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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended May 31, 1998
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission file number 0-21354
ENDOGEN, INC.
(Name of Small Business Issuer in Its Charter)
Massachusetts 04-2789249
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
30 Commerce Way, Woburn, Massachusetts 01801-1059
(Address of Principal Executive Offices) (Zip Code)
Issuer's Telephone Number, Including Area Code: (781) 937-0890
Securities registered under Section 12(b) of the Exchange Act:
Title of Each Class Name of Each Exchange on Which Registered
Common Stock, $.01 Par Value The Boston Stock Exchange
Securities registered under Section 12(g) of the Exchange Act:
Not Applicable
(Title of Class)
Check whether the issuer: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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 [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will 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-KSB or any
amendment to this Form 10-KSB. [ ]
The Issuer's revenues for the fiscal year ended May 31, 1998 were $10,033,451.
Aggregate market value as of August 5, 1998, of Common Stock held by
non-affiliates of the Issuer: $9,716,632, based on the closing sales price of
such stock on the Nasdaq SmallCap Market on August 5, 1998.
Number of shares of Common Stock outstanding on August 5, 1998: 3,448,802
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
DOCUMENTS INCORPORATED BY REFERENCE
The Issuer intends to file a definitive Proxy Statement pursuant to Regulation
14A within 120 days of the end of the fiscal year ended May 31, 1998. Portions
of such Proxy Statement are incorporated by reference in Part III of this
report.
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Part I
This Report includes a number of forward-looking statements which reflect
the Company's current views with respect to future events and financial
performance. These forward-looking statements are subject to certain risks and
uncertainties, including those discussed in "Item 6. Management's Discussion and
Analysis of Financial Condition and Results of Operations - Factors That May
Affect Future Results" and elsewhere in this Report, that could cause actual
results to differ materially from historical results or those currently
anticipated. In this Report, the words "anticipates," "believes," "expects,"
"intends," "future" and similar expressions identify forward-looking statements.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof.
ITEM 1: DESCRIPTION OF BUSINESS
Overview
Endogen, Inc. ("Endogen" or the "Company") was incorporated as a
Massachusetts corporation on June 1, 1983 and commenced commercial operations in
November 1985. In March 1993, Endogen became a publicly traded company upon the
consummation of the merger of Diagnostics Holding Corp. ("Diagnostics") with and
into Endogen, with Endogen being the surviving corporation. The shareholders of
Diagnostics consisted of all of the former minority shareholders of Leeco
Diagnostics, Inc., a company formerly traded on the NASD OTC Bulletin Board(SM).
Endogen is a supplier of specialty reagents, immuno-assay test kits and
molecular research products to customers involved in biomedical research, the
biotechnology industry and pharmaceutical drug discovery. Endogen uses
monoclonal antibody and recombinant DNA technology to develop and manufacture
products in the field of cytokines, chemokines and related immune system
factors, the chemical messengers which convey signals within the immune system.
Endogen offers four major product lines: in vitro immuno-assay test kits
used for the measurement of human cytokines, chemokines and related cell surface
proteins in biological samples; in vitro immuno-assay test kits used for the
measurement of mouse and other species cytokines, an important and growing area
of biomedical research; messenger RNA ("mRNA") quantification assay kits for the
measurement of gene expression of cytokine mRNAs; and specialty reagents,
including monoclonal antibodies and recombinant proteins, which are used by the
biomedical research community in the course of basic and applied research
projects. Endogen's product lines provide researchers with tools for
investigating the basic cellular mechanisms underlying the human immune system
and its response to infection, AIDS, cancer and other diseases. Endogen's
products are primarily developed through technology in-licensing agreements with
leading medical institutions and pharmaceutical companies, followed by in-house
product development, validation, manufacturing and quality control.
Endogen's products are sold via catalog and direct selling throughout the
United States and through distributors in approximately 40 other countries
worldwide. During the fiscal years ended May 31, 1998, 1997 and 1996,
approximately 52%, 46% and 56%, respectively, of the Company's sales were from
the United States and approximately 48%, 54% and 44%, respectively, of the
Company's sales were from foreign countries. Endogen has sold its products to
over 1,200 organizations and institutions including pharmaceutical companies,
biotechnology firms, universities and biomedical research labs worldwide.
The Market
Biomedical researchers around the world need specialty research products
like those developed and marketed by Endogen to conduct basic and applied
research in cell biology and for novel drug discovery. This research is
conducted in settings that range from government research institutions,
university and medical school laboratories to pharmaceutical and biotechnology
research and development groups.
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The market for life science research products includes specialty reagents
as well as enzyme immuno-assay ("EIA") test kits and mRNA assay kits. Endogen's
specialty reagents are used by customers as part of their general biomedical
research. Endogen's EIA test kits are used by customers to streamline the
laboratory research process by eliminating the need for customers to
independently develop and validate methods for measuring cytokines, chemokines
and related immune system factors in laboratory samples. Endogen's mRNA assay
kits are used by customers to measure gene expression of cytokine mRNAs when
investigating cellular behavior and processes.
Cytokines and chemokines (hereafter, collectively "cytokines") are small,
hormone-like, soluble proteins secreted by activated cells of the immune system
which provide a mechanism for cell-to-cell signaling. Through their activities,
cytokines coordinate and orchestrate the proper functioning of the immune
system. These proteins typically are present in extremely small quantities in
both the bloodstream and the cells by which they are produced. Cytokines are
capable of exerting profound effects on the body even when present in
concentrations of less than one nanogram per milliliter (a nanogram is
one-billionth of a gram). Cytokines interact with specialized target receptors
and stimulate a chain of secondary messengers inside the cell leading to a
biological response. Such biological responses result from changes in both the
molecular capabilities and behaviors of cells. For example, cytokines can
activate cells to recognize and eliminate harmful bacteria and viruses. In
addition, cytokines are instrumental in the body's defense against cancer,
infectious diseases, including AIDS, and other life-threatening diseases.
Cytokines are the subject of worldwide research efforts. To date, more than
50 molecules have been identified as cytokines and this number is expected to
continue to grow as research in this field expands. Cytokines have played a
role, not only in biomedical research, but in the emergence of the biotechnology
industry where gene splicing is used to produce large quantities of a single
protein for therapeutic use. Cytokines are also a central focus of novel drug
discovery programs by pharmaceutical companies. Endogen believes that the
products it provides to the life science research market are well-matched to the
growing interest in the cytokine and cytokine-related field. There can be no
assurance, however, that this field will continue to expand or that the
Company's products will be successfully introduced into the marketplace. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Factors That May Affect Future Results" herein.
Endogen's Products and Products Under Development
Specialty Research Reagents
Endogen currently offers more than 360 specialty reagent products. These
include recombinant DNA-derived cytokines, polyclonal and monoclonal antibodies.
Such products are used by customers to investigate the biological responses
evoked by immune system proteins. Applications for Endogen's research reagents
include a variety of laboratory experiments involving live cell cultures,
laboratory animal models and flow cytometry.
In-licensing agreements for novel hybridoma cell lines which produce
monoclonal antibodies provide a significant source of new specialty reagents. To
develop and expand its licensing activities, Endogen establishes relationships
with leading medical research institutions across the United States and overseas
by attending scientific meetings and presenting scientific papers. The
establishment of such relationships allows Endogen to identify new products and
to support its existing products. There can be no assurance, however, that the
Company will maintain these relationships or that these relationships will
continue to facilitate the Company's development with respect to new and
existing products.
In Vitro Immuno-Assay Test Kits
Endogen currently markets 66 in vitro immuno-assay test kits. Thirty-seven
of these kits measure human cytokines, chemokines and related biomolecules and
the other twenty-nine kits measure mouse, rat and pig cytokines and related
biomolecules. Most of Endogen's test kits are for laboratory research only, not
for diagnostic or therapeutic use. One test kit acquired from T Cell
Diagnostics, Inc. ("TCD") measures soluble IL2R and is approved for the
diagnosis and monitoring of certain leukemias and lymphomas in Japan. In
general, EIA kits are used by customers to precisely determine the level of a
particular cytokine in serum, plasma or other biological samples. EIAs provide
for more specific, reproducible and easier techniques for measuring biological
factors. Prior to the development of EIAs, cytokines and other factors were
measured
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using cell-based bioassays in which the cytokine level in a sample is estimated
by observing the experimental sample's effect on cultured live cells, relative
to a standard of known effect.
In a typical EIA test kit, an antibody specifically isolates the cytokine
from a researcher's sample during the first incubation step. A second antibody
then binds to the captured cytokine. This second antibody is linked to an
enzymatic tag which provides a measurable signal, allowing precise determination
of the cytokine concentration in the sample, even in minute concentrations.
Results from the assay are recorded using a standard laboratory instrument.
Endogen believes that the discovery of new cytokines, coupled with ongoing
research on the cellular and molecular role of cytokines in preventing and
combating disease, will continue to increase demand for this product line. There
is no assurance, however, that any of the reagents or test kits that are
presently in the research and development phase can be developed, or if
developed, successfully introduced into the marketplace. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Factors That May Affect Future Results" herein.
Messenger RNA Quantification Assays
On August 21, 1997, the Company entered into a Product Development and
Marketing Agreement with Third Wave Technologies, Inc. ("Third Wave") of
Madison, Wisconsin. Under the terms of this agreement, Endogen will fund certain
research and development activities at Third Wave in exchange for certain
exclusive, worldwide rights to sell and distribute to the life science research
market mRNA quantification systems jointly developed by the two companies.
Messenger RNA molecules convey genetic signals that are stored as DNA in
the nucleus to the cell's protein synthesis system and link the genetic signals
to the production of certain proteins that render all cellular functions.
Detection and quantification of mRNA is widely used in biomedical research and
drug discovery, and allows researchers to track gene expression patterns within
cells or tissues. Messenger RNA is routinely studied when investigating cellular
behavior and processes in such diseases as cancer, autoimmune disorders and
infectious diseases, including AIDS. Analysis of mRNA is also used to screen new
drug candidates and to pinpoint the precise action of promising compounds.
Endogen's existing product lines consist primarily of EIA kits used to
study signaling events outside the cell membrane. The products being developed
under the agreement with Third Wave will allow researchers to study events
occurring inside the cell itself in a way that is more rapid and cost effective
than other approaches. Endogen's management believes that this novel platform
may open up new areas of detection in cell biology research that are currently
impractical with traditional methods, such as RT-PCR, RNA and northern blot
analysis. In August 1998, the Company began to ship Xplore(TM) mRNA Assays to
life science customers, the first mRNA assay kits to deliver rapid, sensitive
and accurate measurement of gene expression. There is no assurance, however,
that these kits can be successfully introduced into the marketplace or that any
additional mRNA quantification kits presently in the research and development
phase can be developed, or if developed, successfully introduced into the
marketplace. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Factors That May Affect Future Results" herein.
Products Under Development
Endogen is currently developing additional antibodies, recombinant proteins
and test kits for segments of the life science market. These programs are
expected to result in further expansion of Endogen's existing product lines,
including additional mRNA quantification assays and the introduction of new
product lines. Kits for the measurement of novel biomolecules are currently in
the prototype stage of development and several of these products are expected to
reach the marketplace in fiscal 1999. There is no assurance, however, that any
of the specialty reagents, test kit products or mRNA assays that are presently
in the research and development phase can be developed, or if developed, be
successfully introduced into the marketplace. Research and development
expenditures totaled $1,688,372, $1,379,544 and $1,124,910 in fiscal years 1998,
1997 and 1996, respectively. Purchased in-process research and development
expense related to the TCD asset purchase in March 1996 totaled $579,600. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Factors That May Affect Future Results" herein.
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Product Licensing
Endogen obtains commercial rights to new technologies and new products for
the life science research market through in-licensing. In-licensing generally
provides Endogen with the raw materials for product development in a timely
fashion, thereby reducing the product development cycle time and supporting
in-house manufacturing capabilities. Through certain in-license agreements,
Endogen has obtained cell lines for the production of monoclonal antibodies
utilized in the majority of the Company's human and animal test kits. The
antibodies are also sold as specialty reagents. These products, manufactured at
Endogen, accounted for a substantial portion of revenues for fiscal 1998.
Endogen's success will depend in part upon its ability to keep pace with
evolving technologies and market demands for specialty biological products.
Endogen is highly dependent on product licensing arrangements as a source for
the basic components utilized in the development and manufacture of both human
and animal product lines. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Factors That May Affect Future Results"
herein.
Business Relationships
Endogen has entered into a number of business relationships with commercial
organizations, including the following: In 1988, Endogen entered into a
distribution agreement with Funakoshi Co., Ltd. ("Funakoshi"). Under the terms
of the agreement, subject to certain performance objectives, Endogen granted
exclusive rights to Funakoshi to distribute products under the Endogen label in
the Japanese market.
In 1991, Endogen entered into a distribution and supply agreement with
Biozol Diagnostica Vertrieb, GmbH ("Biozol") under which Biozol exclusively
distributed Endogen's products to individual country distributors in certain
European countries. Effective September 1, 1996, the agreement was amended so
that Endogen could distribute its products directly to certain individual
country distributors in Europe. Biozol continues as Endogen's exclusive
distributor in Germany.
In 1994, Endogen entered into a worldwide product supply and marketing
agreement with Amersham International PLC ("Amersham") and initiated
distribution of Endogen's mouse cytokine ELISA kits under the Amersham label. In
September 1995, the agreement was broadened to include distribution of Endogen's
human cytokine ELISA kits under the Amersham label. Amersham is a leader in the
market for life science research products such as labeled compounds, antibodies
and test kits for pharmaceutical research and drug discovery. Endogen continues
to manufacture and market human and animal test kit product lines under its own
label in addition to supplying Amersham.
In 1996, Endogen entered into an asset purchase agreement with Cytokine
Sciences, Inc. ("CSI"), a manufacturer and seller of cytokine specialty reagents
and test kits. Under the terms of the agreement, Endogen acquired two novel
product lines, including certain immuno-assays for rat cytokines.
In 1996, Endogen entered into an agreement with T Cell Sciences, Inc.
("TCS") and TCD pursuant to which Endogen acquired substantially all of the
assets and operating business of TCD, TCS's subsidiary, and certain assets of
TCS, in exchange for a $2,002,978 convertible subordinated note (the "T Cell
Note"), which was converted in February 1997 into 389,347 shares of Endogen
common stock, a $452,153 short-term promissory note and $528,341 of cash.
Endogen consolidated all manufacturing operations at the former TCD GMP
manufacturing facility in Woburn, Massachusetts, and now markets a significant
number of the research products formerly sold under the TCD name. Endogen also
manufactures a diagnostic product, acquired from TCD, which is supplied under
contract to Yamanouchi Pharmaceutical Co., Ltd. ("Yamanouchi") in Japan. Endogen
further agreed to manufacture on a contract basis certain diagnostic products
for TCS.
In August 1997, the Company entered into a Product Development and
Marketing Agreement with Third Wave pursuant to which Endogen will fund certain
research and development activities at Third Wave in exchange for certain
exclusive, worldwide rights to sell and distribute to the life science research
market mRNA quantification systems jointly developed by the two companies.
Funding payments, not to exceed $1,050,000 in total, will be made to Third Wave
quarterly by the Company over a three year period beginning December 1, 1997. In
connection with this agreement, the Company issued a warrant to Third Wave for
the purchase of up to 125,000 shares of Endogen common stock at a price of $6.00
per share. The warrant vests ratably over three years from August 31, 1997 and
expires on December 31, 2002.
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Government Regulation
Most of Endogen's products are marketed as "research use only" products and
are not currently regulated by the U.S. Food and Drug Administration (the
"FDA"). As a result of the acquisition of TCD's operating business, Endogen
manufactures certain in vitro diagnostic products which are subject to
regulation by the FDA. Consequently, the Company's manufacturing facility is
regulated by the FDA under Good Manufacturing Practices regulations and is
therefore subject to periodic site inspections. In the opinion of management,
the costs associated with complying with these laws and regulations have not had
and are currently not expected to have a material adverse effect upon the
financial position of the Company.
Endogen's laboratories and manufacturing operations are subject to
regulation by a variety of other federal, state, and local governmental
agencies. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Factors That May Affect Future Results" herein.
Availability of Raw Materials
Endogen holds licenses to and maintains back-up stocks of various cell
lines that are necessary to manufacture key components of its product lines. The
Company relies on outside sources for antibodies necessary to manufacture
certain other products and for certain recombinant cytokines sold directly to
its customers. Endogen believes that it maintains adequate supplies of materials
on hand to allow it to continue to manufacture products and meet customer
demand.
Patents, Trademarks, and Trade Secrets
Endogen relies upon trade secrets and proprietary know-how in addition to
licensing arrangements to maintain and develop its business. Although Endogen
seeks to protect its proprietary information, there can be no assurance that
others will not either independently develop the same or similar information,
obtain unauthorized access to Endogen's proprietary information or misuse
information to which Endogen has granted access.
Endogen has obtained federal trademark registration for the Endogen name
and mark in the United States. Trademark registration has also been obtained or
is pending in various foreign countries. In addition, Endogen has applied for
federal trademark registration for the Xplore name and mark in the United
States.
No assurance can be given that Endogen's products do not infringe upon
patents or proprietary rights owned or claimed by others. Endogen has not been
notified that its products infringe upon proprietary rights held by others; nor
has it conducted patent infringement studies. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Factors That May
Affect Future Results" herein.
Significant Customers
Endogen's largest customers are Amersham, Funakoshi, Yamanouchi and Biozol.
Amersham distributes certain of Endogen's test kits under the Amersham label,
pursuant to a worldwide product supply and marketing agreement with Endogen.
Endogen sells its products to Funakoshi for distribution in Japan under the
terms of a distribution agreement. In 1996, Endogen acquired a diagnostic
product in connection with the acquisition of TCD which is manufactured under an
agreement with Yamanouchi for sale in the Japanese diagnostic market. Endogen
sells its products to Biozol pursuant to the terms of their distribution and
supply agreement for German distribution. Biozol's parent corporation, Biomedica
GmbH, currently owns approximately 3.7% of the outstanding capital stock of
Endogen. See "BUSINESS -- Business Relationships" herein.
Export Sales
During the fiscal years ended May 31, 1998, 1997 and 1996, approximately
48%, 54% and 44%, respectively, of the Company's sales were from foreign
countries. Sales to Europe accounted for approximately 24%, 34% and 28% of sales
in fiscal years 1998, 1997 and 1996, respectively. The decrease in fiscal 1998
is attributable primarily to a decrease in sales to
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one major private label customer. The increase in fiscal 1997 over fiscal 1996
is related primarily to the addition of new products sold under the Endogen name
or under private label.
Sales to Japan and the Far East accounted for 21%, 17% and 13% of Endogen's
sales for the fiscal years 1998, 1997 and 1996, respectively. The increases in
fiscal years 1998 and 1997 were related primarily to the addition of new
products sold under the Endogen name and sales growth of products under private
label.
Seasonality of Business
Endogen's customers include university-based research centers and hospital
laboratories whose operations follow the academic calendar. Sales levels
worldwide are often lower in the summer months and during the winter holidays in
December and January. Accordingly, the first and third quarters of Endogen's
fiscal year, which runs from June through August and December through February,
respectively, tend to be the weakest quarters of Endogen's fiscal year, although
Endogen cannot predict whether this tendency will continue.
Competition
The life science research market for cytokine and chemokine specialty
research products is very competitive and is supplied by a number of established
biomedical products manufacturers located in the United States, Europe and
Japan, including without limitation, Techne Corporation, BioSource
International, CN Biosciences, Inc., PharMingen, a subsidiary of Becton,
Dickinson and Company, and others. Many of Endogen's competitors continue to
develop additional products for this market.
Competition in Endogen's markets is intense and involves changing
technologies, evolving industry standards, frequent new product introductions
and rapid changes in customer requirements. To maintain and improve its
competitive position, Endogen must continue to develop and introduce, on a
timely and cost-effective basis, new products, features and services that keep
pace with the evolving needs of its customers. The principal competitive factors
affecting the market for the Company's test kits and specialty reagents are
product reputation, quality, performance, price, customer support and product
features, such as accuracy, sensitivity and ease of use.
Many of Endogen's competitors have substantially greater financial,
research and development, manufacturing, marketing, customer support,
distribution and human resources than Endogen. Consequently, Endogen expects the
continuation of intensive competition in the life science research market. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Factors That May Affect Future Results" herein.
Employees
Endogen had a total of 76 employees as of May 31, 1998, 72 of which were
full-time employees. Endogen recognizes that its future success depends in part
on its ability to recruit and retain talented and trained scientific and
commercial personnel. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Factors That May Affect Future Results"
herein. Endogen believes that it has generally been successful in hiring and
retaining such personnel, but there can be no assurance that such success will
continue.
None of Endogen's employees are represented by a labor union, and Endogen
considers its relations with its employees to be excellent.
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ITEM 2: DESCRIPTION OF PROPERTY
Endogen leases but does not own real property. On August 1, 1996, Endogen
entered into a three-year lease agreement for approximately 12,000 square feet
of office and laboratory space at 30 Commerce Way, Woburn, Massachusetts which
expires in October 1999. Subsequently, Endogen retrofitted this space to house
its executive offices and laboratory facilities. Rent payments totaled
approximately $103,000 for the year ending May 31, 1998. Annual rent payments
for each of the remaining years under the lease will average approximately
$103,000 per year, payable in monthly installments.
Endogen's sales support offices, manufacturing and quality control
operations currently occupy approximately 27,000 square feet located at 6 and 8
Gill Street, Woburn, Massachusetts pursuant to a lease, acquired through the TCD
acquisition, which expires in October 1999. Rent payments at this facility
totaled approximately $263,000 for the year ending May 31, 1998. Annual rent
payments for each of the remaining years under the lease will average
approximately $287,000, payable in monthly installments.
In connection with the acquisition of TCD in 1996, Endogen consolidated all
operations formerly located at 640 Memorial Drive, Cambridge, Massachusetts to
Woburn, Massachusetts. On May 31, 1996, Endogen entered into a lease termination
agreement with Massachusetts Institute of Technology ("MIT") covering the
approximately 21,000 square feet located at 640 Memorial Drive, Cambridge,
Massachusetts. Endogen has been released from all commitments under the
Cambridge lease and, in addition, is being reimbursed approximately $354,000 by
MIT for undepreciated leasehold improvements over a 33-month period. During the
fiscal year ended May 31, 1998, MIT reimbursed approximately $129,000 under this
agreement.
The Company believes its present facilities are in good condition and are
adequate to meet current needs.
ITEM 3: LEGAL PROCEEDINGS
Endogen is not a party to and none of its property is subject to any
material pending legal proceedings.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the security holders during the
fourth quarter of the Company's fiscal 1998.
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Part II
ITEM 5: MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock trades on the Nasdaq SmallCap Market tier of The
Nasdaq Stock Market (the "Nasdaq SmallCap Market") under the symbol: "ENDG" and
on The Boston Stock Exchange under the symbol: "EDG". The following table sets
forth the range of quarterly high and low sales price information for the Common
Stock as reported by the Nasdaq SmallCap Market.
High Low
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FISCAL 1997
First Quarter............................. 5-1/8 3-1/8
Second Quarter............................ 5-1/4 3-7/8
Third Quarter............................. 6-1/2 3-7/8
Fourth Quarter............................ 6-1/4 3-7/8
FISCAL 1998
First Quarter............................. 4-5/8 3-1/8
Second Quarter............................ 6 3-3/8
Third Quarter............................. 4-1/4 3-1/2
Fourth Quarter............................ 4-11/16 3-11/16
As of August 5, 1998, there were approximately 350 shareholders of record.
The Company believes that shares of the Company's Common Stock held in bank,
money management, institution and brokerage house "nominee" names may account
for at least an estimated 1,200 additional beneficial holders.
The Company has never paid cash dividends on its Common Stock and has no
present intention to pay cash dividends in the future. The Company intends to
retain any future earnings to finance the growth of the Company.
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ITEM 6: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion includes forward-looking statements, including,
but not limited to, statements with respect to the Company's future financial
performance, operating results, plans and objectives, and actual results may
differ materially from those currently anticipated depending upon a variety of
factors, including those described below. See "Factors That May Affect Future
Results" herein.
Results of Operations
As an aid to understanding Endogen's operating results, the following table
shows each item from the statement of operations expressed as a percentage of
revenues.
<TABLE>
<CAPTION>
PERCENTAGE OF REVENUES
Fiscal year ended May 31,
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1996 1997 1998
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<S> <C> <C> <C>
Revenues...................................................... 100.0% 100.0% 100.0%
Costs and expenses:
Cost of revenues............................................ 37.3% 35.1% 37.4%
Selling, general, and administrative........................ 47.3% 42.8% 40.7%
Research and development.................................... 17.0% 14.4% 16.8%
Purchased in-process R&D.................................... 8.8% -- --
-------------------------------------------
Income (loss) from operations................................. (10.4%) 7.7% 5.1%
Interest income (expense) net............................... (0.2%) (1.5%) (0.1%)
-------------------------------------------
Income (loss) before income taxes............................. (10.6%) 6.2% 5.0%
Provision (benefit) for income taxes........................ -- (4.0%) 0.4%
-----------------------------------------
Net income (loss)............................................. (10.6%) 10.2% 4.6%
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</TABLE>
Year Ended May 31, 1998 Compared to Year Ended May 31, 1997
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Revenues
Total revenues for fiscal 1998 were $10,033,451, an increase of $444,150 or
5% from fiscal 1997 revenues of $9,589,301. Domestic and international sales of
Endogen branded products increased 12% during fiscal 1998. This growth was due
primarily to increased sales volume from existing Endogen product lines, new
product introductions and an expansion of the international distribution
network. Private label sales, however, decreased 15% during fiscal 1998. This
decline was attributable primarily to a decrease in sales to one major private
label customer.
Cost of Revenues
Cost of revenues was $3,751,425 and $3,365,387 for fiscal years 1998 and
1997, respectively, reflecting an increase of $386,038, or 11%, between years.
Cost of revenues as a percentage of revenues was 37% in fiscal 1998, up from 35%
in fiscal 1997. The fiscal 1998 percentage was higher due in part to changes in
the mix of products sold, a full year's impact of an increase in the number of
full-time employees occurring in late fiscal 1997 as a result of the Company's
growth, higher fixed overhead costs and additional royalty related expenses.
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Selling, General and Administrative Expenses
Selling, general and administrative expenses were $4,084,488 and $4,107,263
in fiscal years 1998 and 1997, respectively. Selling, general and administrative
expenses decreased by $22,775, from fiscal 1997 to fiscal 1998. The decrease was
due primarily to careful expense control, including a decline in professional
fees and consulting expenses incurred in fiscal 1998 and the timing of certain
advertising and promotion costs offset in part by higher overhead costs.
Selling, general and administrative expenses were 41% as a percentage of revenue
for fiscal 1998 versus 43% for fiscal 1997.
Research and Development Expenses
Research and development expenses increased by $308,828, or 22%, to
$1,688,372 in fiscal 1998 from $1,379,544 in fiscal 1997. In August 1997, the
Company entered into a Product Development and Marketing Agreement with Third
Wave for the joint development of a new line of products which quantitatively
measure levels of mRNA. A significant portion of the increase in research and
development expenditure relates to investment in the mRNA program. Research and
development expenses as a percentage of revenues increased from 14% of revenues
in fiscal 1997 to 17% of revenues in fiscal 1998. Endogen plans to continue to
spend heavily on product development for new products and to upgrade existing
products in the coming fiscal year.
Interest Income and Interest Expense
Net interest expense was $13,512 for fiscal 1998 compared with net interest
expense of $142,512 for fiscal 1997, a decrease of $129,000. Interest expense
for fiscal 1997 primarily reflects interest incurred on the T Cell Note. The T
Cell Note was converted into shares of the Company's common stock in February
1997. In addition, interest expense decreased in fiscal 1998 versus fiscal 1997
as a result of the reduction in average outstanding borrowings under other notes
payable and capital lease obligations.
Income Taxes
For fiscal 1998, the Company recorded a provision for income taxes of
$38,000, consisting of a current provision of $166,000 and a deferred benefit of
$128,000, in the fourth quarter of fiscal 1998, $69,000 of which represented a
reduction in the beginning of the year valuation allowance for deferred tax
assets based on management's expected realization of such assets. In
establishing the valuation allowance, management considers positive factors,
including positive earnings in the current and recent fiscal years (excluding
fiscal 1996 which reflects acquisition and integration related expenses incurred
in connection with the TCD transaction) and negative factors, including the
competitive nature of the industry and stage of the Company's growth. Based on
these factors, primarily positive earnings, the Company reversed $69,000 of the
valuation allowance in the fourth quarter of fiscal 1998. At May 31, 1998,
management believes, that based on the weight of available evidence, it is more
likely than not that the Company will not realize all the benefits from its net
deferred tax asset, and accordingly, has recorded a valuation allowance of
$50,000 against the net deferred tax asset at May 31, 1998. Management continues
to assess the realizability of the net deferred tax asset on an ongoing basis,
and believes that it is reasonably possible that an additional portion of the
valuation allowance will be reduced in the near term.
Year Ended May 31, 1997 Compared to Year Ended May 31, 1996
- -----------------------------------------------------------
Revenues
Total revenues for fiscal 1997 increased by $2,967,140, or 45%, to
$9,589,301 from $6,622,161 in fiscal 1996. Revenues increased primarily because
of growth in U.S. direct sales, expansion of Endogen's international business
through both its distribution network and its relationships with OEM customers,
the contribution of TCD product revenues for the entire fiscal year and the
introduction of new products.
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Cost of Revenues
Cost of revenues was $3,365,387 and $2,476,997 for fiscal years 1997 and
1996, respectively, reflecting an increase of $888,390, or 36%, between fiscal
years. The increase in fiscal 1997 reflects the Company's significant growth in
sales volumes during the year. Cost of revenues as a percentage of revenues was
35% in fiscal 1997, down from 37% in fiscal 1996. The fiscal 1996 percentage was
higher due to the charge to cost of revenues of finished goods acquired from TCD
under purchase accounting rules and sold during the fiscal fourth quarter.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $4,107,263 and $3,130,629
in fiscal years 1997 and 1996, respectively. This represents an increase of
$976,634, or 31%, in fiscal 1997 as compared to fiscal 1996. Approximately
$437,000 of the increase is attributable to expanded sales and marketing
activities in fiscal 1997 as the Company grew its domestic sales force and
augmented its marketing support worldwide. The remainder of the selling, general
and administrative expense increase reflects higher administrative costs
associated with the assimilation of the TCD acquisition, the consolidation of
operations in Woburn, Massachusetts and increases in the number of
administrative employees to support the Company's growth during fiscal 1997. As
a percentage of revenues, selling, general and administrative expenses declined
to 43% from 47% in fiscal 1996 as a direct result of the growth of Endogen's
business and careful cost controls.
Research and Development Expenses
Research and development expenses were $1,379,544 in fiscal 1997, up from
$1,124,910 in fiscal 1996, an increase of $254,634. The Company's 1997 spending
on R&D, which increased 23% from fiscal 1996, reflects the continued commitment
to invest in the development of new products. However, R&D spending as a
percentage of revenues decreased from 17% of revenues in fiscal 1996 to 14% of
revenues in fiscal 1997 as a direct result of the growth of Endogen's business.
In the fourth quarter of fiscal 1996, the Company recognized an additional
charge of $579,600 for purchased in-process R&D in connection with the TCD
acquisition.
Interest Income and Interest Expense
In fiscal 1997, net interest expense was $142,512 compared to net interest
expense of $10,564 in fiscal 1996, an increase of $131,948. The increase in net
interest expense is due primarily to the T Cell Note and borrowings under a term
loan with a bank. In February 1997, TCD exercised its right to convert the T
Cell Note into 389,347 shares of the Company's common stock at a conversion
price equal to $4.63 per share.
Income Taxes
For fiscal 1997, the Company recorded an income tax benefit of $381,000,
consisting of a current provision of $87,000 and a deferred benefit of $468,000,
in the fourth quarter of fiscal 1997, $373,000 of which represented a reduction
in the beginning of the year valuation allowance for deferred tax assets based
on management's expected realization of such assets. In establishing the
valuation allowance, management considers positive factors, including positive
earnings in the current and recent fiscal years (excluding fiscal 1996 which
reflects acquisition and integration related expenses incurred in connection
with the TCD transaction) and negative factors, including the competitive nature
of the industry and stage of the Company's growth. Based on these factors,
primarily positive earnings, the Company reversed $373,000 of the valuation
allowance in the fourth quarter of fiscal 1997. At May 31, 1997, based on the
weight of available evidence that it was more likely than not that the Company
would not realize all the benefits from its net deferred tax asset, management
recorded a valuation allowance of $119,000 against the net deferred tax asset.
The Company did not have a provision for income taxes for fiscal 1996.
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Liquidity and Capital Resources
The substantial growth of Endogen's business during fiscal years 1997 and
1998 has led to increased liquidity requirements to fund working capital needs
and capital expenditures. This includes financing inventories and accounts
receivable to support the Company's growing operations, as well as purchases of
new laboratory and manufacturing equipment and leasehold improvements to support
new product development. In addition, in connection with its Product Development
and Marketing Agreement with Third Wave, the Company is obligated to make
funding payments, not to exceed $1,050,000 in total, to Third Wave in quarterly
installments over a three year period beginning December 1, 1997.
At May 31, 1998, 1997 and 1996, Endogen's cash and cash equivalents
position was $1,175,490, $334,050 and $763,739, respectively. Endogen has
financed its liquidity needs primarily through cash from operations, a working
capital line of credit with a bank and term loans payable with a bank. At May
31, 1998, the Company had $850,000 available under a working capital line of
credit with a bank. The interest rate on the line was 1.0% above the bank's
prime rate. On August 26, 1998 the $850,000 line of credit agreement expired.
The Company is currently negotiating with this same bank to extend the term of
the line of credit and believes that it will acquire a line of credit on
substantially the same terms.
Cash Flows from Operating Activities.
Net cash provided by operations during fiscal 1998 was $1,071,207. In fiscal
1998, net cash provided by operating activities consisted primarily of
depreciation and amortization of $875,585, net income of $457,654 and a decrease
in accounts receivable of $238,477. This was offset by deferred income taxes of
$128,000, an increase in inventories of $23,695, an increase in prepaid expenses
and other assets of $124,496, an increase in intangible assets of $20,219, and a
decrease in accounts payable and accrued expenses of $204,099.
Net cash provided by operations in fiscal 1997 was $793,584. In fiscal
1997, net cash provided by operating activities consisted primarily of
depreciation and amortization of $723,074, net income of $975,595, a decrease of
$127,913 in prepaid expenses and other assets and an increase by $166,601 of
accounts payable and accrued expenses. This was offset by deferred income taxes
of $468,000, an increase in accounts receivable of $183,561, an increase in
inventories of $527,538, and an increase in intangible assets of $20,500.
Net cash provided by operations in fiscal 1996 was $732,855. In fiscal
1996, net cash provided by operating activities consisted primarily of
depreciation and amortization of $492,191, loss on disposal of fixed assets of
$50,944, purchased in-process research and development of $579,600, decrease in
inventories of $251,422, decrease in prepaid expenses and other assets of
$149,393 and an increase in accounts payable and accrued expenses of $244,538.
This was offset by a net loss of $700,539, an increase in accounts receivable of
$258,360 and an increase in intangible assets of $76,334.
Cash Flows from Investing Activities.
The Company's investing activities used cash of $385,156 in fiscal 1998,
consisting of the purchase of $112,422 in new R&D equipment, $62,449 in new
manufacturing equipment, $127,515 in computer equipment and software and an
investment of $82,770 in leasehold improvements.
The Company's investing activities used cash of $979,450 in fiscal 1997
which primarily reflects the purchase of $71,233 in new R&D and production
equipment, $220,978 in computer and office equipment and an investment of
$687,239 in leasehold improvements for new R&D laboratories and office space at
30 Commerce Way, Woburn, Massachusetts.
The Company's investing activities in fiscal 1996 used cash of $1,676,038,
representing the acquisition of fixed assets totaling $346,033, cash for the
purchase of CSI totaling $100,000 and cash for the purchase of TCD totaling
$1,230,005.
Cash Flows from Financing Activities.
Net cash provided from financing activities in fiscal 1998 was $155,389.
During fiscal 1998 cash provided by financing activities consisted of proceeds
of $200,965 from borrowings under a term loan used to finance equipment
purchases and $106,501 from the issuance of common stock, which was offset by
cash used to decrease borrowings by $152,077.
Net cash used for financing activities in fiscal 1997 was $243,823. During
fiscal 1997 cash provided by financing activities consisted of proceeds of
$153,916 from the issuance of common stock, which was offset by cash used to
decrease borrowings by $397,739.
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Net cash provided from financing activities in fiscal 1996 was $402,963.
During fiscal 1996 cash provided by financing activities consisted of proceeds
of $200,000 from borrowings under a line of credit used to finance equipment
purchases and $307,212 from the issuance of common stock, which was offset by
cash used to decrease borrowings by $104,249.
The Company expects to continue expanding operations through internal
growth and strategic acquisitions offering products similar or complementary to
those offered by the Company. Although the Company has no material current
acquisition agreements or arrangements, there may be opportunities which require
additional external financing, and the Company may from time to time seek to
obtain additional funds from public or private issuance of equity or debt
securities. There can be no assurance that such financing will be available at
all or on terms acceptable to the Company.
Based on management's current projections, Endogen believes that its
financial resources and cash flow from operations will be sufficient to finance
the Company's current and planned operations through fiscal 1999. There can be
no assurance, however, that the Company will not require additional working
capital and, if it does require such capital, that such capital will be
available to the Company on acceptable terms, if at all.
The foregoing statements contain forward-looking statements which involve
risks and uncertainties. The Company's actual experience may differ materially
from that discussed above.
Inflation and Changing Prices
The Company believes that inflation has not had a material effect on its
operations or on its financial condition.
Foreign Currency Transactions
Substantially all of Endogen's revenues generated outside of the United
States are negotiated, invoiced and paid in U.S. dollars. Consequently, there
have been no gains or losses to date on foreign currency transactions.
Factors That May Affect Future Results
The Company's future business, operating results and financial condition
are subject to various risks and uncertainties, including those described below.
Capital Requirements.
In the future Endogen may need to raise substantial additional funds
through equity or debt financings, research and development financings,
collaborative relationships or otherwise. Endogen may seek to raise funds
whenever conditions are favorable, even if the Company does not have an
immediate need for additional capital at that time. Conversely, Endogen may have
an immediate need for capital at times when conditions are unfavorable. There
can be no assurance that any such additional funding will be available to
Endogen or, if available, that it will be on reasonable terms. Any such
additional funding may result in significant dilution to existing shareholders.
If adequate funds are not available, Endogen may be required to significantly
curtail its operations or obtain funds through arrangements with collaborative
partners that may require Endogen to relinquish certain material rights to its
products.
Risks Related to Growth through Alliances and Acquisition.
The Company's strategy is to continue its internal growth and to pursue
additional acquisitions of, or relationships with, other companies as strategic
opportunities arise in the life science industry and related industries. As a
result, the Company is subject to certain growth-related risks, including the
risk that it will be unable to retain personnel or acquire other resources
necessary to adequately accommodate such growth. There can be no assurance that
any suitable opportunities for future strategic acquisitions or relationships
will arise or, if they do arise, that the transactions contemplated thereby
could be completed. There can be no assurance that the Company will be able to
integrate effectively the businesses that it has acquired or those that it may
acquire in the future. In addition, such transactions are subject to various
risks generally associated with the acquisition of businesses, including the
financial impact of expenses associated with the integration of businesses and
the diversion of management resources. There can be no assurance that any recent
or future acquisition or
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other strategic relationship will not have an adverse impact on the Company's
business or results of operations. If suitable opportunities arise in the
future, the Company anticipates that it would finance such transactions, as well
as its internal growth, through working capital or, in certain instances,
through additional debt or equity financing. There can be no assurance, however,
that such debt or equity financing would be available to the Company on
acceptable terms when, and if, suitable strategic opportunities arise.
Uncertainty of Future Profitability.
To sustain future profitability Endogen must, among other things, continue
to market its current product lines and successfully introduce new product lines
to the market. There can be no assurance that Endogen will be able to continue
manufacturing its current products, successfully develop new products or that
such products, if developed, will be in demand by customers. Endogen expects to
incur substantial expenses over the next several years as its product lines and
operations expand. There can be no assurance that Endogen will be able to
sustain profitability.
Dependence on Technology Licensing.
Endogen is highly dependent on technology and product licensing
arrangements as a principal source for the basic components used in the
development and manufacture of its products. Endogen expects to continue to need
licenses to proprietary cell lines, patents or other proprietary rights of third
parties. No assurance can be given that any licenses required under any such
patents or proprietary rights would be made available on terms acceptable to
Endogen, if at all. In addition, certain of Endogen's technology and product
licenses have been obtained under non-exclusive terms. No assurances can be
given that such technologies or products will not be licensed or commercialized
by competitors and marketed to Endogen's customers. See "BUSINESS -- Product
Licensing" herein.
Competition and Risk of Technological Obsolescence.
Competitors of Endogen in the United States and abroad are numerous and
include, among others, biotechnology companies, specialty reagent manufacturers
and catalog supply companies. Endogen's success depends upon developing and
maintaining a competitive position in the development of products and
technologies in its area of focus. Competition from other research products and
life science companies is intense and expected to increase as new products enter
the market and new technologies become available. Endogen's competitors may also
succeed in developing technologies and products that are more effective than any
which have been or are being developed by Endogen or that render Endogen's
technologies or products obsolete or noncompetitive. Endogen's competitors may
also succeed in obtaining patent protection or other intellectual property
rights that would block Endogen's ability to develop new products. Finally, many
of these competitors have substantially greater research and development
capabilities, manufacturing, regulatory and marketing experience and financial
and managerial resources than Endogen. See "BUSINESS -- Competition" herein.
Government Regulation.
Endogen's research and development programs, as well as its manufacturing
and marketing operations, are subject to regulation by numerous governmental
authorities in the United States and other countries. Certain of Endogen's
products are subject to governmental regulation for continued commercial sale.
The manufacturing and marketing of additional products in the future for
diagnostic use would be subject to the rigorous testing and approval processes
of the FDA and corresponding foreign regulatory authorities.
Dependence on Proprietary Technology.
Endogen's success will depend, in part, on its ability to preserve its
trade secrets and operate without infringing the proprietary rights of third
parties. Endogen could encounter delays in product market introductions while it
attempts to design around such patents or other rights, or be unable to develop,
manufacture or sell such products. See "BUSINESS -- Patents, Trademarks and
Trade Secrets" herein.
Endogen also seeks to protect its proprietary technology, including
technology which may not be patented or patentable, in part by confidentiality
agreements and, if applicable, inventors' rights agreements with its
collaborators, advisors,
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<PAGE>
employees and consultants. There can be no assurance that these agreements will
not be breached, that Endogen will have adequate remedies for any breach, or
that Endogen's trade secrets will not otherwise be disclosed to, or discovered
by, competitors.
Commercial Sales and Marketing Requirements.
Endogen currently sells its research products directly to end-users in the
United States and through distributors abroad. While Endogen has expanded its
marketing and sales force, there can be no assurance that Endogen will be able
to further expand its sales and distribution capabilities for the life science
market without undue delays or expenditures or that it will be successful in
maintaining market acceptance for its products.
Dependence Upon Key Personnel.
Endogen is highly dependent on the members of its management and scientific
staff, the loss of whom could have a material adverse effect on Endogen. Endogen
also depends on scientific advisors, who may have commitments that limit their
availability to Endogen. In addition, Endogen believes that its future success
will depend in large part upon its ability to attract and retain highly skilled
scientific, managerial and marketing personnel. Endogen faces significant
competition for such personnel from other companies, research and academic
institutions, government entities and other organizations. There can be no
assurance that Endogen will be successful in hiring or retaining the personnel
it requires for continued growth. The failure to hire and retain such personnel
could materially and adversely affect Endogen's prospects. See "BUSINESS --
Employees" herein.
International Operations.
The percentage of revenues from international sales were 48%, 54% and 44%
in fiscal years 1998, 1997 and 1996, respectively. Endogen believes that
international sales will continue to represent a significant portion of its
business. Endogen's international business and financial performance may be
adversely affected by such matters as fluctuations in exchange rates, tariff
regulations and difficulties in obtaining export licenses. In addition,
Endogen's business may be adversely affected by lower sales levels that
typically occur during the summer months and winter holidays in Europe and other
parts of the world.
Year 2000
The Company recognizes that it must ensure that its services and operations
will not be adversely affected by Year 2000 software failures (the "Year 2000
issue") which can arise in time-sensitive software applications with two-year
digits to define the applicable year. In such applications, a date using "00" as
the year may be recognized as the year 1900 rather than the year 2000. The
Company is in the process of upgrading many of its business and computer
operating systems with software which, when upgraded, will be Year 2000
compatible. The Company is planning to complete all necessary Year 2000 upgrades
of its major systems and is currently identifying and developing conversion
strategies for its remaining systems that may be impacted by the Year 2000
issue. The Company currently does not believe the cost of such actions will have
a material effect on the Company's financial condition or results of operations.
There can be no assurance, however, that there will not be a delay in, or
increased costs associated with, the implementation of such changes, and the
Company's inability to implement such changes could have a material adverse
effect on future results of operations. In addition, there can be no assurances
that the Company's customers and suppliers will not be adversely affected by
their own Year 2000 issues, which may indirectly adversely and materially affect
the Company.
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ITEM 7: FINANCIAL STATEMENTS
The Company's financial statements and related auditors report are
presented on pages F-1 through F-19. The financial statements filed in this Item
7 are as follows:
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Pages
<S> <C>
Report of Independent Accountants F-2
Balance Sheet at May 31, 1997 and May 31, 1998. F-3
Statement of Operations for the three years ended May 31, 1998. F-4
Statement of Changes in Stockholders' Equity for the three years ended May 31, 1998. F-5
Statement of Cash Flows for the three years ended May 31, 1998. F-6
Notes to Financial Statements. F-7
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ITEM 8: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
There have been no changes in or disagreements with accountants on
accounting or financial disclosure matters during the Company's two most recent
fiscal years.
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Part III
ITEM 9: DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The information required under this item is incorporated herein by
reference to the Company's definitive proxy statement pursuant to Regulation
14A, to be filed with the Commission not later than 120 days after the close of
the Company's fiscal year ended May 31, 1998 under the headings "Election of
Directors," "Occupations of Directors and Executive Officers," and "Section
16(a) Beneficial Ownership Reporting Compliance."
ITEM 10: EXECUTIVE COMPENSATION
The information required under this item is incorporated herein by
reference to the Company's definitive proxy statement pursuant to Regulation
14A, to be filed with the Commission not later than 120 days after the close of
the Company's fiscal year ended May 31, 1998, under the heading "Compensation
and Other Information Concerning Directors and Officers."
ITEM 11: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required under this item is incorporated herein by
reference to the Company's definitive proxy statement pursuant to Regulation
14A, to be filed with the Commission not later than 120 days after the close of
the Company's fiscal year ended May 31, 1998, under the heading "Management and
Principal Stockholders."
ITEM 12: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required under this item is incorporated herein by
reference to the Company's definitive proxy statement pursuant to Regulation
14A, to be filed with the Commission within 120 days after the close of the
Company's fiscal year ended May 31, 1998, under the heading "Certain
Relationships and Related Transactions."
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ITEM 13: EXHIBITS, LIST AND REPORTS ON FORM 8-K
(a) Exhibits.
Description of Exhibits
-----------------------
Exhibit Number
3.1 Restated Articles of Organization of Endogen, Inc., as amended
(previously filed as Exhibit 3.1 to the Company's Form 10-QSB for
the quarter ended November 30, 1996 and incorporated herein by
reference).
3.2 By-laws of Endogen, Inc., as amended on September 5, 1997
(previously filed as Exhibit 3.1 to the Company's Form 10-QSB for
the quarter ended August 31, 1997 and incorporated herein by
reference).
4.1 Restated Articles of Organization of Endogen, Inc., as amended
filed as Exhibit 3.1.
4.2 By-laws of Endogen, Inc., as amended on September 5, 1997 filed as
Exhibit 3.2.
4.3 Specimen Certificate representing the Common Stock of Endogen, Inc.
(filed as Exhibit 1.1 to the Company's Registration Statement No.
0-21354 on Form 8-A dated March 11, 1993 and incorporated herein by
reference).
[dag]10.1 Endogen 1992 Stock Plan, as amended (previously filed as Exhibit
4.1 to the Company's Registration Statement No. 333-58985 on Form
S-8 filed on July 13, 1998 and incorporated herein by reference).
[dag]10.2 1993 Non-Employee Director Stock Option Plan, as amended.*
10.3 License Agreement dated as of December 1, 1990, as amended on
September 3, 1991, and September 2, 1992, between Endogen and
Schering Corporation (previously filed as Exhibit 10.11 to the
Company's Registration Statement No. 33-54430 on Form S-4 filed on
November 10, 1992 and incorporated herein by reference).
10.4 License Agreement dated November 15, 1992 between Endogen and
Syntex (U.S.A.) Inc.*
10.5 Agreement dated February 10, 1993 between Endogen and Schering
Corporation.*
10.6 Amendments to Agreement dated February 10, 1993 between Endogen and
Schering Corporation dated September 22, 1993 and May 9, 1994
(previously filed as Exhibit 10.39 to the Company's Form 10-K for
the fiscal year ended May 31, 1994 and incorporated herein by
reference).
10.7 Distribution Agreement dated November 1, 1994 between Endogen, Inc.
and Amersham International PLC. (Filed without schedules)
(previously filed as Exhibit 10.1 to the Company's Form 10-Q for
the quarter ended February 28, 1995 and incorporated herein by
reference).
10.8 Asset Purchase Agreement dated as of March 4, 1996 by and among
Endogen, Inc., T Cell Diagnostics, Inc. and T Cell Sciences, Inc.
(previously filed as Exhibit 2.1 to the Company's Form 8-K filed on
March 4, 1996 and incorporated herein by reference).
10.9 Lease Termination Agreement dated as of May 31, 1996 between
Endogen, Inc. and Massachusetts Institute of Technology (previously
filed as Exhibit 10.23 to the Company's Form 10-K for the fiscal
year ended May 31, 1996 and incorporated herein by reference).
10.10 Lease dated July 29, 1996 between Endogen, Inc. and Landman Omnibus
XI Limited Partnership (previously filed as Exhibit 10.24 to the
Company's Form 10-K for the fiscal year ended May 31, 1996 and
incorporated herein by reference).
10.11 Loan and Security Agreement dated August 28, 1996 between Endogen,
Inc. and Silicon Valley Bank (previously filed as Exhibit 10.25 to
the Company's Form 10-K for the fiscal year ended May 31, 1996 and
incorporated herein by reference).
10.12 $850,000 Revolving Promissory Note dated August 28, 1996 of
Endogen, Inc. to Silicon Valley Bank (previously filed as Exhibit
10.26 to the Company's Form 10-K for the fiscal year ended May 31,
1996 and incorporated herein by reference).
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<PAGE>
10.13 $400,000 Term Promissory dated August 28, 1996 of Endogen, Inc. to
Silicon Valley Bank (previously filed as Exhibit 10.27 to the Company's
Form 10-K for the fiscal year ended May 31, 1996 and incorporated
herein by reference).
10.14 Commercial Lease dated October 13, 1994, as amended, between Cummings
Properties Management, Inc. and T Cell Diagnostics, Inc. (previously
filed as Exhibit 10.28 to the Company's Form 10-K for the fiscal year
ended May 31, 1996 and incorporated herein by reference).
10.15 Lease Assignment dated March 4, 1996 between T Cell Diagnostics, Inc.
and Endogen, Inc. (previously filed as Exhibit 10.29 to the Company's
Form 10-K for the fiscal year ended May 31, 1996 and incorporated
herein by reference).
10.16 Employment Agreement dated as of December 4, 1996 between Avery W.
Catlin and Endogen, Inc. (previously filed as Exhibit 10.28 to the
Company's Form 10-KSB for the fiscal year ended May 31, 1997 and
incorporated herein by reference).
10.17 Product Development and Marketing Agreement dated August 21, 1997 by
and among Endogen, Inc. and Third Wave Technologies, Inc. (previously
filed as Exhibit 10.1 to the Company's Form 10-QSB for the quarter
ended August 31, 1997 and incorporated herein by reference).
10.18 Second Loan Modification Agreement dated as of August 27, 1997 between
Endogen, Inc. and Silicon Valley Bank (previously filed as Exhibit 10.1
to the Company's Form 10-QSB for the quarter ended November 30, 1997
and incorporated herein by reference).
10.19 Equipment Line Promissory Note dated October 8, 1997 of Endogen, Inc.
to Silicon Valley Bank (previously filed as Exhibit 10.2 to the
Company's Form 10-QSB for the quarter ended November 30, 1997 and
incorporated herein by reference).
10.20 Distribution Agreement by and between Endogen, Inc. and Yamanouchi
Pharmaceutical Co., Ltd dated April 8, 1998.*+
10.21 Secured Promissory Note by and between Endogen, Inc. and Owen A.
Dempsey dated October 27, 1997 and amended January 22, 1998.*
10.22 Pledge Agreement by and between Endogen, Inc. and Owen A. Dempsey dated
October 27, 1997.*
10.23 Promissory Note by and between Endogen, Inc. and Owen A. Dempsey dated
December 9, 1997.*
10.24 Loan Modification Agreement dated as of May 7, 1997, by and between
Silicon Valley Bank and Endogen, Inc.*
11.1 Statement re: Computation of earnings per share.*
21.1 List of Subsidiaries.*
23.1 Consent of Independent Accountants.*
27.1 Financial Data Schedule.*
27.2 Restated Financial Data Schedule.*
27.3 Restated Financial Data Schedule.*
- ----------------------------
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<PAGE>
* Filed herewith.
[dag] Indicates management contract or compensatory plan or arrangement
required to be filed as an exhibit to this Form 10-KSB.
+ Confidential Treatment has been requested as to omitted portions
pursuant to Rule 24b-2 promulgated under the Securities Exchange Act of
1934, as amended.
(b) Reports on Form 8-K.
No Reports on Form 8-K were filed during the last quarter of the period
covered by this Report.
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<PAGE>
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Woburn,
Commonwealth of Massachusetts, on the 27th day of August, 1998.
ENDOGEN, INC.
By: /s/ Owen A. Dempsey
-------------------------------
Owen A. Dempsey
President and Chief Executive Officer
In accordance with the Securities Exchange Act of 1934, as amended, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
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<CAPTION>
Signature Title Date
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
/s/ Owen A. Dempsey President, Chief
- ------------------------------------------------- Executive Officer and Director August 27, 1998
Owen A. Dempsey (Principal Executive Officer)
/s/ Wallace G. Dempsey Director August 24, 1998
- -------------------------------------------------
Wallace G. Dempsey
/s/ Irwin J. Gruverman Director August 27, 1998
- -------------------------------------------------
Irwin J. Gruverman
/s/ Wolfgang Woloszczuk Director August 25, 1998
- -------------------------------------------------
Wolfgang Woloszczuk, Ph.D.
/s/ Charles R. Burke Director August 27, 1998
- -------------------------------------------------
Charles R. Burke, Ph.D.
/s/ Avery W. Catlin Vice President, Operations and Finance, August 24, 1998
- -------------------------------------------------- Chief Financial Officer (Principal
Avery W. Catlin Financial and Accounting Officer)
</TABLE>
-22-
<PAGE>
Index to Financial Statements
<TABLE>
Page
<S> <C>
Report of Independent Accountants......................................................................... F-2
Balance Sheet at May 31, 1997 and 1998.................................................................... F-3
Statement of Operations for the three years ended May 31, 1998............................................ F-4
Statement of Changes in Stockholders' Equity for the three years ended May 31, 1998....................... F-5
Statement of Cash Flows for the three years ended May 31, 1998............................................ F-6
Notes to Financial Statements............................................................................. F-7
</TABLE>
F-1
<PAGE>
Report of Independent Accountants
To the Board of Directors and
Stockholders of Endogen, Inc.
In our opinion, the accompanying financial statements listed in the Index on
page F-1 present fairly, in all material respects, the financial position of
Endogen, Inc. at May 31, 1997 and 1998, and the results of its operations and
its cash flows for each of the three years in the period ended May 31, 1998, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
Boston, Massachusetts
July 9, 1998
F-2
<PAGE>
Balance Sheet
<TABLE>
<CAPTION>
May 31,
-------------------------------
1997 1998
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................................. $ 334,050 $1,175,490
Accounts receivable, net of allowance for doubtful accounts and returns of
$50,000 at May 31, 1997 and 1998..................................................... 1,612,908 1,374,431
Inventories........................................................................... 1,817,440 1,841,135
Prepaid expenses and other current assets............................................. 221,862 449,633
Deferred income taxes................................................................. 188,000 151,000
----------- ------------
Total current assets.............................................................. 4,174,260 4,991,689
---------- ----------
Fixed assets, net....................................................................... 2,327,550 2,020,063
Intangible assets, net.................................................................. 395,730 299,907
Deferred income taxes................................................................... 280,000 445,000
Other assets............................................................................ 300,213 163,662
------------ ------------
$7,477,753 $7,920,321
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of term notes payable - bank.......................................... $ 140,966 $ 200,322
Current portion of capital lease obligations.......................................... 5,528 6,917
Accounts payable and accrued expenses................................................. 1,292,939 1,088,840
----------- -----------
Total current liabilities......................................................... 1,439,433 1,296,079
----------- -----------
Term notes payable - bank............................................................... 200,000 195,061
Capital lease obligations............................................................... 14,776 7,858
------------- ------------
214,776 202,919
------------ ------------
Commitments (Note 12)
Stockholders' equity:
Common stock, $.01 par value; 10,000,000 shares authorized; 3,416,319 and
3,442,802 shares issued and outstanding at May 31, 1997 and 1998, respectively........ 34,162 34,428
Additional paid-in capital.............................................................. 6,101,667 6,342,402
Deferred compensation................................................................... -- (100,876)
Retained earnings (deficit)............................................................. (312,285) 145,369
------------- ------------
Total stockholders' equity........................................................ 5,823,544 6,421,323
------------- ------------
$7,477,753 $7,920,321
=========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
Statement of Operations
<TABLE>
<CAPTION>
Year ended May 31,
-----------------------------------------------
1996 1997 1998
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUE
Product sales........................................................... $6,622,161 $9,589,301 $10,033,451
COSTS AND EXPENSES
Cost of revenues........................................................ 2,476,997 3,365,387 3,751,425
Selling, general and administrative..................................... 3,130,629 4,107,263 4,084,488
Research and development................................................ 1,124,910 1,379,544 1,688,372
Purchased in-process research and development........................... 579,600 -- --
----------- -------------- --------------
7,312,136 8,852,194 9,524,285
----------- -------------- --------------
Income (loss) from operations........................................... (689,975) 737,107 509,166
Interest expense, net..................................................... 10,564 142,512 13,512
----------- -------------- --------------
Income (loss) before income taxes....................................... (700,539) 594,595 495,654
Income tax provision (benefit)............................................ -- (381,000) 38,000
----------- -------------- --------------
Net income (loss)......................................................... $ (700,539) $ 975,595 $ 457,654
=========== ============== ==============
Basic earnings (loss) per share........................................... $ (.25) $ .32 $ .13
============ ============== ===============
Diluted earnings (loss) per share......................................... $ (.25) $ .29 $ .13
============ ============== ===============
Shares used in computing:
Basic earnings (loss) per share......................................... 2,835,697 3,095,262 3,432,590
============ ============== ===============
Diluted earnings (loss) per share....................................... 2,835,697 3,394,662 3,626,311
============ ============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
Statement of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Number of Additional Retained Total
shares of Par paid-in Deferred earnings stockholders'
common stock value capital compensation (deficit) equity
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at May 31, 1995................. 2,711,561 $27,116 $3,741,999 $ -- $(587,341) $3,181,774
Sale of common stock pursuant
to exercise of stock options.......... 210,079 2,100 305,112 -- -- 307,212
Common stock issued pursuant
to acquisitions....................... 27,706 277 102,629 -- -- 102,906
Net loss................................ -- -- -- -- (700,539) (700,539)
------------ ----------- ------------- -------------- ------------- ------------
Balance at May 31, 1996................. 2,949,346 29,493 4,149,740 -- (1,287,880) 2,891,353
Sale of common stock pursuant
to exercise of stock options.......... 77,626 776 153,140 -- -- 153,916
Issuance of common stock upon
conversion of convertible note
payable............................... 389,347 3,893 1,798,787 -- -- 1,802,680
Net income.............................. -- -- -- -- 975,595 975,595
------------- ---------- ------------- ------------- ------------ ------------
Balance at May 31, 1997................. 3,416,319 34,162 6,101,667 -- (312,285) 5,823,544
Sale of common stock pursuant
to exercise of stock options.......... 26,483 266 51,535 -- -- 51,801
Tax benefit related to stock options.... -- -- 54,700 -- -- 54,700
Issuance of warrants pursuant to
a Product Development and
Marketing Agreement with Third
Wave Technologies, Inc. (Note 12)..... -- -- 134,500 (134,500) -- --
Amortization of deferred
compensation related to warrants...... -- -- -- 33,624 -- 33,624
Net income.............................. -- -- -- -- 457,654 457,654
------------- ---------- -------------- ------------ ------------- ------------
Balance at May 31, 1998................. 3,442,802 $34,428 $6,342,402 $(100,876) $ 145,369 $6,421,323
============= ========== ============== ============ ============= ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
Statement of Cash Flows
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS Year ended May 31,
-----------------------------------------
1996 1997 1998
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)............................................................ $ (700,539) $975,595 $457,654
Adjustments to reconcile net income (loss) to net cash (used for) provided by
operating activities:
Depreciation and amortization............................................. 492,191 723,074 875,585
Deferred income taxes..................................................... -- (468,000) (128,000)
Loss on disposal of fixed assets.......................................... 50,944 -- --
Purchased in-process research and development............................. 579,600 -- --
(Increase) decrease in accounts receivable................................ (258,360) (183,561) 238,477
(Increase) decrease in inventories........................................ 251,422 (527,538) (23,695)
(Increase) decrease in prepaid expenses and other assets.................. 149,393 127,913 (124,496)
Increase in intangible assets............................................. (76,334) (20,500) (20,219)
Increase (decrease) in accounts payable and accrued expenses.............. 244,538 166,601 (204,099)
------------ ------------ --------------
Net cash provided by operations..................................... 732,855 793,584 1,071,207
------------ ------------ --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of fixed assets.................................................... (346,033) (979,450) (385,156)
Purchase of Cytokines Sciences, Inc. ("CSI")................................. (100,000) -- --
Purchase of T Cell Diagnostics, Inc. ("TCD")................................. (1,230,005) -- --
------------ ------------ -------------
Net cash used for investing activities.............................. (1,676,038) (979,450) (385,156)
------------ ------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds (repayments) from borrowings under line of credit................... 200,000 (50,000) --
Net proceeds (repayments) of borrowings under term loans payable............. -- (66,667) 62,050
Repayments of convertible note payable....................................... -- (200,298) --
Net proceeds (repayments) from note payable - bank........................... (63,632) (64,723) (7,633)
Repayments from borrowings under capital lease obligations................... (40,617) (16,051) (5,529)
Proceeds from issuance of common stock....................................... 307,212 153,916 106,501
------------ ------------ -------------
Net cash provided by (used for) financing activities................ 402,963 (243,823) 155,389
------------ ------------ -------------
Net increase (decrease) in cash and cash equivalents......................... (540,220) (429,689) 841,440
Cash and cash equivalents, beginning of year................................. 1,303,959 763,739 334,050
------------ ------------ -------------
Cash and cash equivalents, end of year....................................... $ 763,739 $ 334,050 $ 1,175,490
============ ============ =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest....................................................... $ 42,360 $ 175,378 $ 41,206
============ ============ =============
Cash paid for income taxes................................................... $ -- $ 75,000 $ 45,456
============ ============ =============
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
AND FINANCING ACTIVITY
Capital lease additions...................................................... $ -- $ 23,000 $ --
============ ============ =============
Issuance of common stock upon conversion of convertible note payable......... $ -- $ 1,802,680 $ --
============ ============ =============
Conversion of lines of credit to term loans payable.......................... $ -- $ 400,000 $ 200,965
============ ============ =============
</TABLE>
In connection with the purchase of CSI in January 1996 (Note 15), the Company
issued 20,984 shares of common stock valued at $78,690.
In connection with the purchase of TCD in March 1996 (Note 15), the Company
issued a convertible note payable in the amount of $2,002,978 to TCD as part of
the consideration paid. Furthermore, in connection with this acquisition, the
Company issued 6,722 shares of its common stock to a consultant.
In May 1996, the Company sold certain leasehold improvements in exchange for a
note receivable in the amount of $307,341.
The Company ascribed a value of $75,000 to warrants issued in connection with an
investment banking and advisory services agreement entered into in December 1994
(Note 10). The Company ascribed a value of $134,500 to warrants issued in
connection with a Product Development and Marketing Agreement with Third Wave
Technologies, Inc. agreement entered into in August 1997 (Note 12).
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
Notes to Financial Statements
1: ORGANIZATION AND HISTORY
Endogen, Inc. (the "Company") is principally engaged in the development,
manufacture and sale of biological products and test kits for the worldwide
medical research industry. The Company was incorporated in Massachusetts in June
1983.
2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
The Company invests its excess cash in money market accounts with banks.
These investments, totaling $37,539 and $948,604 at May 31, 1997 and 1998,
respectively, mature within three months of the initial investment. Accordingly,
the investments are subject to minimal credit and market risk and are considered
by the Company to be cash equivalents. In accordance with Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," the Company has classified its investments as
held-to-maturity which have been recorded at amortized cost on the Company's
balance sheet, which approximates fair value.
Revenue Recognition
The Company recognizes revenue upon product shipment provided that
collection of the related receivable is probable. A provision for estimated
future returns is recorded at the time of shipment.
Concentration of Credit Risk
Financial instruments which potentially expose the Company to concentration
of credit risk include cash and cash equivalents and accounts receivable. The
Company performs ongoing evaluations of customers' financial conditions and
generally does not require collateral. In addition, the Company maintains
reserves for potential credit losses, and such losses, in the aggregate, have
not exceeded management's expectations. Two customers accounted for 18% and 12%
of accounts receivable at May 31, 1997 and one customer accounted for 12% of
accounts receivable at May 31, 1998.
Financial Instruments
Fair value of the Company's financial instruments which include cash and
cash equivalents, notes receivable and short and long-term debt are based on
assumptions concerning the amount and timing of estimated future cash flows and
assumed discount rates reflecting varying degrees of perceived risk. The
carrying value of these financial instruments approximates their fair value at
May 31, 1997 and 1998.
Inventories
Inventories are stated at the lower of cost or market, cost being
determined using the first-in, first-out method.
Fixed Assets
Fixed assets are recorded at cost and depreciated using the straight-line
method over their estimated useful lives. Repair and maintenance expenditures
are charged to expense as incurred.
F-7
<PAGE>
Intangible Assets
Intangible assets include patent and license costs and acquired technology.
Costs associated with patents and licensing arrangements are capitalized as
incurred and amortized on a straight-line basis over the estimated economic
lives, which range from 5 to 10 years. Amortization expense related to patent
and license costs was $75,044, $58,860 and $54,986 for the years ended May 31,
1996, 1997 and 1998, respectively. Acquired technology capitalized in fiscal
1996 is attributable to the acquisition of TCD (Note 15) and is being amortized
on a straight-line basis over five years from the date of acquisition.
Amortization expense related to acquired technology was $15,264, $61,056 and
$61,056 for the years ended May 31, 1996, 1997 and 1998, respectively.
Advertising Costs
Costs associated with sales catalogues are capitalized as incurred and
amortized over their estimated useful lives. Other advertising costs are charged
to expense as incurred. Capitalized advertising costs were insignificant at May
31, 1997 and totaled approximately $147,000 at May 31, 1998. Advertising costs
were approximately $301,000, $256,000 and $297,000 for the years ended May 31,
1996, 1997 and 1998, respectively.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Earnings (Loss) Per Share
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 (SFAS 128), "Earnings per Share,"
which replaces primary and fully diluted earnings per share with basic and
diluted earnings per share. `Basic' earnings per share is calculated by dividing
net earnings applicable to common shares by the weighted average number of
common shares outstanding during the period. For purposes of calculating diluted
earnings per share the denominator includes both the weighted average number of
shares of common stock outstanding and the number of shares of dilutive
potential common stock, such as stock options and warrants. The Company adopted
SFAS 128 on December 1, 1997. All prior period per share amounts have been
restated to comply with the standard.
Stock-based Compensation
The Company accounts for stock-based compensation in accordance with
Accounting Principles Board Opinion No. 25 (APB 25), "Accounting for Stock
Issued to Employees", and related interpretations. Since it is the Company's
policy to grant options with an exercise price equal to the fair value of the
underlying stock on the grant date, no compensation costs have been recognized
for employee options under the Company's stock option plan. In June 1996, the
Company adopted the disclosure requirements of Statement of Financial Accounting
Standards No. 123 (SFAS 123), "Accounting for Stock-based Compensation (Note
11)".
Recently Issued Accounting Standards
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 (SFAS 130), "Reporting Comprehensive
Income," and No. 131 (SFAS 131), "Disclosure about Segments of an Enterprise and
Related Information." SFAS 130 establishes standards for reporting and
displaying comprehensive income and its components in the financial statements.
SFAS 131 established standards for reporting information on operating segments
in interim and annual financial statements. Both statements are effective for
the Company in fiscal 1999 and are not expected to have a material impact on the
Company's existing disclosures.
F-8
<PAGE>
In February 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 132 (SFAS 132), "Employers' Disclosures
about Pensions and Other Postretirement Benefits." SFAS 132 standardizes the
disclosure requirements for pensions and other postretirement benefits and is
effective for the Company in fiscal 1999. SFAS 132 relates to disclosure only
and will not effect the Company's financial position or results of operations.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. SFAS 133 is effective for all fiscal
quarters of fiscal years beginning after June 15, 1999. The Company does not
expect SFAS 133 to have a material effect on its financial position or results
of operations.
In February 1998, the AcSEC issued Statement of Position No. 98-1 (SOP
98-1), "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." SOP 98-1 establishes the accounting for costs of software
products developed or purchased for internal use, including when such costs
should be capitalized. The Company does not expect SOP 98-1, which is effective
for the Company in fiscal 1999, to have a material effect on the Company's
financial condition or results of operations.
In April 1998, the AcSEC issued Statement of Position No. 98-5 (SOP 98-5),
"Reporting the Costs of Start-Up Activities." Start-up activities are broadly
defined as those one-time activities relating to opening a new facility,
introducing a new product or service, conducting business with a new class of
customer, commencing some new operation or organizing a new entity. Under SOP
98-5, the cost of start-up activities should be expensed as incurred. SOP 98-5
is effective for the Company's fiscal 1999 financial statements and the Company
does not expect its adoption to have a material effect on the Company's
financial position or results of operations.
3: INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
May 31,
----------------------------------------
1997 1998
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Raw materials and supplies........................................... $ 797,104 $ 793,872
Work-in-process...................................................... 369,290 165,771
Finished goods....................................................... 651,046 881,492
---------------------------------
$1,817,440 $1,841,135
==================================
</TABLE>
During the fourth quarter of fiscal 1997, the Company wrote off
approximately $123,000 of obsolete inventory resulting in a decrease in net
income of $106,000, or $.03 per share, for both the fourth quarter and fiscal
1997.
F-9
<PAGE>
4: FIXED ASSETS
Fixed assets consist of the following:
<TABLE>
<CAPTION>
May 31,
Useful life -------------------------------------
in years 1997 1998
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Laboratory equipment................................. 5-7 $ 967,289 $ 1,142,160
Computer and office equipment........................ 3-7 847,518 975,033
Leasehold improvements............................... lease term 1,632,975 1,715,745
---------------------------------
3,447,782 3,832,938
Accumulated depreciation and amortization............ (1,120,232) (1,812,875)
----------- ---------------------
$2,327,550 $2,020,063
=================================
</TABLE>
Depreciation expense was $564,287, $569,882 and $692,643 for the fiscal
years ended May 31, 1996, 1997 and 1998, respectively.
At May 31, 1997 and 1998, included in computer and office equipment are
capital leases at a cost of $102,662, with accumulated amortization of $83,495
and $90,067 at May 31, 1997 and 1998, respectively.
In May 1996, the Company sold certain leasehold improvements in exchange
for a non-interest bearing note receivable in the amount of $307,341. Payments
on this note are due in 33 equal payments of principal which commenced July 1,
1996. The note receivable has been discounted using an imputed interest rate of
10.25%. The initial discount of $47,000 is being recognized as interest income
over the life of the receivable using the effective interest method. At May 31,
1998, principal amounts of $103,275 are due within one year.
Effective September 1, 1996, the Company changed its estimate of the
remaining service life of certain fixed assets. The effect of the change in
estimate was a decrease in depreciation expense of approximately $160,000 and an
increase in net income per share of $.05 for fiscal 1997.
5: INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
May 31,
--------------------------------
1997 1998
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Acquired technology.................................................... $305,290 $305,290
Patent costs........................................................... 68,240 68,240
License costs.......................................................... 401,559 421,778
-------------------------------
775,089 795,308
Accumulated amortization............................................... (379,359) (495,401)
-------------------------------
$395,730 $299,907
===============================
</TABLE>
F-10
<PAGE>
6: BORROWINGS
Borrowing Under Lines of Credit, Term Loans and Notes Payable - Bank
In May 1994 and December 1994, the Company entered into fixed asset line of
credit agreements with a bank. Drawings under the agreements were permitted
through a certain date at which point the line of credit converted into a term
loan payable in thirty equal monthly principal installments plus interest. Both
notes payable bore interest at 2% above the bank's prime rate and during fiscal
1998 the remaining note payable was paid in full.
In February 1995, the Company entered into a line of credit agreement with
this same bank (the "Line of Credit") providing for maximum borrowings of
$500,000. In connection with the Company's acquisition of TCD (Note 15), the
Company borrowed $450,000 under the Line of Credit to finance a portion of the
purchase price. In August 1996, the Line of Credit was amended to provide for
maximum borrowings of $850,000. In November 1996, the Company converted $400,000
of outstanding borrowings under the Line of Credit into a term loan with this
bank (the "1996 Term Loan"). The 1996 Term Loan is payable in thirty-six equal
monthly principal installments plus interest at 1.25% above the bank's prime
rate (9.75% at May 31, 1998). At May 31, 1998, there was an outstanding
principal balance of $200,000 under the 1996 Term Loan. Aggregate future
maturities of the 1996 Term Loan are $133,333 and $66,667 in fiscal 1999 and
2000, respectively.
In August 1997, the Line of Credit was further amended to extend the
maturity date to August 1998 and to reduce the interest rate to the prime rate
plus 1.0%. In addition, in August 1997, the 1996 Term Loan was modified to
reduce the interest rate to the prime rate plus 1.25% and the Company entered
into an additional demand line of credit of up to $250,000 to finance certain
equipment purchases through April 1998 (the "Equipment Line"). In April 1998,
the then outstanding balance of $200,965 under the Equipment Line was
automatically converted into a term loan (the "Equipment Term Loan") payable in
thirty-six equal principal installments plus interest. Borrowings under this
Equipment Term Loan bear interest at the prime rate plus 1.25% (9.75% at May 31,
1998). The Company has outstanding borrowings under this Equipment Term Loan of
$195,383 at May 31, 1998.
At May 31, 1998, the Company had $850,000 available for borrowings under
the Line of Credit. On August 26, 1998 the Line of Credit expired. The Company
is currently negotiating with this same bank to extend the term of the Line of
Credit and believes that it will acquire a line of credit on substantially the
same terms.
Outstanding borrowings under the agreements are secured by all corporate
assets. The Company is required to comply with certain covenants including
maintaining certain financial statement ratios, a minimum tangible net worth and
minimum profitability levels. At May 31, 1998, the Company was in compliance
with the terms of the agreements.
Convertible Note Payable
In connection with the Company's acquisition of TCD (Note 15), the Company
issued a convertible note payable in the amount of $2,002,978. The convertible
note was payable in semi-annual installments of $200,298 commencing September 1,
1996 and bore interest at 7% per annum. On February 10, 1997, TCD exercised its
right to convert the then outstanding principal balance of $1,802,680 into
389,347 shares of the Company's common stock at the stated conversion price of
$4.63 per share.
Capital Lease Obligations
The Company has entered into a capital lease for equipment which bears
interest at 10% and expires in fiscal 2000. Aggregate future maturities due on
this capital lease are $6,917 and $7,858 in fiscal 1999 and 2000, respectively.
F-11
<PAGE>
7: ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
Year ended May 31,
-------------------------------
1997 1998
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Accounts payable....................................................... $ 745,413 $ 439,215
Accrued wages.......................................................... 221,608 219,026
Accrued royalties...................................................... 241,751 123,287
Accrued professional fees.............................................. 72,623 175,620
Accrued income taxes................................................... 11,544 131,692
-----------------------------------
$1,292,939 $1,088,840
===================================
</TABLE>
8: EXPORT SALES
The Company generates revenue through product sales to customers outside
the United States. Product sales by geographic area are as follows:
<TABLE>
<CAPTION>
Year ended May 31,
--------------------------------------------------
1996 1997 1998
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
United States.................................... $3,713,088 $4,417,391 $5,247,385
Europe........................................... 1,884,371 3,303,248 2,449,414
Japan............................................ 846,938 1,604,291 1,985,680
Other............................................ 177,764 264,371 350,972
--------------------------------------------------------
$6,622,161 $9,589,301 $10,033,451
========================================================
</TABLE>
9: INCOME TAXES
The components of the provision (benefit) for income taxes are as follows:
<TABLE>
<CAPTION>
Year ended May 31,
-----------------------------------------------------
1996 1997 1998
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal............................................ $ -- $ 87,000 $ 139,000
State.............................................. -- -- 27,000
-----------------------------------------------------
-- 87,000 166,000
-----------------------------------------------------
Deferred:
Change in valuation allowance...................... $ -- $ (373,000) $ (69,000)
Federal............................................ -- (62,000) (45,000)
State.............................................. -- (33,000) (14,000)
-----------------------------------------------------
-- (468,000) (128,000)
-----------------------------------------------------
Income tax provision (benefit)....................... $ -- $ (381,000) $ 38,000
=====================================================
</TABLE>
F-12
<PAGE>
The provision (benefit) for income taxes differs from the amount of income
tax determined by applying the applicable U.S. statutory federal income tax rate
to pretax operating results as a result of the following differences:
<TABLE>
<CAPTION>
Year ended May 31,
------------------------------------------------------
1996 1997 1998
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory U.S. federal tax rate...................... $ (245,000) $ 219,000 $173,000
State income taxes, net of federal benefit........... (4,000) 33,000 44,000
Purchased in-process research and development........ 203,000 (14,000) (14,000)
Realization of net operating loss carryforwards...... -- (52,000) --
Research and development and other tax credits....... (60,000) (105,000) (163,000)
Other................................................ 6,000 (89,000) 67,000
------------------------------------------------------
(100,000) (8,000) 107,000
Change in valuation allowance........................ 100,000 (373,000) (69,000)
-------------------------------------------------------
Provision (benefit) for income tax................... $ -- $ (381,000) $ 38,000
=========================================================
</TABLE>
Components of deferred taxes consist of the following:
<TABLE>
<CAPTION>
May 31,
---------------------------------
1997 1998
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Accounts receivable reserve............................................ $ 8,000 $ 20,000
Inventory reserve...................................................... 8,000 30,000
Accrued expenses....................................................... 6,000 --
Loss and tax credit carryforwards...................................... 330,000 418,000
Amortization of intangible assets...................................... 61,000 91,000
Fixed assets........................................................... 176,000 94,000
Miscellaneous.......................................................... 4,000 1,000
--------------------------------
Gross deferred tax assets.............................................. 593,000 654,000
Deferred tax asset valuation allowance................................. (119,000) (50,000)
--------------------------------
474,000 604,000
--------------------------------
Liabilities
Patent costs........................................................... 6,000 8,000
--------------------------------
$ 468,000 $ 596,000
===============================
</TABLE>
At May 31, 1998, the Company has research and development tax credit
carryforwards available to reduce future federal tax liabilities which expire as
follows:
Research and
development
Year of tax credit
expiration carryforwards
- --------------------------------------------------------------------------------
2009............................................ $ 19,000
2010............................................ 47,000
2011............................................ 6,000
2012............................................ 119,000
2013............................................ 50,000
-----------
$ 241,000
===========
F-13
<PAGE>
Additionally, the Company has federal alternative minimum tax credit
carryforwards of $19,000 which may be used indefinitely to reduce regular
federal income tax. At May 31, 1998, the Company has research and development
and investment tax credit carryforwards available to reduce future state tax
liabilities of $143,000. These carryforwards expire in various amounts through
2013.
An ownership change, as defined in the Internal Revenue Code, may limit the
amount of tax credit carryforwards which can be utilized annually to offset
future taxable income or tax liability. The amount of the annual limitation is
determined based upon the Company's value immediately prior to the ownership
change. Future ownership changes may affect the limitation in future years.
The Company's net deferred tax asset consists primarily of the future tax
benefit of net operating loss and tax credit carryforwards and differences
between financial accounting and tax bases of fixed assets. Realization of the
net deferred tax asset and future reversals of the valuation allowance depend
upon the Company's ability to generate taxable income during the respective
carryforward periods.
Under Statement of Financial Accounting Standards No. 109 (SFAS 109),
"Accounting for Income Taxes", the Company is required to recognize all or a
portion of its net deferred tax asset if it believes that it is more likely than
not that all or a portion of the benefits of the net deferred tax asset will be
realized.
In establishing the valuation allowance, management considers positive
factors, including positive earnings in the current and recent fiscal years
(excluding fiscal 1996 which reflects acquisition and integration related
expenses incurred in connection with the TCD transaction) and negative factors,
including the competitive nature of the industry and stage of the Company's
growth. Based on these factors, primarily positive earnings, the Company
reversed $69,000 of the valuation allowance in the fourth quarter of fiscal
1998. At May 31, 1998, management believes, that based on the weight of
available evidence, it is more likely than not that the Company will not realize
all the benefits from its net deferred tax asset, and accordingly, has recorded
a valuation allowance of $50,000 against the net deferred tax asset at May 31,
1998. Management continues to assess the realizability of the net deferred tax
asset on an ongoing basis, and believes that it is reasonably possible that an
additional portion of the valuation allowance will be reduced in the near term.
10: COMMON STOCK AND COMMON STOCK WARRANTS
On November 6, 1997, the stockholders of the Company approved an increase
in the number of shares available for issuance under the Company's 1992 Stock
Plan from 768,499 to 1,000,000 shares.
On August 21, 1997, the Company entered into a Product Development and
Marketing Agreement (the "Agreement") with Third Wave (see Note 12). In
connection with the Agreement, the Company issued a warrant to Third Wave for
the purchase of up to 125,000 shares of Endogen common stock at a price of $6.00
per share. The warrant vests ratably over three years from August 31, 1997 and
expires on December 31, 2002. The Company has ascribed a value of $134,500 to
such warrant, which is being amortized on a straight-line basis over the term of
the development agreement of three years.
On December 15, 1994, the Company issued a five-year warrant pursuant to a
financial advisory agreement to purchase up to 180,000 shares of the common
stock of the Company at prices ranging from $2.00 to $4.00 per share.
11: STOCK OPTION AND STOCK PURCHASE PLANS
On March 1, 1993, the Company's stockholders approved the Company's 1992
Stock Plan (the "1992 Plan") which was an amendment and restatement of the
Company's 1989 Stock Plan. Under the 1992 Plan, officers, employees and certain
other individuals may be (i) awarded shares of common stock, (ii) granted stock
options, or (iii) granted authorization to make direct purchases of shares of
common stock. Currently, there are 1,000,000 shares of common stock authorized
for
F-14
<PAGE>
issuance under the 1992 Plan. Options granted may be either incentive stock
options or non-qualified stock options. As of May 31, 1998, 174,530 shares are
available for future grant.
Incentive stock options may be granted to any employee at an exercise price
per share of not less than the fair market value per common share on the date of
such grant (not less than 110% of such value in the case of holders of 10% or
more of the total combined voting power of all classes of the Company's stock).
Non-qualified options may be granted to any employee, officer, director or
consultant at an exercise price per share of not less than the minimum legal
consideration required therefor under the laws of the Commonwealth of
Massachusetts.
All options under the 1992 Plan are exercisable over periods determined by
the Board of Directors, not to exceed ten years from the date of grant (five
years in the case of incentive stock options granted to holders of 10% or more
of the total combined voting power of all classes of the Company's stock).
Options granted under the 1992 Plan generally vest ratably over four years. In
the event of termination of the optionee's relationship with the Company,
options not yet exercised generally terminate 90 days from the optionee's
termination date.
A summary of stock option activity under the 1992 Plan is as follows:
<TABLE>
<CAPTION>
Year ended May 31,
---------------------------------------------------------------------------
1996 1997 1998
------------------- -------------------- ------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding, beginning of period.... 366,900 $2.04 573,600 $2.85 610,610 $3.36
Granted..................................... 265,500 $3.80 159,600 $4.45 97,000 $4.47
Canceled.................................... (29,250) $2.43 (56,275) $2.92 (32,500) $3.94
Exercised................................... (29,550) $1.79 (66,315) $1.97 (20,460) $1.87
--------- --------- ---------
Options outstanding, end of period.......... 573,600 $2.85 610,610 $3.36 654,650 $3.54
========= ======== ========
Options exercisable, end of period.......... 165,425 236,426 352,308
========= ======== ========
Weighted average fair value of
options granted during the period......... $2.00 $2.31 $2.43
===== ======= =======
</TABLE>
The Company has granted non-qualified stock options to purchase common
shares which were not pursuant to the 1992 Plan. At May 31, 1998, there were
outstanding options to purchase 9,000 common shares at $4.17 per share, all of
which were exercisable.
In fiscal 1994, the Company adopted the 1993 Non-Employee Director Stock
Option Plan (the "1993 Director Plan") which provides for annual automatic
grants of stock options to Board of Director members, who are not employees or
officers of the Company. The exercise price of all options granted under the
1993 Director Plan equals the fair market value of a share of common stock on
the date of grant. Currently, there are 200,000 shares of common stock
authorized for issuance under the 1993 Director Plan. Options granted under the
1993 Director Plan have a term of ten years from the date of grant and become
exercisable as to one third of the shares subject to such option on the date of
grant and to an additional one third on each successive anniversary of the date
of grant provided that the optionee has continuously served as a member of the
Board.
F-15
<PAGE>
A summary of stock option activity under the 1993 Director Plan is as
follows:
<TABLE>
<CAPTION>
Year ended May 31,
--------------------------------------------------------------------------
1996 1997 1998
------------------- -------------------- -----------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding, beginning of period.... 72,000 $2.13 72,000 $2.73 84,000 $3.18
Granted..................................... 36,000 $3.94 24,000 $4.00 24,000 $4.25
Canceled.................................... (16,000) $3.46 -- --
Exercised................................... (20,000) $2.15 (12,000) $2.13 (6,000) $2.25
-------- -------- ---------
Options outstanding, end of period.......... 72,000 $2.73 84,000 $3.18 102,000 $3.49
======== ======== ========
Options exercisable, end of period.......... 48,000 60,000 78,000
======== ======== =========
Weighted average fair value of
options granted during the period......... $2.11 $2.31 $2.31
===== ======= =======
</TABLE>
The following tables summarize information about all stock options
outstanding and exercisable at May 31, 1998:
<TABLE>
<CAPTION>
Options outstanding
-------------------------------------------------------------
Weighted
Average Weighted
Remaining Average
Contractual Number Exercise
Range of Exercise Prices Life (years) Outstanding Price
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$1.36................................................ 3.8 4,500 $1.36
$2.00 to $2.75....................................... 5.6 225,300 $2.15
$3.50 to $3.94....................................... 7.8 304,250 $3.85
$4.00 to $6.00....................................... 8.8 231,600 $4.54
-------
765,650
=======
Options exercisable
------------------------------------------------------------
Weighted
Average
Number Exercise
Range of Exercise Prices Exercisable Price
- ---------------------------------------------------------------------------------------------------------------------------
$1.36................................................ 4,500 $1.36
$2.00 to $2.75....................................... 206,050 $2.16
$3.50 to $3.94....................................... 158,708 $3.86
$4.00 to $6.00....................................... 70,050 $4.42
--------
439,308
========
</TABLE>
F-16
<PAGE>
The fair value of each option granted is estimated on the date of grant
using the Black-Scholes option pricing model with the following assumptions:
<TABLE>
<CAPTION>
Year ended May 31,
---------------------------------------------------------------------
1996 1997 1998
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Expected life (years)....................... 5 5 5
Risk free interest rate..................... 5.5% - 6.4% 5.9% - 6.5% 5.2% - 6.0%
Volatility.................................. 55% 61% 56%
Dividend yield.............................. -- -- --
</TABLE>
No compensation expense has been recognized for the Company's stock option
grants under APB 25. Had compensation cost for the Company's stock option grants
been determined based on the fair value at the grant dates, as prescribed in
SFAS 123, the Company's net income (loss) and basic and diluted earnings (loss)
per share would have been as follows:
<TABLE>
<CAPTION>
Year ended May 31,
------------------------------------------------------------------------
1996 1997 1998
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income (loss)
As reported.............................. $(700,539) $975,594 $457,654
Pro forma................................ $(850,539) $710,595 $157,654
Basic earnings (loss) per share
As reported............................. $ (.25) $ .32 $ .13
Pro forma................................ $ (.30) $ .23 $ .05
Diluted earnings (loss) per share
As reported.............................. $ (.25) $ .29 $ .13
Pro forma................................ $ (.30) $ .21 $ .04
</TABLE>
Since stock options vest over several years and additional stock option
grants are expected to be made each year, the above pro forma disclosures are
not necessarily representative of pro forma effects of reported operations for
future years.
12: COMMITMENTS
On August 21, 1997, the Company entered into a Product Development and
Marketing Agreement with Third Wave. Under the terms of the Agreement, Endogen
will fund certain research and development activities at Third Wave in exchange
for certain exclusive, worldwide rights to sell and distribute to the life
science research market messenger RNA ("mRNA") quantification systems jointly
developed by the two companies. Funding payments, not to exceed $1,050,000 in
total, will be made to Third Wave quarterly by the Company over a three year
period beginning December 1, 1997. At May 31, 1998, the Company's remaining
funding commitments under the Agreement were approximately $846,000.
The Company has entered into license agreements pursuant to which it pays
royalties generally ranging from 1% to 10% on sales of certain products. Royalty
rates may be higher on bulk sales of certain products to other resellers.
Royalty payments made in connection with these agreements in fiscal 1996, 1997
and 1998 were approximately $243,000, $213,000 and $400,000 respectively.
F-17
<PAGE>
The Company leases its office and laboratory space under non-cancelable
operating leases which expire through October 1999. The Company also leases
certain office and computer equipment under operating leases.
Future minimum rental commitments under these operating leases are as
follows:
1999...................................................... $ 407,000
2000...................................................... 177,000
2001...................................................... 4,000
2002...................................................... 2,000
--------------
$ 590,000
==============
For the years ended May 31, 1996, 1997 and 1998 rent expense was
approximately $313,000, $304,000, and $366,000, respectively. In addition, the
Company is required to pay a portion of certain tax and operating expenses
incurred by the lessor.
13: SIGNIFICANT CUSTOMERS
During the year ended May 31, 1996, the Company recorded revenue of
approximately $1,224,000 and $657,000 from two customers. During the year ended
May 31, 1997, the Company recorded revenue of approximately $1,906,000 from one
customer. During the year ended May 31, 1998, the Company recorded revenue of
approximately $1,137,000 and $1,092,000 from two customers.
14: RELATED PARTY TRANSACTIONS
The Company paid a director of the Company $47,000 under a consulting
contract in fiscal 1996.
15: ACQUISITIONS
T Cell Diagnostics, Inc.
On March 4, 1996, the Company acquired substantially all of the net assets
of T Cell Diagnostics, Inc. ("TCD"), a biomedical products manufacturer, for a
total purchase price of approximately $3,300,000, including acquisition costs of
approximately $270,000. In connection with the acquisition, the Company is
required to make additional payments to TCD if annual net sales of certain
products exceed a predetermined level during the two year period following the
close of the acquisition. In fiscal 1997 and 1998, net sales of these products
did not reach the predetermined level.
The acquisition was accounted for using the purchase method of accounting.
Accordingly, the purchase price was allocated to the net assets acquired based
on their estimated fair values. A portion of the purchase price was allocated to
in-process research and development ($579,600), which was expensed upon the
close of the acquisition, and acquired technology ($305,290), which is included
in intangible assets on the accompanying balance sheet. Acquired technology is
being amortized over a period of five years commencing on the date of
acquisition. The results of operations of TCD have been included in the
Company's results of operations since the date of acquisition.
In connection with this acquisition, the Company agreed to manufacture and
sell certain diagnostic products to T Cell Sciences, Inc. ("TCS"). In fiscal
years 1996, 1997 and 1998, net sales to TCS of products subject to the agreement
totaled approximately $2,000, $19,800 and $41,000, respectively.
The following unaudited pro forma financial information combines the
results of operations as if the acquisition had occurred at the beginning of
fiscal 1996. The unaudited pro forma financial information for the year ended
May 31, 1996
F-18
<PAGE>
combines the historical financial information of the Company for the nine months
ended February 29, 1996, the unaudited financial historical information of TCD
for the nine months ended December 31, 1995, and the consolidated results of the
combined companies from the date of acquisition, March 4, 1996, through May 31,
1996. This pro forma financial information is presented for informational
purposes only and management believes it is not indicative of the results of
operations which will occur in the future.
May 31,
1996
- --------------------------------------------------------------------------------
Revenue................................................... $8,339,238
Net loss.................................................. $(1,662,812)
Net loss per share........................................ $ (0.59)
The above pro forma financial information does not include a $579,600
non-recurring charge for purchased in-process research and development that was
expensed upon the close of the acquisition. The pro forma per share amount of
this non-recurring charge was $(0.20) for fiscal 1996.
Cytokine Sciences, Inc.
In January 1996, the Company purchased substantially all of the assets of
Cytokine Sciences, Inc. (CSI), a manufacturer and seller of biological products
and test kits. The purchase price included $100,000 cash and 20,984 shares of
Endogen common stock. The acquisition was accounted for by the purchase method
of accounting and, accordingly, the purchase price was allocated to the net
assets acquired based on their estimated fair values. The results of operations
of CSI have been included in the combined results of operations since the date
of acquisition.
F-19
<PAGE>
EXHIBIT INDEX
-------------
Exhibit Number
3.1 Restated Articles of Organization of Endogen, Inc., as amended
(previously filed as Exhibit 3.1 to the Company's Form 10-QSB for
the quarter ended November 30, 1996 and incorporated herein by
reference).
3.2 By-laws of Endogen, Inc., as amended on September 5, 1997
(previously filed as Exhibit 3.1 to the Company's Form 10-QSB for
the quarter ended August 31, 1997 and incorporated herein by
reference).
4.1 Restated Articles of Organization of Endogen, Inc., as amended
filed as Exhibit 3.1.
4.2 By-laws of Endogen, Inc., as amended on September 5, 1997 filed as
Exhibit 3.2.
4.3 Specimen Certificate representing the Common Stock of Endogen, Inc.
(filed as Exhibit 1.1 to the Company's Registration Statement No.
0-21354 on Form 8-A dated March 11, 1993 and incorporated herein by
reference).
[dag]10.1 Endogen 1992 Stock Plan, as amended (previously filed as Exhibit
4.1 to the Company's Registration Statement No. 333-58985 on Form
S-8 filed on July 13, 1998 and incorporated herein by reference).
[dag]10.2 1993 Non-Employee Director Stock Option Plan, as amended.*
10.3 License Agreement dated as of December 1, 1990, as amended on
September 3, 1991, and September 2, 1992, between Endogen and
Schering Corporation (previously filed as Exhibit 10.11 to the
Company's Registration Statement No. 33-54430 on Form S-4 filed
November 10, 1992 and incorporated herein by reference).
10.4 License Agreement dated November 15, 1992 between Endogen and
Syntex (U.S.A.) Inc.*
10.5 Agreement dated February 10, 1993 between Endogen and Schering
Corporation.*
10.6 Amendments to Agreement dated February 10, 1993 between Endogen and
Schering Corporation dated September 22, 1993 and May 9, 1994
(previously filed as Exhibit 10.39 to the Company's Form 10-K for
the fiscal year ended May 31, 1994 and incorporated herein by
reference).
10.7 Distribution Agreement dated November 1, 1994 between Endogen, Inc.
and Amersham International PLC. (Filed without schedules)
(previously filed as Exhibit 10.1 to the Company's Form 10-Q for
the quarter ended February 28, 1995 and incorporated herein by
reference).
10.8 Asset Purchase Agreement dated as of March 4, 1996 by and among
Endogen, Inc., T Cell Diagnostics, Inc. and T Cell Sciences, Inc.
(previously filed as Exhibit 2.1 to the Company's Form 8-K filed on
March 4, 1996 and incorporated herein by reference).
10.9 Lease Termination Agreement dated as of May 31, 1996 between
Endogen, Inc. and Massachusetts Institute of Technology (previously
filed as Exhibit 10.23 to the Company's Form 10-K for the fiscal
year ended May 31, 1996 and incorporated herein by reference).
10.10 Lease dated July 29, 1996 between Endogen, Inc. and Landman Omnibus
XI Limited Partnership (previously filed as Exhibit 10.24 to the
Company's Form 10-K for the fiscal year ended May 31, 1996 and
incorporated herein by reference).
10.11 Loan and Security Agreement dated August 28, 1996 between Endogen,
Inc. and Silicon Valley Bank (previously filed as Exhibit 10.25 to
the Company's Form 10-K for the fiscal year ended May 31, 1996 and
incorporated herein by reference).
10.12 $850,000 Revolving Promissory Note dated August 28, 1996 of
Endogen, Inc. to Silicon Valley Bank (previously filed as Exhibit
10.26 to the Company's Form 10-K for the fiscal year ended May 31,
1996 and incorporated herein by reference).
10.13 $400,000 Term Promissory dated August 28, 1996 of Endogen, Inc. to
Silicon Valley Bank (previously filed as Exhibit 10.27 to the
Company's Form 10-K for the fiscal year ended May 31, 1996 and
incorporated herein by reference).
10.14 Commercial Lease dated October 13, 1994, as amended, between
Cummings Properties Management, Inc. and T Cell Diagnostics, Inc.
(previously filed as Exhibit 10.28 to the Company's Form 10-K for
the fiscal year ended May 31, 1996 and incorporated herein by
reference).
10.15 Lease Assignment dated March 4, 1996 between T Cell Diagnostics, Inc.
and Endogen, Inc. (previously filed as Exhibit 10.29 to the Company's
Form 10-K for the fiscal year ended May 31, 1996 and incorporated
herein by reference).
10.16 Employment Agreement dated as of December 4, 1996 between Avery W.
Catlin and Endogen, Inc. (previously filed as Exhibit 10.28 to the
Company's Form 10-KSB for the fiscal year ended May 31, 1997 and
incorporated herein by reference).
10.17 Product Development and Marketing Agreement dated August 21, 1997 by
and among Endogen, Inc. and Third Wave Technologies, Inc. (previously
filed as Exhibit 10.1 to the Company's Form 10-QSB for the quarter
ended August 31, 1997 and incorporated herein by reference).
10.18 Second Loan Modification Agreement dated as of August 27, 1997 between
Endogen, Inc. and Silicon Valley Bank (previously filed as Exhibit 10.1
to the Company's Form 10-QSB for the quarter ended November 30, 1997
and incorporated herein by reference).
10.19 Equipment Line Promissory Note dated October 8, 1997 of Endogen, Inc.
to Silicon Valley Bank (previously filed as Exhibit 10.2 to the
Company's Form 10-QSB for the quarter ended November 30, 1997 and
incorporated herein by reference).
10.20 Distribution Agreement by and between Endogen, Inc. and Yamanouchi
Pharmaceutical Co., Ltd dated April 8, 1998.*+
10.21 Secured Promissory Note by and between Endogen, Inc. and Owen A.
Dempsey dated October 27, 1997 and amended January 22, 1998.*
10.22 Pledge Agreement by and between Endogen, Inc. and Owen A. Dempsey dated
October 27, 1997.*
10.23 Promissory Note by and between Endogen, Inc. and Owen A. Dempsey dated
December 9, 1997.*
10.24 Loan Modification Agreement dated as of May 7, 1997, by and between
Silicon Valley Bank and Endogen, Inc.*
11.1 Statement re: Computation of earnings per share.*
21.1 List of Subsidiaries.*
23.1 Consent of Independent Accountants.*
27.1 Financial Data Schedule.*
27.2 Restated Financial Data Schedule.*
27.3 Restated Financial Data Schedule.*
- ----------------------------
* Filed herewith.
[dag] Indicates management contract or compensatory plan or arrangement required
to be filed as an exhibit to this Form 10-KSB.
+ Confidential Treatment has been requested as to omitted portions pursuant
to Rule 24b-2 promulgated under the Securities Exchange Act of 1934, as
amended.
Exhibit 10.2
ENDOGEN, INC.
1993 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
1. Purpose. This Non-Qualified Stock Option Plan, to be known as the
1993 Non-Employee Director Stock Option Plan (hereinafter, this "Plan") is
intended to promote the interests of Endogen, Inc. (hereinafter, the "Company")
by providing an inducement to obtain and retain the services of qualified
persons who are not employees or officers of the Company to serve as members of
its Board of Directors (the "Board").
2. Available Shares. The total number of shares of Common Stock, par
value $0.01 per share, of the Company (the "Common Stock") for which options may
be granted under this Plan shall not exceed 200,000 shares, subject to
adjustment in accordance with paragraph 10 of this Plan. Shares subject to this
Plan are authorized but unissued shares or shares that were once issued and
subsequently reacquired by the Company. If any options granted under this Plan
are surrendered before exercise or lapse without exercise, in whole or in part,
the shares reserved therefor shall continue to be available under this Plan.
3. Administration. This Plan shall be administered by the Board or by a
committee appointed by the Board (the "Committee"). In the event the Board fails
to appoint or refrains from appointing a Committee, the Board shall have all
power and authority to administer this Plan. In such event, the word "Committee"
wherever used herein shall be deemed to mean the Board. The Committee shall,
subject to the provisions of the Plan, have the power to construe this Plan, to
determine all questions hereunder, and to adopt and amend such rules and
regulations for the administration of this Plan as it may deem desirable. No
member of the Board or the Committee shall be liable for any action or
determination made in good faith with respect to this Plan or any option granted
under it.
4. Automatic Grant of Options. Subject to the availability of shares
under this Plan, (a) each person who is or becomes a member of the Board and who
is not an employee or officer of the Company (a "Non-Employee Director") shall
be automatically granted on the later of (i) the date such person is first
elected to the Board or (ii) November 12, 1993 (the "Approval Date") (such later
date being referred to herein as the "Grant Date"), without further action by
the Board, an option to purchase 6,000 shares of the Common Stock, and (b) each
person receiving an option pursuant to clause (a) hereof who is a Non-Employee
Director on each successive anniversary of such person's Grant Date during the
term of this Plan shall be automatically granted on each such date an option to
purchase 6,000 shares of the Common Stock. The options to be granted under this
paragraph 4 shall be the only options ever to be granted at any time to such
member under this Plan. Notwithstanding anything to the contrary set forth
herein, if this Plan is not approved by a majority of the Company's stockholders
present, or represented, and entitled to vote at the first meeting of
Stockholders of the Company following the Plan's approval by the Board, then the
Plan and the options granted pursuant to this Section 4 shall terminate and
become void, and no further options shall be granted under this Plan.
5. Option Price. The purchase price of the stock covered by an option
granted pursuant to this Plan shall be 100% of the fair market value of such
shares on the day the option is granted. The option price will be subject to
adjustment in accordance with the provisions of paragraph 10 of this Plan. For
purposes of this Plan, if, at the time an option is granted under the Plan, the
Company's Common Stock is publicly traded, "fair market value" shall be
determined as of the last business day for which the prices or quotes discussed
in this sentence are available prior to the date such option is granted and
shall mean (i) the average (on that date) of the high and low prices of the
Common Stock on the principal national securities exchange on which the Common
Stock is traded, if the Common Stock is then traded on a national
<PAGE>
securities exchange; or (ii) the last reported sale price (on that date) of the
Common Stock on the Nasdaq National Market List, if the Common Stock is not then
traded on a national securities exchange; or (iii) the closing bid price (or
average of bid prices) last quoted (on that date) by an established quotation
service for over-the-counter securities, if the Common Stock is not reported on
the Nasdaq National Market List.
6. Period of Option. Unless sooner terminated in accordance with the
provisions of paragraph 8 of this Plan, an option granted hereunder shall expire
on the date which is ten (10) years after the date of grant of the option.
7. (a) Vesting of Shares and Non-Transferability of Options. Options
granted under this Plan shall not be exercisable until they become vested.
Options granted under this Plan shall vest in the optionee and thus become
exercisable, in accordance with the following schedule, provided that the
optionee has continuously served as a member of the Board through such vesting
date:
<TABLE>
<CAPTION>
Percentage of Option
Shares for which
Option Will be Exercisable Date of Vesting
-------------------------- ---------------
<S> <C>
33-1/3% Less than one year from the date of grant
66-2/3% One year but less than two years from the date of grant
100% Two years or more from the date of grant
</TABLE>
The number of shares as to which options may be exercised shall be
cumulative, so that once the option shall become exercisable as to any shares it
shall continue to be exercisable as to said shares, until expiration or
termination of the option as provided in this Plan. Notwithstanding anything
contained herein to the contrary, any options granted under this Plan on
November 12, 1993 shall be fully vested and exercisable in full on the date of
grant.
(b) Non-transferability. Any option granted pursuant to this
Plan shall not be assignable or transferable other than by will or the laws of
descent and distribution or pursuant to a domestic relations order and shall be
exercisable during the optionee's lifetime only by him or her.
8. Termination of Option Rights.
(a) In the event an optionee ceases to be a member of the
Board for any reason other than death or permanent disability, any then
unexercised portion of options granted to such optionee shall, to the extent not
then vested, immediately terminate and become void; any portion of an option
which is then vested but has not been exercised at the time the optionee so
ceases to be a member of the Board may be exercised, to the extent it is then
vested, by the optionee within three (3) years of the date the optionee ceased
to be a member of the Board; and all options shall terminate after such three
(3) years have expired. For avoidance of doubt, in no event shall any option
remain exercisable after its scheduled expiration date set forth in Section 6
hereof.
(b) In the event that an optionee ceases to be a member of the
Board by reason of his or her death or permanent disability, any option granted
to such optionee shall be immediately and automatically accelerated and become
fully vested and all unexercised options shall be exercisable by the optionee
(or by the optionee's personal representative, heir or legatee, in the event of
death) until the scheduled expiration date of the option.
9. Exercise of Option. Subject to the terms and conditions of this Plan
and the option agreements, an option granted hereunder shall, to the extent then
exercisable, be exercisable in whole or in part by giving written notice to the
Company by mail or in person addressed to ENDOGEN, INC., at its
<PAGE>
principal executive offices, stating the number of shares with respect to which
the option is being exercised, accompanied by payment in full for such shares.
Payment may be (a) in United States dollars in cash or by check or (b) in whole
or in part in shares of the Common Stock of the Company already owned by the
person or persons exercising the option or shares subject to the option being
exercised (subject to such restrictions and guidelines as the Board may adopt
from time to time), valued at fair market value determined in accordance with
the provisions of paragraph 5 hereof. The Company's transfer agent shall, on
behalf of the Company, prepare a certificate or certificates representing such
shares acquired pursuant to exercise of the option, shall register the optionee
as the owner of such shares on the books of the Company and shall cause the
fully executed certificate(s) representing such shares to be delivered to the
optionee as soon as practicable after payment of the option price in full. The
holder of an option shall not have any rights of a stockholder with respect to
the shares covered by the option, except to the extent that one or more
certificates for such shares shall be delivered to him or her upon the due
exercise of the option.
10. Adjustments Upon Changes in Capitalization and Other Events. Upon
the occurrence of any of the following events, an optionee's rights with respect
to an option granted to him or her hereunder shall be adjusted as hereinafter
provided, unless otherwise specifically provided in the written agreement
between the optionee and the Company relating to such option:
(a) Stock Dividends and Stock Splits. If the shares of Common Stock
shall be subdivided or combined into a greater or smaller number of shares
or if the Company shall issue any shares of Common Stock as a stock
dividend on its outstanding Common Stock, the number of shares of Common
Stock deliverable upon the exercise of options shall be appropriately
increased or decreased proportionately, and appropriate adjustments shall
be made in the purchase price per share to reflect such subdivision,
combination or stock dividend. No such adjustment shall be made which
would, within the meaning of any applicable provisions of the Internal
Revenue Code of 1986, as amended, constitute a modification, extension or
renewal of any Option or a grant of additional benefits to the holder of
an Option.
(b) Recapitalization Adjustments. In the event of a reorganization,
recapitalization, merger, consolidation, or any other change in the
corporate structure or shares of the Company, to the extent permitted by
Rule 16b-3 under the Securities Exchange Act of 1934, adjustments in the
number and kind of shares authorized by this Plan and in the number and
kind of shares covered by, and in the option price of outstanding options
under this Plan necessary to maintain the proportionate interest of the
optionee and preserve, without exceeding, the value of such option, shall
be made.
(c) Issuances of Securities. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or
price of shares subject to options. No adjustments shall be made for
dividends paid in cash or in property other than securities of the
Company.
(d) Adjustments. Upon the happening of any of the foregoing events, the
class and aggregate number of shares set forth in paragraph 2 of this Plan
that are subject to options which previously have been or subsequently may
be granted under this Plan shall also be appropriately adjusted to reflect
such events. The Board shall determine the specific adjustments to be made
under this paragraph 10 and its determination shall be conclusive.
11. Restrictions on Issuance of Shares. Notwithstanding the provisions
of paragraphs 4 and 9 of this Plan, the Company shall have no obligation to
deliver any certificate or certificates upon exercise of an option until one of
the following conditions shall be satisfied:
(i) The shares with respect to which the option has been exercised are
at the time of the issue of such shares effectively registered under
applicable Federal and state securities laws as now in force or hereafter
amended; or
<PAGE>
(ii) Counsel for the Company shall have given an opinion that such
shares are exempt from registration under Federal and state securities
laws as now in force or hereafter amended; and the Company has complied
with all applicable laws and regulations with respect thereto, including
without limitation all regulations required by any stock exchange upon
which the Company's outstanding Common Stock is then listed.
12. Legend on Certificates. The certificates representing shares issued
pursuant to the exercise of an option granted hereunder shall carry such
appropriate legend, and such written instructions shall be given to the
Company's transfer agent, as may be deemed necessary or advisable by counsel to
the Company in order to comply with the requirements of the Securities Act of
1933, as amended, or any state securities laws.
13. Representation of Optionee. If requested by the Company, the
optionee shall deliver to the Company written representations and warranties
upon exercise of the option that are necessary to show compliance with Federal
and state securities laws, including representations and warranties to the
effect that a purchase of shares under the option is made for investment and not
with a view to their distribution (as that term is used in the Securities Act of
1933, as amended).
14. Option Agreement. Each option granted under the provisions of this
Plan shall be evidenced by an option agreement, which agreement shall be duly
executed and delivered on behalf of the Company and by the optionee to whom such
option is granted. The option agreement shall contain such terms, provisions and
conditions not inconsistent with this Plan as may be determined by the officer
executing it.
15. Termination and Amendment of Plan. Options may no longer be granted
under this Plan after November 12, 2003, and this Plan shall terminate when all
options granted or to be granted hereunder are no longer outstanding. The Board
may at any time terminate this Plan or make such modification or amendment
thereof as it deems advisable; provided, however, that the Board may not,
without approval by the affirmative vote of the holders of a majority of the
shares of Common Stock present in person or by proxy and entitled to vote at a
meeting, (a) increase the maximum number of shares for which options may be
granted under this Plan (except by adjustment pursuant to paragraph 10 hereof),
(b) materially modify the requirements as to eligibility to participate in this
Plan, (c) materially increase benefits accruing to option holders under this
Plan, (d) change the provisions of this Plan regarding the termination of the
options or the times when they may be exercised, (e) change the designation of
the class of persons eligible to receive options, or otherwise change paragraph
4 hereof, or (f) amend this Plan in any manner which would cause Rule 16b-3
under the Securities Exchange Act (or any successor or amended provision
thereof) to become inapplicable to this Plan; and provided further that the
provisions of this Plan specified in Rule 16b-3(c)(2)(ii)(A) (or any successor
or amended provision thereof) under the Securities Exchange Act of 1934
(including without limitation, provisions as to eligibility, amount, price and
timing of awards) may not be amended more than once every six months, other than
to comport with changes in the Internal Revenue Code, the Employee Retirement
Income Security Act, or the rules thereunder. Termination or any modification or
amendment of this Plan shall not, without consent of a participant, affect his
or her rights under an option previously granted to him or her.
16. Withholding of Income Taxes. Upon the exercise of an option, the
Company, in accordance with Section 3402(a) of the Internal Revenue Code, may
require the optionee to pay withholding taxes in respect of amounts considered
to be compensation includible in the optionee's gross income.
17. Compliance with Regulations. It is the Company's intent that the
Plan comply in all respects with Rule 16b-3 under the Securities Exchange Act of
1934 (or any successor or amended provision thereof) and any applicable
Securities and Exchange Commission interpretations thereof. If any
<PAGE>
provision of this Plan is deemed not to be in compliance with Rule 16b-3, the
provision shall be null and void.
18. Governing Law. The validity and construction of this Plan and the
instruments evidencing options shall be governed by the laws of the Commonwealth
of Massachusetts, without giving effect to the principles of conflicts of law
thereof.
Exhibit 10.4
LICENSE AGREEMENT
This LICENSE AGREEMENT is entered into as of this 15th day of November,
1992 (the "Effective Date"), by and between Syntex (U.S.A.) Inc., a Delaware
corporation ("Syntex"), and Endogen Inc., a Massachusetts corporation
("Endogen").
WITNESSETH
WHEREAS, Syntex owns and controls certain organisms (the "Syntex Cell
Lines") used in the production of the monoclonal antibodies set forth on
Schedule A (the "Syntex Antibodies");
WHEREAS, Endogen owns and controls certain organisms (the "Endogen Cell
Lines") used in the production of the monoclonal antibodies set forth on
Schedule B (the "Endogen Antibodies");
WHEREAS, Syva, a wholly-owned subsidiary of Syntex, wishes to assess
the commercial potential of the Syntex Antibodies and the Endogen Antibodies
(together, the "Monoclonal Antibodies") with respect to Syva's automated
analyzers ("Syva Systems");
WHEREAS, Endogen wishes to sell products containing the Monoclonal
Antibodies for research use only;
WHEREAS, Syntex, Endogen and Harlan BioProducts for Science ("BPS")
will be entering into an Agreement concurrently herewith pursuant to which
Syntex will transfer the Syntex Cell Lines to BPS and BPS will manufacture the
Syntex Antibodies for Endogen.
NOW, THEREFORE, the parties agree as follows:
1. DEFINITIONS
1.1 "Affiliate" of a party shall mean any corporation or other business
entity controlling, controlled by or under common control with such party.
"Control" shall mean the direct or indirect ownership of fifty percent (50%) or
more of the voting interest in, or a fifty percent (50%) or more interest in the
income of, such corporation or other business entity, or such other relationship
as, in fact, constitutes actual control.
1.2 "Endogen Products" means microliter plates having wells coated with
the Syntex Antibodies wherein the microliter plates are either packaged
separately or combined with other reagents and standards for sale as an
immunoassay system.
1.3 "Research Market" means those entities utilizing the Endogen
Products for nonclinical, noncommercial research purposes only.
<PAGE>
-2-
1.4 "Net Sales of Endogen Products" means the sum of all amounts
invoiced on account of sales of Endogen Products by Endogen or its Affiliates to
nonAffiliated third party purchasers less, if invoiced separately, (a) amounts
for transportation or shipping charges, (b) taxes and duties levied on the sales
of Endogen Products and absorbed by Endogen and (c) allowances (for returns,
damages, or otherwise) discounts, rebates, and commissions actually given or
required.
1.5 "Syntex Products" means products containing Endogen Antibodies or
Derivatives (as defined below), which products are used in assays conducted on
any Syva System ("Syva Assays").
1.6 "Net Sales of Syntex Products" means
(a) the sum of all amounts less the Percentage in (c) invoiced
by Syntex or its Affiliates to non-Affiliated third party purchasers,
who are party to any of Syntex's or its Affiliates' general or specific
merchandising programs providing instrument rental or other goods or
services ("Program Customers"), and
(b) the sum of all amounts invoiced by Syntex or its
Affiliates to non-Affiliated third party purchasers that are not
Program Customers (for both (a) and (b) of Syntex Products, as
applicable, less (i) allowances (for returns, damages or otherwise),
discounts, rebates, and commissions actually given or required, (ii)
transportation, handling or shipping charges reflected in invoices and
paid by Syntex or its Affiliates for shipment to the customer from
Syntex (or its Affiliate), (iii) bad debts recognized in accordance
with generally accepted accounting principles (GAAP), (iv) the sales of
any calibrator or control included in the sales price of any Syntex
Product, and (v) taxes and duties levied, paid, absorbed or allowed by
Syntex or its Affiliates. Samples or free goods shall not be included
in the calculation of Net Sales of Syntex Products.
(c) The portion of amounts invoiced by Syntex or its
Affiliates attributable to instrumentation necessary for utilizing a
Syntex Product shall not be included in the computation of Net Sales of
Syntex Products. For sales to non-Affiliated third party purchasers who
are Program Customers, Syntex will prepare, on an annual basis (by
October 1 for the previous fiscal year ending July 31), the percentage
of the average invoiced price of Syntex Products in the fiscal year
just ended that is related to cost of instrument, service or other
goods ("Percentage") and will multiply the Percentage times the total
invoiced sales amounts for Syntex Products sold to Program customers
during the current reporting twelvemonth period until the next annual
calculation is made (October 1). The Percentage will be determined
based upon (i) the cost of the instrumentation (as determined from
Syntex's purchase or manufacturing costs) or, in the case of
refurbished instruments, the depreciated value plus the cost of
refurbishment, and service or other goods costs, including an
additional ten percent (10%) of purchase or manufacturing cost for
administrative handling and (ii) an amount in consideration of the time
value of monies Syntex expends to purchase and/or supply the instrument
or other goods and provide maintenance/service set forth above,
determined by Syntex's cost
<PAGE>
-3-
times the prime rate effective on each successive January 1 of the
Agreement term as published by the Chase Manhattan Bank of New York, or
a comparable institution if Chase ceases to report such rates. The
elements used to determine the Percentage are to be amortized over the
dollar value of total number of Syntex Products sold to customers and
to be run on the instrument in question and the life of the Program,
but not less than two (2) years.
(d) In the event of sale of a Syntex Product which includes
antibody entities in addition to the Endogen Antibodies (hereinafter
called "Combination Syntex Product") the applicable Net Sales of Syntex
Products value shall be determined by multiplying the Net Sales of
Syntex Products for this Combination Product by a fraction the
numerator of which shall be one and the denominator of which shall be
the total number of all antibody entities contained therein.
1.7 "Fiscal Quarter" shall mean each of the three-month periods
commencing with the first, fourth, seventh and tenth months of a calendar year.
1.8 "Net Sales of Products" shall mean, collectively or individually,
Net Sales of Endogen Products and Net Sales of Syntex Products.
1.9 "Product(s)" shall mean, collectively or individually, Endogen
Products and Syntex Products.
1.10 "Cell Lines" shall meant, collectively or individually, Syntex
Cell Lines and Endogen Cell Lines.
1.11 "Cell Line Information" shall mean all information provided by one
party to the other concerning the Cell Lines.
1.12 "Derivative" shall mean any modified or altered form of a Cell
Line or Monoclonal Antibody.
1.13 "Syntex Patent Rights" shall mean U.S. Patent No. 4,935,343 issued
June 19, 1990, and any continuations, divisionals, reissues, or reexaminations
thereof.
2. LICENSE GRANT
2.1 Syntex does hereby grant Endogen, and Endogen does hereby accept
from Syntex, a limited, nontransferable, worldwide license, without the right to
sublicense, to use the Syntex Antibodies solely for the purpose of making and
selling the Endogen Products only in the Research Market and under the terms and
conditions set forth herein. Such limited, nontransferable, worldwide license
includes a license under Syntex Patent Rights.
2.2 Endogen shall sell the Endogen Products only to endusers of the
Endogen Products; provided, however, that Endogen may sell the Endogen Products
to those distributors set forth on Schedule C (the "Endogen Distributors") for a
period of three years from the
<PAGE>
-4-
Effective Date, and provided further that Endogen shall require the Endogen
Distributors to sell the Endogen Products only to endusers of the Endogen
Products. During the term of this Agreement, Syntex shall have the right to act
as a distributor of the Endogen Products on terms to be negotiated at such time
but which terms shall be no less favorable than the terms of Endogen's
Distribution Agreement with ERIA Diagnostics Pasteur.
3. EXCLUSIVITY
3.1 Except as otherwise provided herein, this License shall be
exclusive within the Research Market. "Exclusive within the Research Market"
shall mean that, so long as Endogen fully performs its obligations under this
License Agreement, Syntex, except for itself or its Affiliates, will not license
the Syntex Antibodies to any other entity for use in preparing and selling
products that are the same as Endogen Products in the Research Market.
4. PAYMENT BY ENDOGEN
4.1 For the license granted above, Endogen shall pay Syntex a royalty
of five percent (5%) of Net Sales of Endogen Products; provided, however, that
when the Syntex Patent Rights expire, Endogen shall pay Syntex a royalty of four
and three-quarters percent (4.75%) of Net Sales of those Endogen Products using
Syntex Antibodies covered by the Syntex Patent Rights, and the royalty for other
Endogen Products shall be unchanged.
5. LICENSE GRANT TO SYNTEX
5.1 Endogen does hereby grant to Syntex and its Affiliates, and Syntex
does hereby accept from Endogen, an exclusive worldwide sublicense to use the
Endogen Antibodies, Endogen Cell Lines and Derivatives for the purpose of
making, having made, using, selling and having sold Syntex Products.
5.2 Endogen warrants that Endogen holds exclusive licenses with respect
to the Endogen Antibodies. Endogen further warrants that except for the Endogen
Antibodies noted on Schedule B, it has the right to sublicense the Endogen
Antibodies to Syva. With respect to the three Endogen Antibodies so noted on
Schedule B, Endogen warrants that it has the right to sublicense these Endogen
Antibodies to Syva with the written consent of the licensor, which written
consent has been obtained and is attached hereto as Exhibits 1-a, 1-b, and 1-c.
5.3 Endogen shall provide Syntex and its Affiliates free of charge with
quantities of Endogen Antibodies or Endogen Cell Lines and Derivatives, and
information relating thereto, sufficient for Syntex and its Affiliates to
evaluate the suitability of such Endogen Antibodies in Syva Assays.
5.4 Endogen agrees to deliver to Syntex within 30 days of such request,
additional viable aliquots of Cell Lines or Derivatives to replace any aliquots
thereof previously delivered to Syntex by Endogen, which have subsequently
become incapable of producing Endogen Monoclonal Antibodies and which are the
same as the Endogen Cell Lines or Derivatives previously received by Syntex.
<PAGE>
-5-
5.5 In order to protect Syntex's source of supply of the Cell Lines or
Derivatives Endogen warrants and agrees that Endogen shall maintain the Cell
Lines and Derivatives in such a manner as will best preserve the viability
thereof, in accordance with established scientific procedures. Endogen shall
indemnify Syntex and hold Syntex harmless from any breach of the above warranty.
6. PAYMENT BY SYNTEX
6.1 For the sub-license granted above Syntex and its Affiliates shall
pay Endogen a royalty of five percent (5%) of Net Sales of Syntex Products.
7. PAYMENTS
7.1 Payments due one party hereunder shall be paid by the other within
one (1) month of the end of each Fiscal Quarter during which Net Sales of
Products are realized. Payments shall be made in United States dollars and shall
be paid to the entitled party in accordance with Sections 4.1, 6.1 and 7.2 and
written instructions (not inconsistent herewith) which the parties from time to
time may give to one another.
7.2 The amounts payable in United States dollars on Net Sales of
Products shall be computed by converting the amount payable in the currency of
the country in which the sales were made at the exchange rate for United States
dollars prevailing at the close of the last business day of the Fiscal Quarter
for which payments are being calculated, such exchange rate to be as published
by the Wall Street Journal (or, if it ceases to be published, a comparable
publication to be agreed upon by the parties hereto) on the day following the
last business day of such Fiscal Quarter. With respect to those countries for
which exchange rates are not published in the Wall Street Journal (or such
agreed upon comparable publication), the exchange rate as fixed by the United
States Government on the last business day of the Fiscal Quarter shall be
utilized.
7.3 In the event that the percentage payment set forth herein is higher
than the maximum permitted by the laws or regulations of a particular country,
the amount payable with respect to sales in such countries shall be equal to the
maximum permitted payment under such laws or regulations.
7.4 Only one payment shall be due the entitled party in accordance with
the terms of this License Agreement on account of each sale or other transfer of
a Product to a nonAffiliated third party.
8. REPORTS AND RECORDS
8.1 The party making a payment (the "paying party") shall furnish to
the party entitled to receive the payment ("entitled party") within one (1)
month following the last day of each Fiscal Quarter during the term of this
License Agreement, a report in writing specifying total Net Sales of Products
sold by the paying party during the most recently completed Fiscal
<PAGE>
-6-
Quarter, the royalties, in U.S. dollars, payable with respect to such sales and
the exchange rate used and the amount of payment, if any, due the entitled
party.
8.2 The paying party agrees to keep records adequate to verify all
payments or reports to the entitled party hereunder, and to allow an independent
certified public accountant appointed by the entitled party and reasonably
acceptable to the paying party to have access, on reasonable notice during
regular business hours, not to exceed once per year, to such records in order to
verify the payments made or to be made by the paying party under this License
Agreement. Such records shall be maintained at, or in the event of review by the
entitled party hereunder shall be brought to, one centralized location
(regardless of the number of Affiliates acquiring benefits under this License
Agreement). Such independent certified public accountant shall not disclose to
the entitled party any information other than that information relating solely
to the accuracy of, or the necessity for, any payment made hereunder, and in no
event shall such independent certified public accountant disclose to the
entitled party any other particulars not necessary to the verification of the
payment provided for in above. The fees and expenses of the independent
certified public accountant performing such examination shall be borne by the
entitled party. However, if an error in royalties of more than ten percent (10%)
of the total royalties due for any year is discovered, then such fees and
expenses shall be borne by the paying party. If the entitled party appoints the
independent certified public accounting firm employed by the paying party to
conduct its regular annual audit, and the examination provided for in this
paragraph is performed at substantially the same time as such regular audit, the
reasonable fees and expenses of such independent certified public accounting
firm performing such examination shall be borne by the paying party.
9. INVENTIONS AND PATENTS
9.1 It is contemplated that inventions, discoveries and/or ideas
relating to the Endogen Antibodies and/or the Syntex Antibodies may be generated
by one or both of the parties during the term of this License Agreement. Syntex
and Endogen agree to promptly disclose to the other party in writing on a
confidential basis all inventions, discoveries and/or ideas relating to the
Endogen Antibodies and/or the Syntex Antibodies whether patentable or not, which
are made or conceived during the term of this License Agreement. All such
inventions, discoveries and/or ideas relating to the Endogen Antibodies and/or
the Syntex Antibodies, which are made or conceived solely by employees of one
party during the term of this License Agreement shall be the sole property of
such party but the other party shall have the right to the use of the same
solely for purposes in accordance with this License Agreement as defined for
Endogen in Section 2.1 and Syntex in Section 5.1 and subject to the payment
obligations hereunder. All such inventions, discoveries and/or ideas relating to
the Endogen Antibodies and/or the Syntex Antibodies, which are made or conceived
jointly by employees of both parties during the term of this License Agreement
shall be jointly owned by the parties and each party shall have the right to the
royalty free use of the same solely for purposes in accordance with this License
Agreement.
9.2 For inventions owned by one party such party shall have the right
to file and prosecute, at such party's sole expense, patent applications
covering inventions, discoveries or
<PAGE>
-7-
ideas hereunder in the United States and foreign countries, as it deems
appropriate at its sole expense. Such party shall have the full and complete
control over the prosecution of such patent applications but shall provide the
other party copies of official Actions, amendments and responses, including
copies of any patents or other material referred to or cited therein. The filing
party shall use the same standard of care it employs for preparing and
prosecuting patent applications and for maintaining patents for inventions of
similar significance arising out of its own proprietary research. The other
party's comments or suggestions as to such prosecution shall be given due
consideration by the filing party but are not binding.
9.3 For jointly owned inventions, discoveries, or ideas the parties
shall select an independent patent firm mutually acceptable to both parties to
prepare, file and prosecute such patent applications in the United States and
foreign countries as the parties deem appropriate. The expenses therefor shall
be divided equally between the parties.
9.4 If one party chooses not to file or continue prosecution in the
United States under Sections 9.1, 9.2 or 9.3, the other party shall have the
right but not the obligation to file or continue prosecution as the case may be,
U.S. patent applications or foreign counterparts in such countries and prosecute
such applications and maintain any patents issuing thereon at such other party's
own expense. All such applications, patents and rights thereto shall become the
sole property of such other party and the party choosing not to file shall have
no rights thereto whatsoever. The party choosing not to file or prosecute under
this Section 9.4 shall provide the other party with the necessary
authorizations, powers of attorney and other documents and any assistance
reasonably requested by such other party with respect to the U.S. foreign patent
application filings, prosecution and maintenance.
10. CUSTOMER ACCESS
10.1 Endogen shall provide Syntex access to the research being done
with the Syntex Antibodies and the Endogen Antibodies through direct discussions
with Endogen and through Endogen introducing Syntex to Endogen's customers. In
this regard Endogen shall provide quarterly reports to Syntex containing the
previous three-months' research conducted by Endogen using the Syntex Antibodies
and also the research of its customers that Endogen is entitled to disclose.
Endogen shall use reasonable efforts to obtain the consent of its customers
permitting Endogen to disclose the research conducted by such customers of which
Endogen is aware.
11. TRADEMARKS
11.1 Endogen shall select a primary and an alternate trademark for any
Endogen Products (the "Trademarks"). Syntex shall have the right to approve each
such proposed Trademark in writing (such approval not to be unreasonably
withheld). Endogen shall as soon as practicable thereafter, at Endogen's
expense, apply for Federal registration of either or both of the Trademarks and
prosecute any applications therefor to registration or final refusal. Endogen
shall retain the ownership of the entire right, title, and interest in and to
the Trademarks and shall, when it deems necessary and at its sole cost and
expense, file for renewal of, or cause to have
<PAGE>
-8-
filed for renewal, renewal applications therefor. Endogen grants to Syntex a
perpetual, nonexclusive, royalty-free license to use the Trademarks.
12. BIBLIOGRAPHY
12.1 Syntex shall supply to Endogen for each of the Syntex Antibodies a
bibliography of publications, of which Syntex is aware as of the Effective Date
and which Endogen will use to promote the sale of Endogen Products and as a
technical reference. Syntex makes no warranty or representation as to the
completeness of this bibliography. Endogen shall bear sole responsibility
arising out of or connected with the use of such publications including any
errors and omissions contained therein.
13. TERM
13.1 Unless sooner terminated as provided in Article 14, this License
Agreement shall have term of fifteen years (15) from the Effective Date or the
life of any patent in the Patent Rights or any patent issuing in accordance with
Section 9.1, whichever is longer.
13.2 Upon the expiration of this License Agreement Endogen or Syntex,
as the case may be, shall have a fully paid up license as set forth in Sections
2.1 and 5.1, respectively.
13.3 Upon the termination of this License Agreement by Syntex under
Section 14.1 (a) or (b), Syntex shall have a fully paid up license as set forth
in Section 5.1.
13.4 Upon the termination of this License Agreement by Endogen under
Section 14.2 (a) or (b), Endogen shall have a fully paid up license as set forth
in Section 2.1.
14. TERMINATION
14.1 Syntex shall have the right to terminate this License Agreement
effective immediately upon written notice to Endogen under the following
circumstances:
(a) if Endogen is in material breach or default with respect
to any term or provision hereof and fails to cure the same within
thirty (30) days notice of said breach or default; or
(b) if Endogen is adjudged bankrupt, files or has filed
against it any petition under any bankruptcy, insolvency or similar
law, has a receiver appointed for its business or property, or makes a
general assignment for the benefit of its creditors; or
(c) in the event of a change of control of Endogen whether by
purchase, merger, operation of law or otherwise.
14.2 Endogen shall have the right to terminate this License Agreement
effective immediately upon written notice to Syntex under the following
circumstances:
<PAGE>
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(a) if Syntex is in material breach or default with respect to
any term or provision hereof and fails to cure the same within thirty
(30) days notice of said breach or default; or
(b) if Syntex is adjudged bankrupt, files or has filed against
it any petition under any bankruptcy, insolvency or similar law, has a
receiver appointed for its business or property, or makes a general
assignment for the benefit of its creditors.
14.3 Termination or expiration of this License Agreement shall not
relieve the parties of any amounts owing between them, and shall not terminate
any rights or obligations arising prior to or upon termination or expiration of
this License Agreement.
14.4 All Cell Line Information in tangible form received by one party
from the other and all samples of Cell Lines existing at the termination of this
License Agreement shall be returned by the party who had received the Cell Lines
to the party who provided the Cell Lines upon the termination of this License
Agreement.
15. CONFIDENTIALITY
15.1 The parties hereto recognize that business, technical, scientific
and other data and information relating to the Cell Lines, the Monoclonal
Antibodies, the Products, and any products derived from the Monoclonal
Antibodies (the "Confidential Information") disclosed by one party to the other
hereunder, is of considerable value to the parties and is to be considered
highly confidential.
15.2 Each receiving party shall keep all Confidential Information
received by it from the disclosing party in complete confidence and hereby
covenants not to use or disclose such Confidential Information, or any part
thereof, except for the purposes of this License Agreement and not to disclose
or make such Confidential Information, or any part thereof, available to third
parties except:
(a) for the purpose of obtaining and maintaining any necessary
governmental approvals for the sale of the Products pursuant to this
License Agreement (and then, to the fullest extent possible, only under
conditions of confidentiality);
(b) to the extent that the disclosing party may agree in
writing, which agreement shall be obtained prior to such disclosure by
receiving party;
(c) to the extent that such Confidential Information can be
demonstrated by written records to be known to the receiving party at
the time of receipt thereof from the disclosing party;
(d) to the extent such Confidential Information is or may
become a matter of public knowledge by virtue of the action of a party
other than the receiving party (as defined above) or any party that
received such Confidential Information therefrom.
<PAGE>
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15.3 Each receiving party making use of Confidential Information in
accordance with the permitted exceptions set forth in Sections 15.2 (a) and (b)
above hereby agrees on behalf of itself, its third party agents or
subcontractors, if any, to do so under conditions of confidentiality.
15.4 The obligation of confidentiality set forth in Sections 15.1-15.3
above shall expire ten (10) years from the date of termination or expiration of
this License Agreement.
15.5 The provisions of the Confidentiality Agreement between Syva and
Endogen effective May 1, 1992, are superseded by those of this Article 15 and
the Confidentiality Agreement shall no longer have any force or effect. All
exchanges of information between Endogen and Syva prior to the Effective Date
shall be subject to the provisions of this Article 15.
16. FORCE MAJEURE
16.1 Neither party shall be liable for failure to perform or delay in
performing with respect to any order or any other provision of this License
Agreement to the extent performance in the customary manner shall be prevented,
hindered or delayed in whole or in part by transportation conditions, strikes,
riots, earthquakes, floods, compliance with an act or request of a governmental
authority or persons purporting to act with governmental authority (including,
but not limited to, orders or actions in response to shortages of fuel or other
energy sources, or of raw materials), labor difficulty (whether or not involving
its own employees), even though the difficulty could be settled by agreeing to
the demands of a labor group, or interruption of then-contemplated sources of
supply or then-contemplated transportation, or any event that is not reasonably
within the control of the non-performing party and that such party is not able
to overcome by the exercise of reasonable measures, or only at substantial
expense. If any of the events set forth in herein prevent either party from
performing under this License Agreement, each party shall resume performance as
promptly as is reasonably possible. Nothing herein shall relieve either party
from the obligation to pay promptly, in full and in dollars, all payments that
may be due under this License Agreement.
17. ASSIGNMENT
17.1 This License Agreement shall not be assigned by operation of law
or otherwise except that Syntex shall have the right to assign this License
Agreement to, or delegate its obligations hereunder to be performed by, any
successor or affiliate(s) of Syntex. Endogen shall not appoint a sub-contractor,
or delegate, voluntarily or involuntarily, any obligation owed or duty of
performance arising under this License Agreement without the express written
consent of Syntex, which Syntex may grant or withhold in its sole discretion.
18. GOVERNING LAW
18.1 This License Agreement shall be governed by and interpreted in
accordance with the laws of the State of California (regardless of its or any
other jurisdiction's choice of law principles).
<PAGE>
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19. ARBITRATION
19.1 With respect to any controversy arising out of or relating to this
License Agreement, such controversy shall be settled by final and binding
arbitration in Palo Alto, California in accordance with the then-existing
Commercial Arbitration Rules (the "Rules") of the American Arbitration
Association (the "AAA"), and judgment upon the award rendered by the arbitrators
may be entered in any court having jurisdiction thereof. In any such
arbitration, the rights of the parties hereto shall be determined according to
the governing law set forth in Article 18, and the arbitrators shall apply such
laws in any arbitration conducted pursuant to this Article 19. The service of
any notice in the course of such arbitration at the respective addresses as
provided for in Article 20 shall be valid and binding.
19.2 In any arbitration pursuant to this License Agreement, the award
or decision shall be rendered by a majority of the members of a Board of
Arbitration consisting of three (3) members, one of whom shall be appointed by
each party and the third of whom shall be the chairman of the panel and be
appointed by mutual agreement of said two party-appointed arbitrators. In the
event of failure of said two arbitrators to agree within sixty (60) days after
the commencement of the arbitration proceeding upon the appointment of the third
arbitrator, the third arbitrator shall be appointed by the AAA in accordance
with the Rules. In the event that either party shall fail to appoint an
arbitrator within thirty (30) days after the commencement of the arbitration
proceeding, such arbitrator and the third arbitrator shall be appointed by the
AAA in accordance with the Rules. For the purposes of this License Agreement,
"commencement of the arbitration proceeding" shall mean the date on which a
written demand for arbitration is received by the AAA in accordance with the
Rules. The decision of a majority of the arbitrators shall be final and binding
on the parties hereto, each arbitrator having one (1) vote.
20. NOTICE
20.1 Any notice required or permitted to be given hereunder shall be
deemed sufficient if mailed by registered or certified air mail (return receipt
requested), facsimile letter or delivered by hand to the party to whom such
notice is required or permitted to be given. Unless otherwise provided herein,
any such notice or other communications, if mailed, shall be deemed given five
(5) days after mailing of the notice, as evidenced by the postmark at point of
mailing. If sent by facsimile letter any such notice shall be deemed to have
been given when received by the party to whom such notice is given if a
confirmatory copy of the facsimile letter is mailed on the same day as the
facsimile letter is sent to the receiving party; if a confirmatory letter is not
sent, then when the notice is actually received by the person to whom it is
sent. If delivered by hand, any such notice or communication shall be deemed
given when received.
20.2 All notices to Syntex shall be addressed as follows:
Syntex (U.S.A.) Inc.
3401 Hillview Avenue
Palo Alto, California 94304 U.S.A.
Attention: Dr. John Kenney
<PAGE>
-12-
with copies to:
Syntex (U.S.A.) Inc.
3401 Hillview Avenue
Palo Alto, California 94304 U.S.A.
Attention: Director, Commercial Contracts and
General Law
and to:
Syva Company
3403 Yerba Buena Road
P.O. Box 49013
San Jose, California 95161-9013 U.S.A.
Attention: Vice President, Marketing
20.3 All notices to Endogen shall be addressed as follows:
Endogen, Inc.
451 D Street
Boston, Massachusetts 02210
Attention: President
20.4 Each party may change the address to which notice to it is to be
given by written notice as provided herein.
21. SURVIVAL
21.1 The provisions of Sections 13.2-13.4, 14.3 and 14.4 and Articles
15, 18, and 19 shall survive expiration or termination of this License
Agreement.
22. WARRANTY
22.1 Each party warrants to the other that it is the owner or licensee
of the respective Cell Lines and Monoclonal Antibodies and it has the lawful
right to grant this license or sublicense.
23. NEGATION OF WARRANTIES
23.1 Nothing in this License Agreement shall be construed as:
(a) a warranty or representation that anything made, used,
sold or otherwise disposed under any license granted in this License
Agreement will not infringe any patent, copyright or trademark or other
rights of third parties;
(b) an obligation to bring or prosecute actions or suits
against third parties for infringement; or
<PAGE>
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(c) a warranty of merchantability or fitness for a particular
purpose;
24. INDEMNITY
24.1 Each party agrees to indemnify, hold harmless and defend the other
party, its officers, employees and agents against any and all claims arising out
of such indemnifying party's exercise of any rights under this License
Agreement, without limiting the generality of the foregoing, against any
damages, losses or liabilities whatsoever with respect to (1) death or injury to
person or damage to property arising from or out of the possession, use or
operation of Products by the indemnifying party or its customers in any manner
whatsoever and (2) patent and trademark infringement actions brought by a third
party against such other party arising from or out of the manufacture, use, or
sale of Products by such indemnifying party. The indemnifying party shall have
full control over such action and the other party shall cooperate and assist the
indemnifying party as requested.
25. ADDITIONAL TERMS
25.1 This License Agreement constitutes the entire understanding
between the parties with respect to the subject matter hereof, and supersedes
and replaces all previous negotiations, understandings, representations,
writings, and contract provisions and rights relating to the subject matter
hereof.
25.2 No provision of this License Agreement may be amended, revoked or
waived except by a writing signed and delivered by an authorized officer of each
party. Any waiver on the part of either party of any breach or any right or
interest hereunder shall not imply the waiver of any subsequent breach or waiver
of any other right or interest.
25.3 The invalidity or unenforceability of any provision of this
License Agreement shall not affect the validity or enforceability of any other
provision of this License Agreement, each of which shall remain in full force
and effect.
25.4 The descriptive headings are inserted for convenience of reference
only and are not intended to be part of or to affect the meaning of or
interpretation of this License Agreement.
25.5 This License Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same Agreement.
<PAGE>
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IN WITNESS WHEREOF, the parties have caused this License Agreement to
be executed and delivered by their duly authorized representatives as of the
date first above written.
SYNTEX (U.S.A.) INC. ENDOGEN, INC.
By: /s/ Richard Bastiani By: /s/ Owen A. Dempsey
------------------------------ ---------------------------------
Name: Richard Bastiani Name: Owen A. Dempsey
------------------------------ ---------------------------------
Title: Vice President Title: President & CEO
------------------------------ ---------------------------------
Date: November 29, 1992 Date: November 15, 1992
------------------------------ ---------------------------------
<PAGE>
SCHEDULE A
Syntex Antibodies
monoclonal Antibodies to Human Interleukin-6:
1. Antibody 4IL6
2. Antibody 5IL6
3. Antibody 7IL6
Monoclonal Antibodies to Human Interleukin-1 alpha:
1. Antibody ILA9-H18
2. Antibody ILA8-H12
Monoclonal Antibodies to Human Interleukin-1 beta:
1. Antibody H6
2. Antibody H67
Monoclonal Antibody to Human Interleukin18:
1. Antibody H1A
2. Antibody H2A
3. Antibody H4A
<PAGE>
SCHEDULE B
Endogen Antibodies
Monoclonal Antibodies to Human Interferongamma:
*1. Antibody B133.5
2. Antibody 3C11C8
3. Antibody 2G1
Monoclonal Antibodies to Human Granulocyte Macrophage-Colony Stimulating Factor:
1. Antibody 3092
2. Antibody 3034
3. Antibody 1089
4. Antibody 4117
5. Antibody 2118
6. Antibody 1028
Monoclonal Antibodies to Human Tumor Necrosis Factor-alpha:
*1. Antibody B154.7.1
*2. Antibody B154.9.1
*Endogen must obtain written consent from licensor to sub-license to Syntex.
<PAGE>
SCHEDULE C
Exception to Sales to End-Users Only
ERIA Diagnostics Pasteur
Janssen Chimica
Exhibit 10.5
A G R E E M E N T
THIS AGREEMENT (hereinafter "Agreement"), made effective as of the 10th
day of February, 1993, by and between ENDOGEN, INC., a corporation organized and
existing under the laws of Massachusetts, and having its principal office at 451
D Street, Boston, Massachusetts 02210 (hereinafter called "LICENSEE"), and
SCHERING CORPORATION, a corporation organized and existing under the laws of the
State of New Jersey and having its principal office at 2000 Galloping Hill Road,
Kenilworth, NJ 07033(hereinafter called "SCHERING").
W I T N E S S E T H:
WHEREAS, SCHERING has developed and owns certain Patent Rights and/or
Know-How (as the foregoing are hereinafter defined) relating, inter alia, to
certain monoclonal antibodies; and
WHEREAS, LICENSEE desires to receive, and SCHERING is willing to grant,
a non-exclusive license under the Patent Rights and to use Know-How to make, use
and sell Licensed Products in the Field of the Agreement in the Licensed
Territory (as the foregoing terms are hereinafter defined);
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and conditions hereinafter set forth, the parties agree as follows:
1.0 DEFINITIONS
1.1 As used herein the following terms shall have the following
meanings and the singular shall include the plural and vice versa:
<PAGE>
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1.1.1 the term "Cell Lines" means the cell lines described in
Exhibit I attached hereto and made a part hereof as such Exhibit may be amended
from time-to-time hereafter by mutual written agreement of the parties.
1.1.2 the term "Monoclonal Antibodies" means the monoclonal
antibodies and their derivatives produced by the Cell Lines described in Exhibit
I as such Exhibit may be amended from time-to-time hereafter by mutual written
agreement of the parties.
1.1.3 the term "Licensed Products" means products containing
Monoclonal Antibodies defined above and promoted and labelled for use as
laboratory reagents.
1.1.4 the term "Field of the Agreement" means the use of the
Licensed Products only for scientific research purposes and excludes any use
whatsoever with respect to human beings including, without limitation, the use,
prevention, diagnosis, treatment or cure of injury or disease.
1.1.5 the term "Licensed Territory" means worldwide.
1.1.6 the term "Affiliate" means any company controlling,
controlled by, or under common control with SCHERING or LICENSEE, as the case
may be. For this purpose the term "control" means ownership, directly or
indirectly, of at least fifty percent (50%) of the equity capital or a right to
at least fifty percent (50%) of the profits.
1.1.7 the term "Know-How" means all of the Cell Lines and
methods employed to produce and isolate monoclonal antibody product from these
cell lines including in vitro and in vivo cell culture.
1.1.8 the term "Net Sales" means the amounts billed or
invoiced to independent, third-party customers by LICENSEE and its Affiliates
for Licensed Products less (a) quantity and/or cash discounts and rebates
actually allowed and taken; (b) freight, postage, duties,
<PAGE>
-3-
insurance and taxes directly related to the sale; and (c) amounts repaid or
credited by reason of rejections or returns of goods or because of retroactive
price reductions. Licensed Products shall be considered sold as of the date of
the earliest to occur of shipment, delivery, billing or payment. The value of
any Licensed Products used by LICENSEE or its Affiliates, calculated as if sold
to a third party under an arm's-length transaction, shall be deemed to be
included in Net Sales.
1.1.9 the term "Patent Rights" means the United States issued
patents and United States patent applications filed by or on behalf of, or
assigned to SCHERING, as set forth in Exhibit II attached hereto and made a part
hereof, and all additions, divisions, extensions, reissues, substitutions,
registrations, revalidations, importations, renewals, confirmations,
continuations, continuations-in-part and the like of any of the foregoing as
well as any foreign counterparts of any of the foregoing. Exhibit II may be
amended from time-to-time hereafter to add additional patents by mutual written
agreement of the parties.
1.1.10 the term "Earned Royalty" means an amount equal to five
percent (5%) of the Net Sales of Licensed Products by LICENSEE and its
Affiliates in the Licensed Territory where the manufacture, use or sale of such
Licensed Products would, but for the licenses granted herein, infringe at least
one claim in a pending patent application or issued patent included in the
Patent Rights and/or utilize any Know-How. While the parties recognize that
Patent Rights and Know-How may have different royalty value, they have agreed to
blend the royalty rates as set forth herein for their convenience.
<PAGE>
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2.0 LICENSE GRANT AND FEE
2.1 SCHERING hereby grants to LICENSEE, including its Affiliates, and
LICENSEE hereby accepts from SCHERING, a non-exclusive, non-transferable,
royalty bearing license, with no right to sublicense third parties, under the
Patent Rights and to use the Know-How to make, use and sell Licensed Products
solely for use in the Field of the Agreement in the Licensed Territory. During
the term of this Agreement, LICENSEE agrees and covenants not to sell to any
purchaser Licensed Products containing more than ten (10) miligrams in the
aggregate of any Monoclonal Antibodies during any consecutive six (6) month
period for use by such purchaser. LICENSEE also agrees and covenants not to
knowingly sell Licensed Products to a purchaser who does not itself intend to
use the Licensed Products solely in its own research. SCHERING may, at its
option, and in the exercise of its sole discretion, provide support to LICENSEE
through an affiliated company as set forth in items 5 through 8 of Exhibit III
attached hereto and made a part hereof.
2.2 In partial consideration of the rights and licenses granted herein,
LICENSEE shall pay to SCHERING upon execution of this Agreement, a license fee
of five thousand dollars ($5,000) for each Cell Line to be provided by SCHERING
hereunder, and SCHERING shall promptly thereafter supply customary and
reasonable quantities of such Cell Line(s) to LICENSEE as further described in
Section 7.
2.3 LICENSEE agrees to maintain the Know-How described in (b) of
Section 1.1.7 in confidence and not to disclose any of it to any third parties
during and after the term of this Agreement, except as agreed otherwise by a
duly authorized SCHERING representative in writing.
<PAGE>
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3.0 PRODUCT DEVELOPMENT; PATENTS
3.1 LICENSEE shall, at its own cost and expense, diligently perform,
consistent with sound scientific principles, all research and development
activities necessary or appropriate to make, use and sell Licensed Products in
the Licensed Territory, complying with any applicable regulatory and other
applicable legal requirements in each country of the Licensed Territory.
3.2 SCHERING will or will cause its Affiliate(s) to, in its sole
discretion, at its or their own cost and expense, prosecute, maintain and defend
the Patent Rights.
4.0 ROYALTIES
4.1 Within sixty (60) days following the close of each calendar quarter
during the term of this Agreement, LICENSEE shall furnish and deliver to
SCHERING a full and true accounting of its and its Affiliates' Net Sales of
Licensed Products hereunder during such calendar quarter and shall
simultaneously pay to SCHERING a sum equal to the aggregate of the Earned
Royalty due thereon.
4.2 All royalties payable hereunder shall be paid in United States
dollars. If amounts are invoiced in other than U.S. dollars, Net Sales based on
such amounts shall be converted to U.S. dollars in accordance with U.S.
Generally Accepted Accounting Principles at the closing rates of exchange for
buying U.S. dollars, as correctly published in the Wall Street Journal on the
last business day of the calendar quarter for which royalties are being
calculated.
4.3 No Earned Royalty shall be payable in respect of sales among
LICENSEE and its Affiliates, it being understood that royalties are to be paid
on resale of Licensed Products to independent third parties in bona fide,
arms-length transactions; provided, however, in addition to the Earned Royalty
due on Net Sales to third parties, LICENSEE shall pay Earned Royalty on all
Licensed Products used by LICENSEE or its Affiliates in their own research.
<PAGE>
-6-
4.4 If LICENSEE shall hereafter be required, in respect of its sales of
any Licensed Product in a country, to pay royalties to any third party whose
patent is infringed by such sales in such country solely because of the use of a
Cell Line, LICENSEE may credit such third party royalties against any Earned
Royalty due SCHERING hereunder in the country, but in no event shall Earned
Royalty due SCHERING for any calendar quarter be thereby reduced to less than
seventy five percent (75%) of the Earned Royalty which otherwise would have been
due to SCHERING for such calendar quarter for Net Sales in such country.
4.5 SCHERING shall have the right, by an independent public accountant
reasonably acceptable to LICENSEE and employed by SCHERING and at SCHERING's own
expense, to examine, during normal business hours and not more than once each
calendar year, the pertinent books and records of LICENSEE, including without
limitation customer sales records of LICENSEE and its Affiliates, for the
purpose of determining the correctness of royalty payments made hereunder and
the compliance by LICENSEE with the quantity sales limitations for Licensed
Products described in Section 2.1, it being understood that such examination
with respect to any calendar quarter hereunder shall take place not later than
three (3) years following the expiration of said period.
4.6 LICENSEE may deduct from Earned Royalties payable to SCHERING
hereunder taxes required to be withheld by any government which are recoverable
by SCHERING in the United States under any tax convention treaty, or regulation.
LICENSEE shall promptly furnish SCHERING with true copies of all official tax
receipts covering such taxes.
5.0 INDEMNITY
5.1 LICENSEE shall indemnify and hold SCHERING harmless from and
against any and all claims, suits, liability, damage, loss, costs or expenses
(including reasonable attorney's
<PAGE>
-7-
fees) which result from or arise out of the testing, manufacture, storage,
distribution, use or sale of Licensed Products by LICENSEE or its Affiliates or
any of their respective customers or clients, except for any claims, liability,
damage, loss, cost or expense caused solely by SCHERING's gross negligence or
willful misconduct in connection with its supply of Cell Lines to LICENSEE. Upon
learning of the filing of any such claim or suit, SCHERING shall immediately
notify LICENSEE thereof.
6.0 TERM AND TERMINATION
6.1 Either party hereto may, at its option, cancel the licenses herein
granted to LICENSEE and terminate this Agreement by giving the other party prior
notice in writing to that effect of not less than sixty (60) days in the event
such other party shall materially breach this Agreement and shall fail to cure
such breach during the period of said notice; provided, however, that any such
cancellation and termination shall not release such other party from any
obligations hereunder incurred prior thereto. Without limitation, failure to
comply with the quantity sales restrictions in Section 2.1 shall be deemed a
material breach.
6.2 (a) If LICENSEE shall become insolvent or shall make an assignment
for the benefit of its creditors, or proceedings in voluntary or involuntary
bankruptcy shall be instituted on behalf of or against LICENSEE, or a receiver
or trustee of LICENSEE's property shall be appointed, the licenses herein
granted to LICENSEE shall, without other action or notice, forthwith terminate.
(b) In the event that SCHERING shall reasonably believe, whether as
a result of toxicity, clinical or other studies, or otherwise, that a
substantial question has arisen as to the safety of a Licensed Product, it may,
by written notice to LICENSEE:
<PAGE>
-8-
(i) suspend the licenses herein granted for an indefinite
period with respect to such Licensed Product(s). During any such
period of suspension, LICENSEE shall suspend any and all
activities, including testing and sales, related to the Licensed
Product(s), except as otherwise specifically agreed to in writing
with SCHERING; or
(ii) terminate the licenses herein granted to LICENSEE with
respect to the Licensed Product(s), effective immediately, with no
compensation therefore to LICENSEE.
6.3 LICENSEE may surrender the licenses herein granted to it and
terminate this Agreement by giving to SCHERING prior written notice to that
effect of not less than ninety (90) days. In the event of any such termination,
LICENSEE shall promptly deliver to SCHERING all Cell Lines and their progeny
then in its possession, and all inventory containing Monoclonal Antibodies not
yet formatted into Licensed Product.
6.4 Upon any cancellation or termination of this Agreement for any
reason, all Earned Royalty on Net Sales to the effective date of said
cancellation or termination shall accrue and become due and payable on the
sixtieth (60) day thereafter.
6.5 In the event of the cancellation or termination of this Agreement
prior to the expiration thereof, other than as a result of a substantial safety
question having arisen with respect to Licensed Product(s), LICENSEE shall be
permitted to sell its then inventory of Licensed Products for a period of six
(6) months, on condition that LICENSEE pay to SCHERING Earned Royalty thereon
and comply with the other Agreement terms.
6.6 Unless sooner cancelled or terminated under the provisions hereof,
this Agreement shall continue in effect in each country in the Licensed
Territory for the longer period of (a) ten (10) years from the effective date or
(b) The last to expire of the Patent Rights in such country. At the expiration
of such term LICENSEE shall have a paid up license hereunder with respect to
such country.
<PAGE>
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6.7 Upon any termination of this Agreement by SCHERING pursuant to
Section 6.1 or 6.2, LICENSEE and/or its Affiliates shall promptly deliver and
account to SCHERING for all SCHERING Cell Lines and progeny in its possession or
control.
7.0 SUPPLY OF CELL LINES AND DISCLAIMER OF WARRANTIES
7.1 SCHERING agrees to promptly provide to LICENSEE reasonable and
customary quantities of the Cell Lines (two (2) vials each of frozen hybridoma
cell stock containing approximately 5 x 10(6) cells) within thirty (30) days of
the effective date of this Agreement, provided LICENSEE has remitted to SCHERING
the applicable license fee(s) described in Section 2.2. At the request of
LICENSEE, SCHERING will provide LICENSEE reasonable additional quantities of the
Cell Line(s) in the future one (1) time without cost, if LICENSEE reasonably
documents legitimate reasons for its request. The foregoing shall at all times
remain the property of SCHERING. LICENSEE agrees:
(a) to use such Cell Lines solely and exclusively as expressly
permitted in this Agreement; and
(b) to maintain the quality of the Cell Lines, keep them safe
and secure from all loss or damage, and not to transfer them to any
third party, other than an Affiliate, or as allowed under the express
terms of this Agreement, without the express written consent of
SCHERING;
(c) at SCHERING'S option, to destroy such Cell Lines or return
them to SCHERING at the termination or expiration of this Agreement;
and
(d) to allow access to SCHERING'S representatives at all
reasonable times to monitor compliance with this paragraph 7.1.
<PAGE>
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7.2 SCHERING makes no express or implied representations or warranties
as to any of the subject matter of this Agreement, including without limitation,
materials supplied by it hereunder or the Know-How and Patent Rights licensed
hereunder and disclaims any liability, to the maximum extent permitted by law,
arising out of LICENSEE'S or its customers' use of Licensed Products.
8.0 MISCELLANEOUS
8.1 Choice of Law. This Agreement shall be construed and the legal
relations between the parties hereto determined in accordance with the laws of
the State of New Jersey, U.S.A., without giving any regard to its conflicts of
law provisions.
8.2 Nonassignability. This Agreement and the license granted herein
shall not be assignable by LICENSEE without consent in writing first having been
obtained from SCHERING.
8.3 Modification. This Agreement constitutes the entire understanding
between the parties hereto with respect to the subject matter hereof, and no
modification or amendment shall be valid or binding upon the parties hereto
unless made in writing and duly executed on behalf of each of the parties
hereto.
8.4 Notice. Any notice or other communication required or permitted to
be given to the other party hereto pursuant to this Agreement shall be
sufficiently given if sent to such party by certified or registered mail, return
receipt postage prepaid, addressed to the care of the Vice-President, Business
Development Schering-Plough Corporation at the address set forth in the preamble
of this Agreement or to such other address as it shall designate by written
notice given to the other party. Time of notice or other communication shall be
deemed to be the date of postmark.
<PAGE>
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8.5 Separability. If any provision of this Agreement or portion hereof,
or the application thereof to any person or circumstance or in any country,
shall be held to any extent invalid or unenforceable, the remainder of this
Agreement (or of such provision) and the application thereof to other persons or
circumstances or in other countries shall not be affected thereby.
8.6 Waivers. No waiver of breach or default by any party of any
provision of this Agreement shall be deemed or construed to be a waiver of any
succeeding breach or default of the same or any other provision.
8.7 Performance by Affiliates. SCHERING may satisfy any of its
obligations hereunder through any of its Affiliates; provided, however, that
SCHERING guarantees the performance at all times of its obligations so delegated
pursuant to this Section.
8.8 Authority to Enter Agreement. Each party hereby covenants and
represents to the other party that to the best of its knowledge it has full
right and authority to enter into this Agreement without the consent or approval
of any third party.
8.9 Article Headings. The article headings are placed herein merely as
a matter of convenience and are not to be construed as a part of this Agreement.
<PAGE>
-12-
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
SCHERING CORPORATION
By: /s/ William J. Breiner
-----------------------------------------
William J. Breiner
Title: Vice President, Bus. Dev.
ENDOGEN, INC.
By: /s/ Owen A. Dempsey
----------------------------------------
Title: President & CEO
<PAGE>
Exhibit I
AntiHuman Cytokine Hybridoma Cell lines for Licensing as of Jan 1, 1993.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Cytokine MAb Neutralizing Immuno- Immunogen Isotype(a) References
Designation Ability assay Use Source
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
hIL-4 MP4-25D2 blocking detect CHO IgG1 [1, 2, 6, 9, 13, 14, 15, 17, 19]
- -----------------------------------------------------------------------------------------------------------------------------------
hIL-5 JES1-39D10 blocking coat COS IgG2a [1, 2, 5, 7, 11, 12, 13, 14, 18, 20]
JES1-5A10 blocking detect COS IgG2a
- -----------------------------------------------------------------------------------------------------------------------------------
hIL-7 BVD10-40F6 blocking coat E.coli IgG1 [1]
BVD10-11C10 non-blocking detect E.coli IgG2a
- -----------------------------------------------------------------------------------------------------------------------------------
hIL-10/vIL-10 JES3-9D7 blocking coat COS IgG1 [1, 3, 8, 16, 21]
JES3-12G8 blocking detect COS IgG2a
vIL-10 specific JES3-6B11 non-blocking detect COS IgG1
- -----------------------------------------------------------------------------------------------------------------------------------
hGM-CSF BVD2-23B6 blocking coat E.coli IgG2a [1, 2, 4, 10, 12]
BVD2-21C11 blocking detect E.coli IgG2a
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) All antibodies are rat immunoglobulin unless otherwise indicated.
<PAGE>
REFERENCES
1. Abrams, J. S., M.G. Roncarolo, H. Yssel, U. Andersson, G. J. Gleich and J.
Silver. Strategies of anti-cytokine monoclonal antibody development: Immunoassay
of IL-10 and IL-5 in clinical samples. Immunol. Rev. 127: 5-24, 1992.
2. Bacchetta, R., T. de Wall Malefjt, H. Yssel, J. Abrams, J. E. de Vries, H.
Spits and M. G. Roncarolo. Hostreactive CD4+ and CD8+ T cell clones isolated
from a human chimera produce IL-5, IL-2, IFN-y and
granulocyte/macrophage-colony-stimulating factor but not IL4. J. Immunol.
144(3): 902908, 1990.
3. Barnes, P. F., D. Chatterjee, J. S. Abrams, S. Lu, E. Wang, M. Yamamura, P.
J. Brennan and R. L. Modlin. Cytokine production induced by M. Tuberculosis
lipoarabinomannan: Relationship to chemical structure. J. Immunol. 149: 541-547,
1992.
4. Barnes, P. F., C. L. Grisso, J. S. Abrams, H. Band, T. H. Rea and R. L.
Modlin. yo T-lymphocytes in human tuberculosis. J. Infect. Dis. 165: 506-512,
1992.
5. Butterfield, J. H., K. M. Leifemen, J. S. Abrams, J. E. Silver. J. Bower, N.
Gonchoroff and G. J. Glcich. Elevated serum levels of interleukin-5 in patients
with the syndrome of episodic angioedcma and eosinophilia. Blood. 79(3):
688-692, 1992.
6. DeKruyff. R. H., T. Turner, J. S. Abrams, M. A. Palladino Jr. and D. T.
Umetsu. Induction of human IgE synthesis by CD4+ T cell clones. Requirement for
interloukin 4 and low molecular weight B cell growth factor. J. Exp. Med. 170:
147-71493, 1989.
7. Denburg, J. A., J. E. Silver and J. S. Abrams. Interleukin-5 is a human
basophilopoietin: induction of histamine content and basophilic differentiation
of HL-60 cells and of peripheral blood basophil-eosinophil progenitors. Blood.
77(7): 14628, 1991.
8. Gotlieb, W. H., J. S. Abrams, J. M. Watson, T. Velu, J. S. Berek and 0.
Martinez-Maza. Presence of IL-10 in the ascites of patients with ovarian and
other intra-abdominal cancers. Cytokine. 4: 385-390, 1992.
9. Jabara, H. H., S. J. Ackerman, D. Vercelli, T. Yokota, K. Arai, J. Abrams, A.
M. Dvorak, M. C. Lavigne, J. Banchereau, J. , DeVries, et al. Induction of
interieukin-4-dependent IgE synthesis and interleukin-5-dependent eosinophil
differentiation by supernatants of a human helper T-cell clone. J Clin Immunol.
8(6): 437-46, 1988.
10. Kita, H., T. Ohnishi, Y. Okubo. D. Weiler, J. S. Abrams and G. J. Gleich.
GM-CSF and interleukin-3 released by human peripheral blood eosinophils and
neutrophils. J.Exp. Med. 174: 745-748, 1991.
<PAGE>
-15-
11. Limaye, A. P., J. S. Abrams, K. Awadzi,H. F. Francis, J. E. Silver, E. A.
Ottesen and T. B. Nutman. Interleukin-5 and the post treatment eosinophilia in
patients with onchocerciasis. J. Clin. Inv. 88: 1418-1421, 1991.
12. Limaye, A. P., J. S. Abrams, J. E. Silver, E. A. Ottesen and T. B. Nutman.
Regulation of parasite-induced eosinophilia: Selectively increased interleukin-5
production in helminth-infected patients. J. Exp. Med. 172: 399-402, 1990.
13. Mahanty, S., J. S. Abrams, C. L. King, A. P. Limaye and T. Nutman B.
Parallel regulation of IL-4 and IL-5 in human helminth infections. J. Immunol.
3567-3571, 1992.
14. Mahanty, S., J. S. Abrams, A. P. Limaye and T. B. Nutman. Linkage of
Interleukin-4 and Interieukin-5 production in human helminth infections. Trans.
Assoc. Amer. Physicians. CIV: 296-303, 1991.
15. Paliard, X., R. de Waal Malefijt, H. Yssel, D. Blanchard, 1. Chretien, J.
Abrams, 1. de Vries and H. Spits. Simultaneous production of IL-2, IL-4 and IFNy
by activated human CD4 + and CD8 + T cell clones. J. Immunol. 141: 849. 1988.
16. Saigame, P., J. S. Abrams, C. Clayberger, H. Goldstein, R. L. Modlin and B.
R. Bloom. Differing lymphokine profiles of functional subsets of human CD4 and
CD8 Tcell clones. Science. 254: 279y282, 1991.
17. Schneider, L. C., J. H. Antin, H. Weinstein, J. S. Abrams, M. K. Pearce, R.
S. Geha and D. Vercelli. Lymphokine profile in bone marrow transplant
recipients. Blood. 78: 3076y3080, 1991.
18. Sedgwick, J. B., W. J. Calhoun, 0. J. Gleich, H. Kita, J. S. Abrams, L. B.
Schwartz, B. Volovitz, M. Ben-Yaakov and W. W. Busse. Immediate and late
allergic airway response of allergic rhinitis patients to segmental antigen
challenge: Characterization of eosinophil and mast cell mediators. Amer. Rev.
Respir. Dis. 144: 1274-1281, 1991.
19. Umetsu, D., H. Jabara,,rT. DeKruyff, A. Abbas, J. Abrams and R. Geha.
Functional heterogeneity among human inducer T-cell clones. J. lmmunol. 140:
4211, 1988.
20. van Haelst Pisani, C., J. S. Kovach, H. Kita, K. M. Leiferman, G. J. Gleich,
J. E. Silver and J. S. Abrams. Administration of interleukin-2 (IL-2) results in
increased plasma concentrations of IL-5 and eosinophilia in patients with
cancer. Blood. 78: 15381544, 1991.
21. Yssel, H., R. de Waal Malefyt, M.G. Roncarolo, J. S. Abrams, R. Lahesmaa, H.
Spits and J. E. de Vries. Interleukin 10 is produced by subsets of human CD4+ T
cell clones and peripheral blood T cells. J. Immunol. 149: 2378-2384, 1992.
<PAGE>
-16-
EXHIBIT II
U. S. PATENTS
<TABLE>
<CAPTION>
Antibodies to
Human Cytokines Patent Application Filing Date Patent No. Date of Patent
--------------- ------------------ ----------- ---------- --------------
<S> <C> <C> <C> <C>
GM-CSF 5,070,013 12/3/91
IL-4 5,041,381 8/20/91
IL-5 07/832,842 2/6/92
IL-10 07/372,667 6/28/89
07/917,806 7/20/92
(CIP of 07/372,667)
</TABLE>
<PAGE>
-17-
EXHIBIT III
DNAX SUPPORT
1. Per contract 2 vials each of frozen hybridoma cell stock will be
supplied.
a. The vials contain approximately 5 X 10(6) cells.
b. No obvious contamination has become apparent during culturing
in antibiotic-free medium in the DNAX lab.
2. Information will be provided with samples regarding growth conditions
that have been used at the DNAX facility.
3. 1 mg of purified MAb immunoglobulin product will serve as standard for
each of the hybridoma cell lines licensed to the licensee.
4. Cell stock will be replaced without additional charge if any of the
following is established to not be true or to have not occurred, as the
case may be.
a. A hybridoma cell line that grows under culture conditions as
recommended by DNAX staff.
b. A cell line that produces immunoglobulin of the appropriate
(rat) isotype.
c. A cell line whose monoclonal antibody product has the
specificity claimed as verified by the purified antibody
standard.
5. No assurances or guarantees are given that:
a. The cell line will remain mycoplasma free or sterile after it
has been subsequently passaged at the licensee's facility.
b. Any support will be given to the licensee in obtaining a
working assay or in vitro bioassay system in which to
characterize the monoclonal antibody product; this activity is
the licensee's responsibility.
c. Any support will be given to licensee with respect to
interactions with customers, field customer questions, or to
answer customer questions passed on by the licensee.
d. Any support will be given to licensee in putting together
information for licensee product data sheets.
<PAGE>
-18-
e. Any cytokine standards for assay development by the licensee
will be provided to licensee.
6. To the extent that problems arise in terms of shipment or receipt of
the cell lines:
a. DNAX will make a reasonable effort to insure that the licensee
receives working material by shipping a second time at no
additional expense. Subsequently, DNAX will ship again at
licensor's discretion.
7. To the extent that additional help, advice, or information regarding
techniques is required by the licensee:
a. DNAX is willing to provide hands-on training at its
facilities, for a limited period (2 days), completely at
licensee's expense.
b. Alternatively, DNAX is willing to provide additional help
under a consulting arrangement, reimbursed at DNAX's (industry
standard) rate which is currently $1500 per diem. This amount
is payable to Schering Corporation (similar to the payment of
licensing fees).
8. It is the responsibility of the licensee to comply with all Federal and
State regulations regarding shipment or materials to DNAX's facility,
in the event that mutually agreed upon analytical work is to be carried
out at this facility.
<PAGE>
-19-
Mr. William J. Breiner
Vice President
Business Development
Schering Corporation
2000 Galloping Hill Road
Kenilworth, NJ 07033
Dear Mr. Breiner:
Enclosed herein are the two original license agreements for the hybridoma cell
lines producing monoclonal antibodies against human cytokines executed on our
behalf. Also enclosed is payment in the amount of $10,000 dollars for the Cell
Lines listed below as specified under Articles 2.2 and 7.0.
<TABLE>
<CAPTION>
CYTOKINE MAS DESIGNATION ISOTYPE
-------- --------------- -------
<S> <C> <C>
hIL-10 JESS-9D7 IgG(1)
hIL-10 JESS-12G8 IgG(23)
</TABLE>
Upon receipt by Schering Corporation of the executed agreement and fees, it is
understood that Schering will promptly arrange to provide the Cell Lines
indicated above.
Company: Endogen, Inc.
-----------------------------------------
By: /s/ Alan Kott
-----------------------------------------
Title: Business Development Manager
-----------------------------------------
Date: February 9, 1993
-----------------------------------------
Exhibit 10.20
-------------
DISTRIBUTION AGREEMENT
----------------------
THIS AGREEMENT, made as of this 8th day of April, 1998 by and between
Endogen Inc., a Massachusetts corporation having its principal place of
business at 30 Commerce Way, Woburn, MA 01801-1059 (hereinafter referred to as
"Endogen"), on one hand, and Yamanouchi Pharmaceutical Co., Ltd., a Japanese
corporation having its principal place of business at 3-11, Nihonbashi-Honcho
2-chome, Chuo-ku, Tokyo, Japan (hereinafter referred to as "Yamanouchi"), on
the other hand,
WITNESSETH
WHEREAS, Yamanouchi is marketing and distributing various diagnostic
products in Japan and is desirous to market and distribute diagnostic of
Endogen;
WHEREAS, Endogen is desirous to expand the market of its products in
Japan through Yamanouchi's marketing and distributing channels;
WHEREAS, Endogen and Yamanouchi wish to cooperate each other for
further development of the products under the trademark "Cellfree" and other
products of Endogen in Japan;
NOW THEREFORE, in consideration of the foregoing premises and of the
covenants, terms and conditions set forth herein below, the parties hereto
agree as follows:
ARTICLE 1: DEFINITIONS
The following terms, when used with initial capital letters, shall
have the following respective meanings when used in this Agreement;
1.1 The term "Products" shall mean the products specified in Appendix I
attached hereto, which may be modified from time to time by written
agreement between the parties hereto.
1.2 The term "Koseisho" shall mean the Ministry of Health and Welfare in
Japan.
1.3 The term "Specification" shall mean the specification of each Product
and such Specification shall be described in the Appendix II attached
hereto.
1.4 The term "Territory" shall mean Japan.
1.5 The term "Trademark" shall mean CELLFREE, which is under application
in the Territory, or any other trademarks in the Territory to be
designated by Endogen for the Products.
ARTICLE 2: MARKETING AND DISTRIBUTION RIGHTS
<PAGE>
- 2 -
2.1 Endogen hereby grants to Yamanouchi the exclusive rights to market,
sell and distribute the Products within the Territory under the
Trademark for the term of this Agreement.
ARTICLE 3: SUPPLY OF PRODUCTS
3.1 Endogen shall supply to Yamanouchi and Yamanouchi shall purchase from
Endogen all of Yamanouchi's requirements for the Products.
3.2 Yamanouchi shall submit to Endogen by the end of each calendar quarter
a written non-binding estimate forecast of the quantity of Products to
be purchased by Yamanouchi in each calendar quarter for the
immediately subsequent four calendar quarters. Such a forecast shall
be updated when it is provided to Endogen.
3.3 Yamanouchi shall place a firm order for the Products with Endogen by
the date to be separately agreed upon between both parties hereto for
each Product.
ARTICLE 4: SHIPMENT AND DELIVERY
4.1 Endogen shall supply Yamanouchi with the Products which are in
conformity with the Specification and having the minimum product life
to be separately agreed upon between both parties hereto for each
Product.
4.2 The terms for the shipment of the Products by Endogen to Yamanouchi
shall be F.O.B. Woburn, Massachusetts.
4.3 Yamanouchi shall examine the Products delivered by Endogen and shall
notify Endogen in writing of shortage in quantity or defects in
appearance within thirty (30) days after the delivery of such Products
to Yamanouchi and of failure to the Specification within ninety (90)
days after the delivery of such Products to Yamanouchi. Endogen shall
supply Yamanouchi with the shortage or replacement of the Products or
deduct the payment amount for such shortage, defects or failure to the
Specification by mutual agreement of the parties on such supply of the
shortage or replacement, or deduction of the payment.
ARTICLE 5: SUPPLY PRICE
5.1 The supply price of the Products from Endogen to Yamanouchi shall be
specified in the Appendix III hereto separately for respective
Products.
5.2 In the event of significant increases in the manufacturing costs of
the Products or significant changes in price reimbursement levels of
the Products under the national health insurance programs in Japan or
significant changes in the exchange rate between U.S. Dollars and
Japanese Yen, both parties hereto shall discuss the change of the
supply price of the Products from Endogen to
<PAGE>
- 3 -
Yamanouchi.
ARTICLE 6: MARKETING
6.1 Yamanouchi shall file the application with Koseisho for the approval
of the Products in its own name and expenses.
6.2 Yamanouchi shall extend its best efforts to market, sell and
distribute the Products in the Territory.
6.3 Yamanouchi shall market, sell and distribute the Products in original
component packaging as provided by Endogen. Yamanouchi will provide
vial and box labels and a direction insert at its own expense.
Yamanouchi shall send samples of such labels and direction inserts to
Endogen.
6.4 Yamanouchi shall prepare promotional literature, brochures, and
catalogs to be used for the sales promotion of the Products and shall
send samples of such materials to Endogen.
6.5 Within thirty (30) days after the end of each calendar quarter,
Yamanouchi shall send Endogen a written report on the quantities of
the Products sold in the Territory during such calendar quarter and
the quantities of the Products in Yamanouchi's inventory at the end of
such calendar quarter.
6.6 On or before the fifteenth day in February in each year,
Yamanouchi shall send Endogen a written summary on activities in
marketing, sales promotion, clinical trials and application for
Koseisho's approval performed by Yamanouchi for the Products in the
Territory during the previous calendar year.
6.7 In order to support Yamanouchi's activities for the application for
Koseisho's approval and sales promotion for the Products in the
Territory, Endogen shall use best efforts to provide Yamanouchi with
information and other cooperation necessary for such activities.
6.8 All data used by Yamanouchi for the application for Koseisho's
approval of the Products shall be made available to both parties
hereto.
ARTICLE 7: PAYMENTS
7.1 Endogen shall invoice Yamanouchi for the Products to be purchased by
<PAGE>
- 4 -
Yamanouchi when such Products are shipped to Yamanouchi. Yamanouchi
shall make the payment for such Products to the bank account
designated by Endogen within thirty (30) days after the date of such
invoice.
ARTICLE 8: INSPECTION
8.1 Yamanouchi may send its employees or designated persons to Endogen at
its own expense to inspect Endogen's manufacturing facilities for the
Products with a previous written notice to Endogen, provided that such
inspection shall be made within the normal business hour of Endogen
and shall not exceed once a calendar year.
ARTICLE 9: TERM AND TERMINATION
9.1 This Agreement shall become effective as of the date first above
written and continue in effect for [CONFIDENTIAL TREATMENT
REQUESTED]*. Thereafter this Agreement shall be extended automatically
in [CONFIDENTIAL TREATMENT REQUESTED]* increments unless either party
hereto notifies the other party in writing of its intention to
terminate this Agreement at least six (6) months in advance of such
intended termination.
9.2 Either party hereto shall have the right to terminate this Agreement
immediately by notice in writing (i) in the event that the other party
defaults on or breaches any of its material covenants or obligations
on its part to be performed hereunder, and such default or breach is
not cured within sixty (60) days after written notice thereof has been
given by the non-defaulting party; or (ii) in the event that either
party hereto shall enter into any arrangement or composition with its
creditors, or enter or be put into voluntary or compulsory liquidation
(except for the purpose of any reorganization reasonably acceptable to
the other party), or have its business enjoined or ordered into
receivership by executive or judicial authorities.
ARTICLE 10: CONFIDENTIALITY
10.1 Each party hereto shall keep all information received from the other
party under this Agreement strictly in confidence and shall not
disclose such confidential information to any third party without
first obtaining the disclosing party's written consent.
10.2 The provisions of the above Section l0.1 shall not apply to the
following information;
- --------
*
[CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL WHICH HAS BEEN OMITTED AND
FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL
HAS BEEN FILED WITH THE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
<PAGE>
- 5 -
(a) which, at the time of receipt from the other party, is in the
public domain; or
(b) which, after receipt from the other party, become part of
public domain through no fault of the receiving party; or
(c) which, at the time of receipt from the other party, is
already in the receiving party's possession; or
(d) which is lawfully obtained from any third party having a
right of such disclosure; or
(e) which is independently discovered by the receiving party
without using the confidential information received from the
disclosing party and such independent discovery can be
properly demonstrated by the receiving party.
ARTICLE 11: FORCE MAJEURE
11.1 The failure by either party to meet its material covenants and
obligations under this Agreement shall not be considered a breach of
this Agreement if and to the extent caused by occurrences beyond the
reasonable control of the party affected, including, but not limited
to acts of God, governmental restrictions, strikes or other concerned
acts of workers, fire, flood, earthquake, explosion, riots or wars.
ARTICLE 12: NOTICE
12.1 Any notice required to be given hereunder shall be sent in writing by
registered or certified airmail, postage prepaid, or by air courier,
or facsimile, addressed to the party to whom it is to be given as
follows;
If to Endogen: Endogen, Inc.
30 Commerce Way
Woburn, MA 01801-1059
U.S.A.
Facsimile: 781-937-3096
Attention: President & CEO
If to Yamanouchi: Yamanouchi Pharmaceutical Co., Ltd.
17-1, Hasune 3-chome
Itabashi-ku, Tokyo 174-8612
Japan
Facsimile: 3-5916-2608
Attention: Director of Diagnostics Division
<PAGE>
- 6 -
or to such other address or addresses as may from time to time be
given in writing by either party to the other party.
ARTICLE 13: ASSIGNMENT
13.1 This Agreement shall not be assigned by either party without the prior
written consent of the other party, except to a successor of the party
hereto or an assignee of substantially all of the assets of a party
relating to this Agreement. This Agreement shall be binding upon and
inure to the benefit of a successor or an assignee of the parties
hereto.
ARTICLE 14: WAIVER
14.1 No waiver by either party hereto of any terms or conditions of this
Agreement shall be construed as a further waiver of such terms or
conditions.
ARTICLE 15: ENTIRE AGREEMENT
15.1 This Agreement constitutes the entire understanding between the
parties hereto with respect to the subject matter hereof and
supersedes all prior agreements, understanding, writings and
discussions between the parties hereto relating to said subject
matter.
ARTICLE 16: ARBITRATION
16.1 In the event of any controversy or dispute arising out of or relating
to this Agreement, the parties hereto shall use best efforts to settle
those conflicts amicably between themselves. Should the parties hereto
fail to settle the conflict, the matter in dispute shall be settled
under the rules of conciliation and arbitration of the Japan-American
Trade Arbitration Agreement. The arbitration will be held in English
in Tokyo, Japan if the arbitration is initiated by Endogen and will be
held in Boston, Massachusetts if the arbitration is initiated by
Yamanouchi.
ARTICLE 17: GOVERNING LAW
17.1 This Agreement shall be governed and construed in accordance with the
laws of the Commonwealth of Massachusetts.
<PAGE>
- 7 -
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers on the date and year first above
written.
ENDOGEN, INC.
/s/ Dennis Walczewski
-----------------------------------
Vice President Sales
April 8, 1998
YAMANOUCHI PHARMACEUTICAL CO., LTD.
/s/ H. Ueda
-----------------------------------
Managing Director
July 31, 1998
<PAGE>
Distribution Agreement
Appendix I For Bead Kit, Page 1
Appendix I"
"Product Listing"
1.0 CELLFREE(R) IL-2R Assay Kit
*CELLFREE(R) IL-2R Assay Kit is the bead kit for the determination of
soluble interleukin-2 receptor (IL-2R) levels in human serum.
Japanese name: "CELLFREE IL-2R" and "CELLFREE IL-2R in Japanese
letters".
<PAGE>
Distribution Agreement
Appendix I For Plate Kit, Page 1
Appendix I
"Product Listing"
2.0 CELLFREE(R) IL-2R Test Kit
*CELLFREE(R) IL-2R Test Kit is the plate kit for the determination of
soluble interleukin-2 receptor (IL-2R) levels in human serum.
Japanese name: "CELLFREE IL-2R Yamanouchi" and "CELLFREE IL-2R
Yamanouchi in Japanese letters".
<PAGE>
Distribution Agreement
Appendix II For Bead Kit, Page 1
Appendix II
"Product Specifications"
1.0 CELLFREE(R) IL-2R Assay Kit (Japanese name: CELLFREE(R) IL-2R)
1.1 The specifications for the ENDOGEN's releasing test
1.1.1 Kit Composition
Component Vial Cap Color
[CONFIDENTIAL TREATMENT REQUESTED]*
Component Specification
[CONFIDENTIAL TREATMENT REQUESTED]*
1.1.2 Assay Characteristic
Parameter Specification
[CONFIDENTIAL TREATMENT REQUESTED]*
- --------
*
[CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL WHICH HAS BEEN OMITTED AND
FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL
HAS BEEN FILED WITH THE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
<PAGE>
Distribution Agreement
Appendix II For Bead Kit, Page 2
1.1.2 Assay Characteristic (continued)
[CONFIDENTIAL TREATMENT REQUESTED]*
1.2 The specifications for the Yamanouchi's accepting test
1.2.1 Kit Composition
Component Specification
[CONFIDENTIAL TREATMENT REQUESTED]*
1.2.2 Assay Characteristic
[CONFIDENTIAL TREATMENT REQUESTED]*
Specificity test
[CONFIDENTIAL TREATMENT REQUESTED]*
Reproducibility test
[CONFIDENTIAL TREATMENT REQUESTED]*
Sensitivity test
[CONFIDENTIAL TREATMENT REQUESTED]*
- --------
*
[CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL WHICH HAS BEEN OMITTED AND
FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL
HAS BEEN FILED WITH THE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
<PAGE>
Distribution Agreement
Appendix II For Plate Kit, Page 1
Appendix II
"Product Specifications"
2.0 CELLFREE(R) IL-2R Test Kit (Japanese name: CELLFREE(R) IL-2R Yamanouchi)
2.1 The specifications for the ENDOGEN's releasing and Yamanouchi's
accepting test
2.1.1 Kit Composition
Component Vial Cap Color
[CONFIDENTIAL TREATMENT REQUESTED]*
Component Specification
[CONFIDENTIAL TREATMENT REQUESTED]*
- --------
*
[CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL WHICH HAS BEEN OMITTED AND
FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL
HAS BEEN FILED WITH THE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
<PAGE>
Distribution Agreement
Appendix II For Plate Kit, Page 2
[CONFIDENTIAL TREATMENT REQUESTED]*
Standard Specification
[CONFIDENTIAL TREATMENT REQUESTED]*
2.2.2 Assay Characteristic
Parameter Specification
[CONFIDENTIAL TREATMENT REQUESTED]*
[CONFIDENTIAL TREATMENT REQUESTED]*
- --------
*
[CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL WHICH HAS BEEN OMITTED AND
FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL
HAS BEEN FILED WITH THE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
Specificity test [CONFIDENTIAL TREATMENT REQUESTED]*
[CONFIDENTIAL TREATMENT REQUESTED]*
Reproducibility test
[CONFIDENTIAL TREATMENT REQUESTED]*
<PAGE>
Distribution Agreement
Appendix III For Bead Kit, Page 1
Appendix III
"Supply Price"
1.0 The supply price of CELLFREE(R) IL-2R Assay Kit from ENDOGEN
to Yamanouchi is [CONFIDENTIAL TREATMENT REQUESTED]* F.O.B. Woburn,
Massachusetts.
- --------
*
[CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL WHICH HAS BEEN OMITTED AND
FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL
HAS BEEN FILED WITH THE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
<PAGE>
Distribution Agreement
Appendix III For Plate Kit, Page 1
Appendix III
"Supply Price"
2.0 The supply price of CELLFREE(R) IL-2R Test Kit from
ENDOGEN to Yamanouchi is [CONFIDENTIAL TREATMENT REQUESTED]*
F.O.B. Woburn, Massachusetts.
In case of the 10 pack configuration, the price is
[CONFIDENTIAL TREATMENT REQUESTED]* F.O.B. Woburn,
Massachusetts.
- --------
*
[CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL WHICH HAS BEEN OMITTED AND
FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL
HAS BEEN FILED WITH THE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
Exhibit 10.21
-------------
SECURED PROMISSORY NOTE
$16,320.00 October 27, 1997
FOR VALUE RECEIVED, Owen A. Dempsey, an individual with an address at
21 Harris Street, Brookline, Massachusetts 02146 (the "Maker"), promises to pay
to the order of Endogen, Inc. ("Endogen"), the principal sum of SIXTEEN THOUSAND
THREE HUNDRED TWENTY AND 00/100 DOLLARS ($16,320.00), together with interest
thereon from the date hereof on the unpaid principal balance from time to time
outstanding, on the earliest to occur of: (a) one year from the date hereof, (b)
the date the Maker ceases employment or other business relationship with Endogen
or (c) the sale or transfer by the Maker of any of his shares of Endogen's
Common Stock (any event described in (a), (b) or (c) above shall be referred to
hereinafter as a "Payment Due Date"). Interest on the unpaid principal balance
hereof shall accrue from and including the date hereof to the date such
principal amount is paid at the annual applicable Federal rate of 5.84%
compounded annually. Interest on the unpaid principal balance of this Secured
Promissory Note shall by payable on the Payment Due Date, and in the event of
failure of payment on the Payment Due Date, monthly thereafter until this
Secured Promissory Note is paid in full.
Payments of both principal and interest are to be made at Endogen's
principal offices located at 30 Commerce Way, Woburn, Massachusetts 01801 or
such other place as Endogen designates to the Maker in writing, in lawful money
of the United States of America. Interest shall be computed on the basis of a
360-day year and twelve 30-day months.
No delay or omission on the part of Endogen in exercising any right
hereunder shall operate as a waiver of such right or of any other right of
Endogen, nor shall any delay, omission or waiver on any one occasion be deemed a
bar to or waiver of the same or any other right on any future occasion.
This Secured Promissory Note may be prepaid at any time, in whole or in
part, by the Maker without penalty.
This Secured Promissory Note is secured by and entitled to the benefits
of a pledge of securities pursuant to a Pledge Agreement, dated the date hereof,
by the Maker in favor of Endogen (the "Pledge Agreement"). Upon the occurrence
of an Event of Default (as defined in the Pledge Agreement), Endogen may declare
any or all obligations or liabilities of the Maker to Endogen (including the
unpaid principal hereunder and any interest due thereof), immediately due and
payable without presentment, demand, protest or notice. The Maker shall remain
personally liable to the Company with respect to all of the obligations under
this Secured Promissory Note.
When this Secured Promissory Note has been paid in full, the pledge of
the collateral pursuant to the Pledge Agreement shall cease, and the collateral
pursuant to the Pledge
<PAGE>
-2-
Agreement shall revert to the Pledgor free and clear of all liens securing any
obligation or liability of the Pledgor to Endogen, and Endogen's rights, title,
and interest therein shall cease and become void.
The Maker hereby waives presentment, demand, protest, and notice of
every kind. The Maker shall pay on demand all costs, including court costs and
reasonable attorneys' fees, paid or incurred by Endogen in enforcing this
Secured Promissory Note upon default.
This Secured Promissory Note shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the Maker has caused this Secured Promissory Note
to be signed under seal, as of the date first above written.
MAKER
Witness: /s/ Carolee Breton /s/ Owen A. Dempsey
-------------------------- -------------------------
Carolee Breton Owen A. Dempsey
<PAGE>
AMENDMENT NO. 1 TO
SECURED PROMISSORY NOTE
DATED OCTOBER 27, 1997
AMENDMENT NO. 1 dated the 22nd day of January, 1998 by and between Owen
A. Dempsey and Endogen, Inc., a Massachusetts corporation, to the Secured
Promissory Note dated October 27, 1997 (the "Note").
WHEREAS, the parties hereto desire to amend the Note to shorten its
term.
NOW THEREFORE, the parties hereto, in consideration of the premises and
agreements contained herein and intending to be legally bound hereby, agree as
follows:
1. The first paragraph of the Note is hereby amended and restated in its
entirety as set forth below:
"FOR VALUE RECEIVED, Owen A. Dempsey, an individual with an address at
21 Harris Street, Brookline, Massachusetts 02146 (the "Maker"), promises to pay
to the order of Endogen, Inc. ("Endogen"), the principal sum of SIXTEEN THOUSAND
THREE HUNDRED TWENTY AND 00/100 DOLLARS ($16,320.00), together with interest
thereon from the date hereof on the unpaid principal balance from time to time
outstanding, on the earliest to occur of: (a) August 21, 1998, (b) the date the
Maker ceases employment or other business relationship with Endogen or (c) the
sale or transfer by the Maker of any of his shares of Endogen's Common Stock
(any event described in (a), (b) or (c) above shall be referred to hereinafter
as a "Payment Due Date"). Interest on the unpaid principal balance hereof shall
accrue from and including the date hereof to the date such principal amount is
paid at the annual applicable Federal rate of 5.84% compounded annually.
Interest on the unpaid principal balance of this Secured Promissory Note shall
be payable on the Payment Due Date, and in the event of failure of payment on
the Payment Due Date, monthly thereafter until this Secured Promissory Note is
paid in full."
IN WITNESS WHEREOF, the undersigned have executed this Amendment No. 1
as of the day and year first above written.
ENDOGEN, INC.
/s/ Owen A. Dempsey
- -------------------------------- By:
Owen A. Dempsey -----------------------------
Title:
----------------------------
Exhibit 10.22
-------------
PLEDGE AGREEMENT
PLEDGE AGREEMENT dated as of October 27, 1997 by and between Owen A.
Dempsey, an individual with an address at 21 Harris Street, Brookline,
Massachusetts 02146 (the "Pledgor"), in favor of Endogen, Inc., a Massachusetts
corporation, having its principal place of business at 30 Commerce Way, Woburn,
Massachusetts 01801 ("Endogen").
WHEREAS, the Pledgor has the right to purchase 12,000 shares of the
Common Stock, $.01 par value per share, of Endogen (the "Shares");
WHEREAS, Endogen has agreed to lend to the Pledgor $16,320.00 (the
"Loan") to purchase the Shares, which Loan is evidenced by a promissory note in
the principal amount of $16,320.00 of the Pledgor to Endogen dated as of the
date hereof (the "Note"); and
WHEREAS, the obligation of Endogen to grant the Loan is subject to the
condition that the Pledgor execute and deliver this Pledge Agreement and grant
the security interest hereinafter described.
NOW, THEREFORE, in consideration of the covenants and conditions set
forth herein and to induce Endogen to grant the Loan, the Pledgor hereby agrees
with Endogen as follows:
Section 1. Defined Terms. The following terms have the following
meanings:
"Code" means the Uniform Commercial Code from time to time in effect in
the Commonwealth of Massachusetts.
"Collateral" means the Pledged Stock and all Proceeds.
"Foreclosure Date" means any date on which Endogen sends to the Pledgor
a Foreclosure Notice.
"Foreclosure Notice" means notice that Endogen may give to the Pledgor
when an Event of Default occurs and is continuing, which notice shall state (i)
that Endogen is exercising its rights under this Pledge Agreement, (ii) the
nature of the Event of Default, (iii) the number of shares of Pledged Stock
calculated in accordance with this Section 1.
"Loan" means the loan by Endogen of $16,320.00 in favor of the Pledgor.
"Pledge Agreement" means this Pledge Agreement, as amended,
supplemented or otherwise modified from time to time.
<PAGE>
-2-
"Pledged Stock" means the number of Shares determined by dividing the
amount of unpaid principal and interest outstanding under the Note on the
Foreclosure Date by the purchase price per share paid by the Pledgor under that
certain Non-Qualified Stock Option Agreement dated August 21, 1991 by and
between Pledgor and Endogen (the "Stock Option Agreement").
"Proceeds" means all "proceeds" as such term is defined in Section
9-306(1) of the Uniform Commercial Code in effect in the Commonwealth of
Massachusetts on the date hereof and, in any event, includes, without
limitation, all dividends or other income from the Pledged Stock, collections
thereon or distributions with respect thereto.
Section 2. Pledge; Grant of Security Interest; Escrow of Pledged Stock.
The Pledgor grants to Endogen a first security interest in the Collateral, as
collateral security for the prompt and complete payment of the Note in
accordance with its terms. The Pledgor shall deliver to Endogen the stock
certificate or certificates representing the Pledged Stock to be held in escrow
by Endogen until the Note is paid in full, together with an undated stock power
or powers covering such certificate or certificates, duly executed in blank.
Section 3. Representations and Warranties. The Pledgor represents and
warrants that:
(a) this Pledge Agreement has been duly executed by the
Pledgor, and constitutes a legal, valid and binding obligation of the Pledgor
enforceable in accordance with its terms;
(b) no consent or authorization of, filing with, or other act
by or with respect to, any arbitrator or governmental authority and no consent
of any other person (including, without limitation, any creditor of the
Pledgor), is required in connection with the execution, delivery, performance,
validity or enforceability of this Pledge Agreement; and
(c) the Pledgor is the record and beneficial owner of the
Shares, and the Shares are free of any and all liens, pledges, security
interests, encumbrances or options in favor of, or claims of, any other person,
except the lien created by this Pledge Agreement.
Section 4. Covenants. The Pledgor covenants and agrees with Endogen
that, from and after the date of this Pledge Agreement until the Note is paid in
full:
(a) At any time and from time to time, upon the written
request of Endogen, and at the sole expense of the Pledgor, the Pledgor shall
promptly and duly execute and deliver such further instruments and documents and
take such further actions as Endogen may reasonably request for the purposes of
obtaining or preserving the full benefits of this Pledge Agreement and of the
rights and powers herein granted. If any amount payable under or in connection
with any of the Collateral is or becomes evidenced by any promissory note, other
instrument or chattel paper, such note, instrument or chattel paper shall be
promptly delivered to Endogen, duly endorsed in a manner satisfactory to
Endogen, to be held as Collateral pursuant to this Pledge Agreement.
<PAGE>
-3-
(c) The Pledgor agrees to pay, and to save Endogen harmless
from, any and all liabilities with respect to, or resulting from any delay in
paying, any and all stamp, excise, sales or other taxes which may be payable or
determined to be payable with respect to any of the Collateral or in connection
with any of the transactions contemplated by this Pledge Agreement.
Section 5. Cash Dividends; Voting Rights. Unless an Event of Default
has occurred and is continuing and Endogen has given a Foreclosure Notice to the
Pledgor, the Pledgor shall be permitted to receive all cash dividends paid by
Endogen with respect to the Pledged Stock and shall possess all rights to vote
the Pledged Stock at any meeting of shareholders of Endogen or otherwise.
Section 6. Default. The failure by the Pledgor to pay any amount due
and payable under the Note within ten (10) business days after such amount
becomes due and payable shall constitute a default hereunder (an "Event of
Default").
Section 7. Rights of Endogen. (a) If an Event of Default occurs and is
continuing and Endogen gives a Foreclosure Notice to the Pledgor (i) Endogen
shall have the right to receive any and all cash dividends paid with respect to
the Pledged Stock and make application thereof to the Note in such order as it
may determine, and (ii) all shares of the Pledged Stock shall be registered in
the name of Endogen or its nominee, and Endogen or its nominee may thereafter
exercise (A) all voting, corporate and other rights pertaining to such shares of
the Pledged Stock at any meeting of shareholders of Endogen or otherwise and (B)
any and all rights of conversion, exchange, subscription and any other rights,
privileges or options pertaining to the Pledged Stock as if it were the absolute
owner thereof (including, without limitation, the right to exchange at its
discretion any and all of the Pledged Stock upon the merger, consolidation,
reorganization, recapitalization or other fundamental change in the corporate
structure of Endogen, or upon the exercise by the Pledgor or Endogen of any
right, privilege or option pertaining to such shares of the Pledged Stock, and
in connection therewith, the right to deposit and deliver any and all of the
Pledged Stock with any committee, depository, transfer agent, registrar or other
designated agency upon such terms and conditions as it may determine), all
without liability except to account for property actually received by it, but
Endogen shall have no duty to exercise any such right, privilege or option and
shall not be responsible for any failure to do so or delay in so doing.
Upon the occurrence of an Event of Default, Endogen shall have
the rights and remedies set forth in this Section 7 and in any other instrument
or agreement evidencing or relating to the Loan, and all rights and remedies of
a secured party under the Code or other applicable law. The Pledgor shall remain
personally liable to the Company with respect to all of the obligations under
that certain "full recourse" Note of even date herewith.
(b) Endogen shall not be under any obligation to sell or
otherwise dispose of any Collateral upon the request of the Pledgor or any other
person or to take any other action whatsoever with regard to the Collateral or
any part thereof.
(c) When the Note has been paid in full, the pledge of the
Collateral shall cease, and the Collateral shall revert to the Pledgor free and
clear of all liens securing any
<PAGE>
-4-
obligation or liability of the Pledgor to Endogen, and Endogen's rights, title,
and interest therein shall cease and become void.
Section 8. Severability. Any provision of this Pledge Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
Section 9. No Waiver; Cumulative Remedies. No failure to exercise, nor
any delay in exercising, on the part of Endogen, any right, power or privilege
hereunder shall operate as a waiver thereof. No single or partial exercise of
any right, power or privilege hereunder shall preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. The
rights and remedies herein provided are cumulative, may be exercised singly or
concurrently and are not exclusive of any rights or remedies provided by law.
Section 10. Waivers and Amendments; Successors and Assigns; Governing
Law. None of the terms or provisions of this Pledge Agreement, may be waived,
amended, supplemented or otherwise modified except by a written instrument
executed by the Pledgor and Endogen, provided, that any provision of this Pledge
Agreement may be waived by Endogen in a letter or agreement executed by Endogen.
This Pledge Agreement shall be binding upon the successors and assigns of the
Pledgor and shall insure to the benefit of Endogen and its successors and
assigns. This Pledge Agreement shall be governed by, and construed and
interpreted in accordance with, the laws of the Commonwealth of Massachusetts.
Each party hereto consents to the jurisdiction of the state courts of the
Commonwealth of Massachusetts and the United States courts for the District of
Massachusetts with respect to the transactions contemplated hereby.
Section 11. Notices. Notices under this Pledge Agreement may be given
by express overnight courier service or by facsimile transmission, addressed to
the Parties at their respective addresses set forth in the first paragraph to
this Pledge Agreement and shall be effective when sent. Either party may change
their respective addresses by written notice to the other party.
Section 12. Counterparts. This Pledge Agreement may be executed in
several counterparts, each of which shall constitute an original, but all of
which, when taken together, shall constitute but one agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
-5-
IN WITNESS WHEREOF, the undersigned has caused this Pledge Agreement to
be duly executed and delivered as of the date first above.
PLEDGOR:
/s/ Owen A. Dempsey
----------------------------------------
Owen A. Dempsey
ENDOGEN, INC.
By: /s/ Avery W. Catlin
------------------------------------
Name: Avery W. Catlin
----------------------------------
Title: Vice President of Finance and CFO
---------------------------------
Exhibit 10.23
-------------
PROMISSORY NOTE
$15,000.00 December 9, 1997
FOR VALUE RECEIVED, Owen A. Dempsey, an individual with an address at
21 Harris Street, Brookline, Massachusetts 02146 (the "Maker"), promises to pay
to the order of Endogen, Inc. ("Endogen") the principal sum of FIFTEEN THOUSAND
AND 00/100 DOLLARS ($15,000.00), together with interest thereon from the date
hereof on the unpaid principal balance from time to time outstanding, on January
9, 1998. Interest on the unpaid principal balance hereof shall accrue from and
include the date hereof to the date such principal amount is paid at the annual
rate of 6.0% compounded annually.
Payment of both principal and interest are to be made at Endogen's
principal offices located at 30 Commerce Way, Woburn, Massachusetts 01801, in
lawful money of the United States of America. Interest shall be computed on the
basis of a 360-day year and twelve 30-day months.
This Promissory Note may be prepaid at any time, in whole or in part,
by the Maker without penalty.
The Maker hereby waives presentment, demand, protest, and notice of
every kind. The Maker shall pay on demand all costs, including court costs and
reasonable attorney's fees, paid or incurred by Endogen in enforcing this
Promissory Note upon default.
This Promissory Note shall be governed by and construed in accordance
with the laws of the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the Maker has caused this Promissory Note to be
signed under seal, as of the date first above written.
MAKER
Witness: /s/ Avery W. Catlin /s/ Owen A. Dempsey
Owen A. Dempsey
Exhibit 10.24
LOAN MODIFICATION AGREEMENT
This LOAN MODIFICATION AGREEMENT is entered into as of May 7, 1997, by
and between SILICON VALLEY BANK, a California-chartered bank with its principal
place of business at 3003 Tasman Drive, Santa Clara, CA 95054 and with a loan
production office located at Wellesley Office Park, 40 William Street, Suite
350, Wellesley, MA 02181, doing business under the name "Silicon Valley East"
("Bank"), and ENDOGEN, INC., a MASSACHUSETTS corporation with its principal
place of business at 30 COMMERCE WAY, WOBURN, MASSACHUSETTS 01801 ("Borrower").
RECITALS
Borrower has borrowed money from Bank pursuant to certain Existing Loan
Documents, as defined below. In consideration of certain financial
accommodations from Bank, and Borrower's continuing obligations under the
Existing Loan Documents, Borrower and Bank agree as follows:
AGREEMENT
1. DESCRIPTION OF EXISTING INDEBTEDNESS. Among other indebtedness which
may be owing by Borrower to Bank, Borrower is indebted to Bank pursuant to,
among other documents, a Revolving Promissory Note dated August 28, 1996 in the
original principal amount of EIGHT HUNDRED FIFTY THOUSAND AND NO/100THS DOLLARS
($850,000) (the "Revolving Note"), and a Term Promissory Note dated August 28,
1996 in the original principal amount of FOUR HUNDRED THOUSAND AND NO/100THS
DOLLARS ($400,000) (the "Term Note"). The Revolving Note and the Term Note are
governed by the terms of a Loan and Security Agreement dated August 28, 1996
between Borrower and Bank, as such Loan and Security Agreement may be amended
from time to time (the "Loan Agreement").
Hereinafter, all indebtedness owing by Borrower to Bank shall be
referred to as the "Indebtedness."
2. DESCRIPTION OF COLLATERAL. Repayment of the Indebtedness is secured
pursuant to the Loan Agreement. Hereinafter, the Loan Agreement, the Revolving
Note and the Term Note, together with all other documents securing payments of
the Indebtedness, shall be referred to as the "Existing Loan Documents."
3. DESCRIPTION OF CHANGES IN TERMS.
3.1 Modifications to Eligible Accounts Definition. Subsection (g) of
the definition of Eligible Accounts in the Loan Agreement is hereby deleted
in its entirety.
3.2 Modifications to Eligible Foreign Accounts Definition. The
definition of Eligible Foreign Accounts in the Loan Agreement is hereby replaced
in its entirety with the following:
<PAGE>
"Eligible Foreign Accounts" means Accounts with respect to
which the account debtor does not have principal place of
business in the United States and that are: (1) covered by
credit insurance in form and amount, and by an insurer
satisfactory to Bank less the amount of any deductible(s)
which may be or become owing thereon; or (2) supported by one
or more letters of credit in favor of Bank as beneficiary, in
an amount and of a tenor, and issued by a financial
institution, acceptable to Bank; or (3) derived from sales of
products or services to Amhersham International plc or to
Yamanouchi Pharmaceutical Co., Ltd., or (4) that Bank approves
on a case-by-case basis.
3.3 Modifications to Quick Ratio Covenant. Section 6.8 of the
Loan Agreement is hereby replaced in its entirety with the following:
6.8 Quick Ratio. Borrower shall maintain, as of the last day
of each calendar month beginning February 28, 1997, a ratio of
Quick Assets to Current Liabilities of at least 1.0 to 1.0.
3.4 Modifications to Compliance Certificate. Exhibit D of the
Loan Agreement is hereby replaced in its entirety with Exhibit D to this
Agreement.
3.5 Deletion of Certain Provisions. Section 2.9 of the Loan
Agreement is hereby deleted in its entirety.
4. WAIVER OF PRIOR DEFAULT. Bank hereby waives Borrower's violation of
the Quick Ration Covenant set forth in section 6.8 of the Loan Agreement for the
periods ending December 31, 1996 and January 31, 1997.
5. CONDITIONS PRECEDENT TO FURTHER ADVANCES. The obligation of Bank to
make further advances to Borrower under this line is subject to the condition
precedent that Bank shall have received, in form and substance satisfactory to
Bank, the following:
(a) this Loan Modification Agreement duly executed by
Borrower;
(b) such other documents, and completion of such other
matters, as Bank may reasonably deem necessary or appropriate.
6. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended
wherever necessary to reflect the changes described in this Loan Modification
Agreement.
7. NO DEFENSES OF BORROWER. Borrower agrees that as of this date, it
has no defenses against any of the obligations to pay any amounts under the
Indebtedness.
8. CONTINUING VALIDITY. Borrower understands and agrees that (i) in
modifying the Existing Loan Documents, Bank is relying upon Borrower's
representations,
-2-
<PAGE>
warranties and agreements, as set forth in the Existing Loan Documents, (ii)
except as expressly modified pursuant to this Loan Modification Agreement
(including the effects of Section 6 hereof), the Existing Loan Documents remain
unchanged and in full force and effect, (iii) Bank's agreements to modify the
Existing Loan Documents pursuant to this Loan Modification Agreement shall in no
way obligate Bank to make any future modifications to the Existing Loan
Documents, (iv) it is the intention of Bank and Borrower to retain as liable
parties all makers and endorsers of the Existing Loan Documents, unless a party
is expressly released by Bank in writing, (v) no maker, endorser or guarantor
will be released by virtue of this Loan Modification Agreement, and (vi) the
terms of this Section 8 apply not only to this Loan Modification Agreement but
also to all subsequent loan modification agreements, if any.
9. EFFECTIVENESS. This Agreement shall become effective only when it
shall have been executed by Borrower and Bank (provided, however, in no event
shall this Agreement become effective until signed by an officer of Bank in
California).
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as a sealed instrument as of the date first set forth above.
"Borrower": ENDOGEN, INC. "Bank": SILICON VALLEY BANK, doing
business as SILICON VALLEY EAST
By: /s/ Owen A. Dempsey By: /s/ Phillip S. Ernst
----------------------------- -------------------------------------
Owen A. Dempsey, President Phillip S. Ernst, VP
ATTEST: SILICON VALLEY BANK
--------------------------
By: /s/ Amy Young
-------------------------------------
Title: Amy Young, AVP
------------------------------------
(Signed in Santa Clara County, California)
EXHIBIT D FOLLOWS
-3-
<PAGE>
EXHIBIT D
COMPLIANCE CERTIFICATE
Borrower: Endogen, Inc. Lender: Silicon Valley Bank
30 Commerce Way 3003 Tasman Drive
Woburn, MA 01801 Santa Clara, CA 95054
The undersigned authorized office of ENDOGEN, INC. hereby certifies
that in accordance with the terms and conditions of the Loan and Security
Agreement dated AUGUST 28, 1996 between Borrower and Bank, as amended (the "Loan
Agreement"), (i) Borrower is in complete compliance for the period ending
_____________ of all required conditions and terms except as noted below and
(ii) all representations and warranties of Borrower stated in the Agreement are
true, accurate and complete in all material respects as of the date hereof.
Attached herewith are the required documents supporting the above certification.
The Officer further certifies that these are prepared in accordance with
Generally Accepted Accounting Principals (GAAP) and are consistent from one
period to the next except as explained in an accompanying letter or footnotes.
Please indicate compliance status by circling Yes/No under
"Complies" column
<TABLE>
<CAPTION>
Reporting Covenant Required Complies
------------------ -------- --------
<S> <C> <C> <C>
Monthly financial statements Monthly within 25 days Yes No
Annual (CPA Audited) FYE within 90 days Yes No
A/R & A/P Aging Monthly within 25 days Yes No
A/R Audit Initial and Annual Yes No
</TABLE>
<TABLE>
<CAPTION>
Financial Covenants Required Actual Complies
------------------- -------- ------ --------
<S> <C> <C> <C> <C>
Maintain on a Monthly Basis:
- ----------------------------
Minimum Quick Ratio commencing 2/28/97 1.0:1.0 _______:1.0 Yes No
Minimum TNW $4,000,000 $_________ Yes No
Maximum Debt/TNW 0.75:1.0 _______:1.0 Yes No
Minimum Debt Service+ 1.5:1.0 _______:1.0 Yes No
Maintain on a Quarterly Basis:
- ------------------------------
Minimum Debt Service ++ 1.5:1.0 _______:1.0 Yes No
Minimum Profitability for FQE 8/31/96 and thereafter
($75,000) $_________ Yes No
</TABLE>
+ To be met only after Borrower has met Minimum Debt Service for two fiscal
quarters
++ Not a financial covenant, but a condition to increase the revolving line
availability as per ss.2.1 of the Loan Agreement
Comments Regarding Exceptions:
On behalf of Borrower, the Officer further acknowledges that at any such time as
Borrower is out of compliance with any of the terms set forth in the Agreement,
including, without limitation, any of the financial covenants, Borrower cannot
receive any advances.
-----------------------------------
Sincerely, BANK USE ONLY
- ------------------------------------ Received by: ______________________
Signature Date: _____________________________
- ------------------------------------ Verified: _________________________
TITLE Date: _____________________________
- ------------------------------------ Compliance Status: Yes No
DATE -----------------------------------
-4-
Exhibit 11.1
Endogen, Inc.
Computation of Earnings Per Share
<TABLE>
<CAPTION>
Year ended May 31,
--------------------------------------------------------------
1996 1997 1998
------------- ------------- ----------
<S> <C> <C> <C>
BASIC:
Weighted average number of
common shares outstanding.............. 2,835,697 3,095,262 3,432,590
============= ============= =============
Net income (loss) applicable to
common shares.......................... $ (700,539) $ 975,595 $ 457,654
============= ============= =============
Basic earnings (loss) per share........ $ (0.25) $ 0.32 $ 0.13
============= ============= =============
DILUTED:
Weighted average number of
common shares outstanding.............. 2,835,697 3,095,262 3,432,590
Shares deemed outstanding from
the assumed exercise of stock
options and warrants................... -- 299,400 193,721
------------- ------------- -------------
2,835,697 3,394,662 3,626,311
============= ============= =============
Net income (loss) applicable to
common shares and common
equivalent shares...................... $ (700,539) $ 975,595 $ 457,654
============== ============= =============
Diluted earnings (loss) per share...... $ (0.25) $ 0.29 $ 0.13
============== ============= =============
</TABLE>
Exhibit 21.1
List of Subsidiaries
--------------------
Name Jurisdiction of Incorporation
- ---- -----------------------------
Endogen Export Corporation Barbados
Exhibit 23.1
Consent of Independent Accountants
----------------------------------
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-3 (File No. 333-11241)
and the Registration Statements on Form S-8 (File Nos. 33-64440, 33-77576 and
333-58985) of Endogen, Inc. of our report dated July 9, 1998, appearing on page
F-2 of this Form 10-KSB.
/s/ PricewaterhouseCoopers LLP
- ------------------------------
PricewaterhouseCoopers LLP
Boston, Massachusetts
August 27, 1998
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<LEGEND>
This schedule contains summary financial information extracted from the
financial statements included in the Annual Report on Form 10-KSB for the fiscal
year ended May 31, 1998 of Endogen, Inc. to which this exhibit is a part and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
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<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUN-01-1997
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<EXCHANGE-RATE> 1.00
<CASH> 1,175
<SECURITIES> 0
<RECEIVABLES> 1,424
<ALLOWANCES> 50
<INVENTORY> 1,841
<CURRENT-ASSETS> 4,992
<PP&E> 3,833
<DEPRECIATION> 1,813
<TOTAL-ASSETS> 7,920
<CURRENT-LIABILITIES> 1,296
<BONDS> 0
0
0
<COMMON> 34
<OTHER-SE> 6,387
<TOTAL-LIABILITY-AND-EQUITY> 7,920
<SALES> 10,033
<TOTAL-REVENUES> 10,033
<CGS> 3,751
<TOTAL-COSTS> 9,524
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13
<INCOME-PRETAX> 496
<INCOME-TAX> 38
<INCOME-CONTINUING> 458
<DISCONTINUED> 0
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<NET-INCOME> 458
<EPS-PRIMARY> .13
<EPS-DILUTED> .13
</TABLE>
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<LEGEND>
This schedule contains summary financial information extracted from the
financial statements included in the Annual Report on Form 10-KSB for the fiscal
year ended May 31, 1997 of Endogen, Inc. to which this exhibit is a part and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> JUN-01-1996
<PERIOD-END> MAY-31-1997
<EXCHANGE-RATE> 1.00
<CASH> 334
<SECURITIES> 0
<RECEIVABLES> 1,663
<ALLOWANCES> 50
<INVENTORY> 1,817
<CURRENT-ASSETS> 4,174
<PP&E> 3,448
<DEPRECIATION> 1,120
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<CURRENT-LIABILITIES> 1,439
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0
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<COMMON> 34
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<TOTAL-REVENUES> 9,589
<CGS> 3,365
<TOTAL-COSTS> 8,852
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<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 143
<INCOME-PRETAX> 595
<INCOME-TAX> (381)
<INCOME-CONTINUING> 976
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 976
<EPS-PRIMARY> .32
<EPS-DILUTED> .29
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements included in the Annual Report on Form 10-K for the fiscal
year ended May 31, 1996 of Endogen, Inc. to which this exhibit is a part and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-START> JUN-01-1995
<PERIOD-END> MAY-31-1996
<EXCHANGE-RATE> 1.00
<CASH> 764
<SECURITIES> 0
<RECEIVABLES> 1,449
<ALLOWANCES> 20
<INVENTORY> 1,290
<CURRENT-ASSETS> 3,749
<PP&E> 2,445
<DEPRECIATION> 550
<TOTAL-ASSETS> 6,556
<CURRENT-LIABILITIES> 1,605
<BONDS> 0
0
0
<COMMON> 29
<OTHER-SE> 2,862
<TOTAL-LIABILITY-AND-EQUITY> 6,556
<SALES> 6,622
<TOTAL-REVENUES> 6,622
<CGS> 2,477
<TOTAL-COSTS> 7,312
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11
<INCOME-PRETAX> (701)
<INCOME-TAX> 0
<INCOME-CONTINUING> (701)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (701)
<EPS-PRIMARY> (.25)
<EPS-DILUTED> (.25)
</TABLE>
