreement, as hereinafter provided, shall not
be affected in any way by its waiver or failure to take action with respect to
any previous default. Upon any termination by Genentech under this Section 9.3,
the Parties shall have the rights and obligations set forth in Section 9.7.
9.4 INSOLVENCY OR BANKRUPTCY. Either Party may, in addition to any
other remedies available to it by law or in equity, terminate this Agreement, by
written notice to the other Party in the event the other Party shall have become
insolvent or bankrupt, or shall have made an assignment for the benefit of its
creditors, or there shall have been appointed a trustee or receiver of the other
Party or for all or a substantial part of its property, or any case or
proceeding shall have been commenced or other action taken by or against the
other Party in bankruptcy or seeking reorganization, liquidation, dissolution,
winding-up, arrangement, composition or readjustment of its debts or any
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THE SECURITIES AND EXCHANGE COMMISSION.
other relief under any bankruptcy, insolvency, reorganization or other similar
act or law of any jurisdiction now or hereafter in effect, or there shall have
been issued a warrant of attachment, execution, distraint or similar process
against any substantial part of the property of the other Party, and any such
event shall have continued for sixty (60) days undismissed, unbonded and
undischarged.
9.5 ACCRUED RIGHTS. Termination, relinquishment or expiration of this
Agreement for any reason shall be without prejudice to any rights, which shall
have accrued to the benefit of either Party prior to such termination or
expiration. Such termination, relinquishment or expiration shall not relieve
either Party from obligations, which are expressly indicated to survive
termination or expiration of this Agreement.
9.6 OWNERSHIP OF CLINICAL DATA. All data produced as a result of
clinical trials conducted under this Agreement shall be owned by Genentech,
except to the extent in conflict with the requirements of any regulatory agency
from which the Parties have received, will apply to receive or have applied to
receive Regulatory Approval, and such ownership shall survive any expiration or
termination of this Agreement. Genentech shall be named as the applicant in any
regulatory submission to be made hereunder and shall be the holder of all
Regulatory Approvals. Alkermes may use such data for any purpose contemplated by
this Agreement. Such data shall be considered Disclosed Confidential
Information.
9.7 RIGHTS AND OBLIGATIONS UPON TERMINATION. In the event of
termination by Genentech for a material breach by Alkermes or upon expiration of
this Agreement, if Alkermes was previously manufacturing Licensed Product for
Genentech, Alkermes shall remain responsible for its supply obligations
hereunder until Alkermes has fully transferred and enabled Genentech or its
designee to perform all of Alkermes' supply obligations. Such transfer shall
include making its personnel and other resources reasonably available to
Genentech as necessary to effect an orderly transition of manufacture of
Licensed Product, with the costs of providing such personnel and resources to be
borne by Genentech, in the event of expiration, and by Alkermes, in the event of
termination by Genentech for material breach. Such transfer will take place, at
Genentech's option, at any time after expiration in any of the Major Market
Countries or the United States until expiration in the last country, in the
event of transfer due to expiration. In addition, Genentech shall thereafter
have an exclusive license in all countries after termination by Genentech for a
material breach by Alkermes for which it shall pay a XXXXXXXXXXXXXXXX royalty on
Net Sales if Alkermes had previously completed a Phase I or Phase I/II clinical
trial with respect to such Licensed Product. In the event of a termination by
Genentech for a material breach by Alkermes or upon expiration of this
Agreement, Genentech shall reimburse Alkermes for Development Funds expended
through the date of termination, so long as such funds were spent in
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THE SECURITIES AND EXCHANGE COMMISSION.
accordance with the 1999/2000 Development Budget or 2001/2002 Development
Budget, as applicable.
9.8 OPTION TO COMMERCIALIZE. If Genentech terminates this Agreement
pursuant to Section 9.2 or if Genentech does not make the Bonus Milestone
Payment by December 31, 2001, Alkermes will have the option to continue the
development and commercialization of the 1st and 2nd Generation Formulations of
the Licensed Products pursuant to a license and cost plus supply agreement to be
negotiated in good faith by the parties and with commercially reasonable terms.
9.9 CHANGE OF CONTROL. In the event of a change of control of Alkermes
Parent, Alkermes Parent, its third party acquiror or its successor will have the
rights described in the Discontinuation Agreement between Genentech and Alkermes
Parent dated the date hereof (the "Discontinuation Agreement"). It is
acknowledged that any exercise by Alkermes Parent of its rights under the
Discontinuation agreement shall not in and of itself trigger a termination of
this Agreement.
10. PATENT RIGHTS
10.1 SOLE INVENTIONS. The Parties recognize that either Party may
independently and separately make inventions during the course of this Agreement
relating to human growth hormone, delivery systems for human growth hormone,
PLGA encapsulation of proteins or otherwise related to the scope of this
Agreement but not as a result of activities performed pursuant to this
Agreement. Each Party shall retain title to inventions and knowhow, whether or
not patentable, made or owned solely by it or on its behalf which do not arise
out of the activities performed by it or on its behalf under this Agreement
("Sole Knowhow"). In such event, the Party making the invention shall be the
sole owner of that invention and of any patent applications and patents thereon
(including inventor's certificates) and shall be solely responsible for the
filing, prosecution and maintenance of all such patent application and patents.
Except as provided in this Agreement, neither Party shall have any right to use
or license knowhow to which the other Party has sole title.
10.2 JOINT PATENTS. All inventions conceived or first reduced to
practice as a result of activities performed pursuant to this Agreement shall be
jointly owned by Genentech and Alkermes. In addition, the event that it is
determined, in accordance with applicable law, that both: (i) employees or
agents of Genentech or any other persons obliged to assign such invention to
Genentech, and (ii) employees or agents of Alkermes or any other persons obliged
to assign such invention to Alkermes, are joint inventors of an invention, the
Parties shall jointly own patents, inventor's certificates and applications
therefor covering such invention. With respect to any sole or joint
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inventions arising as a result of activities performed under this Agreement,
Alkermes and Genentech shall require the Alkermes and/or Genentech inventors to
assign all such inventions to Genentech and Alkermes as joint owners; provided
however, that within thirty (30) days of the termination of the Agreement for
any of the reasons provided in Section 9 hereof, Alkermes and Genentech shall
assign all issued and pending United States and foreign patents and applications
covering inventions arising hereunder according to the following: (i) patent
applications or patents naming only Alkermes inventors shall be assigned to
Alkermes, (ii) patent applications or patents naming only Genentech inventors
shall be assigned to Genentech and (iii) patent applications and patents naming
both Alkermes and Genentech inventors shall remain jointly assigned to Alkermes
and Genentech. With respect to any joint invention or jointly owned invention,
Genentech shall prosecute all such patents relating to Genentech Technology and
Alkermes shall prosecute all such patents relating to the Alkermes Technology.
The party having such obligation to prosecute will be referred to herein as the
"Controlling Party". The Controlling Party shall have the right (but not the
obligation) to undertake such filings, prosecutions and maintenance at its sole
expense, provided that: (a) the Controlling Party notifies the non-Controlling
Party within one (1) month after the filing of any patent application by the
Controlling Party and (b) the Controlling Party provides the non-Controlling
Party, a reasonable time prior to taking or failing to take any action that
would substantially affect the scope or validity of rights under any patent
applications or patents (including but not limited to substantially narrowing or
canceling any claim without reserving the right to file a continuing or
divisional application (which shall not be unreasonably delayed), abandoning any
patent or not filing or perfecting the filing of any patent application), with
notice of such proposed action or inaction so that the non-Controlling Party has
a reasonable opportunity to review and assume the prosecution or maintenance
thereof. In the event that the Controlling Party fails to undertake the filing
of a patent application (or continuing or divisional application) within ninety
(90) days of being designated as the Controlling Party with respect to such
patent application, the non-Controlling Party may undertake such filing,
prosecution and maintenance at its sole expense. Notwithstanding the foregoing,
the Parties shall assist each other to the maximum extent reasonable in securing
intellectual property rights resulting from activities conducted hereunder. As
to enforcement of jointly owned patents, including actions against an infringer,
the Parties shall consult with each other in good faith as to the best manner in
which to proceed. The Parties agree as a basic principle that in the case of
such actions against infringers, the expenses incurred and damages awarded shall
be for the account of the Party or Parties which take such actions to the extent
of their financial participation therein.
10.3 INFRINGEMENT CLAIMS RELATING TO GENENTECH TECHNOLOGY. Genentech
shall defend, at its sole cost and expense, any legal proceedings brought
against it or
24
<PAGE> 25
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "X" AND HAS BEEN FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
Alkermes claiming that Alkermes' manufacture of any Licensed Product under this
Agreement constitutes an infringement of third party patent rights arising out
of the use of Genentech Knowhow or the practice of Genentech Patents, except to
the extent that any such proceedings shall arise from the gross negligence or
willful misconduct of Alkermes and shall indemnify and hold Alkermes harmless
from any damages or expenses incurred or awarded as the result of any settlement
related thereto agreed to by Genentech or judgment against Alkermes, provided
that Alkermes gives Genentech written notice of any such claim or the
institution of any suit or suits against it within thirty (30) days after
Alkermes has knowledge of any such claim or suit or suits, that Alkermes assist
Genentech, at Genentech's expense, in the investigation of, preparation for and
defense of any such claim or suit or suits, and that Alkermes not compromise or
settle any such claim or suit or suits without Genentech's written consent.
Alkermes' failure to notify Genentech of such claim or suit or suits within
thirty (30) days shall not obviate its right to receive indemnification
hereunder so long as such failure does not materially prejudice the defense of
such claim or suit or suits. Genentech shall promptly notify Alkermes in writing
of the institution of any suit by a third party against Genentech for patent
infringement involving the manufacture, use, sale, distribution or marketing of
Licensed Product arising out of the activities carried out pursuant to this
Agreement.
10.4 INFRINGEMENT CLAIMS RELATING TO THE ALKERMES TECHNOLOGY. Alkermes
shall defend, at its sole cost and expense, any legal proceedings brought
against it or Genentech claiming that Alkermes' manufacture of any Licensed
Product or Genentech's manufacture, use, sale, distribution or marketing of
Licensed Product hereunder constitutes an infringement of third party patent
rights arising out of the use of Alkermes Knowhow or the practice of Alkermes
Patents, except to the extent that any such proceedings shall arise from the
gross negligence or willful misconduct of Genentech, and shall indemnify and
hold Genentech harmless from any damages or expenses incurred or awarded as the
result of any settlement related thereto agreed to by Alkermes or judgment
against Genentech, provided that Genentech gives Alkermes written notice of any
such claim or the institution of any suit or suits against it within thirty (30)
days after Genentech has knowledge of any such claim or suit or suits, that
Genentech assist Alkermes, at Alkermes' expense, in the investigation of,
preparation for and defense of any such claim or suit or suits, and that
Genentech not compromise or settle any such claim or suit or suits without
Alkermes' written consent. Genentech's failure to notify Alkermes of such claim
or suit or suits within thirty (30) days shall not obviate its right to receive
indemnification hereunder so long as such failure does not materially prejudice
the defense of such claim or suit or suits. Alkermes shall promptly notify
Genentech in writing of the institution of any suit by a third party against
Alkermes for patent infringement involving the manufacture, use, sale,
distribution or marketing of Licensed Product arising out of the activities
carried out pursuant to this Agreement.
25
<PAGE> 26
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "X" AND HAS BEEN FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
10.5 SURVIVAL. This Section 10 shall survive the termination or
expiration of this Agreement.
11. INDEMNIFICATION
(a) Genentech hereby agrees to save, defend and hold Alkermes
and its agents and employees harmless from and against any and all suits,
claims, actions, demands, liabilities, expenses and/or loss, including
reasonable legal expense and attorneys' fees ("Losses") except for patent claims
handled under Section 10, resulting directly from the marketing, packaging,
testing, labeling, manufacture, use, or sale of Licensed Products in the United
States and the Territory by Genentech, except to the extent such Losses result
from the negligence or willful misconduct of Alkermes.
(b) Alkermes hereby agrees to save, defend and hold Genentech
and its agents and employees harmless from and against any and all Losses except
for patent claims handled under Section 10, resulting directly from the
manufacture of Licensed Products by Alkermes, except to the extent such Losses
result from the negligence or willful misconduct of Genentech.
(c) In the event that one Party is seeking indemnification
under this Section 11 (the "Indemnified Party"), it shall inform the other Party
(the "Indemnifying Party") of a claim as soon as reasonably practicable after
the Indemnified Party receives notice of the claim, shall permit the
Indemnifying Party to assume direction and control of the defense of the claim
(including the right to settle the claim solely for monetary consideration), and
shall cooperate as requested (at the expense of the Indemnifying Party) in the
defense of the claim.
(d) This Section 11 shall survive termination or expiration of
this Agreement.
12. MISCELLANEOUS PROVISIONS
12.1 NO PARTNERSHIP. Nothing in this Agreement is intended or shall be
deemed to constitute a partnership, agency, distributorship, employer-employee
or joint venture relationship between the Parties. No Party shall incur any
debts or make any commitments for the other, except to the extent, if at all,
specifically provided herein.
12.2 ASSIGNMENTS. Neither Party shall assign any of its rights or
obligations hereunder except: (i) as incident to the merger, consolidation,
reorganization or acquisition of stock or assets affecting substantially all of
the assets or voting control of
26
<PAGE> 27
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "X" AND HAS BEEN FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
the assigning Party; (ii) to any wholly-owned subsidiary if the assigning Party
remains liable and responsible for the performance and observance of all of the
subsidiary's duties and obligations hereunder; or (iii) with the consent of the
other Party. This Agreement shall be binding upon the successors and permitted
assigns of the Parties, and the name of a Party appearing herein shall be deemed
to include the names of such Party's successor's and permitted assigns to the
extent necessary to carry out the intent of this Agreement. Any assignment not
in accordance with this Section 12.2 shall be void.
12.3 FURTHER ACTIONS. Each Party agrees to execute, acknowledge and
deliver such further instruments, and to do all such other acts, as may be
necessary or appropriate in order to carry out the purposes and intent of this
Agreement.
12.4 NO TRADEMARK RIGHTS. Except as otherwise provided herein, no
right, express or implied, is granted by this Agreement to use in any manner the
names "Alkermes" or "Genentech" or any other trade name or trademark of Alkermes
or Genentech in connection with the performance of this Agreement.
12.5 PUBLIC ANNOUNCEMENTS. Except as may otherwise be required by law
or regulation, neither Party shall make any public announcement concerning this
Agreement or the subject matter hereof without the prior consent of the other
Party unless the nature of the information has been previously approved for
disclosure. If the nature of the information has been approved, this Section
12.5 will no longer apply to that information.
12.6 ADVERSE EVENT REPORTS. In order to comply with adverse event
reporting regulations of the FDA (as provided in Title 21 of the Code of Federal
Regulations) and other international regulatory agencies, each of Genentech and
Alkermes acknowledge that once the Parties hereunder are selling and/or
clinically testing in humans any Licensed Product they must report promptly to
each other the occurrence of adverse events regarding such products for timely
reporting to the FDA and other reporting agencies. The specific terms of the
adverse event data exchange between the appropriate parties shall be set forth
in a separate agreement and identify the departments responsible for safety
surveillance at each entity.
12.7 ENTIRE AGREEMENT OF THE PARTIES; AMENDMENTS. This Agreement
constitutes and contains the entire understanding and agreement of the Parties
and cancels and supersedes any and all prior negotiations, correspondence,
understandings and agreements, whether verbal or written, between the Parties
respecting the subject matter hereof, including the 1996 License Agreement. No
waiver, modification or amendment of any provision of this Agreement shall be
valid or
27
<PAGE> 28
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "X" AND HAS BEEN FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
effective unless made in writing and signed by a duly authorized officer of each
of the Parties.
12.8 SEVERABILITY. In the event any one or more of the provisions of
this Agreement should for any reason be held by any court or authority having
jurisdiction over this Agreement or either of the parties to be invalid, illegal
or unenforceable, such provision or provisions shall be validly reformed to as
nearly as possible approximate the intent of the Parties and, if unreformable,
shall be divisible and deleted in such jurisdiction; elsewhere, this Agreement
shall not be affected so long as the Parties are still able to realize the
principal benefits bargained for in this Agreement.
12.9 CAPTIONS. The captions to this Agreement are for convenience only,
and are to be of no force or effect in construing or interpreting any of the
provisions of this Agreement.
12.10 APPLICABLE LAW. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of California applicable to
contracts entered into and to be performed entirely within the State of
California.
12.11 NOTICES AND DELIVERIES. Any notice, requests, delivery, approval
or consent required or permitted to be given under this Agreement shall be in
writing and shall be deemed to have been sufficiently given if delivered in
person, transmitted by fax with a confirming copy sent by overnight courier,
overnight courier, or registered mail to the Party to whom it is directed at its
address shown below or such other address as such party shall have last given by
notice to the other Party. Any such notice, requests, delivery, approval or
consent shall be deemed received on the date of fax or hand delivery, one (1)
business day after deposit with an overnight courier, or three (3) days after
deposit of the registered mail with the U.S. postal service.
IF TO ALKERMES, ADDRESSED TO:
Alkermes Controlled Therapeutics, Inc.
64 Sidney Street
Cambridge, MA 02139
Attention: President
Telephone: 617-494-0171
Fax: 617-494-9255
28
<PAGE> 29
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "X" AND HAS BEEN FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
IF TO GENENTECH, INC., ADDRESSED TO:
Genentech, Inc.
1 DNA Way
South San Francisco, California 94080
Attention: Corporate Secretary
Telephone: 650-225-1000
Fax: 650-952-9881
12.12 PREVAILING PARTY. In the event of any dispute which results in a
suit or other legal proceeding to construe or enforce any provision of this
Agreement or because of an alleged breach, default or misrepresentation in
connection with any of the provisions of this Agreement, the parties agree that
the prevailing party or parties (in addition to all other amounts and relief to
which such party or parties may be entitled) shall be entitled to recover
reasonable attorneys' fees and other costs incurred in any action or proceeding.
12.13 COUNTERPARTS. This Agreement may be executed simultaneously in
two or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
12.14 SURVIVAL. The representations, warranties, covenants and
agreements made herein shall survive any investigation made by a Party and shall
be able to be relied fully on by the Parties.
29
<PAGE> 30
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "X" AND HAS BEEN FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
IN WITNESS WHEREOF, the Parties have caused this License Agreement to
be executed by their respective duly authorized officers as of the day and year
first above written, each copy of which shall for all purposes be deemed to be
an original.
ALKERMES CONTROLLED THERAPEUTICS, INC. GENENTECH, INC.
BY: /S/ JAMES M. FRATES BY: /S/ WILLIAM D. YOUNG
----------------------------- ----------------------------------
WILLIAM D. YOUNG
TITLE: VICE PRESIDENT TITLE: CHIEF OPERATING OFFICER
----------------------------- ----------------------------------
30
<PAGE> 31
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "X" AND HAS BEEN FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
Exhibit B
2nd General Formulation Pre-Clinical,
Manufacturing and Clinical Plan
XXXXXXXXXXXXXX
<PAGE> 32
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "X" AND HAS BEEN FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
Exhibit C
Nutropin Depot Development Plan
XXXXXXXXXXXXXXXXXXXX
<PAGE> 33
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "X" AND HAS BEEN FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
Exhibit D
2nd Generation Formulation Development Plan and
Budget for 1999-2000
<TABLE>
<CAPTION>
External Total
# Patients Total Costs Costs
Activity Start-Finish (all Naive) Comments FTEs (MM) ($000)
<S> <C> <C> <C> <C> <C> <C>
XXX XXX XXX XXX XXX XXX XXX
</TABLE>
<PAGE> 34
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "X" AND HAS BEEN FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
Exhibit D
Nutropin Depot Budget for 1999-2000
<TABLE>
<CAPTION>
External Total
# Patients Total Costs Costs
Activity Start-Finish (all Naive) Comments FTEs (MM) ($000)
<S> <C> <C> <C> <C> <C> <C>
XXX XXX XXX XXX XXX XXX XXX
</TABLE>
<PAGE> 35
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "X" AND HAS BEEN FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
Exhibit E
2nd Generation Formulation Development Plan and
Budget for 2001-2002
<TABLE>
<CAPTION>
External Total
# Patients Total Costs Costs
Activity Start-Finish (all Naive) Comments FTEs (MM) ($000)
<S> <C> <C> <C> <C> <C> <C>
XXX XXX XXX XXX XXX XXX XXX
</TABLE>
<PAGE> 1
Exhibit 10.18
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "X" AND HAS BEEN FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
DISCONTINUATION AGREEMENT
THIS DISCONTINUATION AGREEMENT (the "Agreement") is entered into
effective as of April 4, 1999 (the "Effective Date") between ALKERMES, INC., a
Pennsylvania corporation ("Alkermes Parent"), located at 64 Sidney Street,
Cambridge, Massachusetts 02139 and GENENTECH, INC., a Delaware corporation
("Genentech"), located at 1 DNA Way, South San Francisco, California 94080.
Alkermes Controlled Therapeutics, Inc., a Pennsylvania corporation and
a wholly owned subsidiary of Alkermes Parent ("Alkermes"), and Genentech have
entered into, on the date hereof, a License Agreement (the "License Agreement")
under which they will further collaborate on the development of formulations of
recombinant human growth hormone for use in human beings using Alkermes'
technology currently known as the ProLease(R) delivery system, consisting of
patents and know-how, that permits PLGA encapsulation of particular molecules
leading to sustained release of such molecules when injected under the skin.
Genentech and Alkermes Parent have entered into, on the date hereof, a
Stock Purchase Agreement, pursuant to which Genentech agreed to buy and Alkermes
Parent agreed to sell shares of Alkermes Parent's 1999 Redeemable Convertible
Exchangeable Preferred Stock (the "Preferred Stock") to fund their further
collaborative efforts under the License Agreement through the year 2000.
Genentech and Alkermes Parent desire to enter into this Agreement in
order to provide for the option by Alkermes Parent or its successor in interest
to discontinue the Preferred Stock funding mechanism described above in the
event of a change in control of Alkermes Parent.
Therefore, Alkermes Parent and Genentech, intending to be legally bound
hereby, agree as follows:
1. Any capitalized term used herein and not defined shall have
the meaning set forth in the License Agreement.
2. So long as the Bonus Milestone Payment has not been paid
pursuant to Section 3.1 of the License Agreement, in the event
that a third party, who is not an affiliate of Alkermes
Parent, acquires greater than 49% of the voting stock of
Alkermes Parent, such acquiring third party, Alkermes Parent
or its successor may, in its sole discretion, elect to
discontinue the Preferred Stock funding mechanism. In such
case,
<PAGE> 2
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "X" AND HAS BEEN FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
(a) Alkermes Parent or its successor shall redeem for
cash that amount of the Preferred Stock held by
Genentech equal to (i) the difference between the
proceeds from the sale of the Preferred Stock to
Genentech and (ii) the Development Funds expended by
Alkermes to the date of such redemption in accordance
with the 1999/2000 Development Budget;
(b) There will not be a termination of the License
Agreement by virtue of the discontinuation of the
funding mechanism and the termination provisions in
Section 9 of the License Agreement shall control;
(c) The Bonus Milestone Payment shall be adjusted to
equal the sum of XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXX multiplied by a fraction, the numerator of
which is the Development Funds expended by Alkermes
as of the payment date and the denominator of which
is the proceeds from the sale of the Preferred Stock
to Genentech; and
(d) Alkermes Parent shall redeem the remaining Preferred
Stock (or Debentures, if issued in exchange for the
Preferred Stock) according to its terms, if not
earlier converted into Common Stock or Non-Voting
Common Stock.
3. This Agreement, along with the License Agreement and the terms
of the Preferred Stock and the Non-Voting Common Stock in the
Second Amended and Restated Articles of Incorporation of
Alkermes, Inc., as amended, constitute and contain the entire
understanding and agreement of the parties and cancel and
supersede any and all prior negotiations, correspondence,
understandings and agreements, whether verbal or written,
between the parties respecting the subject matter hereof. No
waiver, modification or amendment of any provision of this
Agreement shall be valid or effective unless made in writing
and signed by a duly authorized officer of each of the
parties.
2
<PAGE> 3
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "X" AND HAS BEEN FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
IN WITNESS WHEREOF, the parties have caused this Discontinuation
Agreement to be executed by their respective duly authorized officers as of the
day and year first above written, each copy of which shall for all purposes be
deemed to be an original.
ALKERMES, INC. GENENTECH, INC.
By: /s/ James M. Frates By: /s/ William D. Young
----------------------------------- ------------------------------
Name: James M. Frates Name: William D. Young
Title: Vice President, Chief Financial Title: Chief Operating Officer
3
<PAGE> 1
Exhibit 10.24
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "X" AND HAS BEEN FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
MASSACHUSETTS INSTITUTE OF TECHNOLOGY
AND
ADVANCED INHALATION RESEARCH, INC.
PATENT LICENSE AGREEMENT
THIS OFFER WILL EXPIRE ON AUGUST 15, 1997
(EXCLUSIVE)
<PAGE> 2
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "X" AND HAS BEEN FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
TABLE OF CONTENTS
WITNESSETH.................................................................. 1
1 - DEFINITIONS............................................................. 3
2 - GRANT................................................................... 9
3 - DILIGENCE............................................................... 11
4 - ROYALTIES............................................................... 14
5 - REPORTS AND RECORDS..................................................... 21
6 - PATENT PROSECUTION...................................................... 25
7 - INFRINGEMENT............................................................ 26
8 - PRODUCT LIABILITY....................................................... 29
9 - EXPORT CONTROLS......................................................... 31
10 - NON-USE OF NAMES...................................................... 31
11 - ASSIGNMENT............................................................. 32
12 - DISPUTE RESOLUTION.................................................... 32
13 - TERMINATION........................................................... 33
14 - PAYMENTS, NOTICES AND OTHER COMMUNICATIONS............................. 35
15 - REPRESENTATION......................................................... 35
16 - MISCELLANEOUS PROVISIONS............................................... 36
APPENDIX A.................................................................. 38
APPENDIX B.................................................................. 39
APPENDIX C.................................................................. 40
APPENDIX D.................................................................. 42
<PAGE> 3
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "X" AND HAS BEEN FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
APPENDIX E.................................................................. 43
APPENDIX F.................................................................. 44
<PAGE> 4
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "X" AND HAS BEEN FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
MASSACHUSETTS INSTITUTE OF TECHNOLOGY
and
ADVANCED INHALATION RESEARCH, INC.
PATENT LICENSE AGREEMENT
This Agreement is made and entered into this 11th day of August, 1997, (the
"EFFECTIVE DATE") by and between the MASSACHUSETTS INSTITUTE OF TECHNOLOGY, a
corporation duly organized and existing under the laws of the Commonwealth of
Massachusetts and having its principal office at 77 Massachusetts Avenue,
Cambridge, Massachusetts 02139, U.S.A. (hereinafter referred to as "M.I.T."),
and ADVANCED INHALATION RESEARCH, INC. a corporation duly organized under the
laws of Delaware and having its principal office at c/o David Edwards, 109
Hartswick Avenue, State College, Pennsylvania 16803 (hereinafter referred to as
"LICENSEE").
WITNESSETH
WHEREAS, M.I.T. is the owner of certain PATENT RIGHTS (as later defined
herein) relating to M.I.T. Case No. 7203, "Porous Advanced Particles For
Pulmonary Drug Delivery," by Giovanni Caponetti, David A. Edwards, Justin Hanes,
Jeffrey S. Hrkach, Robert S. Langer, Jr. and Noah Lotan and has the right to
grant licenses under said PATENT RIGHTS;
WHEREAS, M.I.T. and the Pennsylvania State Research Foundation (hereinafter
PSRF) are joint owners of certain PATENT RIGHTS relating to M.I.T. Case 7465,
"Aerodynamically Light
<PAGE> 5
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "X" AND HAS BEEN FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
Particles For Pulmonary Drug Delivery", by Giovanni Caponetti, David A. Edwards,
Justin Hanes, Jeffrey S. Hrkach, Robert S. Langer, Jr., Noah Lotan and Abdelaziz
Ben-Jebria, and PSRF has appointed M.I.T. as its sole and exclusive agent for
the licensing of its patent rights in M.I.T. Case 7465, so that M.I.T. has the
right to grant an exclusive license under said PATENT RIGHTS, subject only to a
royalty-free, nonexclusive license heretofore granted to the United States
Government; and
WHEREAS, M.I.T. and PSRF are joint owners of certain PATENT RIGHTS relating
to M.I.T. Case 7513, "Optimized Aerosols With Lung Surfactant", by David A.
Edwards, Carmen Evora, Justin Hanes, and Robert S. Langer, Jr., and PSRF has
appointed M.I.T. as its sole and exclusive agent for the licensing of its patent
rights in M.I.T. Case 7513, so that M.I.T. has the right to grant an exclusive
license under said PATENT RIGHTS, subject only to royalty free, nonexclusive
license heretofore granted to the United States Government; and
WHEREAS, M.I.T. desires to have the PATENT RIGHTS developed and
commercialized to benefit the public and is willing to grant a license
thereunder;
WHEREAS, Robert S. Langer, a current employee of M.I.T., and also an M.I.T.
inventor of the PATENT RIGHTS now holds or shall shortly acquire an equity
position in LICENSEE, the Conflict Avoidance Statement of Robert S. Langer, is
attached hereto as Appendix C, and his Waiver of participation in M.I.T.'s
institutional equity share is attached as Appendix D;
WHEREAS, David A. Edwards, an M.I.T. inventor of M.I.T. Case No. 7203, one
of the inventions in the PATENT RIGHTS, now holds or shall shortly acquire an
equity position in
2
<PAGE> 6
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "X" AND HAS BEEN FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
LICENSEE,his Waiver of participation in M.I.T.'s institutional equity share is
attached as Appendix E;
WHEREAS, M.I.T. is accepting equity in partial lieu of royalties, M.I.T.'s
Vice President for Research has granted approval;
WHEREAS, LICENSEE has represented to M.I.T., to induce M.I.T. to enter into
this Agreement, that it shall commit itself to a thorough, vigorous and diligent
program of exploiting the PATENT RIGHTS so that public utilization shall result
therefrom; and
WHEREAS, LICENSEE desires to obtain a license under the PATENT RIGHTS upon
the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the parties hereto agree as follows:
1 - DEFINITIONS
For the purposes of this Agreement, the following words and phrases
shall have the following meanings:
1.1 "LICENSEE" shall mean Advanced Inhalation Research, Inc. and its
AFFILIATES.
1.2 "AFFILIATE" shall mean any legal entity (such as a corporation,
partnership, or limited liability company) that is controlled by LICENSEE. For
the purposes of this definition, the term "control" means (i) beneficial
ownership of at least fifty percent (50%) of the voting securities of a
corporation or other business organization with voting securities or (ii) a
fifty percent (50%) or
3
<PAGE> 7
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "X" AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
greater interest in the net assets or profits of a partnership or other business
organization without voting securities.
1.3 "PATENT RIGHTS" shall mean all of the following intellectual
property:
a. the United States patents listed in Appendix A;
b. the United States patent applications listed in
Appendix A, and divisionals, continuations and claims
of continuation-in-part applications which shall be
directed to subject matter specifically described in
such patent applications, and the resulting patents;
c. any patents resulting from reissues or reexaminations
of the United States patents described in a. and b.
above;
d. the Foreign patents listed in Appendix A;
e. the Foreign patent applications listed in Appendix A,
and divisionals, continuations and claims of
continuation-in-part applications which shall be
directed to subject matter specifically described in
such Foreign patent applications, and the resulting
patents;
f. Foreign patent applications filed after the EFFECTIVE
DATE in the countries listed in Appendix B and
divisionals, continuations and claims of
continuation-in-part applications which shall be
directed to subject matter specifically described in
such patent applications, and the resulting patents;
and
4
<PAGE> 8
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "X" AND HAS BEEN FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
g. any Foreign patents, resulting from equivalent
Foreign procedures to United States reissues and
reexaminations, of the Foreign patents described in
d., e. and f. above.
1.4 A "LICENSED PRODUCT" shall mean any product or part thereof
which:
a. is covered in whole or in part by an issued,
unexpired claim or a pending claim contained in the
PATENT RIGHTS in the country in which any such
product or part thereof is made, used or sold or
imported; or
b. is manufactured by using a process or is employed to
practice a process which is covered in whole or in
part by an issued, unexpired claim or a pending claim
contained in the PATENT RIGHTS in the country in
which any LICENSED PROCESS is used or in which such
product or part thereof is used or sold or imported.
1.5 A "LICENSED PROCESS" shall mean any process which is covered
in whole or in part by an issued, unexpired claim or a pending claim contained
in the PATENT RIGHTS.
1.6 A "PARTICLE" shall mean a LICENSED PRODUCT which is a porous
particle and which does not incorporate a therapeutic agent and which does not
include a method for administering it to the respiratory tract of a patient.
1.7 A "THERAPEUTIC PARTICLE" shall mean a LICENSED PRODUCT which
is a porous particle and which does incorporate a therapeutic agent but which
does not include a method for administering it to the respiratory tract of a
patient.
5
<PAGE> 9
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "X" AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
1.8 An "ADMINISTRATION SYSTEM" shall mean a LICENSED PRODUCT the
use of which practices any claim of substantially the same form as claims: 14-15
of U.S.S.N. 08/655,570, 17-28 of U.S.S.N. 08/739,308, 17-33 of U.S.S.N.
08/784,421.
1.9 "NET SALES" shall mean LICENSEE's and its sublicensees'
billings for LICENSED PRODUCTS and LICENSED PROCESSES less the sum of the
following:
a. discounts allowed in amounts customary in the trade
for quantity purchases, cash payments, prompt
payments, wholesalers and distributors;
b. sales, tariff duties and/or use taxes directly
imposed and with reference to particular sales;
c. outbound transportation prepaid or allowed; and
d. amounts allowed or credited on returns.
No deductions shall be made for commissions paid to individuals whether
they be with independent sales agencies or regularly employed by LICENSEE and on
its payroll, or for cost of collections. NET SALES shall occur when a LICENSED
PRODUCT or LICENSED PROCESS shall be invoiced; provided, however that with
respect to sales by LICENSEE to its AFFILIATES, a NET SALE shall be deemed to
have occurred upon resale of such LICENSED PRODUCT or LICENSED PROCESS by such
AFFILIATE to a third party. If a LICENSED PRODUCT or LICENSED PROCESS shall be
distributed or invoiced for a discounted price substantially lower than
customary in the trade or distributed at no cost, NET SALES shall be based on
the customary amount billed for such LICENSED PRODUCTS or LICENSED PROCESSES.
6
<PAGE> 10
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "X" AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
1.10 Notwithstanding paragraph 1.9 above:
a. NET SALES of THERAPEUTIC PARTICLES into which have
been incorporated a HIGH COST THERAPEUTIC AGENT shall
be the difference between
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXX.
b. NET SALES of ADMINISTRATION SYSTEMS in which are
THERAPEUTIC PARTICLES into which have been
incorporated a HIGH COST THERAPEUTIC AGENT shall be
the difference between
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX.
1.11 "TECHNICAL AREA" shall mean any of the following: a) Delivery
of Therapeutic Agents Directed to the Human Pulmonary System via the Human
Pulmonary System; and b) Delivery of Therapeutic Agents Directed to Other Human
Organs Outside the Human Pulmonary
7
<PAGE> 11
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "X" AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
System via the Human Pulmonary System; and c) Delivery of Diagnostic Agents via
the Human Pulmonary System; and d) All other applications including veterinary.
1.12 "FIELD OF USE" of the EFFECTIVE DATE shall mean all the TECHNICAL
AREAS listed above, and is subject to modification according to the provisions
of paragraphs 2.3 (b) and 2.3(c).
1.13 "CORPORATE PARTNER" shall mean: a) any entity which agrees to
compensate (either in cash or non-cash) LICENSEE for any one or more of the
rights to market, distribute, sell, use, and/or transfer LICENSED PRODUCTS
and/or LICENSED PROCESSES, or b) any entity which agrees to compensate (either
in cash or non-cash) LICENSEE for the right to incorporate LICENSED PRODUCTS in
its own drug delivery system(s) and for any one or more of the rights to market,
distribute, sell, use, and/or transfer the resulting combination, or c) any
entity which agrees to compensate (either in cash or non-cash) LICENSEE for the
right to attach its own biologically active agent(s) to LICENSED PRODUCTS and
for any one or more of the rights to market, distribute, sell, use, and/or
transfer the resulting combination. Any CORPORATE PARTNER that receives a
sublicense of the PATENT RIGHTS shall also be a sublicensee.
1.14 "MILESTONE PAYMENT" shall mean a payment to LICENSEE from a
CORPORATE PARTNER due upon achievement of agreed upon regulatory or business
milestones. Illustrative examples of these milestones include, but are not
limited to: XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX.
8
<PAGE> 12
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "X" AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
1.15 "MAJOR COUNTRY" shall mean the United States of America, Japan,
German, France or Great Britain.
1.16 "RUNNING ROYALTIES" shall mean a royalty paid on NET SALES of
LICENSED PRODUCTS or LICENSED PROCESSES.
1.17 "HIGH COST THERAPEUTIC AGENT" shall mean a therapeutic agent, a
single dose of which cost more than XXXXXXXXXXXXXX as much to manufacture than a
single dose of PARTICLES into which the same therapeutic agent is incorporated.
1.18 "DILUTIVE ISSUANCE" shall mean an event following the EFFECTIVE
DATE in which LICENSEE issues Common Stock or securities convertible into or
exercisable for shares of Common Stock of LICENSEE in exchange for cash,
property, services or other valuable consideration; provided, however, that the
following issuances of Common Stock or securities convertible into or
exercisable for shares of Common Stock of LICENSEE are explicitly excluded from
this definition: (a) the issuance of XXXXXXX shares of Series A Convertible
Preferred Stock and warrants exercisable for up to XXXXXXX shares of Series AA
Convertible Preferred Stock to XXXXXXXXXXXXXXXXXXXXXXXXXXXXXX and its affiliates
pursuant to a certain Series A Convertible Preferred Stock and Warrant Purchase
Agreement; (b) issuances of shares of Common Stock upon the conversion of then
outstanding shares of LICENSEE's preferred stock unless, and to the extent that,
each share of preferred stock can be exchanged for more than one share of Common
Stock (including, for the purposes of such calculation, fractional shares), (c)
issuances of shares of Common Stock pursuant to Section 4.1 b. of this
Agreement, (d) issuances to officers,
9
<PAGE> 13
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "X" AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
directors or employees of, or consultants to LICENSEE for compensation purposes,
and (e) issuances in connection with a sale of LICENSEE's capital stock through
the public markets.
1.19 "DILUTIVE ISSUANCE THRESHOLD" shall mean the point in time when
LICENSEE has issued capital stock in connection with DILUTIVE ISSUANCE(S) in
exchange for aggregate cash consideration totaling at least
XXXXXXXXXXXXXXXXXXXXXXX.
1.20 "M.I.T. HOLDERS" shall mean the institutions and persons named in
Appendix F of this Agreement to whom LICENSEE has agreed to issue an aggregate
of XXXXXX shares of its Common Stock pursuant to this Agreement.
2 - GRANT
2.1 M.I.T. hereby grants to LICENSEE the exclusive right and license
for the FIELD OF USE to practice under the PATENT RIGHTS and, to the extent not
prohibited by other patents, to make, have made, use, lease, sell and import
LICENSED PRODUCTS and to practice the LICENSED PROCESSES, until the expiration
of the last to expire of the PATENT RIGHTS, unless this Agreement shall be
sooner terminated according to the terms hereof.
2.2 LICENSEE agrees to comply with 35 U.S.C. 204.
2.3 (a) In order to establish a period of exclusivity for LICENSEE,
M.I.T. hereby agrees that it shall not grant any other license to make, have
made, use, lease, sell and import LICENSED PRODUCTS or to utilize LICENSED
PROCESSES, subject to the royalty-free, nonexclusive license rights to the
United States Government per FAR 52.227-11 for the PATENT
10
<PAGE> 14
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "X" AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
RIGHTS related to cases 7465 and 7513, for the FIELD OF USE during the period of
time commencing with the EFFECTIVE DATE and terminating with the end of the term
or terms for which any PATENT RIGHTS have been or shall be granted, unless
sooner terminated as hereinafter provided.
(b) XXXXXXXXXXXXXXXXXXX, if M.I.T. receives a written request
from a capable third party for a license to the PATENT RIGHTS in a TECHNICAL
AREA not presently being commercialized by LICENSEE as demonstrated by LICENSEE
having spent a minimum of XXXXXXXX toward the commercialization of a LICENSED
PRODUCT in that TECHNICAL AREA, and to which LICENSEE has not previous granted a
sublicense pursuant to its rights set forth in paragraph 2.6, then, M.I.T. may,
at its sole discretion, with written notice to LICENSEE, grant one exclusive
license or non-exclusive license per TECHNICAL AREA per year, thereby revoking
entirely or partially LICENSEE's rights in that TECHNICAL AREA.
(c) XXXXXXXXXXXXXXXXXX, if M.I.T. receives a written request
from a capable third party for a license to the PATENT RIGHTS in a TECHNICAL
AREA not presently being commercialized by LICENSEE as demonstrated by LICENSEE
having spent a minium of XXXXXXXXXX toward the commercialization of a LICENSED
PRODUCT in that TECHNICAL AREA, and to which LICENSEE has not previous granted a
sublicense pursuant to its rights set forth in paragraph 2.6, then, M.I.T. may,
at its sole discretion, with written notice to LICENSEE, grant one exclusive
license or non-exclusive license per TECHNICAL AREA per year, thereby revoking
entirely or partially LICENSEE's rights in that TECHNICAL AREA.
11
<PAGE> 15
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "X" AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
2.4 M.I.T. and PSRF reserve the right to practice under the PATENT
RIGHTS for noncommercial research purposes.
2.5 After LICENSEE has fulfilled the diligence requirements set forth
in paragraphs 3.2(a) and 3.2(b) and 3.2(e), LICENSEE shall have the right to
enter into sublicensing agreements for the PATENT RIGHTS in the FIELD OF USE.
Upon any termination of this Agreement, sublicensees rights shall also
terminate, subject to Paragraph 13.6 hereof.
2.6 LICENSEE agrees to incorporate terms and conditions substantively
similar to Articles 2, 5.1, 7.1, 7.2, 7.3, 7.5, 7.6, 8, 9, 10, 12 and 15 of this
Agreement into its sublicense agreements, that are sufficient to enable LICENSEE
to comply with this Agreement.
2.7 LICENSEE agrees to forward to M.I.T. a copy of any and all
sublicense agreements promptly upon execution by the parties.
2.8 Nothing in this Agreement shall be construed to confer any rights
upon LICENSEE by implication, estoppel or otherwise as to any technology or
patent rights of M.I.T. or any other entity other than the PATENT RIGHTS,
regardless of whether such patent rights shall be dominant or subordinate to any
PATENT RIGHTS.
3 - DILIGENCE
3.1 LICENSEE shall use its best efforts to bring one or more LICENSED
PRODUCTS or LICENSED PROCESSES to market through a thorough, vigorous and
diligent program for
12
<PAGE> 16
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "X" AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
exploitation of the PATENT RIGHTS and to continue active, diligent marketing
efforts for one or more LICENSED PRODUCTS or LICENSED PROCESSES throughout the
life of this Agreement.
3.2 In addition, LICENSEE shall adhere to the following
milestones:
a. LICENSEE shall:
(i) XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXX
(ii) XXXXXXXXXXXXXXXXXXXXXXXXXXXXX.
b. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXX.
c. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX.
d. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
13
<PAGE> 17
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "X" AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXX.
e. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXX.
f. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXX.
g. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXX.
h. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXX:
XXXX XXXXXXX
XXXX XXXXXXX
XXXX XXXXXXX
XXXXXXXXXXXXXX XXXXXXX
14
<PAGE> 18
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "X" AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
3.3 LICENSEE's failure to perform in accordance with either Paragraph
3.1 or 3.2 above shall be grounds for M.I.T. to terminate this Agreement
pursuant to Paragraph 13.3 hereof.
4 - ROYALTIES
4.1 For the rights, privileges and license granted hereunder, LICENSEE
shall pay royalties to M.I.T. in the manner hereinafter provided to the end of
the term of the PATENT RIGHTS or until this Agreement shall be terminated:
a. License Issue Fee of XXXXXXXXXXXXXXXXXXXXXXX, which
said License Issue Fee shall be deemed earned and due
immediately upon the EFFECTIVE DATE.
b. (i) In consideration of the Licenses and other rights
granted by M.I.T. to LICENSEE pursuant to this
Agreement, LICENSEE agrees to issue to each of the
M.I.T. HOLDERS listed in Appendix F a number of
shares of LICENSEE's Common Stock set forth opposite
M.I.T. HOLDER'S name as provided in Appendix F, which
Appendix M.I.T. and LICENSEE agree to hold
confidential.
(ii) XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
15
<PAGE> 19
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "X" AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
(iii) XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX.
16
<PAGE> 20
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "X" AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
(iv) XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXX.
(v) XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXX.
(vi) XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
17
<PAGE> 21
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "X" AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXX.
c. (i) License Maintenance Fee of XXXXXXXXXXXXXXXXXXX
payable on XXXXXXXXXXXXXX provided, however, that
this License Maintenance Fee may be credited to
Running Royalties subsequently due on NET SALES for
XXXXXXXXXXXXX, if any. A License Maintenance Fee paid
in excess of Running Royalties shall not be
creditable to Running Royalties for future XXXXX.
(ii) License Maintenance Fee of XXXXXXXXXXXXXXXXXXXX
payable on XXXXXXXXXXXXXXX, and on XXXXXXXXXXXXXXX
provided, however, that these License Maintenance
Fees may be credited to Running Royalties
subsequently due on NET SALES for XXXXXXXXXXXXX
XXXXX, and XXXX, respectively, if any. License
Maintenance Fees paid in excess of Running Royalties
shall not be creditable to Running Royalties for
future XXXXX.
(iii) License Maintenance Fee of XXXXXXXXXXXXXXXXXXX
payable on XXXXXXXXXXXXXXX, provided, however, that
this License
18
<PAGE> 22
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "X" AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
Maintenance Fee may be credited to Running Royalties
subsequently due on NET SALES for XXXXXXXXXXXXXXXXXX,
if any. A License Maintenance Fee paid in excess of
Running Royalties shall not be creditable to Running
Royalties for future XXXXX.
(iv) License Maintenance Fee of XXXXXXXXXXXXXXXXXXX
payable on XXXXXXXXXXXXX provided, however, that this
License Maintenance Fee may be credited to Running
Royalties subsequently due on NET SALES for
XXXXXXXXXXXXXXXXXX, if any. A License Maintenance Fee
paid in excess of Running Royalties shall not be
credited to Running Royalties for future XXXXX.
(v) License Maintenance Fee of XXXXXXXXXXXXXXXXXXX
payable on XXXXXXXXXXXXXXX, and on XXXXXXXXXXXXXXXXX
XXXXXXXXXX, provided, however, that these License
Maintenance Fees may be credited to Running Royalties
subsequently due on NET SALES for
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXX, if
any. A License Maintenance Fee paid in excess of
Running Royalties shall not be creditable to Running
Royalties for future XXXXX.
d. Running Royalties in an amount equal to XXXXXXXXXXX
of NET SALES of the PARTICLES used, leased or sold by
and/or for LICENSEE and/or its sublicensees and/or
its CORPORATE PARTNERS.
19
<PAGE> 23
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "X" AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
e. Running Royalties in an amount equal to XXXXXXXXXX of
NET SALES of THERAPEUTIC PARTICLES used, leased or
sold by and/or for LICENSEE and/or its sublicensees
and/or its CORPORATE PARTNERS.
f. Running Royalties in an amount equal to XXXXXXXXXXX
of NET SALES of ADMINISTRATION SYSTEMS used, leased,
or sold by and/or for LICENSEE and/or its
sublicensees and/or its CORPORATE PARTNERS.
g. In addition to Running Royalties,
XXXXXXXXXXXXXXXXXXXXXX due upon the execution of a
first contract with a particular CORPORATE PARTNER.
h. Royalties in an amount equal to XXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXX.
i. Royalties in an amount equal to XXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXX.
j. Royalties in an amount equal to
XXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXX.
k. In addition to Running Royalties, LICENSEE shall pay
to M.I.T. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
20
<PAGE> 24
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "X" AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX.
4.2 All payments due hereunder shall be paid in full, without deduction
of taxes or other fees which may be imposed by any government, except as
otherwise provided in Paragraph 1.5(b).
4.3 No multiple royalties shall be payable because any PARTICLE, its
manufacture, use, lease or sale are or shall be covered by more than one PATENT
RIGHTS patent application or PATENT RIGHTS patent licensed under this Agreement.
4.4 No multiple royalties shall be payable because any THERAPEUTIC
PARTICLE, its manufacture, use, lease or sale are or shall be covered by more
than one PATENT RIGHTS patent application or PATENT RIGHTS patent licensed under
this Agreement.
4.5 No multiple royalties shall be payable because any ADMINISTRATIVE
SYSTEM, its manufacture, use, lease or sale are or shall be covered by more than
one PATENT RIGHTS patent application or PATENT RIGHTS patent licensed under this
Agreement.
4.6 It is understood that the same physical object, such as a PARTICLE,
or THERAPEUTIC PARTICLE, may be sold multiple times. For example, a PARTICLE
could be sold
21
<PAGE> 25
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "X" AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
to a sublicensee who makes a THERAPEUTIC PARTICLE out of it, then sells the
THERAPEUTIC PARTICLE to another sublicensee, who incorporates it into an
ADMINISTRATION SYSTEM, and sells that. M.I.T. and LICENSEE agree that royalties
will be payable each time an invoice is generated as a result of the sale of a
LICENSED PRODUCT, event if the same physical object, albeit in altered form, is
sold more than once.
4.7 Royalty payments shall be paid in United States dollars in
Cambridge, Massachusetts, or at such other place as M.I.T. may reasonably
designate consistent with the laws and regulations controlling in any foreign
country. If any currency conversion shall be required in connection with the
payment of royalties hereunder, such conversion shall be made by using the
exchange rate prevailing at the Chase Manhattan Bank (N.A.) on the last business
day of the calendar quarterly reporting period to which such royalty payments
relate.
5 - REPORTS AND RECORDS
5.1 LICENSEE shall keep full, true and accurate books of account
containing all particulars that may be necessary for the purpose of showing the
amounts payable to M.I.T. hereunder. Said books of account shall be kept at
LICENSEE's principal place of business or the principal place of business of the
appropriate division of LICENSEE to which this Agreement relates. Said books and
the supporting data shall be open at all reasonable times for five (5) years
following the end of the calendar year to which they pertain, to the inspection
of M.I.T. or its agents for the purpose of verifying LICENSEE's royalty
statement or compliance in other respects with this
22
<PAGE> 26
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "X" AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
Agreement. Should such inspection lead to the discovery of a greater than
XXXXXXXXX discrepancy in reporting to M.I.T.'s detriment, LICENSEE agrees to pay
the full cost of such inspection.
5.2 LICENSEE shall deliver to M.I.T. true and accurate reports, giving
such particulars of the business conducted by LICENSEE and its sublicensees
under this Agreement as shall be pertinent to diligence under Article 3 and
royalty accounting hereunder.
a. before the first commercial sale of a LICENSED
PRODUCT or LICENSED PROCESS, annually, on January 31
of each year, and
b. after the first commercial sale of a LICENSED PRODUCT
or LICENSED PROCESS, quarterly, within sixty (60)
days after March 31, June 30, September 30 and
December 31, of each year.
These reports shall include at least the following:
a. number of LICENSED PRODUCTS manufactured, leased and
sold by and/or for LICENSEE, its CORPORATE PARTNERS
and any other sublicensees, including a separate
accounting for PARTICLES, THERAPEUTIC PARTICLES, and
ADMINISTRATION SYSTEMS;
b. accounting for any and all HIGH COST THERAPEUTIC
AGENTS, including:
(i) the identity of the HIGH COST THERAPEUTIC AGENT;
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THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "X" AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
(ii) The cost to manufacture a single dose of the
PARTICLES into which the HIGH COST THERAPEUTIC AGENT
is to be incorporated;
(iii) the cost to manufacture a single dose of the
HIGH COST THERAPEUTIC AGENT; and
(iv) a calculation confirming that by the criterion
of paragraph 1.17 the therapeutic agent is a HIGH
COST THERAPEUTIC AGENT.
c. accounting related to the special provisions of
paragraph 1.10(a),including explicitly;
(i) the identity of the HIGH COST THERAPEUTIC AGENT;
(ii) XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXX;
(iii) XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX;
and
(iv) XXXXXXXXXXXXXXXXXXXXX.
24
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THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "X" AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
d. accounting related to the special provisions of
paragraph 1.10(b), including explicitly:
(i) the identity of the HIGH COST THERAPEUTIC AGENT;
(ii) XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXX;
(iii) XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXX; and
(iv) XXXXXXXXXXXXXXXXXXXXXXX.
e. accounting for all LICENSED PROCESSES used or sold by
and/or for LICENSEE, its CORPORATE PARTNERS and any
other sublicensees;
f. description of the TECHNICAL AREAS in which LICENSEE
is presently funding effort toward the
commercialization of the PATENT RIGHTS, and the level
of funding in each TECHNICAL AREA;
g. contracts executed with CORPORATE PARTNERS, and
payments due under 4.1 (g);
h. accounting for NET SALES, noting the deductions
applicable as provided in Paragraph 1.9, and any
special circumstances per paragraph 1.10;
25
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THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "X" AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
i. regulatory and business milestones which trigger
MILESTONE PAYMENTS to M.I.T., and the amounts of
those MILESTONE PAYMENTS;
j. running Royalties due under Paragraph 4.1(d), (e),
and (f);
k. royalties due on MILESTONE PAYMENTS from CORPORATE
PARTNERS under Paragraph 4.1(h), (i), and (j);
l. royalties due on payments from other sublicensees
under paragraph 4.1(k);
m. total royalties due; and
n. names and address of all CORPORATE PARTNERS, and any
other sublicensees of LICENSEE.
M.I.T. agrees to keep any information reported by LICENSEE under this
paragraph in confidence and not to disclose it to third parties not bound by a
similar obligation of confidentiality, except as may be required by law. M.I.T.
agrees to protect the confidential nature of the information using measures as
strong as those it uses to protect its own confidential information. LICENSEE
agrees that M.I.T. may share any information provided to M.I.T. under this
article 5.2 with PSRF and also with agents hired by M.I.T. under paragraph 5.1
pursuant to our right to audit LICENSEE's royalty reports, provided that PSRF
and any such agent shall have first agreed tin writing to be bound by an
obligation of confidentiality at least as restrictive as that undertaken by
M.I.T. under this section 5.2.
5.3 With each such report submitted, LICENSEE shall pay to M.I.T. the
royalties due and payable under this Agreement. If no royalties shall be due,
LICENSEE shall so report.
26
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THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "X" AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
5.4 On or before the ninetieth (90th) day following the close of
LICENSEE's fiscal year, LICENSEE shall provide M.I.T. with LICENSEE's certified
financial statements for the preceding fiscal year including, at a minimum, a
balance sheet and an income statement.
5.5 The amounts due under Articles 4 and 6 shall, if overdue, bear
interest until payment at a per annum rate XXXXXXXXXXXXXXXXXXXXXXXXXXXX in
effect at the Chase Manhattan Bank (N.A.) on the due date. The payment of such
interest shall not foreclose M.I.T. from exercising any other rights it may have
as a consequence of the lateness of any payment.
6 - PATENT PROSECUTION
6.1 M.I.T. shall apply for, seek prompt issuance of, and maintain the
PATENT RIGHTS during the term of this Agreement. Appendix B is a list of the
foreign countries in which patent applications corresponding to the United
States Patent applications listed in Appendix A shall be filed. Appendix B may
be amended by mutual agreement of both parties. The filing, prosecution and
maintenance of all PATENT RIGHTS applications and patents shall be the primary
responsibility of M.I.T.; provided, however, LICENSEE shall have reasonable
opportunities to advise M.I.T. and shall cooperate with M.I.T. in such filing,
prosecution and maintenance.
M.I.T. shall instruct Patrea Pabst, or another attorney mutually
acceptable to M.I.T., PSRF, and LICENSEE, to copy LICENSEE on all patent
prosecution documents, and shall instruct Patrea Pabst or such other attorney
not to proceed with a substantive action without receiving LICENSEE's
27
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THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "X" AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
written approval, except, that not hearing from LICENSEE within ten days after
requesting LICENSEE's approval shall be deemed to constitute such approval.
6.2 Payment of all fees and costs relating to the filing, prosecution
and maintenance of the PATENT RIGHTS shall be the responsibility of LICENSEE,
whether such fees and costs were incurred before or after the EFFECTIVE DATE,
provided however, LICENSEE shall not be responsible for payment of any fees
incurred following the termination of this Agreement.
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX. LICENSEE shall pay such fees and costs to
M.I.T. within thirty (30) days of invoicing; late payments shall accrue interest
and shall be subject to Paragraph 5.5.
7 - INFRINGEMENT
7.1 LICENSEE shall inform M.I.T. promptly in writing of any alleged
infringement of the PATENT RIGHTS by a third party and of any available evidence
thereof.
7.2 In the FIELD OF USE, LICENSEE shall have the right, but shall not
be obligated, to prosecute at its own expense all infringements of the PATENT
RIGHTS and, in furtherance of such right, M.I.T. hereby agrees that LICENSEE may
include M.I.T. as party plaintiff in any such suit, without expense to M.I.T.
The total cost of any such infringement action commenced or defended solely by
LICENSEE shall be borne by LICENSEE, and LICENSEE shall keep any recovery or
damages for past infringement derived therefrom. No settlement, consent judgment
or
28
<PAGE> 32
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "X" AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
other voluntary final disposition of the suit may be entered into without the
consent of M.I.T., which consent shall not unreasonably be withheld. LICENSEE
shall indemnify M.I.T. against any order for costs that may be made against
M.I.T. in such proceedings.
7.3 If within six (6) months after having been notified of an alleged
infringement, LICENSEE shall have been unsuccessful in persuading the alleged
infringer to desist and shall not have brought and shall not be diligently
prosecuting an infringement action, or if LICENSEE shall notify M.I.T. at any
time prior thereto of its intention not to bring suit against any alleged
infringer for the FIELD OF USE, then, and in those events only, M.I.T. shall
have the right, but shall not be obligated, to prosecute at its own expense any
infringement of the PATENT RIGHTS in the FIELD OF USE, and M.I.T. may, for such
purposes, use the name of LICENSEE as party plaintiff. The total cost of any
such infringement action commenced or defended solely by M.I.T. shall be borne
by M.I.T. and M.I.T. shall keep any recovery or damages for past infringement
derived therefrom.
7.4 In the event that LICENSEE shall undertake litigation for the
enforcement of the PATENT RIGHTS, or the defense of the PATENT RIGHTS under this
Article 7, LICENSEE may withhold up to XXXXXXXXXXXXX of the payments otherwise
thereafter due M.I.T. under Article 4 hereunder and apply the same toward
reimbursement of up to half or LICENSEE's expenses, including reasonable
attorneys' fees, in connection therewith. Any recovery of damages by LICENSEE
for each such suit shall be applied first in satisfaction of any unreimbursed
expenses and legal fees of LICENSEE relating to such suit, and next toward
reimbursement of M.I.T. for any payments under Article 4 past due or withheld
and applied pursuant to this Article 7. If any M.I.T.
29
<PAGE> 33
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "X" AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
royalties have been withheld pursuant to this clause, the balance remaining from
any such recovery due to M.I.T. shall be calculated by creating a fraction, the
numerator of which is the amount of royalties withheld, and the denominator of
which is the cost of litigation paid by LICENSEE, and multiplying said fraction
by the balance remaining, but in no event shall such sum be less than
XXXXXXXXXXXXXXX of the balance remaining.
7.5 In the event that (a) LICENSEE undertakes the enforcement and/or
defense of the PATENT RIGHTS by litigation, and (b) LICENSEE demonstrates by
competent proof that an infringer's activity is substantially affecting
LICENSEE's sales, and that LICENSEE's sales of LICENSED PRODUCTS and LICENSED
PROCESSES have declined by at least XXXXX XXXXXXXXXXXXXXX during the period of
infringement, then, for a period not to exceed two years, LICENSEE may withhold
up to XXXXXXXXXXXXXXX of the payments otherwise due M.I.T. under Article 4
hereunder and apply the same toward reimbursement of LICENSEE's expenses,
including reasonable attorney's fees in connection therewith. Any recovery of
damages by LICENSEE for each such suit shall be applied first in satisfaction of
any unreimbursed expenses and legal fees of LICENSEE relating to such suit, and
next toward reimbursement of M.I.T. for payments under article 4 past due or
withheld and applied pursuant to this Article 7. If any M.IT. royalties have
been withheld pursuant to this clause, the balance remaining from any such
recovery due to M.I.T. shall be calculated by creating a fraction, the numerator
of which is the amount of royalties withheld, and the denominator of which is
the cost of litigation paid by LICENSEE, and
30
<PAGE> 34
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "X" AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
multiplying said fraction by the balance remaining, but in no event shall such
sum be less than XXX XXXXXXXXXXXX of the balance remaining.
7.6 In the event that a declaratory judgment action alleging invalidity
or noninfringement of any of the PATENT RIGHTS shall be brought against
LICENSEE, LICENSEE shall within ten (10) days after the commencement of such
action notify M.I.T. as to whether or not LICENSEE intends to defend such
action. In the event LICENSEE notifies M.I.T. that LICENSEE intends to defend
such action, LICENSEE shall take over the sole defense of the action at its own
expense. In the event LICENSEE notifies M.I.T. that it intends not to defend
such action, or that it intends to discontinue the defense of such action,
M.I.T. at its sole option, shall have the right, within thirty (30) days of such
notice, to intervene and take over the sole defense of the action at its own
expenses subject to Paragraph 7.4.
7.7 In any infringement suit as either party may institute to enforce
the PATENT RIGHTS pursuant to this Agreement, the other party hereto shall, at
the request and expense of the party initiating such suit, cooperate in all
respects and to the extent possible, have its employees testify when requested
and make available relevant records, papers, information, samples, specimens,
and the like.
7.8 LICENSEE shall have the sole right in accordance with the terms and
conditions herein to sublicense any alleged infringer in the FIELD OF USE for
future use of the PATENT RIGHTS. Any fees as part of such a sublicense shall be
treated per Article 4.
31
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THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "X" AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
8 - PRODUCT LIABILITY
8.1 LICENSEE shall at all times during the term of this Agreement and
thereafter, indemnify, defend and hold M.I.T., its trustees, directors,
officers, employees and affiliates, and PSRF and its trustees, directors,
officers, employees and affiliates, harmless against all claims, proceedings,
demands and liabilities of any kind whatsoever, including legal expenses and
reasonable attorneys' fees, arising out of the death of or injury to any person
or persons of out of any damage to property, resulting from the production,
manufacture, sale, use, lease, consumption or advertisement of the LICENSED
PRODUCT(S) and/or LICENSED PROCESS(es) or arising from any obligation of
LICENSEE hereunder.
8.2 Before the first clinical use of a LICENSED PRODUCT or LICENSED
PROCESSES, LICENSEE shall obtain and carry in full force and effect commercial,
general liability insurance, including product liability and errors and
omissions insurance, which shall protect LICENSEE and M.I.T. and PSRF with
respect to events covered by Paragraph 8.1 above. Such insurance shall be
written by a reputable insurance company authorized to do business in the
Commonwealth of Massachusetts, shall list M.I.T. and PSRF as additional named
insured parties thereunder, shall be endorsed to include product liability
coverage and shall require thirty (30) days written notice to be given to M.I.T.
and PSRF prior to any cancellation of material change thereof. The limits of
such insurance shall not be less than One Million Dollars ($1,000,000) per
occurrence with an aggregate of Three Million Dollars ($3,000,000) for personal
injury including death; One Million Dollars ($1,000,000) per occurrence with an
aggregate of Three Million Dollars
32
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THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "X" AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
($3,000,000) for property damage; and One Million Dollars ($1,000,000) per
occurrence with an aggregate of Three Million Dollars ($3,000,000) for errors
and omissions. LICENSEE shall provide M.IT. and PSRF with Certificates of
Insurance evidencing the same.
8.3 EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT, M.I.T.,
ITS TRUSTEES, DIRECTORS, OFFICERS, EMPLOYEES, AND AFFILIATES, AND PSRF AND ITS
TRUSTEES, DIRECTORS, OFFICERS, EMPLOYEES, AND AFFILIATES, MAKE NO
REPRESENTATIONS AND EXTEND NO WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED,
INCLUDING BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE, VALIDITY OF PATENT RIGHTS CLAIMS, ISSUED OR PENDING, AND THE
ABSENCE OF LATENT OR OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE. NOTHING IN THIS
AGREEMENT SHALL BE CONSTRUED AS A REPRESENTATION MADE OR WARRANTY GIVEN BY
M.I.T. OR PSRF THAT THE PRACTICE BY LICENSEE OF T14E LICENSE GRANTED HEREUNDER
SHALL NOT INFRINGE THE PATENT RIGHT'S OF ANY THIRD PARTY.
8.4 IN NO EVENT SHALL M.I.T., ITS TRUSTEES, DIRECTORS, OFFICERS,
EMPLOYEES AND AFFILIATES, OR PSRF, ITS TRUSTEES, DIRECTORS, OFFICERS, EMPLOYEES
AND AFFILIATES, BE LIABLE FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES OF ANY KIND,
INCLUDING ECONOMIC DAMAGE OR INJURY TO PROPERTY AND LOST PROFITS, REGARDLESS OF
WHETHER M.I.T. OR PSRF SHALL BE ADVISED,
33
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THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "X" AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
SHALL HAVE OTHER REASON TO KNOW, OR IN FACT SHALL KNOW OF THE POSSIBILITY OF THE
FOREGOING.
9 - EXPORT CONTROLS
LICENSEE acknowledges that it is subject to United States laws and
regulations controlling the export of technical data, computer software,
laboratory prototypes and other commodities (including the Arms Export Control
Act, as amended and the United States Department of Commerce Export
Administration Regulations). The transfer of such items may require a license
from the cognizant agency of the United States Government and/or written
assurances by LICENSEE that LICENSEE shall not export data or commodities to
certain foreign countries without prior approval of such agency. M.I.T. neither
represents that a license shall not be required nor that, if required, it shall
be issued.
10 - NON-USE OF NAMES
LICENSEE shall not use the names or trademarks of the Massachusetts
Institute of Technology or Lincoln Laboratory, or the Pennsylvania State
Research Foundation, nor any adaptation thereof, nor the names of any of their
employees, in any advertising, promotional or sales literature without prior
written consent obtained from M.IT., or the Pennsylvania State Research
Foundation, or said employee, except that LICENSEE may state that it is licensed
by M.I.T. and/or
34
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THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "X" AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
PSRF under one or more of the patents and/or applications comprising the PATENT
RIGHTS and may identify the inventors of such patents and or applications.
11 - ASSIGNMENT
This Agreement is not assignable and any attempt to do so shall be
void; provided, however, LICENSEE may assign this Agreement in connection with
the sale or transfer of all or substantially all of LICENSEE's equity and assets
related to LICENSED PRODUCTS by merger, consolidation or otherwise, so long as
the assignee shall agree in writing to be bound by all the terms and conditions
hereof prior to such assignment. Failure of such assignee to so agree shall be
grounds for termination by M.I.T. under paragraph 13.3.
12 - DISPUTE RESOLUTION
12.1 Except for the right of either party to apply to a court of
competent jurisdiction for a temporary restraining order, a preliminary
injunction, or other equitable relief to preserve the status quo or prevent
irreparable harm, any and all claims, disputes or controversies arising under,
out of, or in connection with the Agreement, including any dispute relating to
patent validity or infringement, which the parties shall be unable to resolve
within sixty (60) days shall be mediated in good faith. The party raising such
dispute shall promptly advise the other party of such claim, dispute or
controversy in a writing which describes in reasonable detail the nature of such
dispute. By not later than five (5) business days after the recipient has
received such notice of dispute, each
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THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "X" AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
party shall have selected for itself a representative who shall have the
authority to bind such party, and shall additionally have advised the other
party in writing of the name and title of such representative. By not later than
ten (10) business days after the date of such notice of dispute, the party
against whom the dispute shall be raised shall select a mediation firm in the
Boston area and such representatives shall schedule a date with such firm for a
mediation hearing. The parties shall enter into good faith mediation and shall
share the costs equally. If the representatives of the parties have not been
able to resolve the dispute within fifteen (15) business days after such
mediation hearing, then any and all claims, disputes or controversies arising
under, out of, or in connection with this Agreement, including any dispute
relating to patent validity or infringement, shall be resolved by final and
binding arbitration in Boston, Massachusetts under the rules of the American
Arbitration Association, or the Patent Arbitration Rules if applicable, then
obtaining. The arbitrators shall have no power to add to, subtract from or
modify any of the terms or conditions of this Agreement, nor to award punitive
damages. Any award rendered in such arbitration may be enforced by either party
in either the courts of the Commonwealth of Massachusetts or in the United
States District Court for the District of Massachusetts, to whose jurisdiction
for such purposes M.I.T. and LICENSEE each hereby irrevocably consents and
submits.
12.2 Notwithstanding the foregoing, nothing in this Article shall be
construed to waive any rights or timely performance of any obligations existing
under this Agreement.
36
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THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "X" AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
13 - TERMINATION
13.1 If LICENSEE shall cease to carry on its business, this Agreement
shall terminate upon notice by M.I.T.
13.2 Should LICENSEE fail to make any payment whatsoever due and
payable to M.I.T. hereunder, M.I.T. shall have the right to terminate this
Agreement effective on thirty (30) days' notice, unless LICENSEE shall make all
such payments to M.I.T. within said thirty (30) day period. Upon the expiration
of the thirty (30) day period, if LICENSEE shall not have made all such payments
to M.I.T., the rights, privileges and license granted hereunder shall
automatically terminate.
13.3 Upon any material breach or default of this Agreement by LICENSEE
(including, but not limited to, breach or default under Paragraph 3.3), other
than those occurrences set out in Paragraphs 13.1 and 13.2 hereinabove, which
shall always take precedence in that order over any material breach or default
referred to in this Paragraph 13.3, M.I.T. shall have the right to terminate
this Agreement and the rights, privileges and license granted hereunder
effective on ninety (90) days' notice to LICENSEE. Such termination shall become
automatically effective unless LICENSEE shall have cured any such material
breach or default prior to the expiration of the ninety (90) day period.
13.4 LICENSEE shall have the right to terminate this Agreement at any
time on six (6) months' notice to M.I.T., and upon payment of all amounts due
M.I.T. through the effective date of the termination.
37
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THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "X" AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
13.5 Upon termination of this Agreement for any reason, nothing herein
shall be construed to release either party from any obligation that matured
prior to the effective date of such termination; and Articles 1.4.1 b., 8, 9,
10, 12, 13.5, 13.6. and 15 shall survive any such termination. LICENSEE and any
sublicensee thereof may, however, after the effective date of such termination,
sell all LICENSED PRODUCTS, and complete LICENSED PRODUCTS in the process of
manufacture at the time of such termination and sell the same, provided that
LICENSEE shall make the payments to M.I.T. as required by Article 4 of this
Agreement and shall submit the reports required by Article 5 hereof.
13.6 Upon termination of this Agreement for any reason, any sublicensee
not then in default shall have the right to seek a license from M.I.T. M.I.T.
agrees to negotiate such licenses in good faith under reasonable terms and
conditions.
14 - PAYMENTS, NOTICES AND OTHER COMMUNICATIONS
Any payments, notice or other communication pursuant to this Agreement
shall be sufficiently made or given on the date of mailing if sent to such party
by certified first class mail, return receipt requested, postage prepaid,
addressed to it at its address below or as it shall designate by written notice
given to the other party:
In the case of M.I.T.:
Director
Technology Licensing Office
Massachusetts Institute of Technology
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THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "X" AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
77 Massachusetts Avenue, Room NE25-230
Cambridge, Massachusetts 02139
In the case of LICENSEE:
c/o David A. Edwards, President
Advanced Inhalation Research, Inc.
109 Hartswick Avenue
State College, Pennsylvania 16803
15 - REPRESENTATION
M.I.T. represents to the best of its knowledge and belief that it has
the authority to enter into this agreement, and that there are no outstanding
claims, licenses or other encumbrances on the PATENT RIGHTS which would prevent
M.I.T. from granting the rights granted herein, provided, however, that M.I.T.'s
liability under this provision shall be limited to the total sum paid by
LICENSEE to M.I.T. under the terms of this Agreement.
16 - MISCELLANEOUS PROVISIONS
16.1 ALL disputes arising out of or related to this Agreement, or the
performance, enforcement, breach or termination hereof, and any remedies
relating thereto, shall be construed, governed, interpreted and applied in
accordance with the laws of the Commonwealth of Massachusetts, U.S.A., except
that questions affecting the construction and effect of any patent shall be
determined by the law of the country in which the patent shall have been
granted.
39
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THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "X" AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
16.2 The parties hereto acknowledge that this Agreement sets forth the
entire Agreement and understanding of the parties hereto as to the subject
matter hereof, and shall not be subject to any change or modification except by
the execution of a written instrument signed by the parties.
16.3 The provisions of this Agreement are severable, and in the event
that any provisions of this Agreement shall be determined to be invalid or
unenforceable under any controlling body of the law, such invalidity or
unenforceability shall not in any way affect the validity or enforceability of
the remaining provisions hereof.
16.4 LICENSEE agrees to mark the LICENSED PRODUCTS sold in the United
States with all applicable United States patent numbers. All LICENSED PRODUCTS
shipped to or sold in other countries shall be marked in such a manner as to
conform with the patent laws and practice of the country of manufacture or sale.
16.5 The failure of either party to assert a right hereunder or to
insist upon compliance with any term or condition of this Agreement shall not
constitute a waiver of that right or excuse a similar subsequent failure to
perform any such term of condition by the other party.
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THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "X" AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
IN WITNESS WHEREOF, the parties have duly executed this Agreement the
day and year set forth below.
MASSACHUSETTS INSTITUTE OF ADVANCED INHALATION RESEARCH,
TECHNOLOGY INC.
By /s/ J. David Litster By /s/ David Edwards
------------------------------ --------------------------------
Name J. David Litster Name David Edwards
---------------------------- -------------------------------
Title Vice President for Research Title President
--------------------------- -----------------------------
Date August 11, 1997 Date 8/4/97
---------------------------- ------------------------------
41
<PAGE> 45
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "X" AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
APPENDIX A
PATENT RIGHTS on the EFFECTIVE DATE
UNITED STATES PATENT RIGHTS
M.I.T. Case No. 7203
"Porous Advanced Particles For Pulmonary Drug Delivery"
U.S.S.N. 08/655,570, Filed May 24,1996
by Giovanni Caponetti, David A. Edwards, Justin Hanes, Jeffrey S. Hrkach, Robert
S. Langer, Jr. and Noah Lotan
M.I.T. Case No. 7465
"Aerodynamically Light Particles For Pulmonary Drug Delivery"
U.S.S.N. 08/739,308, Filed October 29, 1996
by Giovanni Caponetti, David A. Edwards, Justin Hanes, Jeffrey S. Hrkach, Robert
S. Langer, Jr., Noah Lotan and Abdelaziz Ben-Jebria
M.I.T. Case No. 7513
"Optimized Aerosols With Lung Surfactant"
U.S.S.N. 08/784,421, Filed January 16, 1997
by David A. Edwards, Carmen Evora, Justin Hanes, and Robert S. Langer, Jr.
FOREIGN PATENT RIGHTS
M.I.T. Case No. 7203
PCT/US97/08895, Filed May 23,1997
"Porous Advanced Particles For Pulmonary Drug Delivery"
by Giovanni Caponetti, David A. Edwards, Justin Hanes, Jeffrey S. Hrkach, Robert
S. Langer, Jr. and Noah Lotan
M.I.T. Case No. 7465
PCT/US97/08895, Filed May 23, 1997
"Aerodynamically Light Particles For Pulmonary Drug Delivery"
by Giovanni Caponetti, David A. Edwards, Justin Hanes, Jeffrey S. Hrkach, Robert
S. Langer, Jr., Noah Lotan and Abdelaziz Ben-Jebria
42
<PAGE> 46
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "X" AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
FIRST AMENDMENT
This First amendment pertains to the License Agreement (hereinafter the
"License Agreement") effective August 11, 1997 by and between the MASSACHUSETTS
INSTITUTE OF TECHNOLOGY (hereinafter M.I.T.) and ADVANCED INHALATION RESEARCH,
INC. (hereinafter AIR), and to a Joint Invention Agreement by and between M.I.T.
and the PENNSYLVANIA STATE RESEARCH FOUNDATION (hereinafter PSRF).
WHEREAS, M.I.T. and PSRF are joint owners of certain PATENT RIGHTS
relating to M.I.T. Case No. 7804, "Drug Insolubilisation For Sustained Pulmonary
Drug Delivery", by Rita Vanbever, Jeffrey Mintzes, Jue Wang, Donghao Chen,
Robert S. Langer, Jr., and David Edwards; and
WHEREAS, PSRF, in the First Amendment to the Joint Invention Agreement,
effective September 19, 1997, and attached hereto as Attachment A, appointed
M.I.T. as its sole and exclusive agent for the licensing of its patent rights in
M.I.T. Case 7804, so that M.I.T. has the right to grant an exclusive license
under said PATENT RIGHTS, subject only to a royalty-free, nonexclusive license
heretofore granted to the United States Government.
The parties hereby agree as follows:
1. M.I.T. agrees to add, in consideration for the sum of
XXXXXXXXXX, M.I.T. case 7804, U.S.S.N. 60/059,004, to the
PATENT RIGHTS.
2. LICENSEE agrees to pay all costs associated with the U.S. and
foreign prosecution, filing and maintenance of M.I.T. case
7804, U.S.S.N. 60/059,004.
This offer extends to December 31, 1997.
MASSACHUSETTS INSTITUTE OF ADVANCED INHALATION RESEARCH,
TECHNOLOGY INC.
By /s/ Lori Pressman By /s/ David Edwards
-------------------------------- -----------------------------------
Name Lori Pressman Name David Edwards
------------------------------ ---------------------------------
Title Assistant Director Technology Title President
----------------------------- --------------------------------
Licensing Office
-----------------------------
Date December 16, 1997 Date 12/18/97
------------------------------ ----------------------------------
43
<PAGE> 47
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "X" AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
ATTACHMENT A
FIRST AMENDMENT TO JOINT INVENTION AGREEMENT
This Amendment pertains to a Joint Invention Agreement, effective
5/9/97 by and between the MASSACHUSETTS INSTITUTE OF TECHNOLOGY ("M.I.T.") and
THE PENN STATE RESEARCH FOUNDATION ("PSRF").
WHEREAS:
M.I.T. and PSRF are joint owners of an invention entitled
"Drug Insolubilisation for Sustained Pulmonary Drug Delivery", PSU Invention
Disclosure No. 97-1797, M.I.T. Case Number 7804, by Rita Vanbever, Robert S.
Langer and David A. Edwards, on which, as of this date of this amendment no
patent application has yet been filed; and
M.I.T. and PSRF are joint owners of an invention entitled
"Drug Insolubilisation for Sustained Pulmonary Drug Delivery", PSU Invention
Disclosure Number 97-1797, M.I.T. Case Number 7804, by Rita Vanbever, Robert S.
Langer and David A. Edwards, on which, as of the date of this amendment, no
patent application has yet been filed; and
M.I.T. and PSRF have previously executed a Joint Invention Agreement,
referenced above, which also relates to jointly owned technology for drug
delivery using inhaled biodegradable particles;
NOW THEREFORE, the parties hereby agree to add the following paragraphs
to that Joint Invention Agreement.
2c. M.I.T. and PSRF are joint owners of an invention
disclosure entitled: "Drug Insolubilisation for Sustained Pulmonary
Drug Delivery", PSU Invention Disclosure No. 97-1797, M.I.T. Case
Number 7804, by Rita Vanbever, Robert S. Langer and David A. Edwards,
on which the parties intend to file a patent application.
2d. M.I.T. and PSRF are joint owners of an invention
disclosure entitled: XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX", PSU
Invention disclosure Number XXXXXXX, M.I.T. Case Number XXXX,
XXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX, on which the
parties intend to file a patent application.
44
<PAGE> 48
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "X" AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
4c. PSRF hereby appoints M.I.T. as its sole and exclusive
agent for the licensing of its intellectual property rights in PSU
Invention Disclosure No. 97-1797, M.I.T. Case 7804 and authorizes
M.I.T. to grant licenses to the intellectual property rights, subject
to third parties sponsors, if any, and subject to the rights of PSRF to
practice the invention in its own research. It is understood and agreed
that consideration for license rights in the form of equity shares
shall require the prior approval of PSRF.
4d. PSRF hereby appoints M.I.T. as its sole and exclusive
agent for the licensing of its Intellectual property rights in PSU
Invention Disclosure No. XXXXXXX, M.I.T. case XXXX and authorizes
M.I.T. to grant licenses to the intellectual property rights, subject
to third parties sponsors, if any, and subject to the rights of PSRF to
practice the invention in its own research. It is understood and agreed
that consideration for license rights in the form of equity shares
shall require the prior approval of PSRF.
Agreed for by:
MASSACHUSETTS INSTITUTE OF THE PENN STATE RESEARCH
TECHNOLOGY FOUNDATION
By /s/ Lori Pressman By /s/ David E. Branigan
--------------------------------- ----------------------------------
Name Lori Pressman Name David E. Branigan
------------------------------ -------------------------------
Title Assistant Director Technology Title Treasurer
----------------------------- -------------------------------
Licensing Office
-----------------------------
Date September 3, 1997 Date September 19, 1997
------------------------------- -------------------------------
45
<PAGE> 49
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "X" AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
APPENDIX A
PATENT RIGHTS on the EFFECTIVE DATE
UNITED STATES PATENT RIGHTS
M.I.T. Case No. 7203
"Porous Advanced Particles For Pulmonary Drug Delivery"
U.S.S.N. 08/655,570, Filed May 24,1996
by Giovanni Caponetti, David A. Edwards, Justin Hanes, Jeffrey S. Hrkach, Robert
S. Langer, Jr. and Noah Lotan
M.I.T. Case No. 7465
"Aerodynamically Light Particles For Pulmonary Drug Delivery"
U.S.S.N. 08/739,308, Filed October 29, 1996
by Giovanni Caponetti, David A. Edwards, Justin Hanes, Jeffrey S. Hrkach, Robert
S. Langer, Jr., and Noah Lotan
M.I.T. Case No. 7513
"Optimized Aerosols With Lung Surfactant"
U.S.S.N. 08/784,421, Filed January 16, 1997
by David A. Edwards, Carmen Evora, Justin Hanes, and Robert S. Langer, Jr.
M.I.T. Case No. 7804 (by Amendment)
"Drug Insolubilisation For Sustained Pulmonary Drug Delivery"
U.S.S.N. 60/059,004, Filed September 15, 1997
by Rita Vanbever, Jeffrey Mintzes, Jue Wang, Donghao Chen, Robert S. Langer,
Jr., and David Edwards
FOREIGN PATENT RIGHTS
M.I.T. Case No. 7203
"Porous Advanced Particles For Pulmonary Drug Delivery"
PCT/US97/08895, Filed May 23,1997
by Giovanni Caponetti, David A. Edwards, Justin Hanes, Jeffrey S. Hrkach, Robert
S. Langer, Jr. and Noah Lotan
M.I.T. Case No. 7465
46
<PAGE> 50
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "X" AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
"Aerodynamically Light Particles For Pulmonary Drug Delivery"
PCT/US97/08895, Filed May 23, 1997
by Giovanni Caponetti, David A. Edwards, Justin Hanes, Jeffrey S. Hrkach, Robert
S. Langer, Jr., and Noah Lotan
47
<PAGE> 51
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "X" AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
SECOND AMENDMENT
This Second Amendment pertains to the License Agreement (hereinafter
the "License Agreement") effective August 11, 1997, by and between the
MASSACHUSETTS INSTITUTE OF TECHNOLOGY (hereinafter M.I.T.) and ADVANCED
INHALATION RESEARCH, INC.
(hereinafter AIR).
WHEREAS, AIR intends to enter into an agreement with a CORPORATE
PARTNER (as defined in the License Agreement) according to which AIR will be
receiving MILESTONE PAYMENTS (as defined in the License Agreement); and
WHEREAS, in the License Agreement the MILESTONE PAYMENTS are subject to
royalties according to paragraphs 4.1(h), (i), and (j);
WHEREAS, in the agreement with the CORPORATE PARTNER, the MILESTONE
PAYMENTS are fully creditable against earned royalties on NET SALES which the
CORPORATE PARTNER will be paying AIR when product is on the market, such credits
scheduled so that the payments normally due to AIR on NET SALES can be reduced
by up to XXXXXXXXX in a given year until the full credit is used up; and
WHEREAS, the CORPORATE PARTNER wishes assurance that should the License
agreement terminate M.I.T. will grant to the CORPORATE PARTNER rights to
practice under the PATENT RIGHTS under reasonable terms;
NOW THEREFORE, the parties hereby agree to modify the License Agreement
by:
A) adding the following sentence to the end of paragraph 4.1(h):
To the extent such MILESTONE PAYMENTS are creditable against royalties
on NET SALES normally due LICENSEE from a CORPORATE PARTNER, M.I.T.
agrees that the royalties on MILESTONE PAYMENTS normally due M.I.T.
under this paragraph 4.1(h) are also creditable against RUNNING
ROYALTIES due M.I.T. on NET SALES according to paragraph 4.1(d),
provided, however, that the royalties due M.I.T. under paragraph 4.1(d)
are reduced by no more than XXXXXXXXXXXXXXXX.
B) adding the following sentence to the end of paragraph 4.1(i):
To the extent such MILESTONE PAYMENTS are creditable against royalties
on NET SALES normally due LICENSEE from a CORPORATE PARTNER, M.I.T.
agrees that the
48
<PAGE> 52
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "X" AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
royalties on MILESTONE PAYMENTS normally due M.I.T. under this
paragraph 4.1(i) are also creditable against RUNNING ROYALTIES due
M.I.T. on NET SALES according to paragraphs 4.1(e), provided, however,
that the royalties due M.I.T. under paragraph 4.1(e) are reduced by no
more than XXXXXXXXXXXXXXX.
C) adding the following sentence to the end of paragraph 4.1(j):
To the extent that MILESTONE PAYMENTS are creditable against royalties
on NET SALES normally due LICENSEE from a CORPORATE PARTNER, M.I.T.
agrees that the royalties on MILESTONE PAYMENTS normally due M.I.T.
under this paragraph 4.1(j) are also creditable against RUNNING
ROYALTIES due M.I.T. on NET SALES according to paragraphs 4.1(f),
provided, however, that the royalties due M.I.T. under paragraph 4.1(f)
are reduced by no more than XXXXXXXXXXXXXXXX.
MASSACHUSETTS INSTITUTE OF ADVANCED INHALATION RESEARCH,
TECHNOLOGY INC.
By /s/ Lori Pressman By /s/ David Edwards
-------------------------------- --------------------------------
Name Lori Pressman Name David Edwards
----------------------------- ------------------------------
Title Assistant Director Technology Title President
----------------------------- -----------------------------
Licensing Office
-----------------------------
Date July 17, 1998 Date 7/29/98
------------------------------ ------------------------------
49
<PAGE> 53
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "X" AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
THIRD AMENDMENT
This Third Amendment pertains to the License Agreement (hereinafter the
"License Agreement") effective August 11, 1997 by and between the
MASSACHUSETTS INSTITUTE OF TECHNOLOGY (hereinafter M.I.T.) and
ADVANCED INHALATION RESEARCH, INC. (hereinafter AIR) and to a Joint
Invention Agreement by and between M.I.T. and the PENNSYLVANIA STATE
RESEARCH FOUNDATION (hereinafter PSRF).
WHEREAS, AIR has clarified their business strategy and developed
certain prototype products, and has determined that THERAPEUTIC
PARTICLES will be their principal product, and that most
pharmaceuticals incorporated into such THERAPEUTIC PARTICLES will be
HIGH COST THERAPEUTIC AGENTS; and
WHEREAS, there are COMPARABLE THERAPEUTIC AGENTS (as later defined
herein) on the market against which it is possible to determine the
relative value of LICENSED PRODUCTS; and
NOW, THEREFORE, the parties hereby agree to modify the License
Agreement as follows:
Delete paragraph 1.17 in its entirety and replace it with:
1.17 "COMPARABLE THERAPEUTIC AGENT" shall mean a proprietary agent,
explicitly not delivered via a PARTICLE, currently being prescribed
according to standard clinical practice to treat, manage, or diagnose a
medical condition, which condition can now be treated, managed or
diagnosed using THERAPEUTIC PARTICLES, and approved by M.I.T. according
to the procedure in paragraph 5.6.
Delete paragraphs 1.10(a) and (b) in their entirety and replace with:
1.10(a) NET SALES of THERAPEUTIC PARTICLES shall be the difference
betweenXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXX.
An example of the computation of the royalty owed by LICENSEE on NET
SALES of THERAPEUTIC PARTICLES under paragraph 4.1(e) is attached as
Exhibit A.
50
<PAGE> 54
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "X" AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
1.10(b) NET SALES of ADMINISTRATION SYSTEMS which deliver THERAPEUTIC
PARTICLES shall be the difference between XXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX.
Add the following sentences to the end of paragraphs 2.3(b) and 2.3(c).
M.I.T. will provide such notice prior to the grant. LICENSEE
understands that such notice will not be triggered by written request.
Delete paragraph 4.1(c) (v) and replace it with:
License Maintenance Fee of XXXXXXXXXXXXXXXXXXXX payable on XXXXXXXXXXX,
XXXXXXXXXXXX, XXXXXXXXXXX, XXXXXXXXXXXX, and XXXXXXXXXXXX, provided,
however, that these License Maintenance Fees may be credited to Running
Royalties due on NET SALES for the corresponding XXXXXXXXXXXXX, if any.
A License Maintenance Fee paid in excess of Running Royalties shall not
be creditable to Running Royalties for future XXXXX.
Add paragraph 4.1(c) (vi):
License Maintenance Fee of XXXXXXXXXXXXXXXXXXXXXX payable on
XXXXXXXXXXXX, and on XXXXXXXXXXXXXXXXXXXXX, provided, however, that
these License Maintenance Fees may be credited to Running Royalties
subsequently due on NET SALES for XXXXXXXXXXXXXXXXXX XXXXXXXXXXXX, if
any. A License Maintenance Fee paid in excess of Running Royalties
shall not be creditable to Running Royalties for future XXXXX.
Delete paragraph 4.6 in its entirety.
Delete paragraphs 5.2(b), (c) and (d) in their entirety and replace
them with:
5.2(b) accounting related to the special provisions of paragraph
1.10(a), including
51
<PAGE> 55
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "X" AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
(i) identity of COMPARABLE THERAPEUTIC AGENTS, and their
vendors.
(ii) a brief explanation of why such agent is a COMPARABLE
THERAPEUTIC AGENT, XXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX.
(iii) XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX.
(iv) calculation of royalties due based on the difference
between XXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXX.
5.2(c) accounting related to the special provisions of paragraph
1.10(b), including
(i) XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXX.
(ii) XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXX.
(iii) XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXX.
52
<PAGE> 56
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "X" AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
(iv) XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXX
Add paragraphs 5.6.
5.6 Within thirty (30) days of receipt of all the information pertinent
to a royalty accounting described in paragraph 5.2, including, but not
limited to paragraph 5.2(b) and 5.2(c) above, and also payment due per
paragraph 5.3, M.I.T. shall notify LICENSEE in writing, of whether or
not M.I.T. approves of the basis of the royalty calculation and
resulting payment, such approval not to be unseasonably withheld.
Failure of M.I.T. to so notify LICENSEE within thirty (30) days of
receipt of both the payment due per paragraph 5.3, and the information
described in paragraph 5.2, shall be deemed to constitute such
approval. If M.I.T. does not approve of the basis of the royalty
calculation, then M.I.T. shall so notify LICENSEE in writing, and the
parties shall meet in good faith to resolve the matter, and either
party may invoke the dispute resolution mechanisms of paragraph 12.
Modify the fourth sentence of paragraph 6.1 by adding "David Brook,"
after "Patrea Pabst."
Modify paragraph 14 so that the address for legal notice of AIR is:
c/o David A. Edwards, President
Advanced Inhalation Research, Inc.
840 Memorial Drive
Cambridge, MA 02142
Agreed to for M.I.T. by Agreed to for A.I.R. by
MASSACHUSETTS INSTITUTE OF ADVANCED INHALATION RESEARCH,
TECHNOLOGY INC.
By /s/ Lori Pressman By /s/ David Edwards
-------------------------------- ---------------------------------
Name Lori Pressman Name David Edwards
------------------------------- --------------------------------
Title Assistant Director Technology Title President
------------------------------ -------------------------------
Licensing Office
------------------------------
Date January 27, 1999 Date January 27, 1999
------------------------------- --------------------------------
53
<PAGE> 57
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "X" AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
EXHIBIT A
AIR/MIT LICENSE AGREEMENT
THERAPEUTIC PARTICLE ROYALTY COMPUTATION*
<TABLE>
<CAPTION>
XXXXXXXXXX
XXXXXXXXXXX
XXXXXXXXXX XXXXXXXX XXX
XXXXXXX XX(1) XXXXXXXXX(2) XXXXXXX XXXXXXXXX
<S> <C> <C> <C> <C>
- - XX $XXX $XXX $XXX $XXX
- - XXXXX $XXX $XXX $XXX $XXX
- - XXXXX $XXX $XXX $XXX $XXX
- - XXXXX $XXX $XXX $XXX $XXX
- - XXXXX $XXX $XXX $XXX $XXX
- - XXXXX) $XXX $XXX $XXX $XXX
- - XXXXX $XXX $XXX $XXX $XXX
- - XXXXX $XXXX $XXXX $XXXX $XXXXX
</TABLE>
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
- --------
(1) XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXX.
(2) XXXXXXXXXXXXXXXXXXXXXXXXXXXXXX.
54
<PAGE> 58
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "X" AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
FOURTH AMENDMENT
This Fourth Amendment pertains to the License Agreement (hereinafter
the "License Agreement') effective August 11, 1997 by and between the
MASSACHUSETTS INSTITUTE OF TECHNOLOGY (hereinafter M.I.T.) and ADVANCED
INHALATION RESEARCH, INC. (hereinafter AIR), and to a Joint Invention
Agreement by and between M.I.T. and the PENNSYLVANIA STATE RESEARCH
FOUNDATION (hereinafter PSRF).
WHEREAS, per Paragraph 6.1, Appendix B, attached hereto as a
convenience, may be amended by mutual agreement of both parties.
NOW, THEREFORE, the parties hereby agree to modify the License
Agreement as follows:
Appendix B shall now state:
Foreign countries in which PATENT RIGHTS shall be filed,
prosecuted and maintained in accordance with Article 6:
For M.I.T. Case Nos. 7203/7465
"Aerodynamically Light Particles for Pulmonary Drug Delivery"
PCT/US97/08895, Filed May 23, 1997
Designated States: Canada (CA), Japan (JP), European Patent
Office (EPO)*
For M.I.T. Case Nos. 7513/7804
"Preparation of Particles for Inhalation"
PCT/US97/20930, Filed November 17, 1997
Designated States: Canada (CA), Japan (JP), European Patent
Office (EPO)*
*European Patent Office (EPO)
Austria (AT), Belgium (BE), Switzerland (CH), Germany
(DE), Denmark (DK), Spain (ES), Finland (FI), France
(FR), United Kingdom (GB), Greece (GR), Ireland (IE),
Italy (IT), Luxembourg (LU), Monaco (MC), Netherlands (NL),
Portugal (PT) and Sweden (SE)
MASSACHUSETTS INSTITUTE OF ADVANCED INHALATION RESEARCH,
TECHNOLOGY INC.
By /s/ Lori Pressman By /s/ David Edwards
-------------------------------- ------------------------------
55
<PAGE> 59
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "X" AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
Name Lori Pressman Name David Edwards
------------------------------ -----------------------------
Title Assistant Director Technology Title President
------------------------------ ----------------------------
Licensing Office
------------------------------
Date January 28, 1999 Date January 27, 1999
------------------------------- ----------------------------
56
<PAGE> 60
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH "X" AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
APPENDIX B
DESIGNATED FOREIGN COUNTRIES
Foreign countries in which PATENT RIGHTS shall be filed, prosecuted and
maintained in accordance with Article 6:
For M.I.T. Case Nos. 7203/7465
"Aerodynamically Light Particles for Pulmonary Drug Delivery"
PCT/US97/08895, Filed May 23, 1997
Designated States: Canada (CA), Japan (JP), European Patent Office
(EPO)*
For M.I.T. Case Nos. 7513/7804
"Preparation of Particles for Inhalation"
PCT/US97/20930, Filed November 17, 1997
Designated States: Canada (CA), Japan (JP), European Patent Office
(EPO)*
*European Patent Office (EPO)
Austria (AT), Belgium (BE), Switzerland (CH), Germany
(DE), Denmark (DK), Spain (ES), Finland (FI), France
(FR), United Kingdom (GB), Greece (GR), Ireland (IE),
Italy (IT), Luxembourg (LU), Monaco (MC), Netherlands
(NL), Portugal (PT), and Sweden (SE)
57
<PAGE> 1
Exhibit 10.42
SUMMARY OF INCENTIVE LOAN PROGRAM
In recognition of ongoing contributions and service to the Company, the
Compensation Committee of the Board of Directors of Alkermes has established an
Incentive Loan Program for certain of its employees. Alkermes will offer to lend
these employees a fixed amount (the "Loan") which offer will expire, if not
accepted by the employee, within thirty days of the offer. Any employee
accepting the offer (an "employee participant") will be required to sign an
Incentive Loan Note in the form presented by the Company.
The general terms of the Loan are summarized as follows:
1. TERM. The term will be two years.
2. INTEREST RATE. The interest rate will be equal to the prime rate on
the commencement date of the Loan.
3. FORGIVENESS.
a. If, on the first anniversary of the Loan,
the employee participant remains an employee
of Alkermes, then 50% of the outstanding
principal balance of the Loan plus accrued
interest on such 50% of the principal will
be forgiven on the date of such anniversary.
b. If, on the second anniversary of the Loan,
the employee participant remains an employee
of Alkermes, then the remaining principal
balance plus all accrued interest will be
forgiven on the date of such anniversary.
c. In the event of the death or long-term
disability (as defined in the long-term
disability policy of the Company) of the
employee participant or a change in control
of Alkermes, the remaining principal balance
plus all accrued interest will be forgiven,
regardless of the timing of such event.
4. PAYMENT. If the employee participant ceases to be
employed by Alkermes prior to the second anniversary
of the Loan, then the employee participant must pay
all of the outstanding principal balance (less any
amount forgiven) plus all accrued interest thereon
within 45 days of the employee participant's last day
of employment at Alkermes.
The amount of the principal and interest forgiven on the Loan will be
considered ordinary income by the Internal Revenue Service and will be reflected
as such by Alkermes at the time of the forgiveness (i.e., on the first and
second anniversaries of the Loan). Each employee who is considering
participating in this Loan Incentive Program is advised to consult independent
tax advisors with respect to the tax treatment of this Loan.
<PAGE> 1
Exhibit 21
SUBSIDIARIES OF ALKERMES, INC.
<TABLE>
<CAPTION>
State or
Percentage Country of
Registrant Ownership Incorporation
- ---------- --------- -------------
<S> <C> <C>
Alkermes Controlled Therapeutics, Inc. 100 Pennsylvania
Alkermes Controlled Therapeutics Inc. II 100 Pennsylvania
Alkermes Development Corporation II 100 Delaware
Advanced Inhalation Research, Inc. 100 Delaware
Alkermes Europe, Ltd. 100 United Kingdom
Alkermes Investments, Inc. 100 Delaware
</TABLE>
<PAGE> 1
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
333-75645, 333-75649, 333-50157, 333-19955 and 33-90736 of Alkermes, Inc. on
Form S-3 and Registration Statement Nos. 333-71011, 333-50357, 333-13283,
33-97468, 33-58330 and 33-44752 of Alkermes, Inc. on Form S-8 of our report
dated May 21, 1999, appearing in the Annual Report on Form 10-K of Alkermes,
Inc. for the year ended March 31, 1999.
/s/ Deloitte & Touche LLP
Boston, Massachusetts
June 29, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 10-K FOR
THE YEAR ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 9,115
<SECURITIES> 154,303
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 169,164
<PP&E> 47,657
<DEPRECIATION> (14,292)
<TOTAL-ASSETS> 213,452
<CURRENT-LIABILITIES> 28,500
<BONDS> 28,417
0
23
<COMMON> 250
<OTHER-SE> 155,933
<TOTAL-LIABILITY-AND-EQUITY> 213,452
<SALES> 0
<TOTAL-REVENUES> 43,716
<CGS> 0
<TOTAL-COSTS> 48,457
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,298
<INCOME-PRETAX> (41,056)
<INCOME-TAX> 0
<INCOME-CONTINUING> (41,056)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (41,056)
<EPS-BASIC> (1.98)
<EPS-DILUTED> (1.98)
</TABLE>
