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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
Annual report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended January 3, 1999
Commission File No. 0-21794
GENZYME TRANSGENICS CORPORATION
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MASSACHUSETTS 04-3186494
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
FIVE MOUNTAIN ROAD 01701
FRAMINGHAM, MASSACHUSETTS ----------
---------------------------------------- (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(508) 620-9700
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
__________________
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01
_________________
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or15(d) of the Securities Exchange Act of
1934 during the preceding twelve months and (2) has been subject to such filing
requirements for the past 90 days. YES X NO_____
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Aggregate market value of voting stock held by non-affiliates of the
Registrant as of March 16, 1999: $50,232,766
Number of shares of the Registrant's Common Stock outstanding as of
March 16, 1999: 18,709,831 -----------------
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held May 25, 1999 are incorporated by reference into Part III
of this Form 10-K.
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ITEM 1.
BUSINESS
GENERAL
Genzyme Transgenics Corporation ("GTC" or the "Company") has established a
leadership position in the application of transgenic technology to the
development and production of genetically engineered proteins for therapeutic,
diagnostic and other biomedical uses, both in collaboration with pharmaceutical
and biotechnology companies and independently. To date, GTC has produced more
than 40 such proteins. For its lead compound, Antithrombin III ("AT-III"), the
Company has completed Phase I and Phase II human clinical trials, and has
initiated Phase III clinical studies. GTC also operates a leading contract
research organization ("CRO"), Primedica Corporation ("Primedica"), a wholly
owned subsidiary of GTC which provides services such as preclinical efficacy and
safety testing, IN VITRO testing and formulation development to pharmaceutical,
biotechnology, medical device and other companies. Revenues for Primedica were
$50.8 million in 1998, an increase of 17% from 1997. GTC's revenues from its
transgenic research and development totaled $11.6 million compared with $19.5
million for 1997. The decrease reflects the impact on revenue recognition of the
establishment, in January 1998, of the rh AT-III joint venture with Genzyme
Corporation ("Genzyme"). Had the rh AT-III program been structured on the same
basis during the year 1998, transgenic research revenues would have increased
approximately $713,000 from 1997.
GTC produces recombinant proteins transgenically by inserting, into the genetic
material of an animal embryo, a gene that directs the production of a desired
protein in the milk of female offspring. The Company believes that transgenic
production offers significant economic and technological advantages relative to
traditional protein production systems, including reduced capital expenditures
and lower direct production cost per unit for complex proteins. For proteins
currently derived from pooled human plasma, transgenic production provides an
alternative source, with reduced risk of transmission of human viruses and other
known adventitious agents. In the case of certain complex proteins, transgenic
production may represent the only technologically and economically feasible
method of commercial production. To date, GTC has expressed 17 proteins at
levels of one gram per liter or higher, substantially greater levels than those
typically achieved for comparable proteins in conventional cell culture systems.
GTC's most advanced product candidate is transgenic rh AT-III, a protein
normally present in human serum that, when bound to heparin acts as an
anticoagulant. Plasma-derived AT-III is an approved therapy for inherited AT-III
deficiency and for certain acquired deficiencies. Worldwide sales of
plasma-derived AT-III are approximately $200 million. The Company believes
transgenic AT-III may represent a more attractive product than plasma sourced
AT-III in light of safety considerations, the limited volume of AT-III available
from plasma and the impracticality of producing sufficient quantities of
recombinant AT-III by cell culture methods. GTC has expressed transgenic AT-III
in goats, demonstrating stable expression across multiple generations and
successive lactations. Further, GTC has purified transgenic AT-III to clinical
grade with attractive yields. Preclinical safety and efficacy studies, as well
as Phase I and Phase II human safety studies have been successfully completed.
GTC initiated Phase III clinical trials in the US and Europe for this product
beginning in the second quarter of 1998.
GTC is also currently working to develop transgenically produced therapeutic
antibodies with five corporate partners including Bristol-Myers Squibb,
Centocor, and BASF Knoll. Antibody production represents an area of particular
focus for the Company, since these therapeutics are likely to be required in
relatively large and repeated doses for chronic diseases such as rheumatoid
arthritis and cancer, and are, therefore, uniquely suited to transgenic
production. During 1998, the United States Patent and Trademark office issued a
patent to Genzyme Transgenics covering the production of monoclonal and
assembled antibodies at commercial levels in the milk of transgenic mammals.
Other plasma proteins under development by GTC include Human Serum Albumin
("HSA"), which is now being developed in conjunction with Fresenius AG. The
Company is also developing transgenic production processes for other proteins,
including the msp-1 protein for use in a malaria vaccine and insulin, and is in
commercial discussions with prospective partners for other products.
Primedica Corporation's CRO operations are focused on enabling its clients to
meet regulatory testing and other product development needs quickly and
effectively by offering a fully integrated line of services. Primedica's
laboratories focus on providing high value, scientifically differentiated
services to clients, including preclinical efficacy testing, experimental
surgery, photobiology and reproductive toxicology testing as well as formulation
development. Primedica uses its
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technological capabilities to introduce new services that improve the ability of
its customers to develop their products successfully.
The Company's comprehensive programs link its preclinical and manufacturing
support services in order to reduce the time and expense of bringing new
therapeutics or other products to market.
As an outgrowth of production services performed for the National Cancer
Institute (the "NCI"), the Company has developed technology for the production
of idiotypic vaccines, in which proteins derived from a cancer patient's own
tumor cells, or blood plasma, are used to enhance the immune system's ability to
prevent the regrowth of tumors.
TRANSGENIC PRODUCTION
OVERVIEW AND STRATEGY
A growing number of recombinant proteins are being developed by pharmaceutical,
biotechnology and other companies for therapeutic, diagnostic and nutraceutical
applications. Many of these proteins have proven difficult or expensive to
produce in the quantities required using conventional methods, such as bacteria,
yeast or mammalian cell sources. Moreover, bacteria or yeast systems cannot
produce many complex proteins. While mammalian cells can produce most of these
complex proteins, they are generally more difficult and expensive to grow and
often produce lower volumes of protein, or the proteins may not be secreted by
the cells into the culture medium, thereby complicating recovery and
purification. Proteins produced by the Company transgenically have been
expressed at concentrations substantially greater than those typically achieved
using conventional methods.
Transgenic technology uses IN VITRO microinjection or other techniques to
introduce a genetically engineered segment of exogenous DNA (an "expression
vector") into the genetic material of a fertilized egg or early stage animal
embryo. Two types of genetic instructions are incorporated into the expression
vector: the coding sequence and the promoter sequence. Coding sequences instruct
the cells of the animal to express a specified protein. Promoter sequences
direct the expression of proteins at appropriate times and by specific tissues
or cell types. The modified embryo is then transferred to a recipient female.
Transgenes are successfully integrated into the genetic makeup of only a small
percentage of the embryos that are microinjected; therefore multiple
microinjection candidates are required. If successful, the resulting animal,
when mature and lactating, will express the desired protein. Once established in
the first generation of transgenic animals, the transgene is transmitted like
other genetic traits to future generations through traditional breeding with
either non-transgenic or other transgenic animals.
The Company believes transgenic production offers significant economic and
technological advantages over traditional methods of protein production,
including reduction in the total amount of required capital expenditures, lower
direct production cost per unit and reduced risk of transmission of human
viruses and other adventitious agents. For certain complex proteins, transgenic
production may represent the only technologically and economically feasible
method of commercial production. To date, the Company has produced such proteins
principally using goats, which offer an attractive combination of large milk
volumes, relatively short generational time periods and ease of handling and
milking.
GTC also believes that for certain proteins required in extremely large amounts,
the cloning of large dairy animals such as cows expressing the desired transgene
in their milk will speed transgenic biopharmaceutical development. In September
1997, GTC signed an exclusive, worldwide licensing agreement with Advanced Cell
Technologies, Inc. ("ACT") of Worcester, MA allowing GTC to utilize ACT
technology for the development of biopharmaceuticals and nutraceuticals in the
milk of cloned, transgenic dairy cows. ACT has developed proprietary technology,
which, when coupled with GTC's transgenic technology, will provide patentable
approaches to efficiently create cloned transgenic cows.
GTC's strategy is to commercially produce proteins by use of transgenic
technology both by (i) entering into contracts with biotechnology and
pharmaceutical companies to utilize the Company's transgenic services in
exchange for revenue, royalties and, possibly, marketing rights to the resulting
product and (ii) independently identifying proteins in the public domain,
proteins covered by lapsing patents and proprietary proteins available for
license which represent attractive candidates for transgenic production and
funding development of such proteins itself or seeking corporate partner
funding.
GTC has entered into funding contracts for the development of AT-III, other
plasma proteins, certain monoclonal antibodies and other products.
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ACHIEVEMENTS TO DATE:
Over the past few years, GTC has shown the feasibility of transgenic protein
production by the achievement of the following specific milestones:
- -- To date, GTC has produced more than 40 different transgenic proteins in
animals, 17 at concentrations of one gram per liter or greater and one
protein in excess of 35 grams per liter, levels often many times higher
than those achievable in other production systems.
- -- GTC maintains a herd of over 1,500 goats at its facility in
Massachusetts as well as an additional 150 goats at Tufts University
School of Veterinary Medicine ("Tufts"). A significant number of the
goats in these herds are transgenic.
- -- Stability of expression has been demonstrated across lactations, and,
for two proteins, across two generations expressing the same transgene.
- -- Together with Genzyme, GTC has been able to achieve clinical grade
purity for a transgenically produced protein at high recovery levels.
This transgenic protein has been extensively characterized and its
pharmacodynamic properties in animal models have been shown to be
comparable to those of the same protein from other sources.
- -- GTC filed an IND with the US Food and Drug Administration (the "FDA")
for its lead product AT-III, completed a Phase I human safety clinical
trial, completed a Phase II dosing clinical trial and initiated a Phase
III program in patients undergoing cardiac surgery requiring
cardiopulmonary bypass ("CPB") in May 1998.
- -- During 1998, GTC entered into 10 new alliances with corporate partners.
- -- The US Patent and Trademark office issued three new patents to the
Company during 1998; one covering its purification technology, one on
the production of monoclonal and assembled antibodies in the milk of
transgenic mammals, and one covering the production of rh AT-III in the
milk of transgenic goats.
TRANSGENIC PRODUCTS UNDER DEVELOPMENT
ANTITHROMBIN III. AT-III is a protein normally found in human serum that when
bound to heparin acts as an anticoagulant. Decreased levels of AT-III are found
in individuals who have either a hereditary or an acquired deficiency of AT-III.
The hereditary deficiency has an incidence rate of 1 in 2,000 to 1 in 20,000.
Individuals with hereditary AT-III deficiency have an increased tendency towards
blood clots (thromboses) and are treated with AT-III protein replacement therapy
during periods when they are at high risk for clots, such as during surgery.
Acquired AT-III deficiency occurs in many disease states as a result of several
possible causes, including a decrease in the amount of AT-III produced, an
increase in the rate of AT-III consumption or an abnormal loss of AT-III from
the circulation. Examples of such conditions include acute liver failure,
disseminated intravascular coagulation, sepsis and septic shock, burns, multiple
organ failure, bone marrow and other organ transplantation and hemodialysis.
Plasma-derived AT-III is approved for use in Europe and Japan for treatment of
both acquired and hereditary AT-III deficiency. In the United States,
plasma-derived AT-III is currently approved for use only for hereditary AT-III
deficiency. The annual worldwide market for plasma-derived AT-III is
approximately $200 million.
GTC believes transgenic AT-III may represent a more attractive product in light
of the risks of viral transmission from pooled plasma products in general, the
limited volume of AT-III currently available from plasma and the impracticality
of producing sufficient quantities of recombinant AT-III in cell culture
systems. The Company also believes that a lower cost, higher volume alternative
to plasma-derived AT-III will further expand the use of AT-III in clinical
settings.
GTC has produced multiple transgenic goats carrying the AT-III gene and has
selected a founder goat from which a production herd is being generated. This
genetic line expresses AT-III at levels of approximately two grams per liter.
The processes for production and purification have been implemented and result
in a product that is purified to clinical grade at attractive yields.
Preclinical safety and efficacy studies for AT-III have been successfully
completed. The Company filed an IND with the FDA for the use of transgenic
AT-III as a potential treatment for AT-III deficiency that occurs during certain
vascular surgeries, including cardiopulmonary artery bypass grafting ("CABG"),
and a Phase II clinical study for
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this indication was completed. The study confirmed the safety profile of AT-III
at all doses administered and supported its ability to enhance anticoagulation
in CABG patients. Two placebo-controlled Phase III clinical trials were begun
during the second quarter of 1998 to access the activity of AT-III in restoring
heparin sensitivity among heparin-resistant patients undergoing cardiac surgery
requiring CPB. A third concurrent trial is comparing the physiological activity
of transgenic AT-III with that of plasma-derived AT-III.
GTC is developing recombinant human AT-III under a license from Behringwerke AG,
subject to a royalty obligation. In March 1996, the Company entered into a
Convertible Debt and Development Funding Agreement (the "Agreement") with
Genzyme under which Genzyme agreed to provide a revolving line of credit
("Genzyme Credit Line") in the amount of $10 million and agreed to fund
development costs of the AT-III program. During 1996, Genzyme converted
$1,673,000 of debt to equity under this agreement, reducing the availability to
$8.3 million. The availability under the Genzyme Credit Line was subsequently
reduced in March 1998 to $6.3 million in connection with a preferred stock
offering.
In March 1996, GTC and Genzyme signed an agreement pursuant to which Genzyme
funded the development of AT-III through the first quarter of 1997. Genzyme was
granted co-marketing rights to transgenic AT-III in Europe and the United
States, subject to its entering into a further agreement with GTC by March 31,
1997. SMI Genzyme Ltd., a joint venture between GTC and Sumitomo Metal
Industries Ltd. (the "SMIG JV"), which contributed development funding for
AT-III through December 1995, retains marketing rights to transgenic AT-III in
Asia. In January 1997, the Company reached agreement with the SMIG JV under
which GTC subsequently received milestone payments for the development of AT-III
which totaled $4.4 million. In January 1998, GTC and Genzyme established a joint
venture ("ATIII LLC") for the marketing and distribution of rh AT-III in all
territories other than Asia. Under the terms of the ATIII LLC, Genzyme agreed to
provide 70 percent of the first $33 million of rh AT-III development costs other
than facility costs. GTC agreed to fund the other 30 percent of those costs,
with both companies sharing equally in facility costs and any development costs
exceeding that level. Both companies agreed to contribute manufacturing,
marketing and other resources to the ATIII LLC at cost, and will split profits
from the product sales equally.
MONOCLONAL ANTIBODIES. Monoclonal antibodies are immune system proteins that can
find and attach to specific biological targets in the body. Recent advances in
developing humanized and human antibodies, single chain antibodies and
conjugated antibodies have added to the potential value of these therapeutic
agents. More than 50 monoclonal antibodies are now in clinical trials sponsored
by pharmaceutical and biotechnology companies with many more in development as
therapeutics for cancer, cardiovascular disease, immune system disorders and for
use against a wide variety of infectious agents, such as viruses and bacterial
infections.
Monoclonal antibodies and assembled antibodies are a major area of focus for
GTC. During 1998, the Company received a US patent granting it exclusive rights
to the production of monoclonal and assembled antibodies in commercial
quantities in the milk of transgenic mammals. To date, the company has produced
13 antibodies, and is currently actively working with five different partners,
including Centocor, Bristol-Myers Squibb, BASF/Knoll, Progenics, and an unnamed
West Coast biotechnology company to develop therapeutic antibodies for diseases
including rheumatoid arthritis, cancer, psoriasis and AIDS. GTC anticipates
entering the clinic with the first transgenically-produced version of a
therapeutic antibody during 1999.
HUMAN SERUM ALBUMIN ("HSA"). HSA is the protein principally responsible for
maintaining oncotic pressure, plasma volume and the balance of fluids in blood.
It is critical to the transport of amino acids, fatty acids, enzymes and
hormones in the blood stream. The therapeutic use of HSA is indicated in
situations of blood loss and decreased blood albumin levels which can occur
during shock, serious burns, pre- and post-operative conditions and gastric and
intestinal malfunctions. HSA is currently produced by human plasma
fractionation, with current worldwide sales in excess of $1.3 billion.
For HSA and all human blood sourced products, the theoretical risk of virus
transmission, including HIV and hepatitis, remains a concern despite efforts to
improve screening and purification techniques.
GTC has expressed transgenic HSA in mice at levels equivalent to or greater than
35 grams per liter. Because the Company has demonstrated that the mouse system
is highly predictive to that of dairy animals, the Company believes it will be
able to produce transgenic HSA in cows at commercial scale. An individual dairy
cow will produce approximately 8,000 liters of milk per year, or an estimated 80
kilograms of albumin per year. This level of productivity should provide GTC
with the ability to produce HSA at costs competitive with albumin sourced from
human blood. The Company believes that HSA is not the subject of any composition
of matter patent, and has entered into an agreement with Fresenius AG of Bad
Homburg, Germany, to further develop and commercialize transgenic HSA. Also,
during 1998, GTC further refined its purification
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process for transgenic HSA and developed a detailed economic model for its
commercial production.
OTHER PROTEINS
MALARIA VACCINE. GTC's transgenic expression system has the potential to express
the correct, immunogenic protein for use as a malaria vaccine both economically
and on a large scale. Malaria is a disease that has an annual incidence of more
than 300 million people worldwide and results in several million deaths
annually. GTC is working with the U.S. National Institutes of Health (the "NIH")
and the Federal Malaria Vaccine Coordinating Committee to express a malaria
protein, which is considered a promising vaccine candidate and to examine the
options for commercializing the vaccine. The Company has entered into a CRADA
with the NIH and during 1998 achieved high level expression of the candidate
vaccine malaria antigen, MSP-1, in the milk of transgenic mice.
SECOND GENERATION BIOPHARMACEUTICALS
GTC has a program to identify and develop unique transgenic constructs which may
represent line extensions for recombinant biotherapeutics. These drugs, many of
which have established significant markets, may become vulnerable to competition
from novel versions which may be more cost effective and/or demonstrate improved
efficacy, allow more convenient routes of administration, or have extended
clinical applications. GTC is in discussions with both generic and proprietary
pharmaceutical and biotechnology companies with strategic and product-specific
interests in the second generation biopharmaceuticals program. In 1998, GTC
signed an agreement with Eli Lilly to develop and potentially commercialize a
novel second generation biotherapeutic for which GTC provides the intellectual
property and know how.
PRIMEDICA CORPORATION CRO SERVICES
OVERVIEW
Contract research organizations provide testing and development services to
pharmaceutical, biotechnology, medical device and other companies, as well as to
certain government agencies. The industry is divided generally into companies
which conduct human clinical trials and those providing non-clinical services,
including preclinical testing, clinical trial support and other development
services. The worldwide revenues for non-clinical CRO services were in excess of
$1 billion in 1998.
The growth of the CRO market has been influenced by several factors. First, cost
control pressures on large pharmaceutical firms are leading them to focus on
core competencies, often resulting in a reduction in the size and capacity of
in-house, non-clinical testing departments. Second, emerging biotechnology and
medical device companies often have and can afford little infrastructure
dedicated to such functions. Third, new scientific developments continue to lead
to new fields of safety testing. Fourth, regulatory changes have mandated
additional testing requirements. Fifth, the need for services, such as efficacy
models and formulation development, increases as pharmaceutical companies
venture further from their traditional bases in search of breakthrough products.
Primedica believes that it has a broader set of value-added services than any of
its competitors and is differentiated by its ability to offer comprehensive
development programs. The Company has the ability to perform virtually all of
the safety, efficacy and quality control testing, as well as to provide the
regulatory affairs expertise necessary to bring a client's early research-stage
product through preclinical testing.
OPERATIONS AND TECHNICAL CAPABILITIES
GTC acquired its CRO capabilities through the acquisitions of TSI Corporation
("TSI") in October 1994 and BioDevelopment Laboratories, Inc. ("BDL") in June
1995. In February 1998, GTC reorganized its CRO businesses under its wholly
owned subsidiary, Primedica, to provide a unified identity and a dedicated
structure for further growth of its CRO business. Primedica conducts its CRO
services through five laboratories located in Worcester, Massachusetts; Horsham,
Pennsylvania; Redfield, Arkansas; Rockville, Maryland and Cambridge,
Massachusetts. GTC expects to use Primedica as a vehicle to pursue acquisitions
and facilitate other transactions driving growth and profitability. This
business currently employs approximately 500 people. Primedica's laboratories
focus on providing high value, scientifically differentiated services to its
clients. Fields in which Primedica provides contract services include:
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- -- PRODUCT SAFETY TESTING. Primedica conducts safety studies on multiple
animal species using toxicological, pathological and specialty
endpoints, such as physiologic, pharmacologic and mechanistic
evaluations, and is a recognized world leader in conducting and
evaluating reproductive and developmental toxicology studies.
- -- METABOLISM AND PHARMACOKINETICS. Primedica's metabolism group evaluates
the distribution and impact of a drug and its metabolites using
sophisticated sampling techniques, metabolite profiling and
identification, tissue distribution studies, and other techniques to
determine tissue half-life, clearance rates, and potential sites of
drug toxicity after systemic exposure.
- -- COMPREHENSIVE MANUFACTURING SERVICES. Primedica specializes in
biopharmaceutical process development and manufacturing for
small-to-moderate batch sizes. These services include early cell line
development and optimization, production, down stream processing and
fill and finish services.
- -- DELIVERY AND DEVELOPMENT TECHNOLOGY SERVICES. These services include
targeted and controlled drug delivery, feasibility and preformulation
support, as well as formulation development for various routes of
administration.
Primedica believes the key to sustaining superior performance in this field will
be in providing services in a close, collaborative relationship in which
customers are able to receive scientific services from Primedica at levels equal
to or greater than that which they could receive from an in-house department.
Toward this end, Primedica has also made significant investments in people,
technology and programs since its acquisition of TSI, including an increase in
the number of doctoral level employees by 42% since the acquisition. Primedica
believes that its testing services strategy has been validated by the growth in
its business since the acquisition of TSI in October 1994. Revenues for the
Company's testing and production services in 1998 were $50.8, million
representing a 17% increase compared to 1997.
IDIOTYPIC CANCER VACCINES
Primedica's Rockville Laboratories have been producing experimental cancer
vaccines for B-cell lymphoma and Myeloma for the NCI under contract since 1993.
These vaccines have shown preliminary efficacy in early clinical trials. In
1997, the Company signed a letter of intent to enter into a CRADA with the NCI
to expand these clinical trials and to gain development rights to the program.
Idiotypic cancer vaccines are autologous therapeutics, requiring that for
lymphoma immunoglobulin be harvested from individual patients and expanded in
separate cell cultures. For Myeloma, immunoglobulin is harvested directly from
patient serum. Vaccines are produced at the NCI and Primedica and are given to
patients upon the completion of chemotherapy. The vaccine activates the
patient's immune system to destroy cancer cells which remain after traditional
chemotherapy regimens.
The principal clinical focus of the work today is on B-cell lymphoma, with
secondary efforts on multiple myeloma and other related malignancies. There are
over 40,000 newly diagnosed cases of B-cell lymphoma in the United States each
year. Most patients initially respond favorably to chemotherapy, but the cancer
has a 70% to 90% mortality rate, with patients typically relapsing within two to
three and one half years.
Idiotypic vaccines produced by GTC have shown promising results. In results
reported at the American Society of Hematology meeting in December 1998, 18 of
21 patients with lymphoma treated with the vaccine following an initial
chemotherapy regimen remain disease free to intervals ranging from 19 to 42
months post-chemotherapy. GTC actively continues to seek a corporate partner for
the continued development and commercialization of its cancer vaccines and
expects to enter pivotal trials, pending funding, in 1999.
RELATIONSHIP WITH GENZYME
EQUITY POSITION. Genzyme is the largest single stockholder of the Company,
currently holding 7,428,365 shares of Common Stock, representing approximately
40% of the outstanding GTC Common Stock. Genzyme also holds two Common Stock
Purchase Warrants (the "Genzyme Warrants") exercisable for 145,000 and 288,000
shares of Common Stock at prices of approximately $2.84 and $4.875 per share,
respectively, the market price of the Common Stock at the time the Genzyme
warrants were issued.
Four million of Genzyme's shares in GTC were acquired in 1993 at the time of the
Company's organization in exchange for
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the transfer of certain assets to the Company. In February 1995, 500,000 shares
were sold to Genzyme at $8.00 per share, upon exercise by GTC of a put agreement
entered into at the time of the Company's initial public offering. Genzyme
received 1,333,333 shares in 1995 and 219,565 shares in 1996 in exchange for
conversion of debt at the then current market prices. In July 1995, 475,467
shares were issued to Genzyme in exchange for shares of Genzyme common stock
delivered as a portion of the consideration for the acquisition of BDL. The
remaining 900,000 shares were purchased by Genzyme as part of GTC's 1996 public
offering. The Genzyme Warrants, which expire on July 3, 2005 and December 28,
2008, were issued to Genzyme in consideration of Genzyme's guarantees of the
Company's indebtedness to commercial banks as discussed below. All of the shares
held by Genzyme are entitled to certain registration rights.
ARRANGEMENTS REGARDING TECHNOLOGY AND PRODUCT DEVELOPMENT. GTC and Genzyme have
entered into a number of agreements regarding technology and product
development, as discussed below.
TECHNOLOGY TRANSFER AGREEMENT. Under the Technology Transfer Agreement dated May
1, 1993, Genzyme transferred substantially all of its transgenic assets and
liabilities to GTC, including its ownership interest in the Joint Venture,
assigned its relevant contracts, and licensed to the Company technology owned or
controlled by it and relating to the production of recombinant proteins in the
milk of transgenic animals (the "Field") and the purification of proteins
produced in that matter. The license is worldwide and royalty free as to
Genzyme, although GTC is obligated to Genzyme's licensors for any royalties due
them. As long as Genzyme owns less than 50% of GTC, Genzyme may use the
transferred technology, or any other technology it subsequently acquires
relating to the Field, without any royalty obligation to the Company, provided
Genzyme may not offer transgenic production services to third parties.
R&D AGREEMENT. Pursuant to a Research and Development Agreement dated May 1,
1993 (the "R&D Agreement"), Genzyme and GTC agreed, until December 31, 1998, to
provide research and development services to the other relating, in the case of
GTC, to transgenic production of recombinant proteins and, in the case of
Genzyme, to the purification of such proteins. Each company receives payments
from the other equal to the performing party's fully allocated cost of such
services, which can be no less than 80% of the annual budgets established by the
parties under the R&D Agreement, plus, in most cases, a fee equal to 10% of such
costs. The parties are continuing under this agreement and are currently
negotiating an extension of the agreement.
ATIII LLC. On January 1, 1998, a definitive collaboration agreement for the
ATIII LLC joint venture between the Company and Genzyme was executed. Under the
terms of the agreement, Genzyme will provide 70% of the first $33 million of
development costs, excluding facility costs, under this program. The Company
will fund the other 30% of these costs. Development costs in excess of these
amounts will be funded equally by the partners. The Company and Genzyme will
also make capital contributions to ATIII LLC sufficient to pay 50% each of all
new facility costs to be incurred. In addition to the funding, both partners
will contribute manufacturing, marketing and other resources to ATIII LLC at
cost. Under the agreement to establish the joint venture, Genzyme and the
Company were the only members and owned 3.7% and 96.3% interest, respectively.
In accordance with the executed purchase agreement, the Company sold and
assigned a 46.3% ownership interest to Genzyme so that Genzyme and GTC each
owned 50% of the venture. The purchase price includes milestone payments of
$12,500,000 from Genzyme to the Company if and when the product has been
approved by the United States Food and Drug Administration and certain sales
levels have been reached. Profits and losses are shared according to ownership
percentages. These agreements cover all territories other than Asia (see Note 11
to the consolidated financial statements appearing in this report).
OTHER ARRANGEMENTS. GTC and Genzyme have also entered into the following other
arrangements:
SERVICES AGREEMENT. Under a services agreement between GTC and Genzyme (the
"Services Agreement"), GTC pays Genzyme a fixed monthly fee for basic laboratory
and administrative support services provided by Genzyme. The monthly fee is
adjusted annually, based on the services to be provided and changes in Genzyme's
cost of providing the services. The Services Agreement is self-renewing annually
and may be terminated upon 90 days notice by either party to the other party.
LEASE. GTC leases a portion of Genzyme's facilities in Framingham, Massachusetts
(the "Lease"). GTC paid Genzyme $411,000 under the Lease in 1998. This lease
expired in May 1998, at which time the lease automatically renewed for one year
and continues to do so annually until terminated by either party on 90 days
notice.
CREDIT LINE GUARANTY, TERM LOAN GUARANTY AND LIEN. The Company obtained a
credit line in July 1995 and a term loan in December 1995 with a commercial
bank, each secured by Genzyme's guaranty of the Company's obligations
thereunder (up to $9.8 million at December 28, 1997). In December 1998, GTC
refinanced the credit line and term loan with another bank and Genzyme
increased the amount of its guaranty (up to $24.6 million at January 3,
1999). The Company has agreed to
9
<PAGE>
reimburse Genzyme for any liability Genzyme may incur under such guaranty and
has granted Genzyme a first lien on all of the Company's assets to secure such
obligation. In consideration of Genzyme's agreement to provide these guarantees,
the Company issued warrants to purchase 145,000 and 288,000 shares of the
Company's common stock at prices per share of $2.84 and $4.875, respectively
(the Company's common stock's market prices at the dates of the Credit Lines)
each with a ten-year term.
OTHER STRATEGIC COLLABORATIONS
TUFTS UNIVERSITY SCHOOL OF VETERINARY MEDICINE. Pursuant to a cooperation and
licensing agreement, Tufts has agreed to work exclusively with GTC until
September 2000 in developing commercial applications of transgenic protein
production in milk. Tufts has also granted GTC a perpetual, non-exclusive
license to use certain proprietary microinjection technology and animal
husbandry techniques. Sales of products derived from transgenic goats produced
by Tufts, or from their offspring, are subject to royalties payable to Tufts.
The Company maintains a herd of approximately 150 goats at Tufts' facility in
Grafton, Massachusetts.
SMIG JV. GTC holds an interest in the SMIG JV which, in March 1994, increased to
22% after an additional $1.2 million cash investment by the Company. In October
1995, GTC contributed approximately $807,000 to maintain its 22% interest. The
SMIG JV and GTC are parties to a research and development agreement under which
the SMIG JV funded GTC's research into transgenic production of AT-III through
October 1995 and certain research on other proteins (the "Funded Proteins")
through October 1996. GTC has granted to the SMIG JV an exclusive license in
Asia to use GTC's transgenic technology to market and sell transgenic animals
and to sell Funded Proteins until the later of 2008 or the expiration of any
applicable Japanese patent, subject to various reciprocal royalty obligations.
In January 1997, the Company reached agreement with the SMIG JV under which GTC
received milestone payments of $4.4 million (see Note 11 to the consolidated
financial statements appearing in this report).
PATENTS AND PROPRIETARY RIGHTS
GTC has filed a number of patent applications which cover relevant portions of
its transgenic technology, several of which are covered by cross-licensing
agreements. GTC holds an exclusive license from Genzyme to rights under a number
of patent applications on file in the United States and corresponding foreign
patent applications relating to certain aspects of its technology. GTC has a
broad patent issued by the European Patent Office which grants the full range of
claims presented in GTC's application covering the basic method of protein
production in milk, as well as any promoter used to do so. Other GTC
applications as to specific proteins, classes of proteins, techniques to enhance
expression and purification technologies remain pending. During 1998, the United
States Patent and Trademark Office awarded GTC three patents, one covering the
purification of proteins from the milk of transgenic animals, another relating
to the production of monoclonal and assembled antibodies at commercial levels in
the milk of transgenic mammals, and one covering the production of rh AT-III in
the milk of transgenic goats.
GTC has exclusive and nonexclusive licenses to technologies owned by other
parties, including DNX, Inc. as to microinjection, Stanford University as to
gene transfer, and Centeon L.L.C., as the successor to Behringwerke AG as to
AT-III, as well as promoter cross-licenses in place with PPL Therapeutics PLC
("PPL") and Pharming B.V. ("Pharming"). Certain of the licenses require GTC to
pay royalties on sales of products which may be derived from or produced using
the licensed technology. The licenses generally extend for the life of any
applicable patent.
The Company also relies upon trade secrets, know how and continuing
technological advances to develop and maintain its competitive position. In an
effort to maintain the confidentiality and ownership of trade secrets and
proprietary information, the Company requires employees, consultants and certain
collaborators to execute confidentiality and invention assignment agreements
upon commencement of a relationship with the Company.
COMPETITION
TRANSGENICS
10
<PAGE>
Many companies, including biotechnology and pharmaceutical companies, are
actively engaged in seeking efficient methods of producing proteins for
therapeutic or diagnostic applications. Two other companies known to GTC are
extensively engaged in the application of transgenic technology for the
production of proteins: Pharming and PPL. Pharming, based in the Netherlands, is
primarily engaged in the development of recombinant proteins in the milk of
transgenic cows, which are most suitable for extremely high volume protein
production. PPL, which is based in Scotland, utilizes primarily sheep for
transgenic protein production.
TESTING SERVICES
The worldwide markets for testing services, manufacturing support services and
related development services are highly fragmented, involving several hundred
companies, as well as universities and governmental bodies. Competition in these
markets is based primarily on technological capabilities and reputation for
quality of products and services offered and perceived financial stability. In
certain market segments, price is also a significant competitive factor.
GOVERNMENT REGULATION
TRANSGENICS
The manufacturing and marketing of GTC's potential products, and certain areas
of research related to them, are subject to regulation by governmental
authorities in the United States, including the FDA, the U.S. Department of
Agriculture (the "USDA") and the Environmental Protection Agency (the "EPA").
Comparable authorities are involved in other countries.
To GTC's knowledge, no protein produced in the milk of a transgenic animal has
been submitted for final regulatory approval. However, the FDA issued its Points
to Consider in August 1995. Earlier in 1995, comparable guidelines were issued
by European regulatory authorities. GTC believes that its programs
satisfactorily address the issues raised by these documents and generally views
them as a very positive milestone in the acceptance of the transgenic form of
production. Based on discussions with the FDA and others, GTC expects that the
basic U.S. regulatory framework for the transgenic production of recombinant
proteins in animals will be similar to that described in the Points to Consider.
The anticipated approval process will be a two-part process, governing, first,
the approval of an individual pharmaceutical product as safe and effective and,
second, the approval of the manufacturing process as complying with applicable
FDA current Good Manufacturing Processes ("GMPs"). There can be no assurance,
however, that there will not be any delays in product development or FDA
approval due to issues arising from the breeding of transgenic animals and the
use of proteins derived from such animals.
With respect to therapeutic products, generally the standard FDA approval
process includes preclinical laboratory and animal testing, submission of an IND
to the FDA, appropriate human clinical trials to establish safety and
effectiveness and submission of a New Drug Application prior to market
introduction. The Company generally expects the same process to apply to
transgenically produced products and has already submitted a U.S. IND for AT-III
and has initiated clinical trials in the U.S. GTC expects the approval process
for various proteins to be undertaken either by the Company, by a collaborator
for which the Company is producing proteins, or jointly, depending upon the
nature of the relationship involved.
Approval for the production facilities to be used in producing a therapeutic
product will be subject to both the requirements for Biologics License
Applications and the Points to Consider.
TESTING SERVICES
Primedica and its customers are subject to a variety of regulatory requirements
intended to ensure the quality and integrity of their products and services. The
industry standard for conducting non-clinical testing is embodied in regulations
called Good Laboratory Practices ("GLPs"). GLPs have been adopted by the EPA and
the FDA and a number of foreign regulatory bodies. To help ensure compliance,
the Company maintains a strict quality assurance program at each site to audit
test data and conduct regular inspections of testing procedures and facilities.
Primedica also complies with FDA-established current GMPs at its Rockville and
Cambridge laboratories.
Primedica also maintains certain licenses and permits issued by federal, state
and local authorities relating to the operation of its current laboratory and
testing facilities, including those required for hazardous waste disposal, the
purchase, use and disposal of radioactive isotopes and the use of animals in
testing and research. These licenses and permits include licenses
11
<PAGE>
from the U.S. Nuclear Regulatory Commission for the purchase, use and disposal
of small amounts of short-lived radioactive isotopes for research purposes.
Primedica also has registered with the Massachusetts Department of Environmental
Protection and the EPA as a Very Small Quantity Hazardous Waste Generator in
connection with its disposal of certain organic hazardous wastes used in
connection with its molecular biology and biomedical research. These wastes are
disposed of through a licensed hazardous waste transporter. The use and disposal
of chemicals is regulated under the Toxic Substances Control Act and other state
and federal legislation.
Each of Primedica's laboratories is licensed by the USDA and state and local
authorities to house and use laboratory animals for biomedical research
purposes. The ability to continue using animals in testing and research in
dependent on continued compliance with the requirements of such licenses.
Primedica's Argus, Worcester and Rockville laboratories are also registered with
the U.S. Public Health Service to conduct biomedical research on laboratory
animals funded by the National Institute for Health ("NIH") and other federal
agencies. Primedica's Argus, Worcester and Redfield laboratories are also
licensed by federal and state drug enforcement agencies to procure and use
controlled substances in research programs involving laboratory animals.
The Company's operations are also subject to federal, state and local laws,
rules, regulations and policies governing the use, generation, manufacture,
storage, air emission, effluent discharge, handling and disposal of certain
materials and waste, including, but not limited to, animal waste and waste
water.
RESEARCH AND DEVELOPMENT COSTS
During its fiscal years ended January 3, 1999, December 29, 1997, and December
29, 1996, GTC spent $16,641,000, $17,840,000, and $8,684,000, respectively, on
research and development. These costs include labor, materials and supplies, and
overhead, the cost of operating the transgenics production facility, as well as
certain subcontracted research projects.
EMPLOYEES
As of January 3, 1999, GTC employed 621 people. Of these, 462 were engaged in
operations, 32 were engaged in research and development, and 127 were engaged in
marketing and general administration. Of GTC's employees, approximately 51 have
Ph.D. degrees, 3 have M.D. degrees and 16 have D.V.M. degrees. None of GTC's
employees are covered by collective bargaining agreements. GTC believes its
employee relations are satisfactory.
ITEM 1A.
EXECUTIVE OFFICERS OF THE REGISTRANT
The current executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
James A. Geraghty ........................ 44 Chairman of the Board
Sandra Nusinoff Lehrman, M.D. ............ 51 President and Chief Executive Officer
John B. Green ............................ 45 Vice President, Chief Financial Officer and Treasurer
Harry M. Meade ........................... 52 Vice President, Transgenics Research
Peter H. Glick ........................... 35 President, Primedica Corporation
</TABLE>
Executive officers of the Company are elected by the Board of Directors on an
annual basis and serve at the discretion of the Board of Directors.
Mr. Geraghty was the President and Chief Executive Officer of GTC from the date
of its incorporation in February 1993 until July 1998. He has been a director of
GTC since February 1993 and has been Chairman of the Board since January 1998.
Mr. Geraghty joined Genzyme in September 1992, where he was a Vice President for
Corporate Development and the General Manager of the transgenics business unit
until the incorporation of the Company.
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<PAGE>
Dr. Lehrman has been President and Chief Executive Officer since July 1998.
Prior to joining GTC, from 1983 to 1994 Dr. Lehrman held several positions at
Wellcome PLC, the last being International Director, Biotechnology and Vice
President, General Manager of Burroughs Wellcome Mfg., Inc., a biopharmaceutical
production subsidiary. She also served as Vice President, Drug Development for
Triangle Pharmaceuticals until July 1996 and President of CytoTherapeutics,
Inc., before joining GTC.
Mr. Green has been the Vice President and Chief Financial Officer of GTC since
December 1994 and Treasurer since August 1997. He has also served as Vice
President and Treasurer of TSI since March 1993 and as its Chief Financial
Officer since December 1994. Prior to that, he was Vice President and Assistant
Treasurer of TSI from December 1989.
Dr. Meade has been Vice President, Transgenics Research for GTC since August
1994 and has served as Research Director of GTC since May 1993. Prior to joining
GTC, Dr. Meade was a Scientific Fellow at Genzyme, where he was responsible for
directing the transgenic molecular biology program. From 1981 to March 1990,
when he joined Genzyme, Dr. Meade was a Senior Scientist at Biogen, Inc., a
biotechnology company, where he worked on the technology relating to the
production of proteins in milk and was an inventor on the first issued patent
covering this process.
Mr. Glick has been President, Primedica Corporation, a wholly-owned subsidiary
of GTC, since February 1998 and has served as Vice President, Marketing and
Corporate Development of GTC since June 1995. Prior to that he was Vice
President, Corporate Development of GTC from October 1994, and of TSI from June
1993. From January 1994 to January 1996, he also served as President of
Primedica's Rockville Laboratories subsidiary. From November 1991 to May 1993,
he was Director, Corporate Development of TSI. Prior to joining TSI, he was a
strategy consultant at Bain & Company.
ITEM 2. PROPERTIES
GTC's headquarters and research facilities for the transgenics segment are
located in approximately 9,100 square feet of laboratory and office space leased
from Genzyme in Framingham, Massachusetts. This lease expired in May 1998, at
which time the lease automatically renewed, and continues to renew annually, on
a year-to-year basis until terminated by either party on 90 days' notice. (See
"Item 1 - Business--Relationship with Genzyme.")
GTC owns a 383-acre commercial production facility in central Massachusetts.
This facility contains 106,793 square feet of production, laboratory and
administrative space dedicated to its transgenic segment. The facility also
currently houses more than 1,500 goats. GTC believes its and Genzyme's current
facilities are adequate for significant further development of commercial
transgenic products. GTC also currently utilizes animal housing, care and
treatment facilities operated by Tufts in Massachusetts.
Primedica also owns or leases sites for each of its testing laboratories. The
Company's Worcester laboratories occupy two facilities in Worcester,
Massachusetts, the largest of which is an approximately 107,600 square foot
preclinical testing facility, leased through March 2005. In addition, Primedica
owns an adjacent building that consists of 46,800 square feet, of which 28,100
square feet of space has been renovated for preclinical testing. The remaining
18,700 square feet, of which 16,000 square feet is unrenovated shell space, is
available for future expansion.
In addition, Primedica owns and occupies a 68,000 square-foot preclinical
testing facility in Redfield, Arkansas; leases a 55,000 square-foot facility in
Horsham, Pennsylvania consisting of a 38,000 square foot preclinical testing
facility and 16,000 square feet of unrenovated expansion space, under a lease
which expires in June 2002; operates its formulation business in a 10,500
square-foot laboratory facility in Cambridge, Massachusetts under a lease that
expires in October 2002; and occupies a 27,000 square-foot laboratory and office
facility in Rockville, Maryland, under a lease expiring in December 2000 and
leases 5,000 square feet of office space located in Milford, Massachusetts under
a lease expiring in October 2001.
ITEM 3. LEGAL PROCEEDINGS
GTC is not a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of fiscal year 1998, no matter was submitted to a vote
of the security holders of the Company.
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<PAGE>
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Common Stock of GTC commenced trading on July 9, 1993 in the Nasdaq National
Market System under the symbol GZTC. Quarterly high and low sales prices for the
stock as reported by the Nasdaq National Market System are shown below.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1997:
1st Quarter 10 1/4 6
2nd Quarter 9 1/4 6 3/8
3rd Quarter 12 3/16 8
4th Quarter 14 8 1/4
1998:
1st Quarter 13 1/2 9
2nd Quarter 12 1/4 7 11/16
3rd Quarter 8 4
4th Quarter 7 1/4 2 1/16
</TABLE>
On March 16, 1999, there were approximately 781 shareholders of GTC of record.
The Company has never paid a cash dividend on its Common Stock and currently
expects that future earnings will be retained for use in its business.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data set forth below as of January 3, 1999 and December
28, 1997 and for each of the three fiscal years in the period ended January 3,
1999 are derived from the Company's consolidated financial statements included
elsewhere in this Report, which have been audited by PricewaterhouseCoopers LLP,
independent accountants. The selected financial data set forth below as
of December 29, 1996 and December 31, 1995 and 1994, and for the years ended
December 31, 1995 and 1994 are derived from audited consolidated financial
statements not included in this Report.
14
<PAGE>
This data should be read in conjunction with the Company's consolidated
financial statements and related notes thereto under Item 8 of this Report and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" under Item 7 of this Report.
SELECTED CONSOLIDATED FINANCIAL DATA
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED
----------------------------------------------------------------------------
JANUARY 3, DECEMBER 28, DECEMBER 29, DECEMBER 31, DECEMBER 31,
1999 1997 1996 1995 1994
---------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Services $ 50,816 $ 43,417 $ 38,496 $ 38,496 $ 4,465
Sponsored research and development 11,596 19,521 8,338 6,022 4,097
Products -- -- -- -- 909
----------- ----------- ----------- ----------- -----------
62,412 62,938 46,834 32,421 9,471
Costs and expenses:
Services 43,668 36,989 33,356 24,250 5,157
Research and development 16,641 17,840 8,684 6,394 4,671
Products -- -- -- -- 841
Selling, general and administrative 16,184 15,650 11,691 8,919 3,596
Equity in loss of Joint Venture 4,285 811 356 713 582
Impairment of investment in Joint
Venture -- -- -- -- 58
----------- ----------- ----------- ----------- -----------
80,778 71,290 54,087 40,276 14,905
----------- ----------- ----------- ----------- -----------
Loss from continuing operations (18,366) (8,352) (7,253) (7,855) (5,434)
Other income and (expenses):
Interest income 280 136 85 32 238
Interest expense (1,379) (1,129) (1,138) (1,007) (263)
Other income 100 50 587 780 --
----------- ----------- ----------- ----------- -----------
Loss from continuing operations before
income taxes (19,365) (9,295) (7,719) (8,050) (5,459)
Provision (benefit) for income taxes 225 48 27 (2,346) 7
----------- ----------- ----------- ----------- -----------
Loss from continuing operations $ (19,590) $ (9,343) $ (7,746) $ (5,704) $ (5,466)
Discontinued operations
Income from discontinued clinical
operations
(less applicable taxes of $239
and $21) -- -- -- 412 182
Gain on disposal of clinical
operations
(less applicable income taxes of
$3,401) -- -- -- 1,159 --
----------- ----------- ----------- ----------- -----------
Net loss $ (19,590) $ (9,343) $ (7,746) $ (4,133) $ (5,284)
Dividends to preferred shareholders (1,156) -- -- -- --
----------- ----------- ----------- ----------- -----------
Net loss to common shareholders $ (20,746) $ (9,343) $ (7,746) $ (4,133) $ (5,284)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Net loss to common shareholders per
weighted average number of common
shares (basic and diluted):
From continuing operations $ (1.15) $ (0.54) $ (0.52) $ (0.48) $ (0.83)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Net loss $ (1.15) $ (0.54) $ (0.52) $ (0.35) $ (0.80)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Weighted average number of shares
outstanding (basic and diluted) 17,978,677 17,253,292 14,801,725 11,788,542 6,598,545
</TABLE>
<TABLE>
<CAPTION>
JANUARY 3, DECEMBER 28, DECEMBER 29, DECEMBER 31, DECEMBER 31,
1999 1997 1996 1995 1994
---------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents $11,740 $ 6,383 $ 8,894 $ 5,825 $ 816
Short-term investments -- -- -- -- 2,231
Working capital (deficit) (4,319) (8,423) (116) (7,011) (7,858)
Total assets 83,337 70,980 66,704 58,042 47,993
Long-term liabilities 10,397 10,779 6,742 7,179 9,082
Stockholders' equity 36,204 27,378 35,204 27,288 19,424
</TABLE>
There were no cash dividends paid for any period presented.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
YEAR ENDED JANUARY 3, 1999 AS COMPARED TO YEAR ENDED DECEMBER 28, 1997
15
<PAGE>
Total revenues for 1998 were $62.4 million, compared with $62.9 million in 1997,
a decrease of $500,000 or 1%. Service revenues increased to $50.8 million in
1998 from 43.4 million in 1997, an increase of $7.4 million or 17%. Research and
development revenues decreased to $11.6 million in 1998 from $19.5 million in
1997, a decrease of $7.9 million or 41%. The decrease reflects the impact on
revenue of the establishment, in January 1998, of the joint venture ("ATIII
LLC") for the development of recombinant human antithrombin III (AT-III") with
Genzyme Corporation ("Genzyme"). Had the AT-III program been structured on the
same basis during 1998 as during 1997, research and development revenues for
1998 would have increased by approximately $713,000 or 4%.
Cost of services in 1998 were $43.7 million compared to $37.0 million in 1997,
an increase of 18%, due, primarily, to increased service volumes. Sponsored
research and development expenses decreased to $10.5 million in 1998 from $12.6
million in 1997, a decrease of $2.1 million or 17%. The decrease is due to the
impact of the formation of ATIII LLC. In 1997, the full cost of the AT-III
development program, including subcontractor costs, was reflected by the Company
as sponsored research and development expense and, to the extent that the
program was funded, as sponsored research and development revenue. With the
formation of ATIII LLC in 1998, all funding and subcontractor costs are being
recorded directly by ATIII LLC. Costs incurred by the Company for the AT-III
development program are being funded by ATIII LLC and, therefore, only these
costs are being recorded equally as sponsored research and development revenue
and sponsored research and development expense. Had the AT-III development
program been structured on the same basis during 1998 as during 1997, the
sponsored research and development expenses would have increased by
approximately $6.6 million over the 1997 rate. Internal research and development
expenses increased to $6.2 million in 1998 from $5.3 million in 1997, an
increase of $900,000 or 17%. The increase is due to increased work on the cancer
vaccine program and increased activity on internal research programs.
Gross profit, defined as revenues less service costs and research and
development costs, in 1998 amounted to $2.1 million versus $8.1 million in 1997.
The decrease is primarily due to $4.4 million of transgenic milestones from the
joint venture with Sumitomo Metals Industries, LTD ("SMIG JV") recorded in 1997
in connection with the AT-III program, a $1.5 million milestone from
Bristol-Myers Squibb in 1997 relating to the BR96 collaboration. Additionally,
an increase of $900,000 in internal R&D was offset by an increase of $700,000 in
services gross profit. Gross profit on services for 1998 was $7.1 million, a
gross margin of 14%, versus $6.4 million, a gross margin of 15% in 1997. The
decrease in gross margin is due to increased revenue recognized on contracts not
signed until the first quarter of 1997 but for which costs had previously been
incurred and recognized, partially offset by improved utilization in 1998 due to
increased revenues.
Selling, general and administrative ("S,G &A") expenses increased to $16.2
million in 1998 from $15.7 million in 1997, an increase of $500,000 or 3%. The
increase is due to the increased marketing effort and additional costs
associated with the name change for Primedica as well as the addition of
administrative personnel required to support the growth in transgenic research
and development programs.
Interest income increased to $280,000 in 1998, from $136,000 in 1997, due to an
increase in funds available for investment as a result of proceeds received from
the preferred stock offering in the first quarter of 1998 and the sale of common
stock in a registered direct offering in the second quarter of 1998. Interest
expense increased to $1.4 million in 1998, from $1.1 million in 1997. Of the
1998 total, $1,144,000 represents interest incurred by the testing service
operations, $101,000 represents interest for the financing of the transgenic
production facility and $134,000 represents interest incurred under the
Convertible Debt and Development Funding Agreement with Genzyme ("Genzyme Credit
Line") (see Item 8 and Note 4 to the consolidated financial statements appearing
in this report).
The Company recognized $100,000 of non-operating income in 1998 compared to
$50,000 in 1997. The 1998 amount represents an earnout payment in connection
with the sale in 1995 of the TSI Center for Diagnostic Products Inc.
("CDP").
The Company recognized $4.3 million of joint venture losses incurred on ATIII
LLC during 1998. In 1997, the Company incurred $811,000 of losses on the SMIG JV
(see Item 8 and Note 11 to the consolidated financial statements appearing in
this report).
YEAR ENDED DECEMBER 28, 1997 AS COMPARED TO YEAR ENDED DECEMBER 29, 1996
Total revenues for 1997 were $62.9 million, compared with $46.8 million in 1996,
an increase of $16.1 million or 34%. Service revenues increased to $43.4 million
in 1997 from $38.5 million in 1996, an increase of $4.9 million or 13%.
Sponsored research and development revenues increased to $19.5 million in 1997
from $8.3 million in 1996, an increase of
16
<PAGE>
$11.2 million or 135%, due primarily to an increase in activity and revenues
related to the funding received from Genzyme in the development of the lead
compound, AT-III, the achievement of $4.4 million in milestones from the SMIG
JV, the achievement of a $1.5 million milestone from Bristol-Meyers Squibb
related to the BR96 collaboration and increased commercial activity.
Cost of services in 1997 was $37 million compared to $33.4 million in 1996, an
increase of $3.6 million or 11%, due, primarily, to the increased service
volumes. Sponsored research and development expenses increased to $12.6 million
in 1997 from $7.9 million in 1996, an increase of $4.7 million or 59%. The
increase is due to the operating costs of a manufacturing facility coming
on-line for the production of AT-III clinical trial material and increased
activity in commercial programs. Internal research and development increased to
$5.3 million in 1997 from $828,000 in 1996, an increase of 540%. The increase is
due to the cancer vaccine program being initiated in 1997 and increased internal
research.
Gross profit in 1997 amounted to $8.1 million versus $4.8 million in 1996. Gross
profit on services in 1997 was $6.4 million, a gross margin of 15%, versus $5.1
million, a gross margin of 13%, in 1996. The improvement in the services margins
was primarily due to increased services revenues.
SG&A expenses increased to $15.7 million in 1997 from $11.7 million in 1996, an
increase of $4 million or 34%. The increase is due to an increase in the sales
and marketing effort and to the addition of administrative personnel required to
support the growth in transgenic research and development programs, $434,000 of
transaction costs on uncompleted merger and acquisition activities as well as
$326,000 in one-time personnel-related charges.
Interest income increased to $136,000 in 1997, from $85,000 in 1996, due to the
investment of funds from the Company's secondary public offering and receipt of
interest on funds that were held in escrow last year. Interest expense was
essentially unchanged year to year at $1.1 million. Of the 1997 total, $962,000
represents interest incurred by the testing service operations, $161,000
represents interest for the financing of the transgenic production facility and
$6,000 represents interest incurred under the Genzyme Credit Line (see Item 8
and Note 4 to the consolidated financial statements appearing in this report).
The Company recognized $50,000 of non-operating income in 1997 compared to
$587,000 in 1996, a decrease of $537,000 or 91%. Of the 1996 total, $538,000
represents the collection of the final payments of the promissory note received
in connection with the 1995 sale of the CDP.
The Company recognized $811,000 of joint venture losses in 1997 compared to
$356,000 in 1996. The increase was due to additional research by the SMIG JV
including increased research funding to the Company (see Item 8 and Note 11 to
the consolidated financial statements appearing in this report).
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and cash equivalents of $11.7 million at January 3, 1999.
During 1998, the Company had a $5.4 million net increase in cash. Sources of
funds during the period include net proceeds of $18.9 million from the issuance
of preferred stock, net proceeds of $6.4 million from the issuance of common
stock, $1.6 million of proceeds received from employee stock purchase and stock
option plans, $2.2 million of proceeds from issuance of long-term debt and $5.1
million in net borrowings under a commercial bank revolving line of credit. Cash
inflows were offset by $8.0 million of cash used in operations (due primarily to
the net loss of $19.6 million, of which $10.1 million represented non-cash
charges), $6.0 million invested in capital equipment for further expansion of
the transgenic production facility and the expansion of the laboratory
facilities, $6.0 million used to pay down the Genzyme revolving line of credit,
$4.4 million invested in ATIII LLC and $4.1 million used to pay down long-term
debt.
In March 1998, the Company completed a $20 million private placement of Series A
Convertible Preferred Stock (the "Preferred Stock") to three institutional
investors. The Preferred Stock matures in three years, callable in cash or
common stock at the sole discretion of the Company, and commencing on December
21, 1998 became convertible into common stock at the lower of the average of any
5 day closing bid prices selected by the holder, in the 20 trading days
immediately preceding the conversion date or $14.55. Conversion is subject to
maximum share limitations, and if holders are unable to convert a portion of
preferred stock due to these limitations, a dividend equal to 10% per annum of
the face amount of the unconverted preferred stock, payable in cash or preferred
stock at the Company's sole option will accrue (see Item 8 and Note 5 to the
consolidated financial statements appearing in this report). As a result of this
financing, the amount of the
17
<PAGE>
revolving line of credit from Genzyme Corporation established under a May 1996
agreement (the "Genzyme Credit Line") was reduced to approximately $6.3 million.
In May 1998, the Company completed a private placement of 603,300 shares of
common stock at $10.80 per share in a registered direct offering to a single
purchaser raising approximately $6.4 million in new equity.
In December 1998, GTC refinanced its bank line of credit and a term loan with a
new commercial bank. The credit line was increased to $17.5 million (the "New
Credit Line") for a three year term expiring in December 2001. Under the New
Credit Line, borrowing capacity was increased by $10 million to $17.5 million, a
portion of which may be utilized for letters of credit. Availability under the
term loan, which provides financing for facilities expansion (the "New Term
Loan"), was increased by $5 million to $7.1 million. As of January 3, 1999,
approximately $11.1 million was outstanding and $4.9 million was available under
the New Credit Line while approximately $1.8 million was outstanding and $5.3
million was available under the New Term Loan. A standby letter of credit with a
face amount of $1.5 million has been issued under the New Credit Line to support
a major facility lease. No amounts were due under the standby letter of credit
as of January 3, 1999. The Company has outstanding debt of $11.8 million payable
through 2012 and operating leases with future minimum payments of $9.2 million
through 2005. The Company has entered into a collaboration agreement for the
ATIII LLC joint venture under which it has committed to fund 30% of development
costs until Genzyme has contributed $33 million and 50% of development costs
thereafter, as well as 50% of all new facility costs (see Item 8 and Notes 2, 9
and 11 to the consolidated financial statements appearing in this report).
Also in December 1998, the Company obtained an additional $5 million lease
commitment pursuant to an equipment lease agreement from a commercial leasing
company which was fully available at January 3, 1999.
The Company had a working capital deficit of $4.3 million at January 3, 1999
compared to a deficit of $8.4 million at December 28, 1997. As of January 3,
1999, the Company had approximately $4.9 million available under the New Credit
Line, $6.3 million available under the Genzyme Credit Line, $5.3 million
available on the New Term Loan and $5 million available under various capital
lease lines. Under the Company's 1999 operating plan, existing cash balances,
along with funds available under bank and lease lines and the Genzyme Credit
Line, are expected to be sufficient to fund the Company into the year 2000. The
Company continues to consider various alternative future financing strategies,
such as collaborative arrangements, public or private sales of its securities,
including securities in certain subsidiaries, additional mortgage or lease
financing, asset sales and other sources.
Management's current expectations regarding the sufficiency of the Company's
cash resources are forward-looking statements, and the Company's cash
requirements may vary materially from such expectations. Such forward-looking
statements are dependent on several factors, including the results of the
Company's testing services business, the ability of the Company to enter into
any transgenic research and development collaborations in the future and the
terms of such collaborations, the results of research and development and
preclinical and clinical testing, competitive and technological advances and
regulatory requirements. If the Company experiences increased losses, the
Company may have to seek additional financing through collaborative arrangements
or from public or private sales of its securities, including equity securities.
There can be no assurance that additional funding will be available on terms
acceptable to the Company, if at all. If additional financing cannot be obtained
on acceptable terms, to continue its operations the Company could be forced to
delay, scale back or eliminate certain of its research and development programs
or to enter into license agreements with third parties for the commercialization
of technologies or products that the Company would otherwise undertake itself.
IMPACT OF YEAR 2000
Certain companies may face problems if the computer processors and software upon
which they directly or indirectly rely are unable to process date values
correctly upon the turn of the millennium ("Year 2000"). Such a system failure
and corruption of data of the Company or its customers or suppliers could
disrupt the Company's operations, including, among other things a temporary
inability to process transactions or engage in other business activities or to
receive information or services from suppliers.
The Company has appointed a Year 2000 task force to address the issues and
assess the potential impact of the Year 2000 problem. The task force is
evaluating the Company's financial systems, computers, software and other
equipment to ensure that the programs and systems will be Year 2000 compliant.
The Company presently believes that its computer systems, software and other
equipment will be Year 2000 compliant by the Summer of 1999. The Company has
spent approximately $100,000 and estimates that it will spend approximately
$300,000 to $400,000 in capital replacement of computers,
18
<PAGE>
equipment and software upgrades. The Company will incur another $100,000 to
$200,000 for costs of implementation. The Company will initiate communications
with third party suppliers and is requesting that they represent that their
products and services are to be Year 2000 compliant and that they have a program
to test for compliance. Additionally, the Company is assessing those vendors
that are not Year 2000 compliant and is in the process of finding alternative
vendors that are compliant.
Because the Company currently anticipates that it will achieve Year 2000
compliance, it has not formulated a contingency plan. However, should the
Company determine there is significant risk that it may be unable to adhere to
its compliance timetable, it will assess reasonably likely scenarios resulting
from noncompliance and establish a contingency plan to address such scenarios.
The Company's ability to achieve Year 2000 compliance is subject to various
uncertainties including the Company's ability to successfully identify systems
and programs not Year 2000 compliant, the nature and amount of programming
required to correct or replace affected programs, the availability and magnitude
of labor and consulting costs and the success of the Company's business
partners, vendors and clients in addressing the Year 2000 issue. Therefore,
while the financial impact of implementing Year 2000 compliance remediation has
not been and is not anticipated to be material to the Company's business,
financial position or results of operations, the Company can make no assurances
with respect to the costs of remediation efforts not yet incurred. Additionally,
the Company cannot be certain that it will achieve adequate Year 2000 compliance
in a timely manner or that any impact of a failure to achieve such compliance
will not have a material adverse effect on the Company's business, financial
condition or results of operation.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has certain financial instruments at January 3, 1999, including a
guaranty, two revolving lines of credit, a letter of credit and various loans
outstanding which are sensitive to changes in interest rates. The Company has a
guaranty by Genzyme Corporation, obtained in December 1998, of the Company's
credit facility with a commercial bank, whose carrying value of $969,000
approximates fair value. Also, the Company has revolving lines of credit with a
commercial bank and with Genzyme Corporation totaling $23.8 million, which
accrue interest at a variable rate. At January 3, 1999, $11.1 million is
outstanding under the lines and the weighted average interest rate is 2.03%. As
part of the revolving credit facility at a commercial bank, the Company has been
issued a $1.5 million standby letter of credit in support of a major facility
lease, of which none has been drawn down at January 3, 1999. Additionally, the
Company has various loans outstanding. These instruments are not leveraged and
are held for purposes other than trading.
For the various loans outstanding, the table below presents the principal cash
flows that exist by maturity date and the related average interest rate.
<TABLE>
<CAPTION>
1999 2000 2001 2002 2003 THEREAFTER TOTAL
---- ---- ---- ---- ---- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed rate debt ($ in 000's) 661 510 919 422 461 2,145 5,118
Average interest rate on fixed rate debt 9.2% 9.3% 9.0% 9.0% 9.0% 8.5%
Variable rate debt ($ in 000's) 184 183 1,469 -- -- -- 1,836
</TABLE>
The interest rate of the variable debt was 7.75% at January 3, 1999. At January
3, 1999, the fair value of these loans approximates carrying value.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULES
FINANCIAL STATEMENTS
Response to this item is submitted as a separate section of this report
immediately following Item 14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
19
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
This information is set forth in part under the captions "ELECTION OF DIRECTORS"
and "SECTION 16 (a) BENEFICIAL REPORTING COMPLIANCE" in the Company's Proxy
Statement for the 1999 Annual Meeting of Stockholders to be held on May 25, 1999
(the "Proxy Statement") which are incorporated herein by reference, and the
remainder of such information is set forth under the caption "EXECUTIVE OFFICERS
OF THE REGISTRANT" in Part I, Item 1A hereof.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the caption "EXECUTIVE COMPENSATION" in the
Proxy Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under the caption "SHARE OWNERSHIP" in the Proxy
Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the captions "EXECUTIVE EMPLOYMENT AGREEMENTS"
and "COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION" in the Proxy
Statement is incorporated herein by reference. See also, Notes 2, 6 and 10 to
the Consolidated Financial Statements included herewith.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The Company's Financial Statements and the ATIII LLC Financial
Statements appear as a separate section of this report immediately
following Item 14.
All other schedules have been omitted because the required information
is not applicable or not present in amounts sufficient to required
submission of the schedule, or because the information required is
in the consolidated financial statements or the notes thereto.
The Exhibits to this report are listed below under Part IV, Item
14(c) hereof.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the quarter
ended January 3, 1999.
(c) Exhibits
The exhibits filed as part of this Form 10-K are listed on the
Exhibit Index immediately preceding such Exhibits, which Exhibit
Index is incorporated herein by reference.
FORM 10-K-ITEMS 8, 14(a) (1), (a)(2) AND (d)
GENZYME TRANSGENICS CORPORATION AND SUBSIDIARIES
List Of Financial Statements And Financial Statement Schedules
20
<PAGE>
The following consolidated financial statements of Genzyme Transgenics
Corporation and subsidiaries are included in Item 8:
Report of PricewaterhouseCoopers LLP - Independent Accountants
Consolidated Balance Sheets--January 3, 1999 and December 28, 1997
Consolidated Statements of Operations--For the fiscal years ended
January 3, 1999, December 28, 1997 and December 29, 1996
Consolidated Statements of Stockholders* Equity--For the fiscal
years ended January 3, 1999, December 28, 1997 and December 29, 1996
Consolidated Statements of Cash Flows--For the fiscal years ended
January 3, 1999, December 28, 1997 and December 29, 1996
Notes to Consolidated Financial Statements
The following financial statements of ATIII LLC are included in Item 4(d):
Report of PricewaterhouseCoopers LLP - Independent Accountants
Balance Sheet - December 31, 1998
Statement of Operations for the period from January 1, 1998 (date of
inception) to December 31, 1998
Statement of Cash Flows for the period from January 1, 1998 (date of
inception) to December 31, 1998
Statement of Changes in Venturer's Capital for the period from
January 1, 1998 (date of inception) to December 31, 1998
Notes to Financial Statements
All other schedules for which provision is made in the applicable regulation
of the Securities and Exchange Commission are not required under the related
instructions or are inapplicable, and therefore have been omitted.
21
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Genzyme Transgenics Corporation:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, stockholders' equity and cash flows
present fairly, in all material respects, the financial position of Genzyme
Transgenics Corporation and its subsidiaries (the "Company") at January 3, 1999
and December 28, 1997, and the results of their operations and their cash flows
for each of the three fiscal years in the period ended January 3, 1999, 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
Boston, Massachusetts
February 25, 1999
22
<PAGE>
GENZYME TRANSGENICS CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands except share amounts)
<TABLE>
<CAPTION>
JANUARY 3, DECEMBER 28,
1999 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 11,740 $ 6,383
Accounts receivable, net of allowance of $487 and $390 at
January 3, 1999 and December 28,1997, respectively 12,334 10,517
Unbilled contract revenue (including $771 and
$891 from related parties at January 3, 1999
and December 28, 1997, respectively) 6,847 6,069
Other current assets 1,496 1,431
-------- --------
Total current assets 32,417 24,400
Net property, plant, and equipment 30,486 26,297
Costs in excess of net assets acquired, net 18,404 19,532
Other assets 2,030 751
-------- --------
$ 83,337 $ 70,980
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,811 $ 2,091
Accounts payable - Genzyme Corporation 1,487 3,364
Accounts payable - ATIII LLC 2,418 --
Revolving line of credit 11,096 6,000
Revolving line of credit - Genzyme Corporation -- 6,000
Accrued expenses 8,403 7,900
Advance payments 8,317 5,568
Current portion of long-term debt and capital leases 2,204 1,900
-------- --------
Total current liabilities 36,736 32,823
Long-term debt and capital leases, net of current portion 9,561 9,862
Deferred lease obligation 741 613
Other liabilities 95 304
-------- --------
Total liabilities 47,133 43,602
Commitments and Contingencies (Note 3)
Stockholders' equity:
Series A convertible preferred stock, $.01 par value; 5,000,000 shares
authorized; 4,000,000 have been designated as Series A Convertible of which
20,000 shares are issued and outstanding at January 3, 1999 (liquidation
preference $20,000)
Common stock, $.01 par value; 40,000,000 shares authorized; 18,384,024
and 17,403,406 shares issued and outstanding at January 3, 1999
and December 28, 1997, respectively 184 174
Dividend on preferred stock (1,156) --
Capital in excess of par value - preferred stock 18,777 --
Capital in excess of par value - common stock 65,716 54,478
Unearned compensation (437) --
Accumulated deficit (46,864) (27,274)
Accumulated other comprehensive loss (16) --
-------- --------
Total stockholders' equity 36,204 27,378
-------- --------
$ 83,337 $ 70,980
-------- --------
-------- --------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
23
<PAGE>
GENZYME TRANSGENICS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands except share and per share amounts)
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED
JANUARY 3, DECEMBER 28, DECEMBER 29,
1999 1997 1996
----------------- ---------------- -----------------
<S> <C> <C> <C>
Revenues:
Services $ 50,816 $ 43,417 $ 38,496
Sponsored research and development 11,596 19,521 8,338
------------ ------------ ------------
62,412 62,938 46,834
Costs and operating expenses:
Services 43,668 36,989 33,356
Research and development:
Sponsored 10,486 12,558 7,856
Internal 6,155 5,282 828
Selling, general and administrative 16,184 15,650 11,691
Equity in loss of joint ventures 4,285 811 356
------------ ------------ ------------
------------ ------------ ------------
80,778 71,290 54,087
------------ ------------ ------------
Loss from operations (18,366) (8,352) (7,253)
Other income (expense):
Interest income 280 136 85
Interest expense (1,379) (1,129) (1,138)
Other income 100 50 587
------------ ------------ ------------
Loss from operations before income taxes (19,365) (9,295) (7,719)
Provision for income taxes 225 48 27
------------ ------------ ------------
Net loss $ (19,590) $ (9,343) $ (7,746)
Dividend to preferred shareholders (1,156) -- --
------------ ------------ ------------
Net loss to common shareholders $ (20,746) $ (9,343) $ (7,746)
------------ ------------ ------------
------------ ------------ ------------
Net loss per common share (basic and diluted) $ (1.15) $ (0.54) $ (0.52)
------------ ------------ ------------
------------ ------------ ------------
Weighted average number of common shares
outstanding (basic and diluted) $ 17,978,677 $ 17,253,292 $ 14,801,725
------------ ------------ ------------
------------ ------------ ------------
Comprehensive loss:
Net loss (19,590) (9,343) (7,746)
Other comprehensive income / (loss):
Unrealized holding losses on available for
sale securities (16) -- --
Reclassification adjustment for foreign currency
translation losses included in net loss -- 10 --
------------ ------------ ------------
Total other comprehensive income / (loss) (16) 10 --
------------ ------------ ------------
Comprehensive loss $ (19,606) $ (9,333) $ (7,746)
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
24
<PAGE>
GENZYME TRANSGENICS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
Series A Convertible Capital in
Preferred Stock Common Stock Excess of
----------------- --------------- Par Value
Shares Amount Shares Amount Dividend Common Stock
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 -- $ -- 13,151 $ 132 $ -- $37,351
Net loss
Share of common stock to public, net of expenses -- -- 3,450 34 12,666
Issuance of common stock in connection with the
Convertible Debt and Development Funding Agreement 220 2 1,671
Common stock issuance under Employee Stock Purchase Plan 165 1 511
Common stock issuance in connection with the GTC Savings
and Retirement Plan 58 1 265
Issuance of warrants in settlement of liability 128
Proceeds from the exercise of stock options 87 1 382
---- ----- ------ ------ ------- -------
Balance, December 29, 1996 -- -- 17,131 171 52,974
Net loss
Common stock issuance under Employee Stock Purchase Plan 115 1 572
Common stock issuance in connection with the GTC Savings
and Retirement Plan 37 1 257
Issuance of warrants in connection with a debt financing 130
Translation adjustment
Proceeds from the exercise of stock options 120 1 545
---- ----- ------ ------ ------- -------
Balance, December 28, 1997 -- -- 17,403 174 54,478
Net loss
Sale of preferred stock to institutional investors, net cash
proceeds 20
Issuance of warrants in connection with the preferred stock
offering (1,156) 1,301
Sale of common stock in a private placement, net of expenses 603 6 6,440
Common stock issuance under Employee Stock Purchase Plan 229 2 1,149
Common stock issuance in connection with the GTC Savings
and Retirement Plan 43 1 398
Issuance of warrants in connection with a debt financing 969
Issuance of stock options to non-employees 519
Unrealized loss on investment
Proceeds from the exercise of stock options 106 1 462
---- ----- ------ ------ ------- -------
Balance, January 3, 1999 20 $ -- 18,384 $ 184 $(1,156) $65,716
---- ----- ------ ------ ------- -------
---- ----- ------ ------ ------- -------
<CAPTION>
Capital in
Excess of Accumulated
Par Value Other Total
Preferred Unearned Accumulated Comprehensive Stockholders'
Stock Compensation Deficit Income(loss) Equity
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995 $ -- $(10,185) $(10) $ 27,288
Net loss (7,746) (7,746)
Share of common stock to public, net of expenses 12,700
Issuance of common stock in connection with the
Convertible Debt and Development Funding Agreement 1,673
Common stock issuance under Employee Stock Purchase Plan 512
Common stock issuance in connection with the GTC Savings
and Retirement Plan 266
Issuance of warrants in settlement of liability 128
Proceeds from the exercise of stock options 383
------- ----- -------- ---- --------
Balance, December 29, 1996 (17,931) (10) 35,204
Net loss (9,343) (9,343)
Common stock issuance under Employee Stock Purchase Plan 573
Common stock issuance in connection with the GTC Savings
and Retirement Plan 258
Issuance of warrants in connection with a debt financing 130
Translation adjustment 10 10
Proceeds from the exercise of stock options 546
------- ----- -------- ---- --------
Balance, December 28, 1997 (27,274) -- 27,378
Net loss (19,590) (19,590)
Sale of preferred stock to institutional investors, net cash
proceeds 18,922 18,922
Issuance of warrants in connection with the preferred stock
offering (145) --
Sale of common stock in a private placement, net of expenses 6,446
Common stock issuance under Employee Stock Purchase Plan 1,151
Common stock issuance in connection with the GTC Savings
and Retirement Plan 399
Issuance of warrants in connection with a debt financing 969
Issuance of stock options to non-employees (437) 82
Unrealized loss on investment (16) (16)
Proceeds from the exercise of stock options 463
------- ----- -------- ---- --------
Balance, January 3, 1999 $18,777 $(437) $(46,864) $(16) $ 36,204
------- ----- -------- ---- --------
------- ----- -------- ---- --------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
25
<PAGE>
GENZYME TRANSGENICS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
JANUARY 3, DECEMBER 28, DECEMBER 29,
1999 1997 1996
-----------------------------------------------
<S> <C> <C> <C>
Cash flows for operating activities:
Net loss $(19,590) $ (9,343) $ (7,746)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization 5,002 4,149 3,821
Provision (recovery) of accounts receivable allowances 166 124 (237)
Shares to be issued for 401-K employer match 515 464 368
Issuance of non-employee options 82 -- --
Loss on disposal of fixed assets -- 7 165
Equity in loss of Joint Ventures 4,285 811 356
Issuance of warrants in settlement of liability -- -- 128
Changes in assets and liabilities:
Accounts receivable and unbilled contract revenue (2,844) (2,471) (4,072)
Other current assets 502 78 (700)
Accounts payable 1,261 1,124 (38)
Other accrued expenses 387 1,783 (1,153)
Advance payments 2,249 (1,081) 1,959
-------- -------- --------
Net cash used by operating activities (7,985) (4,355) (7,149)
Cash flows for investing activities:
Purchase of property, plant and equipment (6,005) (6,175) (3,549)
Investment in Joint Ventures (4,358) (528) --
Restricted cash -- -- 1,425
Other assets (391) -- 632
-------- -------- --------
Net cash used in investing activities (10,754) (6,703) (1,492)
Cash flows from financing activities:
Net proceeds from the issuance of common stock 6,446 -- 12,700
Net proceeds from employee stock purchase plan 1,151 573 512
Net proceeds from the exercise of stock options 463 546 383
Net proceeds from the issuance of convertible preferred stock 18,922 -- --
Proceeds from long-term debt 2,162 5,302 --
Repayment of long-term debt (4,063) (3,597) (1,713)
Net borrowings under revolving line of credit 5,096 -- --
Investment and advances by Genzyme Corporation (6,000) 6,000 1,673
Deferred financing costs -- (170) --
Other long-term liabilities (81) (117) (420)
-------- -------- --------
Net cash provided by financing activities 24,096 8,537 13,135
-------- -------- --------
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 5,357 (2,521) 4,494
Effect of exchange rates on cash -- 10 --
Cash and cash equivalents at beginning of the year 6,383 8,894 4,400
-------- -------- --------
Cash and cash equivalents at end of year $ 11,740 $ 6,383 $ 8,894
-------- -------- --------
-------- -------- --------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fiscal years ended January 3, 1999, December 28, 1997 and December 29, 1996 (all
tabular $ in thousands, except per share data)
NOTE 1. NATURE OF BUSINESS
Genzyme Transgenics Corporation (together with its subsidiaries, the "Company")
is engaged in the application of transgenic technology to the development and
production of recombinant proteins for therapeutic and diagnostic uses and,
through its wholly-owned subsidiary, Primedica Corporation ("Primedica"),
formerly TSI Corporation ("TSI"), is a leading provider of preclinical and
toxicology testing services to pharmaceutical, biotechnology, medical device and
chemical companies.
The accompanying financial statements have been presented on the assumption that
the Company is a going concern. The Company has incurred losses and negative
operating cash flow in each of the fiscal years ended January 3, 1999, December
28, 1997 and December 29, 1996. The Company had a working capital deficit of
$4.3 million at January 3, 1999. As of January 3, 1999, the Company had $4.9
million available under a credit line with a commercial bank, $6.3 million
available under a credit line with Genzyme Corporation ("Genzyme"), $5 million
available under a lease commitment pursuant to an agreement with a commercial
leasing company and $5.3 million available under a term note facility with a
commercial bank.
The Company is subject to risks common to companies in the biotechnology
industry, including, but not limited to, development by the Company or its
competitors of new technological innovations, raising additional capital,
dependence on key personnel, protection of proprietary technology and compliance
with government regulations.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The Company was incorporated in February 1993. On October 1, 1994, the Company
acquired TSI and its respective subsidiaries, Argus Research Laboratories, Inc.
("Argus"), The TSI Center for Diagnostic Products, Inc. ("CDP"), Health and
Sciences Research Incorporated ("HSRI"), TSI Mason Laboratories, Inc. ("Mason"),
TSI Redfield Laboratories, Inc. ("Redfield"), TSI Washington Laboratories, Inc.
("Washington") and G.D.R.U. Limited ("GDRU"). In July 1995, the Company acquired
BioDevelopment Laboratories, Inc. ("BDL"). In August 1995, the Company closed
its HSRI laboratory. Effective September 1, 1995, the Company completed the sale
of GDRU. HSRI and GDRU were the only laboratories performing human clinical
trials within the Company's operations.
In February 1998, the Company reorganized TSI and its respective subsidiaries
and BDL to form Primedica Corporation.
Genzyme is the Company's largest single stockholder. As a result of various
equity transactions, Genzyme owned 40% of the Company at January 3, 1999 and 43%
at December 28, 1997.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. The Company accounts for its 22% investment in
the joint venture between SMI Genzyme Ltd. and Sumitomo Metals Industries Ltd.
("SMIG JV") using the equity method. The Company accounts for its 50% investment
in the joint venture between the Company and Genzyme ("ATIII LLC") under the
equity method. All significant intercompany transactions have been eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain 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. The significant estimates and assumptions in these financial
statements include contract revenue
27
<PAGE>
recognition, net realizable value of costs in excess of net assets acquired,
account receivable reserves, tax valuation reserves and the assumptions
regarding the presentation of the Company as a going concern. Actual results
could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash equivalents, consisting principally of money market funds and municipal
notes purchased with initial maturities of three months or less, are valued at
market.
MARKETABLE SECURITIES
Marketable securities, which include the Company's investment in equity
securities, have been classified as available for sale and are stated at market
value based on quoted market prices. Gains and losses on sales of securities are
calculated using the specific identification method.
At January 3, 1999, there was $67,000 of marketable securities included in other
current assets and an associated $16,000 of unrealized loss included in
accumulated other comprehensive loss and equity.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrations of
credit risk consist primarily of cash, cash equivalents and trade accounts
receivable. The Company is subject to the concentration of credit risk of its
commercial bank that holds the revolving line of credit and term loan which the
Company relies on for its future cash flows. At January 3, 1999 and December 28,
1997, approximately 94% and 87%, respectively of cash and cash equivalents were
held by one financial institution. Total credit facilities at one commercial
bank are $24.6 million at January 3, 1999.
The Company provides most of its testing services to diverse pharmaceutical
companies worldwide. The Company also provides services to the U.S. government.
See Note 8 for additional revenue information. Concentrations of credit risk
with respect to trade receivables are limited due to the large number of
customers comprising the Company's customer base. The Company performs ongoing
credit evaluations of its customers' financial conditions and maintains reserves
for potential credit losses. Activity for fiscal 1996 included a provision of
$334,000, recovery of $571,000 and write-offs of $144,000. Activity for fiscal
1997 included a provision of $256,000, a recovery of $132,000 and write-offs of
$156,000. Activity for fiscal 1998 included a provision of $166,000 and
write-offs of $69,000.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost and depreciated using the
straight-line method over estimated useful lives of three to thirty years.
Leasehold improvements are amortized using the straight-line method over the
life of the improvement or the remaining term of the lease, whichever is
shorter. The direct costs of the New Zealand goats ("Livestock") and related
costs to bring them to the United States are capitalized and amortized using the
straight-line method over three years.
28
<PAGE>
The following is the summary of property, plant and equipment and related
accumulated amortization and depreciation as of January 3, 1999 and December 28,
1997.
<TABLE>
<CAPTION>
YEARS JANUARY 3, DECEMBER 28,
OF LIFE 1999 1997
--------- ------ -----
<S> <C> <C> <C>
Land - $ 983 $ 534
Buildings 20 - 30 15,968 13,225
Livestock 3 1,959 1,291
Leasehold improvements lease life 4,880 3,751
Laboratory, manufacturing and
office equipment 3 - 10 6,753 5,829
Laboratory, manufacturing and
office equipment - capital lease 3 - 10 10,093 8,199
Construction in process - 179 77
------- -------
$40,815 $32,906
Less accumulated amortization and
depreciation 10,329 6,609
------- -------
Net property, plant and
equipment $30,486 $26,297
------- -------
------- -------
</TABLE>
Depreciation and amortization expense was $3,771,000, $2,919,000 and $2,603,000
for the fiscal years ended January 3, 1999, December 28, 1997 and December 29,
1996 respectively. Accumulated amortization for equipment under capital lease
was $3,352,000 and $2,154,000 at January 3, 1999 and December 28, 1997,
respectively.
NON CASH TRANSACTIONS
During fiscal 1996, the Company converted $1,673,000 of debt into 219,565 shares
of common stock under the Convertible Debt and Development Funding Agreement
with Genzyme. The Company also purchased $2,009,000 of fixed assets and financed
these additions with capital lease obligations.
During fiscal 1997, the Company purchased $2,482,000 of fixed assets and
financed these additions with capital lease obligations. The Company issued
warrants valued at $130,000 in connection with the financing for the expansion
of Mason Laboratories (see Note 4).
During fiscal 1998, the Company purchased $1,904,000 of fixed assets and
financed these additions with capital lease obligations. The Company received
stock in payment for an accounts receivable and an advance payment valued at
$583,000. The Company issued warrants valued at $969,000 in connection with the
Genzyme guarantee of a credit line with a commercial bank (see Note 4). The
Company issued warrants valued at $1,301,000 in connection with a Preferred
Stock offering (see Note 5). The Company issued stock options to non-employees
valued at $519,000.
LONG-LIVED ASSETS
The Company reviews long-lived assets for impairment by comparing the cumulative
undiscounted cash flows from the assets with their carrying amount. Any
write-downs are to be treated as permanent reductions in the carrying amount of
the assets. Management's policy regarding long-lived assets is to evaluate the
recoverability of its assets when the facts and circumstances suggest that these
assets may be impaired. This analysis relies on a number of factors, including
operating results, business plans, budgets, economic projections and changes in
management's strategic direction or market emphasis. The test of such
recoverability is a comparison of the asset value to its expected cumulative net
operating cash flow over the remaining life of the asset.
COSTS IN EXCESS OF NET ASSETS ACQUIRED
The $15,860,000 of excess consideration paid and costs incurred over the net
value of assets acquired (goodwill) by GTC in 1994 of TSI is being amortized
using the straight-line method over a twenty-year period. The carrying value of
goodwill is included in management's evaluation of the recoverability of its
long-lived assets. Accumulated amortization at January 3, 1999 was $3,488,000.
29
<PAGE>
The $7,329,000 of excess consideration paid and costs incurred over the net fair
value of assets of BDL acquired by GTC in 1995 is being amortized using the
straight-line method over twenty years. Accumulated amortization at January 3,
1999 was $1,297,000.
At January 3, 1999, goodwill totaled $23,189,000 with $4,785,000 accumulated
amortization.
DEFERRED FINANCE CHARGES
The Company incurs various charges relating to financings the Company has
entered into. The Company includes these amounts in other assets and amortizes
the amount to interest expense over the life of the debt. The unamortized
balance at January 3, 1999 and December 28, 1997 was approximately $1.3 million
and $271,000, respectively.
ACCRUED EXPENSES
Accrued expenses included the following:
<TABLE>
<CAPTION>
AT JANUARY 3, AT DECEMBER 28,
1999 1997
-------------------- ----------------------
<S> <C> <C>
Accrued payroll and benefits $3,146 $2,877
Accrued severance 329 523
Loss reserves on contracts 614 807
Current income tax 264 -
Other 4,050 3,693
------ -------
Total accrued expenses $8,403 $7,900
------ -------
------ -------
</TABLE>
As a result of the 1995 acquisition of BDL, the Company established severance
reserves of $542,000 for the elimination of 19 positions of which nine were
laboratory positions, three were accounting/finance positions and seven were
general and administrative positions, all of which has been paid as of January
3, 1999.
As a result of the merger with TSI, the Company established severance reserves
for the elimination of 35 positions of which 20 were laboratory positions, eight
were accounting/finance positions and seven were general and administrative
positions. The total severance established was $1,417,000 to be paid through
2000. As of January 3, 1999, $1,226,000 has been paid. Of the remaining $191,000
balance, $95,000 was classified as a long-term liability.
Additionally, there have been various other terminations for which the Company
recorded expense of $265,000 and $296,000 in 1998 and 1997, respectively. At
January 3, 1999 and December 28, 1997, $233,000 and $296,000 is included in
accrued expenses, respectively.
INVESTMENT IN JOINT VENTURES
In 1990, the Company entered into the SMIG JV joint venture with Sumitomo Metal
Industries as a minority owner (see Note 11). The investment has been accounted
for under the equity method since March 1994, with the Company recognizing its
22% share of the SMIG JV losses in its Statement of Operations. In October 1995
and March 1997, the Company made additional investments of $807,000 and
$528,000, respectively, in the SMIG JV, which maintained the Company's interest
at 22%. In December 1997, the equity investment in the SMIG JV was reduced to
zero as a result of recognizing the Company's share of the SMIG JV's losses. The
Company has neither obligation nor intention to provide additional funding to
the SMIG JV, and has therefore discontinued recognizing its share of the SMIG
JV's losses.
On January 1, 1998, a definitive collaboration agreement for the ATIII LLC joint
venture between the Company and Genzyme was executed. The Company's 50%
ownership in ATIII LLC is accounted for under the equity method (see Note 11).
REVENUE RECOGNITION AND CONTRACT ACCOUNTING
30
<PAGE>
For both services and research and development revenues, the Company accounts
for cost reimbursement contracts and fixed price contracts using the percentage
of completion method. Unbilled contract revenue represents recoverable costs and
accrued profit which had not been billed at the balance sheet date. Advance
payments represent cash received from customers in advance of the work being
performed. Research and development revenues in fiscal 1998 consisted of
$3,318,000 from the ATIII LLC (see Note 11), $11,000 from related parties (see
Note 9) and $8,267,000 from commercial clients.
Profits expected to be realized on contracts are based on the total contract
sales value and the Company's estimates of costs at completion. These estimates
are reviewed and revised periodically, throughout the lives of the contracts,
with adjustments to profits resulting from such revisions being recorded on a
cumulative basis in the period in which the revisions are made. When management
believes the cost of completing a contract will exceed its sales value, the full
amount of the anticipated contract loss is immediately recognized.
NET LOSS PER COMMON SHARE
The Company applies Statement of Financial Accounting Standards No. 128, ("SFAS
128") EARNINGS PER SHARE in calculating earnings per share ("EPS"). Common stock
equivalents of the Company consist of warrants (see Note 5), stock options (see
Note 6), stock to be issued under the 401-K savings plan (see Note 6),
convertible debt (see Note 4) and convertible preferred stock (see Note 5). The
Company was in a net loss position in 1998, 1997 and 1996, therefore 6.9
million, 2.8 million and 1.8 million common stock equivalents, respectively,
were not used to compute diluted loss per share, as the effect was antidilutive.
INCOME TAXES
The Company accounts for income taxes under the asset and liability method,
which requires recognition of deferred tax assets and liabilities for the
expected future tax consequences of temporary differences between the financial
statement and tax bases of assets and liabilities using the expected enacted tax
rates for the year in which the differences are expected to reverse. The
measurement of deferred tax assets is reduced by a valuation allowance if, based
upon the weight of available evidence, it is more likely than not that some or
all of the deferred tax assets will not be realized.
NOTE 3. COMMITMENTS & CONTINGENCIES
The Company leases equipment and facilities under various operating and capital
leases (see Note 4). The deferred lease obligation represents the cumulative
difference between actual facility lease payments and lease expense recognized
ratably over the lease period. Rent expense for the fiscal years ended January
3, 1999, December 28, 1997 and December 29, 1996 was approximately $2,878,000,
$2,566,000 and $2,291,000, respectively.
At December 28, 1997, the Company's future minimum payments required under these
leases are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL TOTAL
---------- ------- -------
<S> <C> <C> <C>
1999 $ 2,026 $ 1,358 $ 3,384
-------------- --------------- ---------------
2000 1,910 1,447 3,357
2001 1,610 1,343 2,953
2002 1,357 663 2,020
2003 1,150 - 1,150
Thereafter 1,125 - 1,125
-------------- --------------- ---------------
Total $ 9,178 4,811 $ 13,989
-------------- ---------------
Less amount representing interest 1,011
-------------- ---------------
-------------- ---------------
Present value of minimum lease payments $ 3,800
---------------
---------------
</TABLE>
In September 1997, the Company entered into an agreement with Advanced Cell
Technologies, Inc. ("ACT") of Worcester, MA allowing GTC to utilize ACT
technology. This agreement requires that the Company shall make minimum
annual research funding payments of not less than $2 million per year to ACT
for the calendar years 1998 through 2003. During 1998, the Company notified
ACT that ACT was in material breach of the contract and therefore did not
make any research funding payments in 1998.
31
<PAGE>
The Company sold a 46.3% ownership interest in ATIII LLC to Genzyme on January
1, 1998, for an aggregate amount of $12,500,010, of which $12,500,000 is
contingent upon the achievement of certain milestones (see Note 11).
NOTE 4. BORROWINGS
The Company had certain arrangements with a commercial bank ("Credit
Agreement"). The Credit Agreement totaled $7.5 million and expired on March 31,
1997. Under the Credit Agreement, the Company could borrow up to $6 million and
$1.5 million for an existing standby letter of credit in support of a major
facility lease. At the Company's option, interest on loans under the credit
facility (other than the standby letter of credit) accrued either at the
Eurodollar rate plus 3/4% or at the bank's base lending rate. In March 1997, the
Company received an extension of the Credit Agreement through March 31, 1999.
The weighted average interest rate on the line of credit was 2.03% for the
fiscal year ended January 3, 1999 and 5.68% for the fiscal year ended December
28, 1997.
In December 1995, the Company received a $2.3 million term loan ("Term Loan")
from a commercial bank scheduled to mature on December 15, 2000. At the
Company's option, interest on the loan accrued either at the Eurodollar rate
plus 1% or at the bank's base lending rate. The loan was being repaid in
quarterly installments which commenced March 31, 1997, escalating from $50,000
per quarter for the first year to $68,750 per quarter in the second year,
$91,250 per quarter for the next year, $133,333 for the final three quarters,
and a balloon payment for the remaining balance due December 15, 2000.
In December 1998, GTC replaced the Credit Agreement and the Term Loan with new
credit facilities from another commercial bank. The credit line was increased to
$17.5 million (the "New Credit Line") for a three year term expiring in December
2001. Under the New Credit Line, the Company may borrow up to $17.5 million, a
portion of which may be utilized for a standby letter of credit. Under the
refinancing, the amount of the term loan facility (the "New Term Loan"), was
increased by $5 million to $7.1 million. The New Term Loan is payable in 11
quarterly installments of $45,901 commencing on March 31, 1999 with a balloon
payment on December 28, 2001. At the Company's option, interest on loans under
the New Credit Line (other than the standby letter of credit) and the New Term
Loan accrues either at the Prime rate or at an adjusted libor rate. As of
January 3, 1999, $11,096,000 was outstanding and $4,904,000 was available under
the New Credit Line while $1,836,024 was outstanding and $5,263,976 was
available under the New Term Loan. A standby letter of credit with a face amount
of $1.5 million has been issued under the New Credit Line to support a major
facility lease. Under the terms of the agreement, the Company may not pay any
dividends. The Company was in compliance with all covenants and no amounts were
due under the standby letter of credit as of January 3, 1999. Both loans are
guaranteed by Genzyme.
In connection with the New Credit Line, Genzyme provided a guaranty to the bank
under which Genzyme would become primarily liable under the credit line in event
of a default by the Company. In consideration of Genzyme's agreement to provide
such a guaranty, the Company granted a first lien on all assets of the Company
and issued warrants to purchase 288,000 shares of the Company's common stock for
a period of ten years, exercisable at $4.875 per share (market price at the
effective date of the New Credit Line). The warrants, valued at $969,000, were
recorded as a deferred financing charge, included in other assets, and are being
amortized to interest expense over the life of the New Credit Line.
In February of 1997, the Company obtained $2 million of lease line from a
commercial leasing company which was further increased by an additional $3
million in February 1998. Leases under this line have a term of 48 months at 11%
per annum with a fair market value buyout at expiration.
In December 1998, the Company obtained an additional $5 million lease commitment
pursuant to an agreement from a commercial leasing company. Leases under this
line will have a term of 48 months and an interest rate of 9.79% per annum,
subject to adjustment proportional to the change in the weekly average of
interest rates of like term United States Treasury Securities.
In March 1996, the Company entered into a Convertible Debt and Development
Funding Agreement (the "Convertible Debt Agreement") with Genzyme under which
Genzyme agreed to provide a revolving line of credit ("Genzyme Credit Line") in
the amount of $10 million and agreed to fund development costs of the AT-III
program through March 31, 1997. Under the Convertible Debt Agreement, GTC
granted to Genzyme co-marketing rights to AT-III in all territories other than
Asia subject to negotiation and execution of a development and supply agreement
between the parties prior to March 31, 1997. The line is convertible into the
Company's common stock (at the average market price for the 20-day period ending
two days before any conversion), at GTC's option, to maintain GTC's tangible net
worth at the end of each quarter at a level between $4 million and $4.2 million
or by Genzyme at any time for up to the full amount outstanding. Any amount so
32
<PAGE>
converted reduces by an equivalent amount the availability on the line. During
1996, approximately $1.7 million of debt was converted into 219,565 shares of
common stock, reducing availability under the Genzyme Credit Line to $8.3
million.
In September 1997, the Company and Genzyme amended the terms of the Genzyme
Credit Line. The expiration date of the revolving credit line was extended to
March 31, 2000, with an option, at that date, for the Company to convert the
outstanding balance to a three-year term loan. The interest rate increases
annually through the end of the term loan; starting at the lower of 8% or prime
through April 1, 1999 increasing to the lower of 10% or prime lending rate +2%
in the final year of the term loan. As a result of the Preferred Stock Offering
(see Note 5), the Genzyme Credit Line was reduced to approximately $6.3 million
of which none is outstanding at January 3, 1999. Financial covenants require
that for each of the fiscal quarters ending on March 31, 1999, the two fiscal
quarters ending on June 30, 1999 and the three fiscal quarters ending on
September 30, 1999, the Company will not permit its consolidated earnings before
interest, taxes, depreciation and amortization, exclusive of unfunded research
and development and losses on the ATIII LLC joint venture ("EBITDA"), for any
such period as at the last day of such period to exceed a loss of $5,000,000.
For the four fiscal quarters ending on December 31, 1999, the Company will not
permit its consolidated EBITDA as at the last day of such period to exceed a
loss of $2,000,000. Commencing with the fiscal quarter ending on March 31, 2000,
the Company will not, as at the last day of each fiscal quarter, permit its
consolidated EBITDA for the period of four consecutive fiscal quarters ending or
most recently ended prior to such date to be less than zero.
In June 1997, the Company completed financing for the expansion of its Mason
Laboratory. The financing package provides $5 million in available funds from a
consortium of federal, state and local government agencies in conjunction with a
commercial bank. The loan carries a ten year amortization schedule with a
variable interest rate adjusted annually. The current rate is 9.25%. The Company
utilized $3.8 million of the line in June 1997 to fund the initial phase of
renovations and to refinance approximately $800,000 of existing mortgage debt on
the facility. The remaining $1.2 million was available through December 31, 1998
for additional renovations of the facility. The Company is currently attempting
to negotiate an extension of this funding through March 2000. In connection
with the financing, the Company issued warrants to purchase 20,000 shares of the
Company's common stock for a period of ten years with an exercise price at the
then current market price of $8.75 per share. The warrants, valued at $130,000,
are being amortized to interest expense over the life of the mortgage.
In June 1997, the Company's Redfield Laboratories subsidiary obtained $1,050,000
in financing from a commercial bank in conjunction with a state government
agency for the refinancing of approximately $750,000 in existing mortgage debt
and to fund expansion of its facility. The financing consists of two notes. The
first note, in the amount of $350,000, has a ten year term and an interest rate
of 10%. The second note, in the amount of $700,000, has a ten year amortization
with a balloon payment due in May 2001 and an interest rate of 9.5%.
In July 1997, Redfield Laboratories obtained an additional $350,000 in financing
for the expansion of its facility from a combination of federal, state and
county government agencies. The loan is amortized over a fifteen year term and
carries an interest rate of 5.5%.
On December 30, 1997, the Company received a $310,000 promissory note from a
third party which matures on June 15, 1999. Interest on the note accrues at 6.5%
per annum. The loan is to be repaid in quarterly installments of $77,500 plus
interest commencing September 15, 1998. The balance outstanding as of January 3,
1999 was $155,000.
The Company's long-term debt consisted of the following:
<TABLE>
<CAPTION>
JANUARY 3,
1999
-------------------
<S> <C>
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Note payable with monthly payments of $48,750 through June 2007,
interest at 9.25%, collateralized by real estate. $ 3,436
Mortgage note payable, with quarterly payments of $45,901 through
December 2001, interest varies, collateralized by real estate. 1,836
Note payable, with quarterly payments of $77,500 through June 1999,
interest at 6.5%, collateralized by real estate. 155
Mortgage note payable, with monthly payments of $9,921 through
May 2001, interest at 9.5%, collateralized by real estate. 630
Note payable, with quarterly payments of $8,605 through
July 2012, interest at 5.5%, collateralized by real estate. 326
Mortgage note payable with monthly payments of $4,625 through
June 2007, interest at 10%, collateralized by real estate. 315
Note payable with monthly payments of $6,066 through December
2000, interest at 8%, collateralized by real estate.
Capital lease obligations, with monthly payments of $153,327 through
February 2000 and December 2002, interest varies, collateralized
by property. 4,811
Other 127
---------------
$ 11,765
Less current portion 2,204
---------------
$ 9,561
---------------
---------------
</TABLE>
Based on the borrowing rates currently available to the Company for loans with
similar terms and average maturities, the value of the notes payable
approximates fair value.
Maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
<S> <C>
1999.............................................................. $2,204
2000.............................................................. 2,139
2001.............................................................. 3,731
2002.............................................................. 1,085
2003.............................................................. 461
Thereafter........................................................ 2,145
-------
$11,765
-------
-------
</TABLE>
Cash paid for interest for the fiscal years ended January 3, 1999, December 28,
1997, and December 29, 1996 was $1,376,000, $1,098,000 and $1,138,000,
respectively.
NOTE 5. STOCKHOLDERS' EQUITY
The Company's authorized capital stock consists of 40,000,000 shares of common
stock, par value $0.01 per share, and 5,000,000 shares of preferred stock, par
value $0.01 per share. Prior to the Company's IPO, the Board of Directors
designated 4,000,000 shares of Preferred Stock as Series A Convertible Preferred
Stock ("Series A Stock"), of which 20,000 shares are outstanding.
In connection with the financing for the expansion of the Mason Laboratories in
June 1997, the Company issued warrants to purchase 20,000 shares of the
Company's common stock at the then current market price of $8.75 per share (see
Note 4).
In connection with the Preferred Stock Offering (see below) in March 1998, the
Company issued warrants to purchase 450,000 shares of common stock at an
exercise price of $15.1563 per share which was equal to 125% of the market price
on issuance.
In connection with the New Credit Line financing in December 1998, the Company
issued warrants to purchase 288,000
34
<PAGE>
shares of the Company's common stock at the then current market price of $4.875
per share to Genzyme in consideration of their guaranty of the New Credit Line.
A summary of the outstanding GTC warrants as of January 3, 1999, all of which
are currently exercisable, is as follows:
<TABLE>
<CAPTION>
COMMON SHARES EXERCISE WARRANT EXPIRATION
ISSUABLE FOR PRICE PER SHARE DATE
-------------------- ----------------------- ---------------------------
<S> <C> <C>
4,000 $ 0.10000 January 1, 2000
145,000 $ 2.84375 July 3, 2005
2,000 $ 2.75000 December 31, 2001
2,000 $ 6.50000 December 31, 2001
20,000 $ 8.75000 June 26, 2007
450,000 $ 15.1563 March 20, 2002
288,000 $ 4.8750 December 28, 2008
-------
911,000
-------
-------
</TABLE>
In March 1996, Genzyme entered into the Convertible Debt Agreement (see Note 4)
under which it converted $1,673,000 of debt into 219,565 shares of the Company's
common stock. In July 1996, the Company completed a follow on public offering of
3,450,000 shares of its common stock priced at $4.00 per share. The proceeds to
the Company, after deducting commissions and offering expenses, were
approximately $12.7 million.
In March 1998, the Company completed a private placement of $20 million face
value of Series A Convertible Preferred Stock (the "Preferred Stock") to
three institutional investors. The Preferred Stock carries a $1,000 face
value per share, and is subject to mandatory redemption, if not previously
converted, in three years. Such conversion price is equal to the aggregate
face value thereof plus accrued and unpaid dividends, if any, and any other
amounts payable thereon. Such redemption may be in the form of cash or stock,
at the Company's sole option. The Preferred Stock is non-participating.
Commencing December 1998, the Preferred Stock may be converted into the
Company's common stock at any time at a price equal to the lower of $14.55 or
the average of any five closing bid prices selected by the holder over the
twenty days prior to conversion. A maximum number of 3,479,641 shares of
common stock or the number of shares that would equal total ownership per
person to be less than 4.9% are issuable upon conversion without further
shareholder vote or NASDAQ involvement. Dividends at a per annum rate of 10%
of the face value of the unconverted shares, payable in cash or Preferred
Stock at the Company's sole option, will only accrue if the holders are
unable to convert their Preferred Stock into common stock in these
circumstances. The preferred stock has a liquidation preference equal to face
value plus any accrued but unpaid dividends. In connection with the
financing, warrants to purchase 400,000 shares of the Company's common stock
were issued to the institutional investors. Each warrant has a four year term
and an exercise price of $15.1563 per share. Because the Preferred Stock
could be converted into common stock immediately, the warrants, valued at
approximately $1.2 million, were recognized as a dividend payment to
preferred shareholders during the first quarter of 1998. The Company also
issued warrants to purchase 50,000 shares of common stock to the placement
agency under the terms noted above. The warrants were valued at approximately
$145,000 and recognized as a reduction of preferred stock capital in excess
of par. As a result of this financing, the amount available under the line of
credit in the Convertible Debt and Development Funding Agreement with Genzyme
has decreased from approximately $8.3 million to $6.3 million.
In May 1998, the Company completed a private placement of 603,300 shares of
common stock at $10.80 per share in a registered direct offering to a single
purchaser raising approximately $6.4 million of new equity.
As of January 3, 1999, the Company has reserved 7,572,146 shares of common
stock, subject to adjustment, for future issuance under the various classes of
warrants, Stock Option and Employee Stock Purchase Plans (see Note 6) and
preferred stock conversion.
NOTE 6. EMPLOYEE BENEFIT PLANS
STOCK OPTIONS AND PURCHASE PLAN
In May 1993, the Board of Directors adopted and the stockholders approved the
1993 Equity Incentive Plan (the "Equity
35
<PAGE>
Plan"), the 1993 Director Stock Option Plan (the "Director Plan") and the 1993
Employee Stock Purchase Plan (the "Purchase Plan").
Under the Equity Plan, 2,015,000 shares of common stock were issued or reserved
for issuance pursuant to incentive stock options, non-statutory stock options,
restricted stock awards, stock appreciation rights or stock units in accordance
with specific provisions to be established by a committee of the Board of
Directors at the time of grant. To date, all options have been issued at 85% or
greater of the fair value at the grant date. The Equity Plan also permits the
Company to assume outstanding options in an acquisition without using shares
reserved under the Plan. Of the foregoing total, 224,350 shares are subject to
options assumed by the Company in the acquisition of TSI. In May 1997, the Board
of Directors increased the number of shares reserved for issuance under this
plan to 2,515,000 shares. In May 1998, the Board of Directors increased the
number of shares reserved for issuance under this plan to 3,015,000 shares.
Under the Director Plan, 50,000 shares of common stock were reserved for
issuance as non-statutory stock options at the rate of 2,000 shares for each
year of service to members of the Board of Directors who are not employees of
the Company. Such options are automatically granted at fair market value upon
the election or reelection of each director. In May 1997, the Board of Directors
increased the number of shares reserved for issuance under this plan to 100,000
shares. In May 1998, the Board of Directors increased the number of shares
reserved for issuance under this plan to 200,000 shares and amended the plan
such that upon first election of a director, such director shall receive 5,000
shares for each year of the term of office to which he/she has been elected, and
upon reelection such director shall receive 3,000 shares for each year of the
term of office to which he/she has been reelected.
Under these plans, an option's maximum term is ten years and vest ratably 20% on
the date of issuance and 20% thereafter on the anniversary of the grant.
Under the Purchase Plan, 300,000 shares of common stock were reserved for the
grant of purchase rights to employees in one or more offerings in accordance
with provisions to be established by a committee of the Board of Directors prior
to commencement of any offering period. In May 1997, the Board of Directors
increased the number of shares reserved for issuance under this plan to 900,000
shares. Participants may purchase shares of common stock at not less than 85% of
the lower of the market value at the beginning of each offering or on the
purchase date. Purchase dates occur every three months for a period of two years
from the offering date. Participants may not carry over balances from one
purchase date to the next. Offering dates occur every six months. A total of
282,196 and 510,937 shares of common stock remained available for issuance under
the plan at January 3, 1999 and December 28, 1997, respectively. The purchases
of common stock under the plan during fiscal 1998 and fiscal 1997 were 228,741
shares at an aggregate purchase price of approximately $1,151,000 and 115,384
shares at an aggregate purchase price of approximately $573,000, respectively.
No compensation expense has been recorded related to the employee stock purchase
plan.
The Company applies APB Opinion 25 and related interpretations in accounting
for its plans. Accordingly, no compensation cost has been recognized for
options granted to employees with exercise prices equal to or greater than
the fair market value at the grant date. The Company applies the disclosure
only provisions of Statement of Financial Accounting Standards No. 123 ("SFAS
123"), ACCOUNTING FOR STOCK BASED COMPENSATION. Had compensation cost for the
Company's stock-based compensation plans been determined based on the fair
value at the grant dates as calculated in accordance with SFAS 123, the
Company's net loss and loss per share for the years ended January 3, 1999,
December 28, 1997 and December 29, 1996 would have been increased to the pro
forma amounts indicated below:
<TABLE>
<CAPTION>
JANUARY 3, 1999 DECEMBER 28, 1997 DECEMBER 29, 1996
-------------------------------------- --------------------------------- -------------------------------
LOSS TO COMMON
NET LOSS SHAREHOLDERS
TO COMMON PER SHARE LOSS PER SHARE LOSS PER SHARE
SHAREHOLDERS (BASIC AND DILUTED) NET LOSS (BASIC AND DILUTED) NET LOSS (BASIC AND DILUTED)
------------ ------------------- -------- ------------------- ---------- ------------------
<S> <C> <C> <C> <C> <C> <C>
As Reported $ (20,746) $ (1.15) $ (9,343) $ (0.54) $ (7,746) $ (0.52)
Pro Forma (23,511) (1.31) (11,458) (0.66) (8,988) (0.61)
</TABLE>
The effects of applying SFAS 123 in this pro forma disclosure are not indicative
of future amounts. SFAS 123 does not apply to awards prior to 1995, and
additional awards in future years are anticipated.
A summary of the status of the Company's stock option plans as of January 3,
1999, December 28, 1997 and December 29, 1996 and changes during the years
ending on those dates is presented below:
<PAGE>
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
- ------------------------------------------------------- ----------- ----------------
<S> <C> <C>
Balance at December 31, 1995 1,235,665 $4.7751
- ------------------------------------------------------- ---------- --------
Granted
Price = Fair value 389,910 $8.0901
Price -greaterthan-Fair Value 130,519 $6.5974
Exercised (87,131) $4.3939
Cancelled (72,449) $5.0537
- ------------------------------------------------------- ---------- --------
Balance at December 29, 1996 1,596,514 $5.7432
- ------------------------------------------------------- ---------- --------
Granted
Price = Fair value 647,814 $7.7843
Price -greaterthan-Fair Value 10,400 $7.8462
Exercised (120,377) $4.5246
Cancelled (132,362) $5.9003
- ------------------------------------------------------- ---------- --------
Balance at December 28,1997 2,001,989 $6.4611
- ------------------------------------------------------- ---------- --------
Granted
Price = Fair value 706,532 $8.7152
Price -greaterthan- Fair value 18,000 $9.1875
Exercised (105,383) $4.5040
Cancelled (107,703) $7.5478
- ------------------------------------------------------- ---------- --------
Balance at January 3, 1999 2,513,435 $7.1560
</TABLE>
At January 3, 1999, December 28, 1997 and December 29, 1996, there were
1,335,511, 991,367 and 718,644 shares exercisable at a weighted average exercise
price of $6.5495, $6.1142 and $5.6903, respectively. The weighted average fair
value of options granted during fiscal 1998, 1997 and 1996 was $8.73, $7.79 and
$5.15, respectively.
The following table summarizes information about stock options outstanding at
January 3, 1999:
<TABLE>
<CAPTION>
RANGE OF NUMBER REMAINING WEIGHTED-AVERAGE NUMBER WEIGHTED-AVERAGE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- ------------------- ------------ ---------------- ---------------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
$ 2.5000 - $ 6.8750 752,819 6.85 $ 4.2292 504,627 $ 3.8552
$ 7.0000 - $ 7.5000 716,649 6.88 $ 7.4173 440,052 $ 7.4437
$ 7.6250 - $ 9.0000 483,776 7.74 $ 8.3056 242,698 $ 8.3919
$ 9.1250 - $10.5000 441,131 9.28 $ 9.1819 109,154 $ 9.1948
$10.6250 - $55.0000 119,060 8.53 $11.9113 38,980 $12.4554
--------- ---- -------- --------- --------
$ 2.5000 - $55.0000 2,513,435 7.54 $ 7.1560 1,335,511 $ 6.5495
--------- ---- -------- --------- --------
--------- ---- -------- --------- --------
</TABLE>
At January 3, 1999, 384,969 shares were available for grant.
The fair value of each stock option is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumption: an expected life of five years, expected volatility of 78%, a
dividend yield of 0% and a risk-free interest rate of 5.48 % for fiscal 1998,
6.36% for fiscal 1997 and 6.49% for fiscal 1996.
The fair value of the employees' purchase rights was estimated using the
Black-Scholes model with the following weighted-average assumptions: a dividend
yield of 0%, expected volatility of 78%, an expected life of one year for fiscal
1998 and
37
<PAGE>
fiscal 1997 and six months for fiscal 1996 and a risk-free interest
rate of 5.55% for fiscal 1998, 5.40% for fiscal 1997 and 5.16% for fiscal 1996.
The average fair value of those purchase rights granted during fiscal 1998,
fiscal 1997 and fiscal 1996 was $3.27, $2.71 and $2.08, respectively.
OTHER
All GTC employees, subject to certain eligibility requirements, can participate
in the Company's defined contribution plan. Currently, the Company may match up
to 50% of each participating employee's contributions to the plan to a maximum
of 3% of salary. The Company may also contribute an additional 2% of each
employee's salary as a retirement contribution. All contributions are at the
discretion of the Board of Directors. Expense recognized under this plan was
approximately $515,000, $464,000 and $368,000 for the fiscal years ended January
3, 1999, December 28, 1997 and December 29, 1996, respectively.
NOTE 7. INCOME TAXES
Deferred tax assets and deferred tax liabilities are recognized based on
temporary differences between the financial reporting and tax basis of assets
and liabilities using future expected enacted rates. A valuation allowance is
recorded against deferred tax assets if it is more likely than not that some or
all of the deferred tax assets will not be realized.
The income tax (benefit) provision consisted of the following:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Current:
Federal $ 0 $ 0 $ 0
State 225 48 27
Foreign 0 0 0
------- ------- -------
Total Current $ 225 $ 48 $ 27
------- ------- -------
------- ------- -------
Deferred:
Federal (5,418) (3,158) (3,882)
State (1,562) 1,241 0
Foreign 0 0 0
Change in Valuation Allowance 6,980 1,917 3,882
------- ------- -------
Total Deferred $ -- $ -- $ --
------- ------- -------
------- ------- -------
</TABLE>
The provision for income taxes was at rates different from the U.S. Federal
statutory income tax rate for the following reasons:
<TABLE>
<CAPTION>
Fiscal Years Ended
-----------------------------------------------------------------
JANUARY 3, 1999 DECEMBER 28, 1997 DECEMBER 29, 1996
<S> <C> <C> <C>
Federal tax - expense (benefit) (34.0)% (34.0)% (34.0)%
Goodwill 2.0 3.2 5.2
State taxes - net (4.6) 9.1 0.2
Joint Venture loss - 3.0 0.9
Other 1.8 (1.3) 0.4
Change in valuation allowance 36.0 20.5 27.6
----- ----- -----
Effective tax rate 1.2% 0.5% 0.3%
----- ----- -----
----- ----- -----
</TABLE>
The components of the deferred tax assets and liabilities at January 3, 1999 and
December 28, 1997 respectively, are as follows (dollars in thousands):
<TABLE>
<CAPTION>
JANUARY 3, 1999 DECEMBER 28, 1997
- ------------------------------------ ----------------- -----------------
Deferred Tax Assets/(Liabilities):
<S> <C> <C>
Advance payments $ 2,742 $ --
</TABLE>
38
<PAGE>
<TABLE>
<S> <C> <C>
Accrued compensation reserves 1,126 1,091
Other reserves 1,343 1,020
Tax credits 974 584
Net operating loss carryforwards 26,804 22,100
Depreciation (300) 289
Other 12 9
----------- ----------
$ 32,701 $ 25,093
Total deferred tax asset $ 32,701 $ 25,093
Valuation allowance (32,701) (25,093)
----------- ----------
$ -- $ --
----------- ----------
----------- ----------
</TABLE>
Of the change in valuation allowance of $7.6 million, $628,000 related to tax
return deductions for the exercise of non-qualified stock options or
disqualifying disposition of incentive stock options, for which no tax benefit
is recorded.
Due to the uncertainty surrounding the realization of these favorable tax
attributes in future income tax returns, the Company has placed a valuation
allowance against its otherwise recognizable deferred tax assets.
At January 3, 1999, the Company had U.S. net operating loss ("NOL")
carryforwards of approximately $75.1 million for federal income tax purposes.
These carryforwards expire through 2028. Utilization of these net operating loss
carryforwards reflected above are limited pursuant to provisions Section 382 of
the Internal Revenue Code of 1986, and to the extent that the Separate Return
Limitation Year ("SRLY") rules apply.
Approximately $40.6 million of these NOL's were acquired in connection with its
acquisition of TSI. Consequently, any realization of the benefit of these
purchased NOL's will be recorded as a reduction of goodwill. In 1995, goodwill
was reduced by approximately $1 million as a result of the utilization of
purchased NOL's to offset taxable gain principally resulting from the sale of
GDRU.
The Company paid taxes of $225,000, $48,000 and $27,000 in fiscal 1998, 1997 and
1996, respectively.
NOTE 8. SEGMENT AND REVENUE INFORMATION
The Company has two reportable segments: contract research organization
("Primedica") and research and development ("Transgenics"). Primedica provides
services such as preclinical efficacy and safety testing, IN VITRO testing and
formulation development to pharmaceutical, biotechnology, medical device and
other companies. These services are provided by five different laboratories,
which are aggregated into the Primedica segment. Transgenics applies transgenic
technology to the development and production of genetically engineered proteins
for therapeutic, diagnostic and other biomedical uses, both in collaboration
with pharmaceutical and biotechnology companies and independently. Transgenics
also includes the cancer vaccine research program which produces idiotypic
cancer vaccines for B-cell lymphoma and Myeloma.
The accounting policies are the same as those described in the summary of
significant accounting policies. The Company evaluates performance based on
profit or loss from operations before income taxes, interest expense and
interest revenue. The Company also accounts for intersegment sales as if the
sales were to third parties.
The Company's reportable segments are strategic business units that offer
different products and services. They are managed separately because each
business unit requires different technology and marketing strategies.
The following table presents certain segment financial information and the
reconciliation of segment financial information to consolidated totals as of and
for the years ended January 3, 1999, December 28, 1997 and December 29, 1996
(dollars in thousands). Asset information by segment is not reported because the
Company does not evaluate such information internally.
--------------------- FISCAL YEARS ENDED ----------------
JANUARY 3, DECEMBER 28, DECEMBER 29,
1999 1997 1996
39
<PAGE>
<TABLE>
<CAPTION>
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Primedica - external customers $ 50,816 $ 43,417 $ 38,496
Primedica - intersegment 1,389 1,424 991
Transgenics 11,596 19,521 8,338
-------- -------- --------
63,801 64,362 47,825
Elimination of intersegment revenues (1,389) (1,424) (991)
-------- -------- --------
$ 62,412 $ 62,938 $ 46,834
-------- -------- --------
-------- -------- --------
Income (loss) from operations:
Primedica $ 2,342 $ 1,599 $ 514
Transgenics (8,303) (1,956) (2,025)
Unallocated amounts:
Corporate expenses (8,120) (7,184) (5,386)
Equity in loss of joint ventures (4,285) (811) (356)
-------- -------- --------
$(18,366) $ (8,352) $ (7,253)
-------- -------- --------
-------- -------- --------
Capital expenditures:
Primedica $ 1,722 $ 4,215 $ 2,599
Transgenics 4,201 2,034 876
Corporate (1) 1,986 2,408 2,083
-------- -------- --------
$ 7,909 $ 8,657 $ 5,558
-------- -------- --------
-------- -------- --------
</TABLE>
(1) Includes all expenditures financed through capital leases for equipment
used by both segments. These expenditures were $1,614, $1,760 and $2,009
for the Primedica segment and $290, $722 and $0 for the Transgenics segment
for the years ended January 3, 1999, December 28, 1997 and December 29,
1996, respectively.
Net revenues to external customers are based on the location of the customer.
Geographic information for net revenues to external customers, by fiscal year,
is presented in the table below:
United States Asia Europe Total
--------------- ---------- ------------ -----------
1998 53,508 3,276 5,628 62,412
1997 49,120 9,178 4,640 62,938
1996 42,763 3,291 780 46,834
All of the Company's long-lived assets are located in the United States.
Revenues from Genzyme accounted for 11% and 13% of total revenues for the
periods ending December 28, 1997 and December 29, 1996, respectively. All of
this revenue was attributable to the Transgenics segment. No other single
entity accounted for more than 10% of total revenues for the periods
presented in this table.
NOTE 9. ARRANGEMENTS WITH GENZYME CORPORATION
From the Company's inception, certain facilities and support services, including
both research and administrative support, have been provided by Genzyme. For
these services, the Company was charged $3,568,000, $8,073,000 and $3,824,000
for the fiscal years ended January 3, 1999, December 28, 1997 and December 29,
1996, respectively. These charges represent an allocation of the Company's
proportionate share of Genzyme's overhead costs using formulae which management
believes are reasonable based upon the Company's use of the facilities and
services. All other costs for all periods presented, including payroll costs,
are directly attributable to the Company and have been paid by Genzyme and
charged to the Company.
40
<PAGE>
In April 1993, the Company entered into several agreements under which Genzyme
has agreed to provide various services, facilities and funding to the Company as
described below:
SERVICES AGREEMENT
Under the Services Agreement, the Company receives certain basic support
services in exchange for a fixed monthly payment ($40,290 for 11 months and
$54,210 for one month during 1998) adjusted annually. These basic services
include laboratory support, as well as assistance with certain administrative
functions including purchasing, data processing, risk management, corporate
communications and treasury activities. If the Company requests additional
services from Genzyme, the Company has agreed to pay Genzyme fully allocated
costs of those services. The Services Agreement is automatically renewed each
year thereafter unless terminated by either party not less than 90 days prior to
the end of any annual period. Under the Services Agreement, the Company made
payments of $497,000, $509,000 and $582,000 for the fiscal years ended January
3, 1999, December 28, 1997 and December 29, 1996, respectively.
SUBLEASE AGREEMENT
Under the Sublease Agreement, the Company has leased certain laboratory,
research and office space from Genzyme through May 1998 in exchange for fixed
monthly rent payments which approximate the estimated current rental value for
such space. In addition, the Company reimburses Genzyme for its pro rata share
of appropriate facilities' operating costs such as maintenance, cleaning,
utilities and real estate taxes. The sublease is automatically renewed each year
and renewals are subject to earlier termination of the sublease by either party
after the initial five-year term. Under the Sublease Agreement, the Company made
payments for the fiscal years ended January 3, 1999, December 28, 1997 and
December 29, 1996, of $411,000, $280,000 and $178,000, respectively, and is
committed to make a minimum rental payment of $20,417 in 1999.
TECHNOLOGY TRANSFER AGREEMENT
Under the Technology Transfer Agreement, Genzyme has transferred substantially
all of its transgenic assets and liabilities to the Company including its
ownership in the joint venture with Sumitomo Metal Industries, assigned its
relevant contracts and licensed to the Company technology owned or controlled by
it and relating to the production of recombinant proteins in the milk of
transgenic animals (the "Field") and the purification of proteins produced in
that manner. The license is worldwide and royalty free as to Genzyme although
the Company is obligated to Genzyme's licensors for any royalties due them.
As long as Genzyme's ownership of the Company remains below 50%, Genzyme may use
the transferred technology and the new technology only on its own behalf and
without any royalty obligation to the Company.
RESEARCH AND DEVELOPMENT AGREEMENT
The Research and Development Agreement defines the relationship among the
parties whereby each entity may perform research for the other. This
agreement was in effect through December 31, 1998 and the parties are in the
process of negotiating an extension. Genzyme has agreed to use the Company to
perform all research in the field of production of recombinant proteins in
transgenic animals. The Company has a similar obligation to use Genzyme to
purify proteins produced transgenically. Each party must request such
services from the other company before seeking them from a third party
although the Company may perform purification services on its own behalf.
These obligations are qualified by the ability of each party to perform the
requested services in accordance with the performance, scheduling, cost and
other specifications reasonably established by the requesting party. Each
company will receive payments from the other equal to the performing party's
fully allocated cost of performing such services, which shall not be less
than 80% of the annual budgets established by the parties under the
agreement, plus, in most cases, a fee equal to 10% of such costs. The Company
currently provides development services to Genzyme for which it recognized
revenues of $11,000, $11,000 and $75,000 for the fiscal years ended January
3, 1999, December 28, 1997 and December 29, 1996, respectively. In addition,
the Company received $755,000 of services revenue, unrelated to research and
development, from Genzyme for the fiscal year ended January 3, 1999. The
Company also receives research and development services from Genzyme, for
which it incurred costs of $1.9 million, $7.3 million and $3.1 million in
1998, 1997 and 1996, respectively.
In March 1996, the Company entered into the Convertible Debt Agreement (see Note
4) with Genzyme under which
41
<PAGE>
Genzyme agreed to provide a revolving line of credit (the "Genzyme Credit Line")
in the amount of $10 million and agreed to fund development costs of the
transgenic Antithrombin III ("AT-III") program. During 1996, Genzyme converted
$1,673,000 of debt to equity under this agreement, leaving the availability
under the Genzyme Credit Line at $8.3 million.
In March 1997, the Company amended the Convertible Debt Agreement with Genzyme
to provide for continued funding by Genzyme of the development costs of the
AT-III program through June 30, 1997. In June 1997, the Company agreed to extend
the Convertible Debt Agreement until December 31, 1997. Under the agreements in
effect in 1997, Genzyme provided $7 million in development funding. Genzyme
provided $5.9 million in development funding in 1996.
In September 1997, the Company and Genzyme amended the terms of the $8.3 million
Genzyme Credit Line (see Note 4). As a result of the Preferred Stock Offering,
the Genzyme Credit Line was reduced to approximately $6.3 million (see Note 5).
Any amounts outstanding under the credit line may be converted into the
Company's common stock at Genzyme's option at any time for up to the full amount
outstanding or at the Company's option on a quarterly basis limited to an amount
sufficient to maintain a minimum tangible net worth. All such conversions are to
be based on the average closing stock price over 20 trading days prior to
conversion.
As of January 3, 1999, there was none outstanding under the Genzyme Credit Line.
In July 1997, the Company and Genzyme announced an agreement to establish a
joint venture for the development, marketing and distribution of AT-III, subject
to the execution of a definitive agreement. On January 1, 1998, a definitive
collaboration agreement for the ATIII LLC joint venture between the Company and
Genzyme was executed (see Note 11).
NOTE 10. OTHER AGREEMENTS
TUFTS UNIVERSITY SCHOOL OF VETERINARY MEDICINE ("TUFTS")
Since 1988, pursuant to a cooperation agreement, the Company has funded an
ongoing program to develop transgenic animals at Tufts. During the term of the
agreement, which extends through September 2000, Tufts has agreed to work
exclusively with the Company for commercial applications within the field of
transgenic protein production in milk. The Company paid Tufts $402,000, $284,000
and $517,000 for the fiscal years ended January 3, 1999, December 28, 1997 and
December 29, 1996, respectively. Sales of products derived from transgenic goats
produced by Tufts, or from their offspring, are subject to royalties payable to
Tufts.
NOTE 11. JOINT VENTURES
In 1990, Genzyme entered into the SMIG JV joint venture with Sumitomo Metal
Industries to develop proteins produced transgenically. The SMIG JV has engaged
the Company, as the successor to Genzyme's transgenics business, to perform
research and development for which the Company is reimbursed a portion of its
costs and receives additional payments based on achievement of specified
milestones. However, GTC does not have any intercompany profits or losses as a
result of its transactions with the SMIG JV. This three-year program ended
during 1993 and the parties decided to extend the contract for an additional
three years.
The Company has contributed $4 million to the SMIG JV since inception. The
Company maintained a 22% ownership since 1994 and accounted for the SMIG JV on
the equity basis since then. For the fiscal years January 3, 1999, December 28,
1997 and December 29, 1996, the Company recognized revenue of $0, $4,413,000 and
$857,000, respectively, under the SMIG JV agreement. As of January 3, 1999, the
Company no longer has any obligation nor intention to provide financial support
to the SMIG JV and, since the investment balance has been written down to
zero, it has discontinued recognizing its share of SMIG
JV's losses.
The SMIG JV has a license, exclusive as to Asia and non-exclusive as to Europe,
to use the Company's transgenic technology and to market and sell products and
transgenic animals produced by the SMIG JV based on that technology. The Company
retained the exclusive right to market and sell such products within the
Americas. Each party is obligated to make royalty payments based on its sales of
products developed by the SMIG JV and, additionally, the Company is
42
<PAGE>
obligated to pay royalties on sales of other transgenically produced proteins in
Asia.
On January 1, 1998, a definitive collaboration agreement for the ATIII LLC
joint venture between the Company and Genzyme was executed. Under the terms
of the agreement, Genzyme will provide 70% of the first $33 million of
development costs, excluding facility costs, under this program, including
costs incurred in 1997. The Company will fund the other 30% of these costs.
Development costs in excess of these amounts will be funded equally by the
partners. The Company and Genzyme will also make capital contributions to
ATIII LLC sufficient to pay 50% each of all new facility costs to be
incurred. In addition to the funding, both partners will contribute
manufacturing, marketing and other resources to ATIII LLC at cost. Under the
agreement to establish the joint venture, Genzyme and the Company were the
only members and owned 3.7% and 96.3% interest, respectively. In accordance
with the executed purchase agreement, the Company sold and assigned a 46.3%
ownership interest to Genzyme so that Genzyme and GTC each own 50% of the
venture. The purchase price was $12,500,010, payable as follows: an initial
payment of $10 upon execution of the purchase agreement, $2.5 million after
the second consecutive quarter in which net sales of collaboration products
for such quarter exceed $5 million, and $10 million on the first full
approval, if and when approved by the Food and Drug Administration ("FDA") of
a major market country or by the European Union's European Medicines
Evaluation Agency ("EMEA") of (i) a BLA filed by ATIII LLC for the use of
transgenic AT-III for the treatment of sepsis or (ii) an amendment to the BLA
previously filed by ATIII LLC and approved by the FDA of a major market
country or by the EMEA to add sepsis as an indication for transgenic AT-III.
The Company will record the contingent payments if and when received. Profits
and losses are shared according to ownership percentages. These agreements
cover all territories other than Asia. The Company accounts for its 50%
ownership of the ATIII LLC under the equity method. For the fiscal year ended
January 3, 1999, the Company recognized research and development revenue and
related expenses of $3,318,000 under ATIII LLC.
Summarized financial information for ATIII LLC is as follows:
At December 31, 1998
------------------------
Balance sheet data:
Current assets $ 3,525
Noncurrent assets 200
Current liabilities 3,078
Venturers' capital 647
Fiscal Year Ended
December 31, 1998
---------------------
Statement of operations data:
Research and development expenses $ 11,984
General and administrative expense 35
----------
Net loss $ 12,019
----------
----------
43
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Steering Committee and the
Venturers of AT III LLC:
In our opinion, the accompanying balance sheet and the related statement of
operations, cash flows and changes in Venturers' capital present fairly, in all
material respects, the financial position of the ATIII LLC (the "Company") (A
Development Stage Enterprise) at December 31, 1998, and the results of its
operations and its cash flows for the period from January 1, 1998 (date of
inception) to December 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 audit. We conducted our audit 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 audit provides a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
March 22, 1999
44
<PAGE>
ATIII LLC
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEET
DECEMBER 31, 1998
ASSETS
Current assets:
Cash $ 1,135,038
Contributions receivable 2,389,631
---------------
Total current assets 3,524,669
Net fixed assets 200,484
---------------
$ 3,725,153
---------------
---------------
LIABILITIES AND VENTURERS' CAPITAL
Current liabilities:
Accounts payable - Genzyme Corporation $
2,109,969
Accounts payable - Genzyme Transgenics Corporation
968,344
---------------
Total liabilities
3,078,313
Venturers' capital:
Genzyme Corporation
8,337,512
Genzyme Transgenics Corporation
4,328,147
Deficit accumulated during the (12,018,819)
development stage
---------------
Total venturers' capital
646,840
---------------
$ 3,725,153
---------------
---------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
45
<PAGE>
ATIII LLC
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM JANUARY 1, 1998 (DATE OF INCEPTION) TO DECEMBER 31, 1998
Operating costs and expenses:
General and administrative $ 34,721
Research and development - Genzyme Corporation 8,666,328
Research and development - Genzyme Transgenics Corporation 3,317,770
--------------
Total operating costs and expenses 12,018,819
--------------
Net loss $ (12,018,819)
--------------
--------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
46
<PAGE>
ATIII LLC
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM JANUARY 1, 1998 (DATE OF INCEPTION) TO DECEMBER 31, 1998
<TABLE>
<CAPTION>
Operating activities:
<S> <C>
Net loss $(12,018,819)
Reconciliation of net loss to net cash used by operating activities:
Depreciation 12,485
Accounts payable 3,078,313
------------
Net cash used in operating activities (8,928,021) Investing activities:
Purchase of property, plant and equipment (212,969)
------------
Net cash used in investing activities (212,969)
Financing activities:
Capital contributions by Genzyme Corporation 8,337,512
Capital contributions by Genzyme Transgenics Corporation 1,938,516
------------
Net cash provided by financing activities 10,276,028
------------
Increase in cash and cash equivalents 1,135,038
Cash and cash equivalents at beginning of period --
------------
Cash and cash equivalents at end of period $ 1,135,038
------------
------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
47
<PAGE>
ATIII LLC
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF CHANGES IN VENTURERS' CAPITAL
FOR THE PERIOD FROM JANUARY 1,1998 (DATE OF INCEPTION) TO DECEMBER 31, 1998
<TABLE>
<CAPTION>
GENZYME TOTAL
GENZYME TRANSGENICS VENTURERS'
CORPORATION CORPORATION CAPITAL
----------- ----------- ----------
<S> <C> <C> <C>
Capital contribution $ 7,835,468 $ 1,938,516 $ 9,773,984
Contributions receivable 2,389,631 2,389,631
Advance contributions
502,044 502,044
Net loss (7,690,672) (4,328,147) (12,018,819)
------------- ------------ ------------
Balance at December 31, 1998 $ 646,840 $ -- $ 646,840
------------- ------------ ------------
------------- ------------ ------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
48
<PAGE>
ATIII LLC
(A DEVELOPMENT STATE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
A. ORGANIZATION AND NATURE OF BUSINESS:
AT III LLC ("the Company") is a limited liability company organized
under the laws of Delaware. The Company was and established as a
Joint Venture among Genzyme Corporation ("Genzyme") and, Genzyme
Transgenics Corporation ("GTC") under the terms of a collaboration
agreement dated January 1, 1998 which stated original ownership of
the Company at 96.3% and 3.7% by GTC and Genzyme (collectively the
"Members"), respectively. Immediately thereafter, a purchase
agreement was executed so that GTC sold to Genzyme a 46.3% ownership
of the Company for an aggregate amount of $12,500,010 payable as
follows: $10 upon execution of the purchase agreement, $2,500,000
after the second consecutive quarter in which net sales of
collaboration products for such quarter exceed $5,000,000 and
$10,000,000 upon product approval as defined in the agreement.
The Company was organized as the vehicle for a joint venture between GTC
and Genzyme to develop and commercialize products comprising tgATIII
together with processes developed and/or licensed through GTC and Genzyme
throughout the territories defined within the collaboration agreement
(the "Collaboration Products"). Immediately following the execution of
the collaboration and purchase agreements, a restated operating agreement
was executed between Genzyme, GTC and ATIII LLC. The operating agreement
establishes the allocation of profit and losses in accordance with the
ownership percentages. In no event shall the net losses of the Company be
allocated to a member if such allocation would cause or increase a
negative balance in such member's adjusted capital account. In the event
that net losses were reallocated to other members to avoid a negative
balance, subsequent profits would first be allocated to the members to
restore the capital accounts of the members to reflect the ownership
percentage.
Distributions shall be made annually to each Member under the terms set
forth in the operating agreement in amounts equal to (a) the amount of
items of gross income allocated to the Members in accordance with their
respective ownership percentages and (b) thereafter, to the Members in
proportion to their positive capital accounts reduced by their initial
capital contributions, determined to be $13,500,000 each per the
operating agreement.
Since its inception, the Company has devoted substantially all of its
efforts to establishing its business and developing its initial products.
Accordingly through the date of the financial statements, the Company is
considered to be a development stage company. The Company has
49
<PAGE>
ATIII LLC
(A DEVELOPMENT STATE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
incurred losses since inception and expects to incur net operating losses
and negative cash flows from operations in the near term.
Under the terms of the collaboration agreement, Genzyme and GTC are
required to make capital contributions to the Company. Genzyme and GTC
shall make contributions sufficient to pay (a) 70% and 30%, respectively,
of all program costs, including costs incurred in 1997, other than new
facility costs until such time as the aggregate capital contributions by
Genzyme equals $33,000,000, and (b) 50% each of all program costs other
than new Facility costs thereafter. The Members will also make capital
contributions to the Company sufficient to pay 50% of all new facility
costs. In the event that either GTC or Genzyme fails to make a capital
contribution pursuant to these requirements and the other member does not
elect to terminate the agreement, then the percentage interests in the
Company and the future funding responsibilities of the Members shall be
adjusted. At December 31, 1998, each Member owned 50% of the Company.
B. ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The financial statements have been prepared under the accrual method
of accounting in conformity with generally accepted accounting
principles in the United States of America. All balances are
denominated in United States dollars, unless otherwise noted.
FISCAL YEAR-END
Under the terms of the operating agreement, the fiscal year end of the
Joint Venture is December 31.
CONCENTRATION OF CREDIT RISK
The Company maintains all of its cash at one commercial bank.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development costs are expensed as incurred.
FIXED ASSETS
Fixed assets consisting of equipment is stated at cost and depreciated
using the straight-line method over an estimated useful life of seven
years.
50
<PAGE>
ATIII LLC
(A DEVELOPMENT STATE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain
estimates and assumptions that effect 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 reported period. Actual results could
differ from those estimates.
INCOME TAXES
The Company is considered a partnership for federal and state income
tax purposes. As such, items of income, loss, deductions and credits
flow through to the Members. The Members have responsibility for the
payment of any income tax and are entitled to losses for their
proportionate share of taxable income or loss of the Company.
UNCERTAINTIES
The Company is subject to risks common to companies in the
biotechnology industry, including but not limited to, development by
its competitors of new technological innovations, protection of
proprietary technology, health care cost containment initiatives,
product liability and compliance with the government regulations,
including those of the U.S. Department of Health and Human Services
and the U.S. Food and Drug Administration.
C. RESEARCH AND DEVELOPMENT COSTS:
The research and development efforts are currently being conducted by the
two members, GTC and Genzyme. The costs incurred by the two related
parties, which are subject to an annual budget as approved by the
Company's Steering Committee, are then charged to the Company.
D. FIXED ASSETS:
At December 31, 1998, gross fixed assets of $212,969 had an associated
depreciation of $12,485 all incurred in 1998.
E. LICENSED TECHNOLOGY:
During the terms of the collaboration agreement GTC and Genzyme have
granted to the Company exclusive, irrevocable royalty-free rights and
sublicenses, with the right to grant further sublicenses, under the
GTC/Genzyme licensed ATIII patent rights, technology, know how, and any
associated technology and manufacturing know-how owned or controlled by
the Members to develop, make, have made, use, offer for sale, sell, have
sold, import and export collaboration products for in the field and
territory.
51
<PAGE>
F. TRANSACTIONS AND AFFILIATES:
The Company's operating expenses are for payments to the Members for
project expenses incurred, either as internal operatings costs or as
third-party obligations on behalf of the Company. At December 31, 1998,
the Company owed $3,078,313 to the Members for project expenses and
equipment purchased by Members on behalf of the Company.
G. VENTURERS' CAPITAL:
Venturers' capital is comprised of monthly capital contributions made by
the Members to fund budgeted costs and expenses of the Company in
accordance with the Collaboration Agreement, net of losses allocated to
the Members. As of December 31, 1998 there was an unpaid capital
contribution of $2,389,631 owed to the Company from one Member, which
has been included in venturers' capital in the accompanying financial
statements. The amount was subsequently paid in March 1999.
Additionally, there was a contribution of $502,044 received from the
other member in advance of 1999 spending.
52
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
GENZYME TRANSGENICS CORPORATION
By: /s/ Sandra Nusinoff Lehrman
------------------------------------
Sandra Nusinoff Lehrman
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934 this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ James A. Geraghty Chairman of the Board April 5, 1999
- --------------------------------------------
James A. Geraghty
/s/ Sandra Nusinoff Lehrman President and Chief Executive Officer April 5, 1999
- --------------------------------------------
Sandra Nusinoff Lehrman
/s/ John B. Green Chief Financial and Accounting Officer April 5, 1999
- --------------------------------------------
John B. Green
/s/ Robert W. Baldridge Vice Chairman of the Board April 5, 1999
- --------------------------------------------
Robert W. Baldridge
/s/ Henri A. Termeer Director April 5, 1999
- --------------------------------------------
Henri A. Termeer
/s/ Alan E. Smith Director April 5, 1999
- --------------------------------------------
Alan E. Smith
/s/ Henry E. Blair Director April 5, 1999
- --------------------------------------------
Henry E. Blair
/s/ Alan W. Tuck Director April 5, 1999
- --------------------------------------------
Alan W. Tuck
/s/ Francis J. Bullock Director April 5, 1999
- --------------------------------------------
Francis J. Bullock
</TABLE>
53
<PAGE>
EXHIBIT INDEX
TO FORM 10-K FOR THE YEAR ENDED JANUARY 3, 1999
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
2.1 Agreement and Plan of Merger, dated as of June 14, 1994, among
TSI Corporation ("TSI"), Genzyme Transgenics Corporation ("GTC")
and New Acorn Corporation. Filed as Appendix A to the Joint Proxy
Statement--Prospectus included in Part I of the Company's
Registration Statement on Form S-4 (File No. 33-80924) (the "GTC
S-4") and incorporated herein by reference.
2.2 Asset Purchase and Sale Agreement, dated as of January 3, 1995,
between The TSI Center for Diagnostic Products, Inc. and BioVest,
Inc. Filed as Exhibit 2.2 to the original filing of the Company's
Annual Report on Form 10-K for the year ended December 31, 1994
(Commission File No. 0-21794) (the "GTC 1994 10-K") and
incorporated herein by reference. Pursuant to Item 601(b)(2) of
Regulation S-K, the schedules to this Agreement are omitted. A
list of such schedules appears in the table of contents to the
Agreement. The Company hereby undertakes to furnish
supplementally upon request a copy of any such schedule to the
Commission.
2.3 Agreement and Plan of Merger, dated May 23, 1995, among GTC,
Biodevelopment Laboratories, Inc. and BDL Acquisition Corp. Filed
as Exhibit 2 to the Company's Current Report on Form 8-K dated as
of July 3, 1995 (File No. 0-21794) and incorporated herein by
reference.
2.4 Share Purchase Agreement, dated as of September 1, 1995, among
GTC, TSI and Quintiles Holdings Limited. Filed as Exhibit 2 to
the Company's Current Report on Form 8-K dated as of September
19, 1995 (File No. 0-21794) and incorporated herein by reference.
3.1.1 Restated Articles of Organization of GTC, filed with the
Secretary of the Commonwealth of Massachusetts on December 27,
1993. Filed as Exhibit 3.1 to the Company's Annual Report on Form
10-K for the year ended December 31, 1993 (File No. 0-21794) (the
"GTC 1993 10-K") and incorporated herein by reference.
3.1.2 Articles of Amendment to the Restated Articles of Organization
filed with the Secretary of the Commonwealth of Massachusetts on
October 3, 1994. Filed as Exhibit 3.1.2 to GTC's Annual Report on
Form 10-K for the year ended December 28, 1997 (File No. 0-21794)
(the "GTC 1997 10-K") and incorporated herein by reference.
3.1.3 Articles of Amendment to the Restated Articles of Organization
filed with the Secretary of Commonwealth of Massachusetts on June
26, 1997. Filed as Exhibit 3 to GTC's Quarterly Report on Form
10-Q for the quarter ended June 29, 1997 (File No. 0-21794) (the
"GTC June 1997 10-Q") and incorporated herein by reference.
3.1.4 Certificate of Vote of Directors Establishing a Series of a Class
of Stock (Series A Convertible Preferred Stock). Filed with the
Secretary of the Commonwealth of Massachusetts on March 20, 1998.
Filed as Exhibit 3.1.4 to the GTC 1997 10-K and incorporated
herein by reference.
3.2 By-Laws of GTC, as amended to date. Filed as Exhibit 3.2 to the
Company's Registration Statement on Form S-1 (File No. 33-62782)
(the "GTC S-1") and incorporated herein by reference.
4.1 Specimen Common Stock Certificate. Filed as Exhibit 4.1 to the
GTC S-1 and incorporated herein by reference.
4.2 Specimen Series A Convertible Preferred Stock Certificate. Filed
as Exhibit 4.2 to the GTC 1997 10-K and incorporated herein by
reference.
4.3.1 TSI Specimen Warrant Certificate. Filed as Exhibit 4.8 to TSI's
Registration Statement on Form S-3 (File No. 33-48107) and
incorporated herein by reference.
4.3.2 Form of Notice of Assumption by GTC of the TSI warrants to which
Exhibit 4.2.1 of this Report relates. Filed as Exhibit 4.2.2 to
the original filing of the GTC 1994 10-K and incorporated herein
by reference.
4.4.1 TSI Common Stock Purchase Warrant No. F-1 issued, on October 28,
1993, to The First National Bank of Boston ("FNBB"). Filed as
Exhibit 4.6 to the GTC S-4 and incorporated herein by reference.
</TABLE>
<PAGE>
<TABLE>
<S> <C>
4.4.2 TSI Common Stock Purchase Warrant No. G-1, dated September 27,
1994, issued to Financing for Science International, Inc.
("FSI"). Filed as Exhibit 4.4 to the original filing of the GTC
1994 10-K and incorporated herein by reference.
4.4.3 Form of Notice of Assumption by GTC of the TSI Common Stock
Purchase Warrants Nos. F-1 and G-1. Filed as Exhibit 4.5 to the
original filing of the GTC 1994 10-K and incorporated herein by
reference.
4.5 Common Stock Purchase Warrant, dated June 30, 1995, issued to
FSI. Filed as Exhibit 10.9 to the Company's Quarterly Report on
Form 10-Q for the period ended July 2, 1995 (Commission File No.
0-21794) (the "GTC July 1995 10-Q") and incorporated herein by
reference.
4.6 Common Stock Purchase Warrant, dated July 3, 1995, issued to
Genzyme. Filed as Exhibit 10.5 to the GTC July 1995 10-Q and
incorporated herein by reference.
4.7 Common Stock Purchase Warrant, dated March 13, 1996, issued to
FSI. Filed as Exhibit 4.8 to the Company's Annual Report on Form
10-K for the year ended December 31, 1995 (File No. 0-21794) (the
"GTC 1995 10-K") and incorporated herein by reference.
4.8 Common Stock Purchase Warrant, dated as of June 26, 1997, issued
to Government Land Bank d/b/a The MassDevelopment
("MassDevelopment"). Filed as Exhibit 4 to the GTC June 1997 10-Q
and incorporated herein by reference.
4.9 Form of Common Stock Purchase Warrant issued to the purchasers of
Series A Convertible Preferred Stock, dated March 20, 1998,
together with schedule of holders. Filed as Exhibit 4.9 to the
GTC 1997 10-K and incorporated herein by reference.
4.10 Form of Common Stock Purchase Warrant issued to Shoreline Pacific
Institutional Finance and affiliates, dated as of March 20, 1998.
Filed as Exhibit 4.10 to the GTC 1997 10-K and incorporated
herein by reference.
4.11 Common Stock Purchase Warrant, dated as of December 28, 1998,
issued to Genzyme. Filed herewith.
10.1 Technology Transfer Agreement between GTC and Genzyme Corporation
("Genzyme"), dated as of May 1, 1993. Filed as Exhibit 2.1 to the
GTC S-1 and incorporated herein by reference.**
10.2 Research and Development Agreement between GTC and Genzyme, dated
as of May 1, 1993. Filed as Exhibit 10.1 to the GTC S-1 and
incorporated herein by reference.
10.3 Services Agreement between GTC and Genzyme, dated as of May 1,
1993. Filed as Exhibit 10.2 to the GTC S-1 and incorporated
herein by reference.
10.4 Sublease Agreement between GTC and Genzyme, dated as of May 1,
1993. Filed as Exhibit 10.3 to the GTC S-1 and incorporated
herein by reference.
10.5 License Agreement between GTC and Genzyme, as successor to IG
Laboratories, Inc., dated as of May 1, 1993. Filed as Exhibit
10.4 to the GTC S-1 and incorporated herein by reference.
10.6 Series A Convertible Preferred Stock Purchase Agreement between
GTC and Genzyme, dated as of May 1, 1993. Filed as Exhibit 10.5
to the GTC S-1 and incorporated herein by reference.
10.7.1 Mortgage and Security Agreement, dated as of June 30, 1995,
between GTC and Genzyme. Filed as Exhibit 10.6 to the GTC July
1995 10-Q and incorporated herein by reference.
10.7.2 First Amendment to Mortgage and Security Agreement, dated as of
December 15, 1995, between GTC and Genzyme. Filed as Exhibit
10.7.2 to the GTC 1996 10-K and incorporated herein by reference.
10.8* GTC 1993 Equity Incentive Plan, as amended through May 27, 1998.
Filed as Exhibit 10.2 to the Company's Quarterly Report on Form
10-Q for the period ended June 28, 1998 (File No. 0-21794) (the
"GTC June 1998 10-Q) and incorporated herein by reference.
10.9* GTC 1993 Employee Stock Purchase Plan, as amended through May 28,
1997. Filed as Exhibit 10.4 to the GTC June 1997 10-Q and
incorporated herein by reference.
</TABLE>
<PAGE>
<TABLE>
<S> <C>
10.10* GTC 1993 Director Stock Option Plan, as amended through May 27,
1998. Filed as Exhibit 10.3 to the GTC June 1998 10-Q and
incorporated herein by reference.
10.11 GTC Form of Confidential and Proprietary Information Agreement
signed by GTC employees. Filed as Exhibit 10.9 to the GTC S-1 and
incorporated herein by reference.
10.12 GTC Form of Agreement Not to Compete. Filed as Exhibit 10.10 to
the GTC S-1 and incorporated herein by reference.
10.13 Form of Indemnification Agreement between GTC and its directors.
Filed as Exhibit 10.12 to the original filing of the GTC 1994
10-K and incorporated herein by reference. Such agreements are
materially different only as to the signing directors and the
dates of execution.
10.14 License Agreement between GTC and Biogen, Inc., dated December
26, 1990. Filed as Exhibit 10.12 to the GTC S-1 and incorporated
herein by reference.**
10.15 Agreement between GTC, SMI Genzyme Limited ("SMIG") and a
European pharmaceutical company, dated as of September 29, 1990.
Filed as Exhibit 10.13 to the GTC S-1 and incorporated herein by
reference.**
10.16 Research and Development Agreement between Genzyme and SMIG,
dated as of September 11, 1990, filed as Exhibit 10.14 to the GTC
S-1, as amended by an Agreement between GTC and SMIG, dated as of
March 15, 1994, filed as Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1994, and, in
each case, incorporated herein by reference.**
10.17 Joint Venture and Shareholders Agreement between GTC, Sumitomo
Metal Industries, Ltd. ("SMI") and SMIG, dated as of September 7,
1990. Filed as Exhibit 10.15 to the GTC S-1 and incorporated
herein by reference.
10.18 Shareholders' Subscription Agreement among GTC, SMI and SMIG,
dated as of March 15, 1994. Filed as Exhibit 10.17 to the GTC
1993 10-K and incorporated herein by reference.**
10.19.1 Cooperation and Licensing Agreement between GTC and Tufts
University, dated September 6, 1988, as amended through May 13,
1993 (the "Cooperation and Licensing Agreement"). Filed as
Exhibit 10.18 to the GTC 1994 10-K and incorporated herein by
reference.**
10.19.2 Amendment No. 7, dated April 1, 1993, to Cooperation and
Licensing Agreement. Filed as Exhibit 10.6 to the Company's
Quarterly Report on Form 10-Q for the period ended October 1,
1995 (File No. 0-294) (the "GTC October 1995 10-Q") and
incorporated herein by reference.
10.19.3 Amendment No. 8, dated October 21, 1993, to Cooperation and
Licensing Agreement. Filed as Exhibit 10.7 to the GTC October
1995 10-Q and incorporated herein by reference.
10.19.4 Amendment No. 9, dated December 1, 1993, to Cooperation and
Licensing Agreement. Filed as Exhibit 10.8 to the GTC October
1995 10-Q and incorporated herein by reference.**
10.19.5 Amendment No. 10, dated November 1, 1993, to Cooperation and
Licensing Agreement. Filed as Exhibit 10.9 to the GTC October
1995 10-Q and incorporated herein by reference.
10.19.6 Amendment No. 11, dated May 25, 1995, to Cooperation and
Licensing Agreement. Filed as Exhibit 10.10 to the GTC October
1995 10-Q and incorporated herein by reference.
10.20 United States Patent No. 4,873,191 Sublicense Agreement between
DNX, Inc. and Genzyme Regarding Transgenic Experimental Animals
and Transgenic Mammary Production Systems, dated February 1,
1990; and letter of amendment, dated April 19, 1991. Filed
together as Exhibit 10.17 to the GTC S-1 and incorporated herein
by reference.**
10.21.1 Indenture of Lease, dated March 17, 1986, between TSI Mason
Laboratories, Inc. ("Mason") and Stephen W. Wolfe and William C.
Greene as Trustees of the Fifty-Seven Union Street Trust (the
"Mason Lease"). Filed as Exhibit 10.15 to TSI's Registration
Statement on Form S-1 (File No. 33-33708) and incorporated herein
by reference.
10.21.2 Amendment to the Mason Lease, dated September 30, 1993. Filed as
Exhibit 10.4 to Amendment No. 1 to TSI's Annual Report on Form
10-K for the fiscal year ended June 27, 1993 (the "TSI 1993
10-K") and incorporated herein by reference.
</TABLE>
<PAGE>
<TABLE>
<S> <C>
10.21.3 Guaranty by TSI of the obligations of Mason under the TSI Mason
Lease. Filed as Exhibit 10.41 to the TSI 1993 10-K and
incorporated herein by reference.
10.22 Lease Agreement, dated September 25, 1989, between TSI and
Laboratory Animal Services, Inc. and Greg E. Beatty and Betty L.
Beatty. Filed as Exhibit 10.15 to TSI's Annual Report on Form
10-K for the fiscal year ended July 1, 1990 and incorporated
herein by reference.
10.23.1 Lease Agreement, dated November 14, 1990, between TSI and
Hechinger Enterprises ("the Hechinger Lease"). Filed as Exhibit
10.21 to Amendment No. 2 to TSI's Registration Statement on Form
S-1 (File No. 33-39008) and incorporated herein by reference.
10.23.2 First Amendment to the Hechinger Lease, dated January 20, 1991.
Filed as Exhibit 10.22 to Amendment No. 1 to TSI's Registration
Statement on Form S-1 (File No. 33-39008) and incorporated herein
by reference.
10.24 Non-Competition and Confidentiality Agreement, dated as of August
7, 1991, between TSI and Mildred S. Christian. Filed as Exhibit
10.27 to Amendment No. 2 to TSI's Registration Statement on Form
S-1 (File No. 33-44724) and incorporated herein by reference.
10.25 Agreement to Terminate Existing Leases and Contemporaneously to
Enter Into a New Lease, dated as of July 1, 1992, between
Heffernan and Partners and Argus Research Laboratories, Inc.
Filed as Exhibit 10.31 to the TSI 1993 10-K and incorporated
herein by reference.
10.26.1 Lease Agreement, dated as of October 8, 1992, between W.M.
Rickman Construction Company and TSI Washington Laboratories,
Inc. (the "Washington Lease"). Filed as Exhibit 10.32 to the TSI
1993 10-K and incorporated herein by reference.
10.26.2 Amendment to the Washington Lease, dated as of January 17, 1995.
Filed as Exhibit 10.26.2 to the GTC 1997 10-K and incorporated
herein by reference.
10.26.3 Second Amendment and accompanying Side Agreement to the
Washington Lease, dated as of July 7, 1997. Filed as Exhibit
10.26.3 to the GTC 1997 10-K and incorporated herein by
reference.
10.27.1 Revolving Credit Agreement, dated July 3, 1995, among GTC,
certain of its subsidiaries and FNBB (the "Revolving Credit
Agreement"). Filed as Exhibit 10.2 to the GTC July 1995 10-Q and
incorporated herein by reference.
10.27.2 First Amendment to Revolving Credit Agreement, dated as of
September 15, 1995 among GTC, certain of its subsidiaries and
FNBB. Filed as Exhibit 10.28.2 to the GTC 1996 10-K and
incorporated herein by reference.
10.27.3 Second Amendment to Revolving Credit Agreement, dated as of
December 22, 1995 among GTC, certain of its subsidiaries and
FNBB. Filed as Exhibit 10.28.3 to the GTC 1996 10-K and
incorporated herein by reference.
10.27.4 Third Amendment to Revolving Credit Agreement, dated as of March
29, 1996 among GTC, certain of its subsidiaries and FNBB. Filed
as Exhibit 10.28.4 to the GTC 1996 10-K and incorporated herein
by reference.
10.27.5 Fourth Amendment to Revolving Credit Agreement, dated as of
October 1, 1996 among GTC, certain of its subsidiaries and FNBB.
Filed as Exhibit 10.27.5 to the GTC 1997 10-K and incorporated
herein by reference.
10.27.6 Fifth Amendment to Revolving Credit Agreement, dated as of
February 21, 1997 among GTC, certain of its subsidiaries and
FNBB. Filed as Exhibit 10.27.6 to the GTC 1997 10-K and
incorporated herein by reference.
10.27.7 Sixth Amendment to Revolving Credit Agreement, dated as of March
17, 1997 among GTC, certain of its subsidiaries and FNBB. Filed
as Exhibit 10.27.7 to the GTC 1997 10-K and incorporated herein
by reference.
10.27.8 Seventh Amendment to Revolving Credit Agreement, dated as of June
17, 1997, among GTC, certain of its subsidiaries and FNBB. Filed
as Exhibit 10.7 to the GTC June 1997 10-Q and incorporated herein
by reference.
</TABLE>
<PAGE>
<TABLE>
<S> <C>
10.27.9 Eighth Amendment to Revolving Credit Agreement, dated as of March
20, 1998, among GTC, certain of its subsidiaries and FNBB. Filed
as Exhibit 10.27.9 to the GTC 1997 10-K and incorporated herein
by reference.
10.28.1 Security Agreement, dated as of July 3, 1995, by GTC and certain
of its subsidiaries in favor of Genzyme (the "Security
Agreement"). Filed as Exhibit 10.3 to the GTC July 1995 10-Q and
incorporated herein by reference.
10.28.2 First Amendment to Security Agreement, dated as of December 15,
1997. Filed as Exhibit 10.28.2 to the GTC 1997 10-K and
incorporated herein by reference.
10.29.1 Second Amended and Restated Convertible Debt Agreement, dated as
of December 28, 1998, between the GTC and Genzyme. Filed as
Exhibit 10.37 to Genzyme's Annual Report on Form 10-K for the
year ended December 31, 1998 (File No. 0-14680) and incorporated
herein by reference.
10.29.2 Amended and Restated Convertible Revolving Credit Note in the
amount of $6,300,000, dated as of December 28, 1998, executed by
GTC to Genzyme. Filed herewith.
10.30 Subordination Agreement, dated as of March 29, 1996, among GTC,
Genzyme and FNBB. Filed as Exhibit 10.32 to the GTC September
1997 10-Q and incorporated herein by reference.
10.31.2 First Amendment to Term Loan Agreement, dated as of March 29,
1996, among GTC, FNBB and Genzyme. Filed as Exhibit 10.33.1 to
the GTC September 1997 10-Q and incorporated herein by reference.
10.31.3 Second Amendment to Term Loan Agreement, dated as of October 1,
1996, among GTC, FNBB and Genzyme. Filed as Exhibit 10.32.3 to
the GTC 1997 10-K and incorporated herein by reference.
10.31.4 Third Amendment to Term Loan Agreement, dated as of February 21,
1997, among GTC, FNBB and Genzyme. Filed as Exhibit 10.32.4 to
the GTC 1997 10-K and incorporated herein by reference.
10.31.5 Fourth Amendment to Term Loan Agreement, dated as of June 17,
1997, among GTC, FNBB and Genzyme. Filed as Exhibit 10.6 to the
GTC June 1997 10-Q and incorporated herein by reference.
10.31.6 Fifth Amendment to Term Loan Agreement, dated as of March 20,
1998, among GTC, FNBB and Genzyme. Filed as Exhibit 10.32.6 to
the GTC 1997 10-K and incorporated herein by reference.
10.32 Master Equipment Lease Agreement, dated as of September 27, 1994,
between TSI and FSI. Filed as Exhibit 10.33 to the original
filing of the GTC 1994 10-K and incorporated herein by reference.
10.33.1 Reserve Pledge and Security Agreement, dated as of September 27,
1994, between TSI and FSI. Filed as Exhibit 10.34 to the original
filing of the GTC 1994 10-K and incorporated herein by reference.
10.33.2 Modification to Reserve Pledge and Security Agreement, dated as
of June 30, 1995, between TSI and FSI. Filed as Exhibit 10.35.2
to the GTC 1997 10-K and incorporated herein by reference.
10.34 Security Agreement, dated as of September 27, 1994, between TSI
and FSI. Filed as Exhibit 10.35 to the original filing of the GTC
1994 10-K and incorporated herein by reference.
10.35 Intercreditor Agreement, dated as of July 3, 1995, among GTC,
TSI, certain other subsidiaries of GTC, FNBB and FSI. Filed as
Exhibit 10.7 to the GTC July 1995 10-Q and incorporated herein by
reference.
10.36 Guaranty of Lease, dated as of December 26, 1996, by GTC in favor
of FSI. Filed as Exhibit 10.38 to the GTC 1997 10-K and
incorporated herein by reference.
10.37 Conversion and Registration Rights Agreement, dated as of June
29, 1994, between GTC and TSI. Filed as Exhibit 10.47 to the GTC
S-4 and incorporated herein by reference.
10.38 Common Stock Purchase Agreement, dated as of June 8, 1995,
between GTC and Genzyme. Filed as Exhibit 10.1 to the GTC July
1995 10-Q and incorporated herein by reference.
10.39* Amended and Restated Employment Agreement, dated as of August 28,
1997, between the Company and James A. Geraghty. Filed as Exhibit
10.1 to the GTC September 1997 10-Q and incorporated herein by
reference.
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10.40* Amended and Restated Employment Agreement, dated as of August 28,
1997, between the Company and John B. Green. Filed as Exhibit
10.2 to the GTC September 1997 10-Q and incorporated herein by
reference.
10.41* Amended and Restated Employment Agreement, dated as of September
16, 1997, between the Company and Peter Glick. Filed as Exhibit
10.3 to the GTC September 1997 10-Q and incorporated herein by
reference.
10.42* Employment Agreement, dated as of March 27, 1996, between GTC and
Harry Meade. Filed as Exhibit 10.44 to the Company's Quarterly
Report on Form 10-Q for the period ended March 31, 1996 and
incorporated herein by reference.
10.43* Form of Employment and Consulting Agreement among GTC, TSI and
Robert W. Baldridge. Filed as Exhibit 10.56 to the GTC S-4 and
incorporated herein by reference.
10.44.1 Agreement, dated as of September 21, 1994, between GTC and Gene
Pharming Europe B.V. ("Pharming B.V."). Filed as Exhibit 10.49 to
the Company's Registration Statement on Form S-1 (File No.
333-05843) and incorporated herein by reference.**
10.44.2 Amendment Agreement, dated as of April 23, 1997, between GTC and
Pharming B.V. Filed as Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 30, 1997 (File
No. 0-21794) (the "GTC March 1997 10-Q") and incorporated herein
by reference.
10.45 Development and Commercialization Agreement, dated as of
September 25, 1997, between the Company and Advanced Cell
Technology, Inc. Filed as Exhibit 10.5 to the GTC September 1997
10-Q and incorporated herein by reference.**
10.46 Development and Commercialization Agreement, dated as of
September 25, 1997, between the Company and B. Braun Melsungen
AG. Filed as Exhibit 10.6 to the GTC September 1997 10-Q and
incorporated herein by reference.**
10.47.1 Loan Agreement, dated as of May 22, 1997, between Redfield and
Simmons First National Bank ("SFNB"). Filed as Exhibit 10.49.1 to
the GTC 1997 10-K and in order to correct a typographical error
regarding the date of the agreement as contained in the version
previously filed as Exhibit 10.9.1 to the GTC June 1997 10-Q.
10.47.2 Promissory Note in the amount of $700,000.00, dated as of May 22,
1997, executed by Redfield and issued to SFNB. Filed as Exhibit
10.49.2 to the GTC 1997 10-K in order to correct a typographical
error regarding the date of the agreement as contained in the
version previously filed as Exhibit 10.9.2 to the GTC June 1997
10-Q.
10.47.3 Promissory Note in the amount of $350,000.00, dated as of May 22,
1997, executed by Redfield and issued to SFNB. Filed as Exhibit
10.49.3 to the GTC 1997 10-K in order to correct a typographical
error regarding the date of the agreement as contained in the
version previously filed as Exhibit 10.9.3 to the GTC June 1997
10-Q.
10.47.4 Mortgage, dated as of May 22, 1997, entered into by and between
Redfield and SFNB. Filed as Exhibit 10.49.4 to the GTC 1997 10-K
in order to correct a typographical error regarding the date of
the agreement as contained in the version previously filed as
Exhibit 10.9.4 to the GTC June 1997 10-Q.
10.47.5 Security Agreement, dated as of May 22, 1997, entered into by and
between Redfield and SFNB. Filed as Exhibit 10.49.5 to the GTC
1997 10-K in order to correct a typographical error regarding the
date of the agreement as contained in the version previously
filed as Exhibit 10.9.5 to the GTC June 1997 10-Q.
10.47.6 Unconditional Guaranty, dated as of May 22, 1997, executed by TSI
Corporation, Inc. in connection with the Loan Agreement, dated as
of May 22, 1997, between Redfield and SFNB. Filed as Exhibit
10.49.6 to the GTC 1997 10-K in order to correct a typographical
error regarding the date of the agreement as contained in the
version previously filed as Exhibit 10.9.6 to the GTC June 1997
10-Q.
10.47.7 Unconditional Guaranty, dated as of May 22, 1997, executed by the
Company in connection with the Loan Agreement, dated as of May
22, 1997, between Redfield and SFNB. Filed as Exhibit 10.49.7 to
</TABLE>
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<TABLE>
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the GTC 1997 10-K in order to correct a typographical error
regarding the date of the agreement as contained in the
version previously filed as Exhibit to 10.9.7 the GTC June
1997 10-Q.
10.48.1 Loan Agreement, dated as of May 22, 1997, between TSI Redfield
Laboratories, Inc. ("Redfield") and Jefferson County, Arkansas
("Jefferson County"). Filed as Exhibit 10.2.1 to the GTC June
1997 10-Q and incorporated herein by reference.
10.48.2 Promissory Note in the amount of $350,000.00, dated as of May 22,
1997, executed by Redfield and issued to Jefferson County. Filed
as Exhibit 10.2.2 to the GTC June 1997 10-Q and incorporated
herein by reference.
10.48.3 Mortgage, dated as of May 22, 1997, entered into by and between
Redfield and Jefferson County, Arkansas. Filed as Exhibit 10.2.3
to the GTC June 1997 10-Q and incorporated herein by reference.
10.48.4 Guaranty Agreement, dated as of May 22, 1997, executed by the
Company in connection with the Loan Agreement, dated as of May
22, 1997, between Redfield and Jefferson County. Filed as Exhibit
10.2.4 to the GTC June 1997 10-Q and incorporated herein by
reference.
10.49.1 Loan Agreement, dated as of June 26, 1997, between GTC Mason
Laboratories ("Mason") and MassDevelopment. Filed as Exhibit
10.8.1 to the GTC June 1997 10-Q and incorporated herein by
reference.
10.49.2 Promissory Note in the amount of $5,000,000.00, dated as of June
26, 1997, executed by Mason and issued to MassDevelopment. Filed
as Exhibit 10.8.2 to the GTC June 1997 10-Q and incorporated
herein by reference.
10.49.3 Mortgage and Security Agreement, dated as of June 26, 1997,
entered into by and between Mason and MassDevelopment. Filed as
Exhibit 10.8.3 to the GTC June 1997 10-Q and incorporated herein
by reference.
10.49.4 Guaranty, dated as of June 26, 1997, executed by the Company in
connection with the Loan Agreement, dated as of June 26, 1997,
between Mason and MassDevelopment. Filed 10.8.4 as Exhibit to the
GTC June 1997 10-Q and incorporated herein by reference.
10.49.5 Hazardous Materials Indemnification Agreement, dated as of June
26, 1997, entered into by and between Mason and MassDevelopment.
Filed as Exhibit 10.8.5 to the GTC June 1997 10-Q and
incorporated herein by reference.
10.50.1 Amended and Restated Operating Agreement of ATIII LLC dated as of
January 1, 1998. Filed as Exhibit 10.52.1 to the GTC 1997 10-K
and incorporated herein by reference.**
10.50.2 Purchase Agreement between GTC and Genzyme dated as of January 1,
1998, transferring an interest in ATIII LLC from Genzyme to GTC.
Filed as Exhibit 10.52.2 to the GTC 1997 10-K and incorporated
herein by reference.**
10.50.3 Collaboration Agreement among Genzyme, GTC and ATIII LLC, dated
as of January 1, 1998. Filed as Exhibit 10.52.3 to the GTC 1997
10-K and incorporated herein by reference.**
10.51 Registration Rights Agreement, dated March 20, 1998, between GTC
and certain stockholders named therein. Filed as Exhibit 10.53 to
the GTC 1997 10-K and incorporated herein by reference.
10.52 Securities Purchase Agreement, dated as of March 20, 1998,
between GTC and certain purchasers named therein. Filed as
Exhibit 10.54 to the GTC 1997 10-K and incorporated herein by
reference.
10.53* Employment Agreement dated as of July 1, 1998 between the Company
and Dr. Sandra Nusinoff Lehrman. Filed as Exhibit 10.1 to the GTC
June 1998 10-Q and incorporated herein by reference.
10.54* Amendment No. 1 to Employment Agreement between the Company and
Dr. Sandra Nusinoff Lehrman. Filed as Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q for the period ended
September 27, 1998 (File No. 0-21794) (the "GTC September 1998
10-Q) and incorporated herein by reference.
10.55* Amendment No. 1 to Employment Agreement between the Company and
John B. Green. Filed as Exhibit 10.3 to the GTC September 1998
10-Q and incorporated herein by reference.
10.56* Consulting Agreement between the Company and James A. Geraghty.
Filed as Exhibit 10.4 to the GTC September 1998 10-Q and
incorporated herein by reference.
10.57.1 Credit Agreement between GTC and Fleet National Bank, dated as of
December 28, 1998. Filed herewith.
10.57.2 Revolving Credit Note in the amount of $17,500,000, dated as of
December 28, 1998, executed by GTC and issued to Fleet National
Bank. Filed herewith.
10.57.3. Term Note in the amount of $7,100,000, dated as of December 28,
1998, executed by GTC and issued to Fleet National Bank. Filed
herewith.
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10.57.4 Amended and Restated Reimbursement Agreement, dated as of
December 28, 1998, 1995, among GTC, certain of its subsidiaries
and Genzyme. Filed herewith.
23.1 Consent of PricewaterhouseCoopers LLP. Filed herewith.
27 Financial Data Schedule. Filed herewith.
99 Important Factors Regarding Forward-Looking Statements. Filed
herewith.
</TABLE>
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* Indicates a management contract or compensatory plan.
** Certain confidential information contained in the document has been
omitted and filed separately with the Securities and Exchange Commission
pursuant to Rule 406 of the Securities Act of 1933, as amended, or Rule
24b-2 promulgated under the Securities and Exchange Act of 1934, as
amended
<PAGE>
EXHIBIT 4.11
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE
SECURITIES LAW AND MAY NOT BE TRANSFERRED EXCEPT (i) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT OR (ii) UPON FIRST FURNISHING TO THE
COMPANY AN OPINION OF COUNSEL SATISFACTORY TO IT THAT SUCH TRANSFER IS NOT IN
VIOLATION OF THE REGISTRATION REQUIREMENTS OF THE ACT OR ANY STATE SECURITIES
LAW.
GENZYME TRANSGENICS CORPORATION
WARRANT TO PURCHASE COMMON STOCK
This certifies that, for value received, Genzyme Corporation
("GENZYME") is entitled to subscribe for and purchase up to 288,000 shares
(subject to adjustment from time to time pursuant to the provisions of Section 5
hereof) of fully paid and nonassessable Common Stock of GENZYME TRANSGENICS
CORPORATION, a Massachusetts corporation (the "Company"), at the Warrant Price
(as defined in Section 2 hereof), subject to the provisions and upon the terms
and conditions hereinafter set forth. The shares of Common Stock issuable upon
exercise or conversion of this Warrant are referred to herein as "WARRANT
SHARES".
As used herein, the term "COMMON STOCK" shall mean the Company's
presently authorized Common Stock, $0.01 par value per share, and any stock into
or for which such Common Stock may hereafter be converted or exchanged.
This Warrant to purchase Common Stock (this "WARRANT") is issued in
consideration for that certain Guaranty, dated as of December 28, 1998, issued
by Genzyme to Fleet National Bank (the "BANK") with respect to the obligations
of the Company under a Credit Agreement of even date herewith between the Bank
and the Company (the "CREDIT AGREEMENT") and a Guaranty of even date herewith
between the Bank and Genzyme (the "GUARANTY").
1. TERM OF WARRANT; VESTING SCHEDULE.
(a) TERM. Subject to the vesting schedule set forth in the following
paragraph, the purchase or conversion right represented by this Warrant may be
exercised, in whole or in part, at any time during the period beginning on the
date hereof (the "ISSUE DATE") and ending on December 28, 2008 (the "EXPIRATION
DATE").
(b) VESTING SCHEDULE. This Warrant shall be exercisable at any time
following the Issue Date as to 96,000 shares of Common Stock and shall become
exercisable at any time following each of the first and second anniversaries of
the Issue Date as to such additional number of shares of Common Stock equal to
the product obtained by multiplying: (i) 96,000 by (ii) a fraction, the
numerator of which shall be the sum of the Revolving Credit Commitment and the
Term Loan Commitment (each as defined in the Credit Agreement) on such
anniversary date, and the denominator of which shall be $24,600,000.
Notwithstanding the foregoing, all unvested
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Warrant Shares shall become exercisable immediately upon the payment by Genzyme
to the Bank of any amounts due under the Guaranty.
2. WARRANT PRICE. The initial exercise price of this Warrant is $4.875,
subject to adjustment from time to time pursuant to the provisions of Section 5
hereof (the "WARRANT PRICE").
3. METHOD OF EXERCISE OR CONVERSION; PAYMENT; ISSUANCE OF NEW WARRANT.
(a) EXERCISE. Subject to Section 1 hereof, the purchase right
represented by this Warrant may be exercised by the holder hereof, in whole or
in part, by the surrender of this Warrant (with the notice of exercise form
attached hereto as EXHIBIT 1 duly executed) at the principal office of the
Company and by the payment to the Company, by check or wire transfer, of an
amount equal to the then applicable Warrant Price per share multiplied by the
number of shares then being purchased. The Company agrees that the shares so
purchased shall be deemed to be issued to the holder hereof as the record owner
of such shares as of the close of business on the date on which this Warrant
shall have been surrendered and payment made for such shares as aforesaid. In
the event of any exercise of this Warrant, certificates for the shares of stock
so purchased shall be delivered to the holder hereof within 15 days thereafter
and, unless this Warrant has been fully exercised or expired, a new warrant
representing the portion of the shares, if any, with respect to which this
Warrant shall not then have been exercised shall also be issued to the holder
hereof within such 15-day period.
(b) CONVERSION. Pursuant to the following formula and subject to
Section 1 hereof, the holder has a right to convert its purchase rights under
this Warrant (the "CONVERSION RIGHT"), in whole or in part, into a number of
shares of Common Stock of the Company by surrendering this Warrant (with the
notice of exercise form attached hereto as EXHIBIT 1 duly executed) at the
principal office of the Company, specifying the number of shares of Common Stock
of the Company subject to this Warrant which the holder desires to convert.
X = Y (A - B)
---------
A
where X = the number of shares of Common Stock to be issued to the
holder;
Y = the number of shares of Common Stock subject to this
Warrant for which the Conversion Right is being exercised;
A = the fair market value of one share of Common Stock;
B = the Warrant Price
As used herein, the fair market value of a share of Common Stock shall mean,
with respect to each share of Common Stock, the closing price per share of the
Company's Common Stock on the principal national securities exchange on which
the Common Stock is then listed or admitted to trading or, if not then listed or
admitted to trading on any such exchange, on The
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Nasdaq National Market, or if not then listed or traded on any such exchange or
market, the bid price per share on the Nasdaq Small-Cap Market or, in the sole
discretion of the Board of Directors of the Company, any other over-the-counter
market, including the OTC Bulletin Board, which reports bid and asked or last
sale prices and volume of sales, averaged over the ten consecutive trading days
prior to the business day on which notice of exercise duly executed and this
Warrant are duly delivered to the Company. If at any time such quotations are
not available, the current fair market value of a share of Common Stock shall be
the highest price per share which the Company could obtain from a willing buyer
(not a current employee or director) for shares of Common Stock sold by the
Company, from authorized but unissued shares, as determined in good faith by the
Board of Directors of the Company. The Company agrees that the shares so
converted shall be deemed to be issued to the holder hereof as the record owner
of such shares as of the close of business on the date on which this Warrant
shall have been surrendered as aforesaid. In the event of any conversion of this
Warrant, certificates for the shares of stock so converted shall be delivered to
the holder hereof within 15 days thereafter and, unless this Warrant has been
fully converted or expired, a new Warrant representing the portion of the
shares, if any, with respect to which this Warrant shall not then have been
converted shall also be issued to the holder hereof within such 15-day period.
4. STOCK FULLY PAID; RESERVATION OF SHARES. All Common Stock which may be
issued upon the exercise or conversion of this Warrant will, upon issuance, be
fully paid and nonassessable, and free from all taxes, liens and charges with
respect to the issue thereof. During the period within which the rights
represented by this Warrant may be exercised, the Company will at all times have
authorized, and reserved for the purpose of the issuance upon exercise or
conversion of the purchase rights evidenced by this Warrant, a sufficient number
of shares of its Common Stock to provide for the complete exercise of the rights
represented by this Warrant.
5. ADJUSTMENTS.
(a) STOCK DIVIDENDS AND STOCK SPLITS. If, at any time after the date
hereof and before the Expiration Date, (i) the Company shall fix a record date
for the issuance of any stock dividend payable in shares of Common Stock or (ii)
the number of shares of Common Stock outstanding shall have been increased by a
subdivision or split-up of shares of Common Stock, then, on the record date
fixed for the determination of holders of Common Stock entitled to receive such
dividend or immediately after the effective date of such subdivision or
split-up, as the case may be, the number of shares of Common Stock to be
delivered upon exercise of this Warrant will be appropriately increased so that
the holder thereafter will be entitled to receive the number of shares of Common
Stock that the holder would have owned immediately following such action had
this Warrant been fully exercised (without regard to vesting dates) immediately
prior thereto, and the Warrant Price will be appropriately adjusted.
(b) COMBINATION OF STOCK. If, at any time after the date hereof and
before the Expiration Date, the number of shares of Common Stock outstanding
shall have been decreased by a reverse stock split or other combination of the
outstanding shares of Common Stock, then, immediately after the effective date
of such combination, the number of shares of Common Stock to be delivered upon
exercise of this Warrant will be appropriately decreased so that the
3
<PAGE>
holder thereafter will be entitled to receive the number of shares of Common
Stock that the holder would have owned immediately following such action had
such Warrant been fully exercised (without regard to vesting dates) immediately
prior thereto, and the Warrant Price will be appropriately adjusted.
(c) REORGANIZATION, ETC. If any capital reorganization of the Company,
or any reclassification of the Common Stock, or any consolidation of the Company
with or merger of the Company with or into any other person or any sale, lease
or other transfer of all or substantially all of the assets of the Company to
any other person (including any individual, partnership, joint venture,
corporation, trust or group thereof) shall be effected in such a way that,
following consummation of such transaction, the holders of Common Stock shall be
entitled to receive stock, securities or assets with respect to or in exchange
for Common Stock, then, upon exercise or conversion of this Warrant in
accordance with Section 3 hereof, the holder shall have the right to receive the
kind and amount of stock, securities or assets receivable upon such
reorganization, reclassification, consolidation, merger or sale, lease or other
transfer by a holder of the number of shares of Common Stock that the holder
would have been entitled to receive upon exercise or conversion of this Warrant
pursuant to Section 3 hereof had such Warrant been exercised immediately before
such reorganization, reclassification, consolidation, merger or sale, lease or
other transfer, subject to adjustments that shall be as nearly equivalent as may
be practicable to the adjustments provided for in this Section 5.
(d) RIGHTS OFFERING. If the Company, at any time after the date hereof
and before the Expiration Date, shall issue or sell or fix a record date for the
issuance of rights, options, warrants or convertible or exchangeable securities
to all holders of Common Stock entitling them to subscribe for or purchase
Common Stock (or securities convertible into Common Stock) at a price per share
(or having a conversion price per share) that, together with the value of any
consideration paid for any such rights, options, warrants or convertible or
exchangeable securities (as determined in good faith by the Board of Directors
of the Company) is less than the fair market value of a share of Common Stock as
of the date of such issuance or sale or on such record date: then, immediately
after the date of such issuance or sale or on such record date, the holder shall
have the right to receive, upon the same terms as the holders of Common Stock,
the kind and amount of rights, options, warrants or convertible or exchangeable
securities receivable in such offering by a holder of the number of shares of
Common Stock that the holder would have been entitled to receive upon exercise
of this Warrant pursuant to Section 1 hereof had such Warrant been exercised
immediately (without regard to vesting dates) before such issuance or the record
date for such instance.
(e) SPECIAL DIVIDEND. If (other than in dissolution or liquidation)
securities of the Company (other than shares of Common Stock or securities
issued pursuant to a shareholder rights or similar plan) or assets (other than
cash dividends) are issued by way of a dividend on outstanding shares of Common
Stock, then the Warrant Price shall be adjusted so that it shall equal the price
determined by multiplying the Warrant Price in effect immediately prior to the
close of business on the record date for the determination of the stockholders
entitled to receive such dividend by a fraction, the numerator of which shall be
the last sale price of the Common Stock on such record date less the then fair
market value as determined by the Board of Directors of the Company, whose
determination shall be conclusive, of the portion of the securities or
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<PAGE>
assets distributed applicable to one share of Common Stock, and the denominator
of which shall be such last sale price. Such adjustment shall become effective
immediately prior to the opening of business on the day following such record
date.
(f) LIMITATIONS. Anything in this Section 5 to the contrary
notwithstanding, no adjustment in the Warrant Price in accordance with the
provisions of 5(a), 5(b), 5(c), 5(d) or 5(e), hereof need be made if such
adjustment would amount to a change in such Warrant Price of less than $0.01;
PROVIDED, HOWEVER, that the amount by which any adjustment is not made by reason
of the provisions of this Section 5(f) shall be carried forward and taken into
account at the time of any subsequent adjustment in the Warrant Price.
(g) READJUSTMENTS. If an adjustment is made under Sections 5(a), 5(b),
5(c), 5(d) or 5(e), and the event to which the adjustment relates does not
occur, then any adjustments in the Warrant Price or the number of Warrant Shares
that were made in accordance with such sections shall be adjusted back to the
Warrant Price and the number of Warrant Shares that were in effect immediately
prior to the date of or record date for such event.
(h) NOTICE OF ADJUSTMENT UNDER THIS WARRANT. Upon any adjustment of the
Warrant Price or the number of Warrant Shares, then, and in each such case, the
Company shall give written notice thereof, in the form of an officer's
certificate, to the holder hereof which notice shall state the Warrant Price
resulting from such adjustment and the increase or decrease, if any, in the
number of Warrant Shares at such price upon the exercise of this Warrant,
setting forth in reasonable detail the method of calculation and the facts upon
which such calculation is based. However, failure to give such notice, or any
defect therein, shall not affect the legality or validity of the subject
adjustments.
(i) CERTIFICATE OF INDEPENDENT PUBLIC ACCOUNTANTS. The Company may
retain a firm of independent public accountants of recognized standing (who may
be any such firm regularly employed by the Company) to make any computation
required under this Section 5, and a certificate signed by such firm shall be
conclusive evidence of the correctness of the computation made under this
Section 5.
6. FRACTIONAL SHARES. No fractional shares of Common Stock will be issued
in connection with any exercise hereunder, but in lieu of such fractional shares
the Company shall make a cash payment therefor upon the basis of the fair market
value of a share of Common Stock as of the date of exercise.
7. COMPLIANCE WITH THE ACT; REGISTRATION RIGHTS.
(a) COMPLIANCE WITH THE ACT. The holder of this Warrant, by acceptance
hereof, agrees that this Warrant and the shares of Common Stock to be issued
upon exercise hereof are being acquired for investment for such holder's own
account and not with a view toward distribution hereof or thereof, and that it
will not offer, sell or otherwise dispose of this Warrant or any shares of
Common Stock to be issued upon exercise hereof unless this Warrant has been
registered under the Act and applicable state securities laws or (i) such
registration is
5
<PAGE>
not required and (ii) an opinion of counsel satisfactory to the Company is
furnished to the Company to that effect.
(b) REGISTRATION RIGHTS. The holder shall be entitled, with respect to
the shares of Common Stock issuable upon the exercise or conversion hereof, to
the same registration rights as are applicable to the shares of Common Stock
already held by Genzyme, which registration rights are set forth in Section 8 of
the Series A Convertible Preferred Stock Purchase Agreement dated May 1, 1993
between the Company and Genzyme.
8. TRANSFER AND EXCHANGE OF WARRANT.
(a) TRANSFER. This Warrant may be transferred or succeeded to by any
person; PROVIDED, HOWEVER, that the Company is given written notice by such
transferee at the time of such transfer, stating the name and address of the
transferee and identifying the securities with respect to which the rights
hereunder are being assigned.
(b) EXCHANGE. Subject to compliance with the terms hereof, this Warrant
and all rights hereunder are transferable, in whole or in part, at the office of
the Company by the holder hereof, in person or by duly authorized attorney, upon
surrender of this Warrant properly endorsed. Each taker and holder of this
Warrant, by taking or holding the same, consents and agrees that this Warrant,
when endorsed in blank, shall be deemed negotiable; provided that the last
holder of this Warrant as registered on the books of the Company may be treated
by the Company and all persons dealing with this Warrant as the absolute owner
hereof for any purposes and as the person entitled to exercise the rights
represented by this Warrant or to transfer hereof on the books of the Company,
any notice to the contrary notwithstanding, unless and until such holder seeks
to transfer registered ownership of this Warrant on the books of the Company and
such transfer is effected.
9. MISCELLANEOUS.
(a) NO RIGHTS AS SHAREHOLDER. No holder of this Warrant, as such, shall
be entitled to vote or receive dividends or be deemed the holder of Common Stock
or any other securities of the Company which may at any time be issuable on the
exercise hereof for any purpose, nor shall anything contained herein be
construed to confer upon the holder of this Warrant, as such, any of the rights
of a shareholder of the Company or any right to vote for the election of
directors or upon any matter submitted to shareholders at any meeting thereof,
or to give or withhold consent to any corporate action (whether upon any
recapitalization, issuance of stock, reclassification of stock, change of par
value or change of stock to no par value, consolidation, merger, conveyance or
otherwise) or to receive notice of meetings, or to receive dividends or
subscription rights or otherwise until this Warrant shall have been exercised or
converted and the shares purchasable upon the exercise or conversion hereof
shall have become deliverable, as provided herein.
(b) REPLACEMENT. On receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant and, in
the case of loss, theft or destruction, on delivery of an indemnity agreement,
or bond reasonably satisfactory in form
6
<PAGE>
and amount to the Company or, in the case of mutilation, on surrender and
cancellation of this Warrant, the Company, at its expense, will execute and
deliver, in lieu of this Warrant, a new warrant of like tenor.
(c) NOTICE. Any notice given to either party under this Warrant shall
be in writing, and any notice hereunder shall be deemed to have been given upon
the earlier of (i) delivery thereof by hand delivery, by courier, or by standard
form of telecommunication, and (ii) three (3) business days after the mailing
thereof if sent registered mail with postage prepaid, addressed to the Company
at its principal executive offices and to the holder at its address set forth in
the Company's books and records or at such other address as the holder may have
provided to the Company in writing.
(d) NO IMPAIRMENT. The Company will not, by amendment of its Restated
Articles of Organization of through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Company, but will at all
times in good faith assist in the carrying out of all the provisions in the
Warrant.
(e) GOVERNING LAW. This Warrant shall be governed by and construed
under the laws of the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, this Warrant is executed as of this 28th day of
December, 1998.
GENZYME TRANSGENICS CORPORATION
By: /s/ John B. Green
--------------------------------------------------
Name: John B. Green
Title: Vice President and Chief Financial Officer
7
<PAGE>
EXHIBIT 1
NOTICE OF EXERCISE
TO: GENZYME TRANSGENICS CORPORATION
1. Check Box that Applies:
/ / The undersigned hereby elects to purchase ______ shares of Common
Stock of GENZYME TRANSGENICS CORPORATION pursuant to the terms of the attached
Warrant, and tenders herewith cash payment of the purchase price of such shares
in full.
/ / The undersigned hereby elects to convert ______ shares subject to the
attached Warrant into shares of Common Stock of GENZYME TRANSGENICS CORPORATION
pursuant to the terms of the attached Warrant.
2. Please issue a certificate or certificates representing said shares of
Common Stock in the name of the undersigned or in such other name as is
specified below:
-------------------------------------
(Name)
-------------------------------------
-------------------------------------
(Address)
-------------------------------------
Signature
8
<PAGE>
EXHIBIT 10.29.2
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE
TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS IT HAS BEEN REGISTERED UNDER THE ACT
AND SUCH LAWS OR (1) REGISTRATION UNDER APPLICABLE STATE SECURITIES LAWS IS NOT
REQUIRED AND (2) AN OPINION OF COUNSEL SATISFACTORY TO THE BORROWER IS FURNISHED
TO THE BORROWER TO THE EFFECT THAT REGISTRATION UNDER THE ACT IS NOT REQUIRED.
AMENDED AND RESTATED CONVERTIBLE REVOLVING CREDIT NOTE
$6,300,000 December 28, 1998
Cambridge, Massachusetts
FOR VALUE RECEIVED, Genzyme Transgenics Corporation, a Massachusetts
corporation (the "BORROWER"), hereby unconditionally promises to pay to the
order of Genzyme Corporation (the "LENDER"), at the place and times provided in
that certain Second Amended and Restated Convertible Debt Agreement dated of
even date herewith (as amended from time to time, the "AGREEMENT") between the
Borrower and the Lender, the principal sum of
SIX MILLION THREE HUNDRED THOUSAND DOLLARS
($6,300,000)
or such lesser amount as may be then outstanding hereunder, in lawful money of
the United States of America, as provided in the Agreement, and in immediately
available funds, and to pay interest on the unpaid principal balance hereof from
time to time outstanding, in like money, for the period commencing on the date
hereof until paid in full, at the Interest Rate on the dates provided in the
Agreement. Each change in the Interest Rate based upon the Prime Rate shall take
effect simultaneously with the corresponding change in such Prime Rate. All
amounts outstanding which are not paid when due and during the period when any
Event of Default shall have occurred and be continuing for a period of 30 or
more days, the principal of all Loans hereunder shall bear interest, after as
well as before judgment, at the Post-Default Rate.
This Amended and Restated Convertible Revolving Credit Note is
subordinated to certain indebtedness of the Borrower to Fleet National Bank (the
"BANK") as set forth in a Guaranty dated as of the date hereof made by the
Lender in favor of the Bank.
This Amended and Restated Convertible Revolving Credit Note is the
"Revolving Credit Note" referred to in the Agreement, and is entitled to the
benefits of and its subject to the provisions of the Agreement but neither this
reference to the Agreement nor any provision thereof shall affect or impair the
absolute and unconditional obligation of the undersigned maker of this Amended
and Restated Convertible Revolving Credit Note to pay the principal of and
interest on this Amended and Restated Convertible Revolving Credit Note as
herein provided. All capitalized terms used herein and not specifically defined
shall have the meanings given to them in the Agreement.
<PAGE>
Each Loan made by the Lender pursuant to the Agreement and all payments
made on account of principal and interest shall be recorded by the Lender in its
records and prior to any transfer hereof, endorsed on the grid schedule attached
hereto. The Borrower acknowledges that, notwithstanding the state of the grid
schedule hereto, the Lender's records with respect to Loans and payments made
hereunder shall constitute, in the absence of manifest error, presumptive
evidence of the Borrower's indebtedness from time to time under the Agreement
and hereunder.
Subject to the terms of the Agreement, the outstanding principal and
interest payable hereunder shall be convertible into shares of Common Stock,
$.01 par value per share, of the Borrower at the Conversion Price set forth in
Section 1.7 thereof.
This Amended and Restated Convertible Revolving Credit Note may be
prepaid at any time without penalty or fee as provided in the Agreement.
Upon the occurrence of an Event of Default specified in Section 4.1 of
the Agreement, the holder hereof may declare the entire outstanding indebtedness
evidenced by this Amended and Restated Convertible Revolving Credit Note, with
interest accrued thereon, to be immediately due and payable as provided in the
Agreement.
PRESENTMENT, DEMAND, PROTEST AND NOTICE OF DISHONOR AND NON-PAYMENT ARE
HEREBY WAIVED BY THE UNDERSIGNED.
This Amended and Restated Convertible Revolving Credit Note shall be
governed by the laws of the Commonwealth of Massachusetts and shall have the
effect of an instrument under seal.
GENZYME TRANSGENICS CORPORATION
By /S/ JOHN B. GREEN
----------------------------------------
John B. Green
Vice President and
Chief Financial Officer
<PAGE>
EXHIBIT 10.57.1
CREDIT AGREEMENT
BETWEEN
GENZYME TRANSGENICS CORPORATION
AND
FLEET NATIONAL BANK
DATED AS OF DECEMBER 28, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1. - DEFINITIONS.......................................................1
1.1 DEFINED TERMS.............................................................1
1.2 ACCOUNTING TERMS..........................................................1
ARTICLE 2. - LOANS..............................................................1
2.1 REVOLVING CREDIT COMMITMENT...............................................1
2.2 PROCEDURE FOR REVOLVING CREDIT BORROWINGS.................................1
2.3 MANDATORY PREPAYMENT......................................................2
2.4 REVOLVING CREDIT NOTE AND RECORDS.........................................2
2.5 REVOLVING CREDIT LOAN PROCEEDS............................................2
2.6 TERMINATION OF REVOLVING CREDIT COMMITMENT................................2
2.7 INTENTIONALLY OMITTED.....................................................3
2.8 FACILITY FEE..............................................................3
2.9 UNUSED LINE FEE...........................................................3
2.10 LETTERS OF CREDIT.........................................................3
2.11 DEBIT OF ACCOUNTS.........................................................4
ARTICLE 3. - LOANS..............................................................4
3.1 TERM LOAN COMMITMENT......................................................4
3.2 TERM LOAN BORROWING REQUEST...............................................5
3.3 TERM LOAN BORROWING; PREPAYMENT...........................................5
3.4 TERM NOTE AND RECORDS.....................................................5
3.5 TERM LOAN PROCEED.........................................................5
3.6 REDUCTION OF TERMINATION OF CREDIT COMMITMENT.............................5
3.7 FACILITY FEE..............................................................6
ARTICLE 4. - REPRESENTATIONS AND WARRANTIES.....................................6
4.1 FINANCIAL CONDITION.......................................................6
4.2 ORGANIZATION, EXISTENCE, GOOD STANDING....................................6
4.3 SUBSIDIARIES; CAPITALIZATION..............................................6
4.4 POWER AND AUTHORITY.......................................................6
4.5 LEGAL, VALID, BINDING OBLIGATION..........................................7
4.6 CONSENTS..................................................................7
4.7 NO LEGAL BAR..............................................................7
4.8 NO LITIGATION.............................................................7
4.9 NO DEFAULT................................................................7
4.10 ASSETS, NO LIENS;.........................................................7
4.11 NO BURDENSOME RESTRICTIONS................................................8
4.12 TAXES.....................................................................8
4.13 REGULATION U, ETC.........................................................8
4.14 ERISA.....................................................................8
4.15 INVESTMENT COMPANY ACT, ETC...............................................9
4.16 INDEBTEDNESS..............................................................9
4.17 CONTINGENT LIABILITIES....................................................9
4.18 CHIEF PLACE OF BUSINESS; LOCATIONS OF COLLATERAL..........................9
4.19 LAWS INCLUDING ENVIRONMENTAL AND SAFETY MATTERS...........................9
4.20 INTELLECTUAL PROPERTY.....................................................9
4.21 NEGATIVE PLEDGES.........................................................10
4.22 FULL DISCLOSURE..........................................................10
</TABLE>
<PAGE>
<TABLE>
<S> <C>
ARTICLE 5. - AFFIRMATIVE COVENANTS.............................................10
5.1 FINANCIAL STATEMENTS AND OTHER DOCUMENTS.................................10
5.2 EXISTENCE; COMPLIANCE WITH LAWS; ETC.....................................12
5.3 MAINTAIN PROPERTY........................................................12
5.4 INSURANCE................................................................12
5.5 NOTICE OF MATERIAL EVENTS................................................13
5.6 DEPOSIT ACCOUNTS.........................................................13
ARTICLE 6. - NEGATIVE COVENANTS................................................13
6.1 INDEBTEDNESS.............................................................13
6.2 CONTINGENT LIABILITIES...................................................14
6.3 LIMITATION ON LIENS......................................................14
6.4 PROHIBITION OF FUNDAMENTAL CHANGES.......................................15
6.5 INVESTMENTS AND LOANS....................................................15
6.6 DIVIDENDS AND REDEMPTIONS................................................16
6.7 TRANSACTIONS WITH AFFILIATES.............................................16
6.8 NEGATIVE PLEDGE..........................................................16
ARTICLE 7. - CONDITIONS PRECEDENT..............................................16
7.1 CONDITIONS OF INITIAL EXTENSION OF CREDIT................................16
7.2 CONDITIONS OF ALL LOANS..................................................18
ARTICLE 8. - EVENTS OF DEFAULT.................................................18
8.1 EVENTS OF DEFAULT........................................................18
8.2 LENDER'S REMEDIES........................................................20
8.3 CROSS DEFAULT............................................................21
8.4 SETOFF...................................................................21
ARTICLE 9. - MISCELLANEOUS.....................................................21
9.1 NOTICES..................................................................21
9.2 NO WAIVER OF RIGHTS......................................................23
9.3 OBLIGATIONS ABSOLUTE; CUMULATIVE REMEDIES................................23
9.4 SUCCESSORS...............................................................23
9.5 GOVERNING LAW............................................................24
9.6 SUBMISSION TO JURISDICTION; WAIVER OF TRIAL BY JURY......................24
9.7 COMPLETE AGREEMENT, AMENDMENTS...........................................24
9.8 EXPENSES.................................................................24
9.9 INDEMNIFICATION..........................................................25
9.10 SURVIVAL OF AGREEMENTS...................................................25
9.11 SEVERABILITY.............................................................25
9.12 DESCRIPTIVE HEADINGS.....................................................25
9.13 COUNTERPARTS.............................................................25
9.14 PLEDGE TO FEDERAL RESERVE................................................25
9.15 LOST NOTE................................................................26
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULES AND EXHIBITS
- ----------------------
<S> <C>
SCHEDULE 1 (DEFINITIONS)
SCHEDULE 4.1 (FINANCIAL STATEMENTS OF BORROWER)
SCHEDULE 4.3 (SUBSIDIARIES AND INVESTMENTS/ +5% SHAREHOLDERS)
SCHEDULE 4.6 (CONSENTS AND APPROVALS)
SCHEDULE 4.8 (LITIGATION)
SCHEDULE 4.11 (BURDENSOME RESTRICTIONS)
SCHEDULE 4.20 (INTELLECTUAL PROPERTY DISCLOSURE)
SCHEDULE 4.21 (EXISTING NEGATIVE PLEDGES)
SCHEDULE 6.1 (DISCLOSED INDEBTEDNESS)
SCHEDULE 6.2 (DISCLOSED CONTINGENT LIABILITIES)
SCHEDULE 6.3 (DISCLOSED LIENS)
SCHEDULE 6.5 (INVESTMENT POLICY)
SCHEDULE 6.6 (SERIES A CONVERTIBLE PREFERRED STOCK)
EXHIBIT A - REVOLVING CREDIT NOTE
EXHIBIT B - TERM NOTE
EXHIBIT C - COMPLIANCE CERTIFICATE
</TABLE>
<PAGE>
CREDIT AGREEMENT
CREDIT AGREEMENT dated as of December 28, 1998 between GENZYME TRANSGENICS
CORPORATION, a Massachusetts corporation ("Borrower"), and FLEET NATIONAL BANK,
a national banking association ("Lender").
WHEREAS, Borrower has requested that Lender provide it with revolving credit
and term loan facilities;
WHEREAS, Lender is willing, on the terms and subject to the conditions in
this Agreement, to make such of credit facilities available to Borrower;
NOW, THEREFORE, in consideration of the mutual promises contained herein and
other good and valuable consideration, the receipt and sufficiency of which are
acknowledged, Lender and Borrower agree as follows.
ARTICLE 1. - DEFINITIONS
1.1 DEFINED TERMS. Unless otherwise defined herein, the capitalized terms,
as used in this Agreement, shall have the meanings as set forth on Schedule 1
hereto.
1.2 ACCOUNTING TERMS. All accounting terms not specifically defined herein
shall be interpreted and all financial statements and reports as to financial
matters required to be delivered to Lender hereunder, shall be prepared in
accordance with GAAP consistently applied with those used in the preparation of
the audit and quarterly financial statements furnished to Lender in connection
with the initial Loans and Letters of Credit issued on the Initial Borrowing
Date.
ARTICLE 2. - LOANS
2.1 REVOLVING CREDIT COMMITMENT. Subject to the terms and conditions
hereof, Lender agrees to make Revolving Credit Loans and issue Letters of Credit
(as described in Section 2.10 hereof) to Borrower from time to time during the
Revolving Credit Commitment Period, provided, however, that, except as provided
in the Revolving Credit Note, each Revolving Credit Loan request shall be in a
minimum amount of $100,000 or an integral multiple of $50,000 in excess thereof
and the aggregate principal amount of all outstanding Revolving Credit Loans
plus all Letter of Credit Outstandings shall not exceed the Revolving Credit
Limit. Except as provided in the Revolving Credit Note for prepayment of Libor
Advances (as defined therein), the Revolving Credit Loans may be repaid by
Borrower at any time, without penalty or premium and reborrowed only during the
Commitment Period, and shall be due and payable on the Termination Date.
2.2 PROCEDURE FOR REVOLVING CREDIT BORROWINGS. Subject to the terms and
conditions hereof and the Revolving Credit Note, Borrower may borrow under the
Revolving Credit Commitment during the Revolving Credit Commitment Period on any
Business Day. Borrower may request Revolving Credit Loans, from time to time, by
submitting irrevocable Loan requests in such form and manner as Lender may
require or permit (including, without limitation,
-1-
<PAGE>
telephone requests), specifying the amount to be borrowed, the requested
Borrowing Date, and the manner in which Borrower would like the proceeds of such
Loan disbursed which request may include a Notice of Rate Selection, as
described in the Revolving Credit Note. A Revolving Credit Loan request must be
properly made and received by Lender prior to 12:00 noon (Eastern Time) on a
Business Day for Lender to make a Revolving Credit Loan on the same Business
Day. Lender may require telephone requests to be confirmed promptly in writing
and Borrower shall indemnify and hold Lender harmless for any action, including
the making of any Revolving Loan or any loss or expenses taken or incurred by
Lender in reliance upon any such telephone request. Except as otherwise agreed
by Lender, the proceeds of all Revolving Credit Loans will be made available to
Borrower by Lender by crediting Borrower's deposit account(s) with Lender.
2.3 MANDATORY PREPAYMENT. If at any time the aggregate unpaid principal
amount of the Revolving Credit Loans plus Letter of Credit Outstandings exceeds
the Revolving Credit Limit, Borrower shall immediately prepay an amount at least
equal to such excess, together with accrued interest on the amount prepaid to
the date of prepayment.
2.4 REVOLVING CREDIT NOTE AND RECORDS. The Revolving Credit Loans shall be
evidenced by the Revolving Credit Note and shall bear interest and be payable as
set forth therein. Lender shall maintain records of each (i) Revolving Credit
Loan and (ii) payments of principal and interest and shall furnish periodic
reports to Borrower showing the outstanding principal balance of the Revolving
Credit Loans. The Lender's records shall constitute PRIMA FACIE evidence of the
accuracy of the information recorded therein and in the event that Borrower
fails to object, within thirty (30) days of receipt of Lender's periodic reports
to Borrower with respect to Revolving Credit Loans, the information in such
reports shall be conclusive and binding as against Borrower; PROVIDED, HOWEVER,
that any failure by Lender to maintain such records or furnish such reports
shall not affect the obligations of Borrower under the Notes, this Agreement or
the other Loan Documents.
2.5 REVOLVING CREDIT LOAN PROCEEDS. Borrower shall use the proceeds of the
Revolving Credit Loans for working capital, general corporate purposes, or to
redeem shares of its Series A Convertible Preferred Stock, face value $1,000 per
share.
2.6 REDUCTION AND TERMINATION OF REVOLVING CREDIT COMMITMENT.
(a) The Borrower or Guarantor may permanently reduce, from time to
time, the Revolving Credit Limit by giving Lender not less than ten (10)
Business Days prior notice and prior to the reduction date prepay the Revolving
Credit Loans to the extent the outstanding amount of the Revolving Credit Loans
and Letters of Credit exceed the reduced Revolving Credit Limit, provided,
however, that, (i) each such reduction shall be an amount that is at least
$500,000 or any greater multiple thereof, (ii) in no event shall the Borrower
reduce the Revolving Credit Limit under this Section 2.6(a) to less than
$5,000,000; and (iii) no reduction shall be effective if the amount of the
Revolving Credit Loans and Letters of Credit as of the proposed reduction date
exceeds the amount of the proposed reduced Revolving Credit Limit.
-2-
<PAGE>
(b) To terminate the Revolving Credit Commitment, Borrower or Guarantor
shall give Lender not less than ten (10) Business Days prior notice and on the
termination date prepay in full all Loans together with accrued interest, fees,
and charges thereon to the date of prepayment, including, without limitation,
any Yield Maintenance Fees (as defined in the Notes). The Revolving Credit
Commitment shall not be terminated by Borrower or Guarantor unless the Term Loan
Commitment is terminated simultaneously therewith. In the event that the
Revolving Credit Commitment is terminated, on the termination date, Borrower or
Guarantor shall immediately provide the Lender with cash collateral in form
acceptable to Lender in the amount of all Letter of Credit Outstandings and all
anticipated fees and expenses as of such date. The Revolving Credit Commitment
may be terminated by Lender or shall terminate automatically as set forth in
Article 8.
2.7 Intentionally omitted.
2.8 FACILITY FEE. Borrower shall pay to Lender a facility fee in respect of
the Revolving Credit Commitment equal to $43,750, which facility fee shall be
fully earned and paid on the date hereof.
2.9 UNUSED LINE FEE. Borrower agrees to pay to Lender an unused line fee
equal one quarter of one percent (.25%) per annum calculated upon the amount by
which the Revolving Credit Limit exceeds the average daily principal balance of
the outstanding Revolving Credit Loans plus Letter of Credit Outstandings during
the immediately preceding calendar quarter (or part thereof), which shall be due
and payable and fully earned on the first Business Day of each calendar quarter
commencing on January 1, 1999 while this Agreement is in effect.
2.10 LETTERS OF CREDIT.
(a) Subject to the terms and conditions hereof, Lender agrees to issue
Letters of Credit for the account of Borrower during the Commitment Period;
PROVIDED, THAT (i) the aggregate face amount of all Letter of Credit
Outstandings plus all outstanding Revolving Credit Loans shall not exceed the
Revolving Credit Limit; (ii) each Letter of Credit shall have a stated
expiration of no later than one year from the date of issuance or the
Termination Date, whichever is earlier. Borrower may apply to Lender for the
issuance of Letters of Credit on any Business Day by completing Lender's
standard form of application and reimbursement agreement.
(b) Borrower agrees to pay to Lender in connection with the issuance of
any letter of Credit, Lender's standard opening, amendment, payment and transfer
fees. For Letters of Credit issued for the purpose of importing goods, Borrower
shall pay to Lender a fee calculated on the undrawn face amount of all such
Letters of Credit from time to time outstanding equal to three-eighths of one
percent (.375%) per annum, payable quarterly in arrears on the last Business Day
of each calendar quarter. For all other Letters of Credit, Borrower shall pay to
Lender a fee calculated on the undrawn face amount of all such Letters of Credit
from time to time outstanding equal to one and one-half percent (1.5%) per annum
payable quarterly in advance on the first business day of each calendar quarter.
-3-
<PAGE>
(c) Immediately upon any drawing on a Letter of Credit, Borrower shall
reimburse Lender in an amount equal to the amount so drawn together with draw
fees and interest from the date of draw until reimbursement is made at the
interest rate applicable to Revolving Credit Loans. This reimbursement
obligation shall be absolute and unconditional and shall not be subject to set
off, recoupment or counterclaim. At Lender's option, it may make Revolving
Credit Loans hereunder to effect such reimbursement if Borrower fails to do so
timely.
(d) To induce Lender to issue the Letters of Credit, Borrower agrees
that Lender shall not be responsible or liable (except as provided in the
following sentence) for, and the unconditional drafts honored under the Letters
of Credit shall not be affected by, (a) the validity or genuineness of documents
which must be presented to Lender under the terms of any Letter of Credit, or of
any endorsements thereon, even if such documents should in fact prove to be in
any or all respects invalid, sufficient, fraudulent or forged, (b) any breach of
contract or other dispute between Borrower and any third party, (c) failure of
any draft to bear any reference or adequate reference to the Letter of Credit,
(d) failure of any drawing to be used for the purpose set forth in the Letter of
Credit, (e) failure of any Person to note the amount of any draft on the reverse
side of the Letter of Credit or to surrender or take up the Letter of Credit
even if the Letter of Credit contains such requirement, (f) errors, omissions,
interruptions or delays in transmission or delivery of any messages by mail,
cable, telegraph, wireless or otherwise, whether or not in cipher (so long as
such party has acted in good faith) or (g) any error, neglect or default of any
of Lender's correspondents. Borrower agrees that any action taken or omitted to
be taken by Lender under or in connection with any Letter of Credit or any
related draft, documents or property, if done without willful misconduct on
Lender's part, shall be binding on Borrower and shall not put Lender under any
resulting liability to Borrower. Borrower hereby waives presentment for payment
(except the presentment required by the terms of any Letter of Credit) and
notice of dishonor, protest, and notice of protect with respect to drafts
honored under any Letter of Credit.
2.11 DEBIT OF ACCOUNTS. Lender may, at its election, without any obligation
on the part of the Lender, effect payment of all amounts due from Borrower under
this Agreement, the Notes or the other Loan Documents, by debiting from time to
time any of the Borrower's deposit or other accounts maintained at the Lender.
ARTICLE 3. - TERM LOANS
3.1 TERM LOAN COMMITMENT. Subject to the terms and conditions hereof,
Lender agrees to make the Term Loans to the Borrower from time to time during
the Term Loan Commitment Period, provided, however, that, except as provided in
the Term Loan Note, each Term Loan request shall be in a minimum amount of
$250,000 or an integral multiple of $50,000 in excess thereof, not more than one
such Term Loan request shall be made in each calendar quarter (except for any
Term Loan request that equals or exceeds $500,000), and the aggregate principal
amount of all Term Loans shall not exceed the Term Loan Limit. Term Loans made
for the purpose of purchasing equipment or fixtures shall not exceed 100% of the
purchase price thereof.
-4-
<PAGE>
3.2 TERM LOAN BORROWING REQUEST. Subject to the terms and conditions hereof
and the Term Loan Note, Borrower may borrow under the Term Loan Commitment
during the Term Loan Commitment Period on any Business Day. Borrower may request
Term Loans, from time to time by submitting irrevocable Loan requests in such
form and manner as Lender may require or permit, specifying the amount to be
borrowed, the requested Borrowing Date, and if such Term Loan is to be made
after the Initial Borrowing Date, copies of invoices and such information Lender
may reasonably request concerning the fixtures and equipment purchased by
Borrower which invoices are being submitted for reimbursement with the proceeds
of such Term Loan. Except as otherwise agreed by Lender, the proceeds of all
Term Loans will be made available to Borrower by Lender by crediting Borrower's
deposit account(s) with Lender.
3.3 TERM LOAN PREPAYMENT. Amounts borrowed as Term Loans which are paid or
prepaid by the Borrower may not be reborrowed. Term Loans may be prepaid to the
extent and in the manner permitted under the Term Note.
3.4 TERM NOTE AND RECORDS. The Term Loans shall be evidenced by the Term
Note and shall bear interest and be payable as set forth therein. Lender shall
maintain records of each (i) Term Loan and (ii) payments of principal balance of
Term Loans. The Lender's records shall constitute PRIMA FACIE evidence of the
accuracy of the information recorded therein and in the event that Borrower
fails to object, within thirty (30) days of receipt of Lender's periodic reports
to Borrower with respect to Term Loans, the information in such reports shall be
conclusive and binding as against Borrower; PROVIDED, HOWEVER, that any failure
by Lender to maintain such records or furnish such reports shall not affect the
obligations of Borrower under the Notes or this Agreement.
3.5 TERM LOAN PROCEEDS. Borrower shall use the proceeds of the Term Loans
to repay its term loan from BankBoston, N.A. under the Term Loan Agreement dated
December 15, 1995, as amended, to repay expenditures made by Borrower to acquire
fixtures and equipment for, and to make capital improvements at its facilities.
3.6 REDUCTION OF TERMINATION OF TERM LOAN COMMITMENT.
(a) The Borrower or Guarantor may permanently reduce, from time to
time, the Term Loan Limit by giving Lender not less than ten (10) Business Days
prior notice and prior to the reduction date prepay the Term Loans to the extent
the outstanding amount of the Term Loans exceed the reduced Term Loan Limit,
provided, however, that, (i) each such reduction shall be an amount that is at
least $500,000 or any greater multiple thereof, and (ii) no reduction shall be
effective if the amount of the Term Loans as of the proposed reduction date
exceeds the amount of the proposed reduced Term Loan Limit.
(b) To terminate the Term Loan Commitment, Borrower or Guarantor shall
give Lender not less than ten (10) Business Days prior notice and on the
termination date prepay in full all Term Loans together with accrued interest,
fees, and charges thereon to the date of prepayment, including, without
limitation, any Yield Maintenance Fees (as defined in the Notes). The Term Loan
Commitment shall not be terminated by Borrower or Guarantor unless the Revolving
Credit Commitment is simultaneously terminated therewith. The Term Loan
-5-
<PAGE>
Commitment may be terminated by Lender or shall terminate automatically as set
forth in Article 8.
3.7 FACILITY FEE. Borrower shall pay to Lender a Term Loan facility fee
equal to $35,500, which facility fee shall be fully earned and paid on the date
hereof.
ARTICLE 4. - REPRESENTATIONS AND WARRANTIES
In order to induce Lender to enter into this Agreement and to make the Loans
and issue the Letters of Credit, Borrower represents and warrants to Lender,
except as otherwise set forth in a schedule attached hereto and made a part
hereof, that:
4.1 FINANCIAL CONDITION. The financial statements previously delivered to
Lender and attached hereto as Schedule 4.1 present fairly the Consolidated
financial position of Borrower and its Subsidiaries as of the dates thereof and
its and their results of operations, shareholders' equity and cash flows for the
periods then ended. All such financial statements and information, including any
related schedules and notes, and any other financial information or statements
furnished in accordance herewith, have been prepared in accordance with GAAP,
except as otherwise disclosed therein, subject only in the case of unaudited
interim financial statements to normal year-end audit adjustments and the
absence of footnotes. In the case of each Loan, the representations and
warranties in this Section shall be deemed to have been made in respect of the
then most recent financial statements of Borrower furnished to Lender pursuant
to Section 5.1.
4.2 ORGANIZATION, EXISTENCE, GOOD STANDING. Borrower (i) is duly organized,
validly existing and in good standing as a corporation under the laws of the
Commonwealth of Massachusetts, (ii) has obtained all licenses, permits,
approvals and consents and has filed all registrations necessary for the lawful
operation of its business, (iii) has the corporate power and authority and the
legal right to own, lease and operate its property and to conduct the business
in which it is currently engaged, and (iv) is duly qualified to do business and
is licensed and in good standing as a foreign corporation under the laws of each
jurisdiction where its ownership, lease or operation of property or the conduct
of its business requires such qualification, except where the failure to be so
qualified would not have a Material Adverse Effect. Borrower is not qualified or
authorized as a foreign corporation in any state.
4.3 SUBSIDIARIES; CAPITALIZATION. Except as set forth on Schedule 4.3,
Borrower has no Subsidiaries, Investments, Joint Ventures in or with any other
Person. As of the date hereof, the Guarantor owns, beneficially and of record
not less than forty percent (40%) of the issued and outstanding voting common
stock of the Borrowers and no other Person owns beneficially or of record more
than five percent (5%) of the issued and outstanding voting common stock of the
Borrower.
4.4 POWER AND AUTHORITY. Borrower has (i) full corporate power, authority
and legal right to execute, deliver and perform its obligations under the Loan
Documents to which it is a party and to borrow hereunder, (ii) taken all
necessary actions to authorize the execution, delivery and performance by it of
each Loan Document to which it is a party and to authorize its
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borrowings hereunder, and (iii) caused to be duly executed and delivered on
behalf of the Borrower each of the Loan Documents to which Borrower is a party.
4.5 LEGAL, VALID, BINDING OBLIGATION. Each of the Loan Documents and each
agreement, certificate, document, instrument or other paper delivered pursuant
thereto, to which Borrower is a party, constitutes the legal, valid, and binding
obligation of Borrower enforceable against Borrower in accordance with its
terms.
4.6 CONSENTS. No consent, permit, license, approval, authorization or other
action of, or registration, declaration or filing with or notice to, any
governmental authority, bureau or agency or any other Person is required in
connection with the execution, delivery or performance by Borrower, or the
validity or enforceability against Borrower, of any Loan Document to which it is
a party, except for the consents and approvals set forth on Schedule 4.6 all of
which have been obtained.
4.7 NO LEGAL BAR. The execution, delivery and performance by Borrower of
the Loan Documents, and each agreement, certificate, document, instrument or
other paper delivered pursuant thereto, to which Borrower is a party, does not
and will not conflict with or cause a breach of any provision of any existing
law, rule or regulation, order, judgment, award or decree of any court,
arbitrator or governmental authority, bureau or agency, or of the charter
documents or Bylaws of, or any security issued by, Borrower or of any material
mortgage, deed of trust, indenture, lease, contract or other agreement or
undertaking to which Borrower is a party or by which any of its properties may
be bound, and will not result in the creation or imposition of any Lien on any
of its revenues or properties, except in favor of Lender.
4.8 NO LITIGATION. Except as set forth on Schedule 4.8, no litigation,
investigation or other proceeding of or before any court, arbitrator or
governmental authority is currently pending nor, to the knowledge of Borrower,
threatened against Borrower, any of its Subsidiaries or its properties which, if
adversely determined, could reasonably be expected to have a Material Adverse
Effect.
4.9 NO DEFAULT. Neither Borrower nor any of its Subsidiaries is in default
in any respect in the payment or performance of any of its obligations for
monies borrowed or under any mortgage, deed of trust, indenture, lease, contract
or other agreement or undertaking to which it is a party or by which it or any
of its property may be bound or affected and no Default or Event of Default has
occurred and is continuing. Neither Borrower nor any of its subsidiaries is in
default under any order, award or decree of any court, arbitrator or
governmental authority binding upon or affecting it or by which any of its
property may be bound or affected, and no such order, award or decree has or
could reasonably be expected to have a Material Adverse Effect.
4.10 ASSETS, NO LIENS. Borrower and each of its Subsidiaries has good and
marketable title to, or valid leasehold interest in, all of its real property
and good title to all its personal property, including assets carried on its
books and reflected in the financial statements furnished to Lender herewith,
subject to no Liens except for (i) Liens permitted under Section 6.3 hereof, or
(ii) inventory sold or otherwise disposed of in the ordinary course of its
business.
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4.11 NO BURDENSOME RESTRICTIONS. Except as set forth in Schedule 4.11,
neither Borrower nor any of its Subsidiaries is a party to or bound by any
contract, agreement or instrument or subject to any corporate restriction
(including any restriction set forth in its charter or Bylaws) or subject to any
legal requirement or restriction that would have a Material Adverse Effect.
4.12 TAXES. All federal, state, local and other tax reports and returns
which are required to be filed by Borrower and its Subsidiaries have been filed,
except where extensions have been properly obtained, and Borrower and its
Subsidiaries have paid or made adequate provision for all taxes, interest and
penalties shown to be due and payable on such returns or on any assessments made
against it or any of its property and all other taxes, fees or other charges
imposed on it or any of its property by any governmental authority, including,
without limitation, all payroll withholding taxes, have been paid and no tax
liens have been filed and no claims are being asserted with respect to any such
taxes, fees or other charges.
4.13 REGULATION U, ETC.. Neither Borrower nor any of its Subsidiaries is
engaged or will engage, principally or as one of its important activities, in
the business of extending credit for the purpose of "purchasing" or "carrying"
any "margin stock" (within the respective meanings of each of the quoted terms
under Regulations U, T, or X of the Board of Governors of the Federal Reserve
System and any successors thereto as now and from time to time hereafter in
effect), and the proceeds of any Loan hereunder may be used for "purchasing" or
"carrying" any "margin stock" as so defined, but not for any purpose which
violates, or which would be inconsistent with, the provisions of Regulation U of
the Federal Reserve Board.
4.14 ERISA. The Borrower, all Commonly Controlled Entities, and all their
Plans are and have been in substantial compliance with the provisions of, to the
extent applicable, ERISA, the qualification requirements of IRC Section 401(a),
and the published interpretations thereunder. No notice of intent to terminate a
Plan has been filed under Section 4041 of ERISA, nor has any Plan been
terminated under Section 4041(e) of ERISA which resulted in substantial
liability to Borrower or any of its Commonly Controlled Entities. The PBGC has
not instituted proceedings to terminate, or appoint a trustee to administer, a
Plan and no event has occurred or condition exists which might constitute
grounds under Section 4042 of ERISA for the termination of, or the appointment
of a trustee to administer, any Plan. Neither Borrower nor any Commonly
Controlled Entities would be liable for any amount pursuant to Sections 4063 or
4064 of ERISA if all Plans terminated as of the most recent valuation dates of
such Plans. Neither Borrower nor any Commonly Controlled Entities have:
withdrawn from a Multiemployer Plan during a plan year for which it was a
substantial employer, as defined in Section 4001(a)(2) of ERISA; or failed to
make a payment to a Plan required under Section 302(f)(1) of ERISA such that
security would have to be provided pursuant to Section 307 of ERISA. No lien
upon the assets of Borrower has arisen with respect to a Plan. To the best
knowledge of Borrower, no Prohibited Transaction or Reportable Event has
occurred with respect to a Plan. Borrower and each Commonly Controlled Entity
has each made all contributions required to be made by them to any Plan or
Multiemployer Plan when due. There is no accumulated funding deficiency in any
Plan, whether or not waived.
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4.15 INVESTMENT COMPANY ACT, ETC. Neither Borrower nor any of its
Subsidiaries is an "investment company" registered or required to be registered
under the Investment Company Act of 1940, or a company "controlled" (within the
meaning of such Investment Company Act) by such an "investment company". Neither
Borrower nor any of its Subsidiaries is subject to regulation under the Public
Utility Holding Company Act of 1935, the Federal Power Act, the Interstate
Commerce Act or to any other federal or state statute or regulation limiting its
ability to incur indebtedness for money borrowed.
4.16 INDEBTEDNESS. Neither Borrower nor any of its Subsidiaries has any
Indebtedness of any type except Indebtedness incurred under this Agreement and
that which is permitted under Section 6.1 of this Agreement.
4.17 CONTINGENT LIABILITIES. Except as set forth in the notes to the
Financial Statements, neither Borrower nor any of its Subsidiaries has any
material Contingent Liabilities.
4.18 CHIEF PLACE OF BUSINESS; LOCATIONS OF COLLATERAL. The chief executive
office of Borrower is located at 5 Mountain Road, Framingham, MA 01701 and all
books and records of Borrower are located at that address.
4.19 LAWS INCLUDING ENVIRONMENTAL AND SAFETY MATTERS. Borrower and each of
its Subsidiaries is in compliance in all material respects with all laws,
statutes, rules, regulations ordinances, orders of court or other governmental
authorities, and other valid requirements of governmental authorities applicable
to it including, without limitation, all environmental, health and safety
statutes and regulations and specifically the Federal Resource Conservation and
Recovery Act, the Federal Comprehensive Environmental Response, Compensation and
Liability Act, the Federal Clean Water Act, the Clean Air Act, the requirements
and regulations of the Nuclear Regulatory Commission, the Federal Occupational
Safety and Health Act and the Food, Drug and Cosmetic Act, and the regulations
promulgated thereunder. Neither Borrower nor any of its Subsidiaries is subject
to any judicial or administrative proceedings alleging the violation of any
applicable law or regulation which could reasonably be expected to have a
Material Adverse Effect. Neither Borrower nor any of its Subsidiaries is the
subject of any federal, state or local investigation regarding, among other
matters, the release of any Hazardous Material into the environment, the results
of which could reasonably be expected to have a Material Adverse Effect. Neither
Borrower nor any of its subsidiaries has filed any notice under any applicable
law indicating past or present treatment, storage, disposal, generation,
transportation or reporting a spill or release into the environment of any
Hazardous Material which could reasonably be expected to have a Material Adverse
Effect. Neither Borrower nor any of its Subsidiaries has placed or disposed of,
used, generated or transported any Hazardous Material in violation of any
applicable law or regulation, upon or over any real property owned or leased by
Borrower and any of its Subsidiaries and neither Borrower nor any of its
Subsidiaries has knowledge of such Hazardous Material on such real property.
4.20 INTELLECTUAL PROPERTY. Except as set forth on Schedule 4.20 hereto, (a)
the Borrower and its Subsidiaries own or license all material Intellectual
Property necessary for the conduct of their business as presently conducted; (b)
all material agreements pursuant to which
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the Borrower and its Subsidiaries license the manufacture, marketing or sale of
products employing its Intellectual Property are in full force and effect; (c)
no claims, demands, suits, or proceedings are pending or, to the knowledge of
the Borrower and its Subsidiaries, threatened which impair their rights in any
material Intellectual Property used in the conduct of their business or any
material agreement relating thereto; and (d) the Borrower and its Subsidiaries
have not infringed (without any license therefor) any Intellectual Property of
any other Person, and the present conduct of the Borrower and its Subsidiaries'
business does not infringe any such rights in any way which would have a
Material Adverse Effect.
4.21 NEGATIVE PLEDGES. Neither Borrower nor any of its Subsidiaries is a
party to or bound by any agreement, indenture, or other instrument which
prohibits the creation, incurrence or allowance to exist of any mortgage, deed
of trust, pledge, lien, security interest or other encumbrance or conveyance
upon Borrower's or any Subsidiary's properties, except as disclosed on Schedule
4.21 hereto.
4.22 FULL DISCLOSURE. The financial statements referred to in Section 4.1,
the Schedules hereto, the Loan Documents and any list, certificate, written
statement, instrument, paper or other information furnished by Borrower to
Lender in connection with the Loan Documents do not contain any untrue statement
of a material fact or omit to state any material fact necessary to make the
statements contained therein and herein, in light of the circumstances in which
they are made, not misleading.
ARTICLE 5. - AFFIRMATIVE COVENANTS
Borrower covenants and agrees that so long as any Commitment remains in
effect, any Note remains outstanding and unpaid, in whole or in part, or any
other amount is owing to Lender hereunder:
5.1 FINANCIAL STATEMENTS AND OTHER DOCUMENTS. Borrower shall furnish or
cause to be furnished to Lender:
(a) QUARTERLY FINANCIAL STATEMENTS. As soon as available and in any event
within 45 days after the end of the first three quarterly fiscal periods of each
fiscal year of the Borrower, Consolidated statements of earnings, shareholders'
equity and cash flows of the Borrower and its Subsidiaries for such period and
for the period from the beginning of the respective fiscal year to the end of
such period, and the related Consolidated balance sheets of the Borrower and its
Subsidiaries as at the end of such period, setting forth in each case in
comparative form, the corresponding Consolidated figures for the corresponding
periods in the preceding fiscal year accompanied by a certificate of a senior
financial officer of the Borrower, which certificate shall state that said
Consolidated financial statements present fairly in all material respects the
Consolidated financial position and results of operations of the Borrower and
its Subsidiaries, in accordance with GAAP, as at the end of, and for, such
period (subject to normal year-end audit adjustments);
(b) ANNUAL FINANCIAL STATEMENTS. As soon as available and in any event
within 90 days after the end of each fiscal year of the Borrower, Consolidated
statements of earnings, shareholders' equity and cash flows of the Borrower and
its Subsidiaries for such fiscal year and
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the related Consolidated balance sheets of the Borrower and its Subsidiaries as
at the end of such fiscal year, setting forth in each case in comparative form,
to the extent such figures appear therein, the corresponding Consolidated
figures for the preceding fiscal year, and accompanied by a report thereon of
independent certified public accountants of recognized national standing, which
report shall state that said Consolidated financial statements present fairly in
all material respects the Consolidated financial position and results of
operations of the Borrower and its Subsidiaries as at the end of, and for, such
fiscal year in accordance with GAAP, consistently applied;
(c) PERIODIC SEC REPORTS; COMPLIANCE CERTIFICATE. Simultaneously with the
delivery of the financial statements required under Section 5.1(a) and (b)
above, (i) a copy of the Borrower's Form 10-Q or 10-K filing made for the
periods covered by such financial statements or, if such filings are not
available, a brief narrative description of material businesses and financial
trends and developments and significant transactions that have occurred in the
period or periods covered thereby, together with (ii) a Compliance Certificate
as of the date of such financial statements, in the form attached as EXHIBIT C
hereto;
(d) OTHER SEC REPORTS. Promptly upon their becoming available, copies of
all (i) regular, periodic and special reports that the Borrower shall have filed
with the Securities and Exchange Commission (or any governmental agency
substituted therefor) pursuant to the Securities Exchange Act of 1934, as
amended, (ii) financial statements, reports, notices or proxy or other
statements sent to shareholders of the Borrower, and (iii) press releases and
other statements generally made available by the Borrower to the public
concerning material developments in the business of the Borrower;
(e) ERISA NOTICES. As soon as possible and in any event within five (5)
days after any officer of Borrower obtains knowledge thereof: (i) notice of
Borrower's failure to make any required payment to any Plan in sufficient amount
to comply with ERISA and the Code on or before the due date for such payment;
(ii) notice of the occurrence or expected occurrence of any "Reportable Event"
under ERISA, "Prohibited Transaction" or "Accumulated Funding Deficiency" with
respect to any Plan; and (iii) notice of receipt by Borrower of any notice (A)
from a Multiemployer Plan regarding the imposition of withdrawal liability; or
(B) of the institution, or expectancy of the institution, of any proceeding or
any other action which may result in the termination of any Plan, or Borrower's
withdrawal or partial withdrawal from any Plan;
(f) NOTICE OF DEFAULT. Promptly after the Borrower knows that any Default
has occurred, a notice of such Default describing the same in reasonable detail
and, together with such notice or as soon thereafter as possible, a description
of the action that the Borrower has taken or proposes to take with respect
thereto (a "Notice of Default");
(g) PROJECTIONS. With the delivery of the Borrower's 10-K annual report,
the Borrower's quarterly projections (income statements and balance sheets) for
the then current fiscal year of the Borrower, as approved by the Board of
Directors of the Borrower and a copy of any letter from the Borrower's auditors
to Borrower's management prepared in connection with the audited financial
statements of the Borrower; and
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(h) OTHER INFORMATION. From time to time such other information regarding
the property, operations, business, financial condition or prospects of the
Borrower or any of its Subsidiaries as the Lender may reasonably request.
5.2 EXISTENCE; COMPLIANCE WITH LAWS; ETC.. Borrower shall and shall cause
each Subsidiary to:
(a) CORPORATE EXISTENCE. Preserve and keep in full force and effect its
corporate existence and all franchises, licenses and permits material to the
proper conduct of its business;
(b) COMPLIANCE WITH APPLICABLE LAWS. Comply with and duly observe all
applicable laws, statutes, regulations, rules, ordinances, orders of court or
governmental authorities, and requirements of governmental authorities the
breach of which could reasonably be expected to have a Material Adverse Effect,
except when contested with due diligence, in good faith and in proper
proceedings. Borrower shall also pay and cause all of its Subsidiaries to pay
all of their other Indebtedness and obligations promptly and in accordance with
normal terms and trade practices.
(c) PAYMENT OF TAXES. File or cause to be filed all tax returns and reports
which are required by law to be filed by it, and pay and discharge all taxes,
assessments and governmental charges or levies imposed on it or on its income or
profits or on any of its property prior to the date on which penalties attached
thereto, except for any such tax, assessment, charge or levy the payment of
which is being contested in good faith and by proper proceedings and against
which adequate reserves are being maintained in accordance with GAAP and except
for any such tax, assessment, charge or levy the failure to pay which would not
have a Material Adverse Effect.
(d) RECORDS. Keep adequate records and books of account, in which complete
entries will be made in accordance with generally accepted accounting principles
consistently applied; and
(e) ACCESS. Permit representatives of Lender, upon reasonable advance
notice to the Borrower and during normal business hours, to examine, copy and
make extracts from its books and records, to inspect any of its properties, and
to discuss its business and affairs with its officers, all to the extent
reasonably requested by Lender.
5.3 MAINTAIN PROPERTY. Borrower shall, and Borrower shall cause each of its
Subsidiaries to, keep and maintain all property useful and necessary in its
business in good operating condition and repair, ordinary wear and tear
excepted.
5.4 INSURANCE. Borrower shall keep adequately insured by financially sound
and responsible insurers (a) all property owned or leased by it and its
Subsidiaries and all property of an insurable nature, such insurance to be in at
least such amounts and covering loss or damage from at least such risks and
hazards (including, without limitation, business interruption insurance and use
and occupancy insurance) as are usually insured against in the same geographic
areas by companies engaged in similar businesses, and (b) all liabilities of
Borrower and its Subsidiaries for damage to property, death or bodily injury,
including without limitation
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insurance required under all applicable workmen's compensation laws, and
insurance for such liabilities resulting from, caused by or arising out of any
product sold by any predecessor of Borrower or by Borrower or any Subsidiary,
all such insurance to be in at least such amounts as are usually insured against
by companies engaged in the same or similar businesses.
5.5 NOTICE OF MATERIAL EVENTS. Borrower will, promptly upon any officer of
Borrower obtaining knowledge thereof, give notice to Lender of (i) any material
casualty, loss or depreciation to any inventory or other property of Borrower or
any Subsidiary or any litigation, investigation or other proceeding against or
involving Borrower or any Subsidiary the result of any of which might have a
Material Adverse Effect; (ii) any litigation, investigation, other proceeding or
dispute affecting Borrower (A) which relates, in whole or in part, to any of the
transactions contemplated by any of the Loan Documents, (B) which involves an
amount in excess of $100,000, or (C) which may exist between Borrower or any
Subsidiary and any governmental body; or (iii) any release of any Hazardous
Materials at any location owned or leased by Borrower or any Subsidiary or any
investigation or proceeding by any governmental body alleging or relating to the
violation by Borrower or any Subsidiary of any law or regulation. Borrower will
furnish to Lender from time to time all information which Lender shall
reasonably request with respect to the status of any litigation, investigation,
other proceeding or dispute to which Borrower is a party.
5.6 DEPOSIT ACCOUNTS. Borrower shall maintain with Lender bank accounts to
be used as its principal depository and operating account(s).
ARTICLE 6. - NEGATIVE COVENANTS
Borrower covenants and agrees that, so long as any Commitment is in effect,
any Note remains outstanding and unpaid, in whole or in part, or any other
amount is owing to Lender hereunder, Borrower will not, directly or indirectly,
and Borrower will not permit any of its Subsidiaries to:
6.1 INDEBTEDNESS. Create, incur, assume or allow to exist any Indebtedness,
except:
(a) LOAN DOCUMENT INDEBTEDNESS. Indebtedness evidenced by the Notes and any
other Indebtedness owing to or held by Lender arising under any of the Loan
Documents;
(b) DISCLOSED INDEBTEDNESS. Indebtedness of Borrower existing on the
Initial Borrowing Date and disclosed in Schedule 6.1 (including, without
limitation, all Capital Lease Obligations and purchase money financings existing
on the Initial Borrowing Date); PROVIDED, HOWEVER, that, without the prior
written consent of Lender, none of such Indebtedness shall be renewed, extended
or otherwise modified in any material respect and may be extended by Borrower
only on substantially the same terms and conditions as in effect on the date
hereof;
(c) UNSECURED CURRENT LIABILITIES. Unsecured current liabilities (not the
result of borrowing) incurred in the ordinary course of business which are not
evidenced by notes or instruments and which are not more than thirty (30) days
overdue from the original due dates thereof (unless and to the extent only that
any such liability is contested by Borrower in good
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faith by appropriate proceedings and adequate reserves have been set aside with
respect thereto in accordance with GAAP);
(d) ADDITIONAL CAPITAL LEASES AND PURCHASE MONEY FINANCINGS. Capital Leases
and purchase money financings incurred in the ordinary course of business by
Borrower after the Initial Borrowing Date for the lease or purchase of Capital
Equipment provided that the aggregate outstanding amount of all such additional
Capital Leases and purchase money financings shall not exceed $5,000,000, the
amount of each such Capital Lease or purchase money financing does not exceed
100% of the lesser of the cost or fair market value of such Capital Equipment
(and Borrower agrees to furnish copies of the documentation for its outstanding
Capital Leases and purchase money financings to Lender upon request);
(e) INDEBTEDNESS AMONG SUBSIDIARIES. Indebtedness of (i) Subsidiaries of
the Borrower to the Borrower, (ii) the Borrower to any of its Subsidiaries,
(iii) of Subsidiaries to Subsidiaries, (iv) of the Borrower or any of its
Subsidiaries to the Guarantor; or (v) of the Guarantor to the Borrower or any of
its Subsidiaries, provided that any such Indebtedness is subordinated as to
payment of the Obligations in a manner satisfactory to Lender;
(f) RENEWALS OF INDEBTEDNESS. Indebtedness incurred to renew, extend,
refinance or refund any Indebtedness permitted herein on terms no less
beneficial to the Borrower than originally in effect; and
(g) APPROVED INDEBTEDNESS. Indebtedness for borrowed money incurred after
the Initial Borrowing Date with prior notice to and the written consent of
Lender.
6.2 CONTINGENT LIABILITIES. Except for Contingent Liabilities existing on
the Initial Borrowing Date and disclosed on Schedule 6.2, create, incur, assume
or allow to exist any Contingent Liabilities except for Contingent Liabilities
arising out of the endorsement of instruments for deposit or collection in the
ordinary course of business.
6.3 LIMITATION ON LIENS. Create, incur, assume or allow to exist, any Lien
upon any of its property, income or profits, whether now owned or held or
hereafter acquired, including attachment, levy, garnishment or other judicial
process relating to such property, except:
(a) Liens in existence on the date hereof and listed on Schedule 6.3
hereof;
(b) Liens imposed by any governmental authority for taxes, assessments or
charges not yet due or that are being contested in good faith and by appropriate
proceedings if adequate reserves with respect thereto are maintained on the
books of the Borrower, in accordance with GAAP;
(c) carriers', warehousemen's, mechanics', materialmen's, repairmen's or
other like Liens arising in the ordinary course of business that are not overdue
or that are being contested in good faith and by appropriate proceedings if
adequate reserves with respect thereto are maintained or the books of the
Borrower, in accordance with GAAP;
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(d) pledges or deposits under worker's compensation, unemployment insurance
and other social security legislation;
(e) deposits to secure the performance of bids, trade contracts (other than
for Indebtedness), leases, statutory obligations, surety and appeal bonds,
performance bonds and other obligations of a like nature incurred in the
ordinary course of business and Liens arising from a seller's title retention
provisions with respect to goods or services acquired in the ordinary course of
business;
(f) easements, rights-of-way, restrictions and other similar encumbrances
incurred in the ordinary course of business and encumbrances consisting of
zoning restrictions, easements, licenses, restrictions on the use of Property or
imperfections in title thereto that, in the aggregate, are not material in
amount, and that do not in any case materially detract from the value of the
Property subject thereto or interfere with the ordinary conduct of the business
of the Borrower or any of its Subsidiaries;
(g) Liens upon Capital Equipment to secure purchase money Indebtedness or
Capital Lease of the Borrower or a Subsidiary; PROVIDED, THAT, (i) such Lien
does not extend to or cover any other property of the Borrower or such
Subsidiary and (ii) such Lien does not secure any Indebtedness other than the
Indebtedness so incurred;
(h) Liens arising from or upon any judgment or award, provided that such
judgment or award does not exceed $50,000 and is being contested in good faith
by proper appeal proceedings, such judgment or award is not secured by any Lien
which is not discharged within thirty (30) days, and only so long as execution
thereon shall be stayed; and
(i) Liens now or hereafter granted to the Lender under the Loan Documents.
6.4 PROHIBITION OF FUNDAMENTAL CHANGES. (a) Enter into any transaction of
merger or consolidation or amalgamation; (b) liquidate, wind-up or dissolve
itself; (c) convey, sell, issue, exchange, lease, assign, transfer or otherwise
dispose of all or any material portion of its business or property or the
business, property or stock of any Subsidiary (other than sales of inventory in
the ordinary course of business and obsolete equipment or equipment no longer
used or useful in the business of Borrower); or (d) without the prior written
consent of the Lender, make any Investment in or purchase, lease or otherwise
acquire all or any material portion of the business or property of any other
Person or enter into any Joint Venture or any exclusive licensing agreement for
any of its material Intellectual Property; provided, however, that
notwithstanding the foregoing so long as no Default or Event of Default exists,
the Borrower may enter into agreements, including Joint Ventures and licensing
agreements, relating to the development, marketing and sale of its products and
product lines in the ordinary course of its business and on reasonable and
appropriate terms and conditions including the payment of fair and reasonable
compensation to the Borrower.
6.5 INVESTMENTS AND LOANS. Except as permitted by Section 6.1(e) make any
Investment in or make any loan or other advances of money to any Person, except
for loans and advances to employees for salary, travel advances, advances
against commissions and similar
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advances in the ordinary course of business or pursuant to the investment policy
attached hereto as Schedule 6.5.
6.6 DIVIDENDS AND REDEMPTIONS. Pay or set aside any amount to pay any
Dividends; provided, however, that, so long as no Default or Event of Default
has occurred and is continuing, Borrower may pay Dividends to holders of its
Series A Convertible Preferred Stock for the redemption of such stock and
accrued Dividends payable in connection with such stock, up to a maximum amount
of $11,500,000, in accordance with Schedule 6.6 which sets forth the payment
schedule for the redemption of such stock.
6.7 TRANSACTIONS WITH AFFILIATES. Except for agreements and transactions
with the Guarantor, enter into or be a party to any agreement or transaction
with any Affiliate, except in the ordinary course of Borrower's business and
pursuant to reasonable requirements of Borrower's business and upon fair and
reasonable terms and conditions which are fully disclosed to Lender and are no
less favorable to Borrower than would obtain in a comparable arm's length
transaction with a person not an Affiliate of Borrower.
6.8 NEGATIVE PLEDGE. Directly or indirectly, enter into any agreement,
indenture, or other instrument which prohibits the creation, incurrence or
allowance to exist of any mortgage, deed of trust, pledge, lien, security
interest or other encumbrance or conveyance upon any of Borrower's or its
Subsidiaries' property, except for (a) the existing negative pledge in favor of
the Guarantor as in effect on the date hereof and (b) negative pledges in
connection with Indebtedness incurred under Capital Leases and purchase money
financings permitted under Section 6.1(d) hereof, provided that such negative
pledges apply only to the Capital Equipment purchased or leased pursuant thereto
and not to any other property.
ARTICLE 7. - CONDITIONS PRECEDENT
7.1 CONDITIONS OF INITIAL EXTENSION OF CREDIT. The obligation of Lender to
make a Revolving Credit Loan and Term Loan on the Initial Borrowing Date is
subject to the satisfaction of the condition precedent that Lender shall have
received on or before such date, the following items in form and substance
satisfactory to Lender and its counsel executed where appropriate by a duly
authorized officer of Borrower.
LOAN DOCUMENTS
(a) CREDIT AGREEMENT. This Agreement;
(b) REVOLVING CREDIT NOTE. The Revolving Credit Note;
(c) TERM NOTE. The Term Note;
(d) GUARANTY. The Guaranty;
CORPORATE DOCUMENTS:
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(e) CORPORATE RESOLUTIONS. Copies of resolutions of the Board of Directors
(and, if necessary, the Stockholders) of Borrower, authorizing the execution,
delivery and performance of the Loan Documents to which Borrower is a party, and
the transactions contemplated thereby, certified as of the Initial Borrowing
Date by the Secretary/Clerk or Assistant Secretary/Clerk of Borrower (which
certificate shall state that such resolutions have not been amended, modified,
revoked or rescinded as of such date);
(f) CORPORATE INCUMBENCY CERTIFICATE. Certificate of the Secretary/Clerk or
Assistant Secretary/Clerk of Borrower, dated as of the Initial Borrowing Date,
certifying the names and titles of the officers authorized to execute the Loan
Documents to which Borrower is a party and any other documents related to any
thereof, together with specimen signatures of such officers;
(g) CHARTER DOCUMENTS. Copies of (i) the charter documents and all
amendments thereto of Borrower, currently certified by the relevant governmental
filing authority, and (ii) the By-Laws of Borrower certified as of the Initial
Borrowing Date by the Secretary/Clerk or Assistant Secretary/Clerk of the
Borrower;
(h) LEGAL GOOD STANDING CERTIFICATES. For Borrower and Guarantor, a
certificate of legal existence and good standing issued by the Secretary of
State of the state of each such entity's incorporation, and a certificate of
foreign qualification and good standing issued by the Secretary of State of each
state of foreign qualification or authorization, all of which shall be dated
currently;
(i) TAX GOOD STANDING CERTIFICATES. For Borrower, a certificate of tax good
standing currently dated from each jurisdiction in which such party is obliged
to file tax returns and pay taxes (or, to the extent any such certificates are
unobtainable, because it is not the practice of the taxing authority to issue
such certificate, or because of time delays in the issuance of such certificate
attributable to such taxing authority, a letter from Borrower's chief financial
officer setting forth the nature of the tax obligation and the relevant
jurisdiction, and certifying that all required returns have been duly filed and
all required taxes shown thereon paid;
(j) GUARANTOR AUTHORIZATION. For Guarantor, an Officer's Certificate of
incumbency together with resolutions of its board of directors authorizing the
execution and delivery of the Guarantee.
MISCELLANEOUS DOCUMENTS:
(k) UCC AND OTHER SEARCHES. Copies of UCC, tax lien, judgment, bankruptcy
and other searches reasonably requested by Lender of all appropriate filing
offices relating to the Borrower and its Subsidiaries;
(l) TERMINATIONS AND DISCHARGES. Termination Statements, mortgage
discharges and other discharges of all Liens other than those permitted under
Section 6.3 hereof;
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(m) PAYOFF LETTER. A payoff letter from BankBoston, N.A. in form and
substance satisfactory to Lender;
(n) LEGAL OPINIONS. Written opinions of counsel for Borrower and Guarantor
in form and content satisfactory to Lender, dated the Initial Borrowing Date,
addressed to Lender and covering such matters related to the Borrower, the
Guarantor and the transactions contemplated hereby as Lender may request;
(o) CONSENTS. Copies of all consents or approvals of any Person that may be
required in connection with the transactions contemplated by the Loan Documents;
(p) FEES. Payment of the facility fees under Sections 2.8 and 3.7 hereof,
together with the estimated fees and disbursements of Lender's counsel in
connection with the Loan Documents and the transactions contemplated hereby;
(q) ADDITIONAL CLOSING AGENDA ITEMS. Fulfillment, to Lender's satisfaction,
of each of the additional items set forth on the closing Agenda for this
transaction.
7.2 CONDITIONS OF ALL LOANS. The Lender's obligation to make any Loan is
subject to the fulfillment of the following additional conditions precedent:
(a) REPRESENTATIONS. The representations and warranties made by any party
to any Loan Document (other than Lender) in any Loan Document or in any
certificate, document or financial or other statement furnished at any time
under or in connection therewith shall be true and correct on and as of the
Borrowing Date for such Loan as if made on and as of such date, provided that,
if any such representation or warranty is expressly required herein or therein
to be made only as of a specific date, such representation or warranty shall be
true or correct as of such date;
(b) NO DEFAULT. No Default or Event of Default shall have occurred and be
continuing on the Borrowing Date for such Loan either before or after giving
effect to the Loan made on such date; and
(c) NO MATERIAL ADVERSE EFFECT. There shall have occurred no event or
change in circumstances having a Material Adverse Effect since the date of the
most recent financial statements delivered by Borrower to Lender.
Each request for a Loan by Borrower hereunder shall constitute a
representation and warranty by Borrower as of the date of such request or
application that the conditions contained in paragraphs (a) through (c) of this
Section 7.2 have been satisfied.
ARTICLE 8. - EVENTS OF DEFAULT
8.1 EVENTS OF DEFAULT. The occurrence of any of the following shall
constitute an Event of Default:
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(a) FAILURE OF PAYMENT. If Borrower fails to pay any principal,
interest or other amount due, under this Agreement or with respect to any Loan
on the date due (whether on a scheduled payment date or otherwise) and in the
manner provided herein;
(b) MISSTATEMENTS. If any representation, warranty or other statement
made herein or in any other Loan Document or otherwise in writing by or on
behalf of Borrower or Guarantor or any Subsidiary in connection herewith proves
to be or to have been incorrect or misleading in any material respect as of the
date at which it is made or deemed to be made;
(c) PERFORMANCE OF OTHER COVENANTS. If Borrower defaults in the due
performance or observance of:
(i) any covenant contained in Sections 5.1, 5.2(a) or 5.4 or Article 6
or
(ii) any other covenant, condition or provision to be performed or
observed by it hereunder or under any of the Loan Documents (other
than a payment or covenant default the performance or observance
of which is dealt with specifically elsewhere in this Section 8.1)
and the breach of such other provision is not cured to Lender's
satisfaction within twenty (20) days after the sooner to occur of
Borrower's receipt of notice of such breach from Lender or the
date on which such failure or neglect first becomes known to any
officer of Borrower.
(d) OTHER INDEBTEDNESS. If Borrower or any Subsidiary defaults, which
default continues after any applicable grace or cure period, in any payment of
principal of or interest on any Indebtedness for borrowed money in excess of
$150,000, including, without limitation, on any Capital Lease or any other
default occurs with respect to any Indebtedness for borrowed money giving the
holder thereof the right to accelerate the payment thereof or require such
Indebtedness to be paid before its stated maturity or before any regularly
scheduled date of prepayment;
(e) MATERIAL CONTRACTS. Any default occurs under any material contract of
Borrower or any Subsidiary which default gives any other party to such contract
the right to terminate such contract or exercise remedies and such termination
or remedies are reasonably likely to have a Material Adverse Effect;
(f) JUDGMENTS. If Borrower or any Subsidiary permits any judgment against
it in excess of $50,000 to remain undischarged for a period of more than thirty
(30) days unless during such period such judgment is effectively stayed or
bonded, on appeal or otherwise;
(g) LEVY, ATTACHMENTS. If any levy, seizure, attachment, execution or
similar process shall be issued on any of the Borrower's or its Subsidiaries'
cash, accounts or any material property;
(h) VOLUNTARY BANKRUPTCY. If Borrower or Guarantor or any Subsidiary (i)
commences a voluntary case under the Bankruptcy Code (as now or hereafter in
effect); or (ii)
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files a petition or commences any case, proceeding, or action in bankruptcy or
seeking reorganization, liquidation, dissolution, winding-up, arrangement,
composition, readjustment of its debts or any other relief under any other
bankruptcy, insolvency, reorganization, liquidation, dissolution, arrangement,
composition, readjustment of debt or similar act or law of any jurisdiction, now
or hereafter existing; or (iii) takes any action indicating its consent to,
approval of, or acquiescence in, any such case, proceeding or other action; or
(iv) applies for a receiver, trustee or custodian of it or for all or a
substantial part of its property; or (v) makes an assignment for the benefit of
creditors; or (vi) is unable to pay its debts as they mature or admits in
writing such inability; or (vii) is adjudicated insolvent or bankrupt;
(i) INVOLUNTARY BANKRUPTCY. (i) If there is commenced against Borrower,
Guarantor or any Subsidiary (1) an involuntary case under the Bankruptcy Code
(as now or hereafter in effect); or (2) any case or proceeding or any other
action in bankruptcy or seeking reorganization, liquidation, dissolution,
winding-up, arrangement, composition, readjustment of its debts or any other
relief under any other bankruptcy, insolvency, reorganization, liquidation,
dissolution, arrangement, composition, readjustment of debt or similar act or
law of any jurisdiction, now or hereafter existing, or seeking appointment of a
receiver, trustee or custodian of Borrower, Guarantor or any Subsidiary or for
all or a substantial part of the property of either of them, and any of the
foregoing cases, proceedings, or actions is not dismissed within sixty (60)
days; or (ii) if an order, judgment or decree approving any of the foregoing is
entered or a warrant of attachment, execution or similar process against any
substantial part of the property of Borrower, Guarantor or any Subsidiary is
issued, and such order, judgment, decree, warrant, execution or similar process
is not vacated or stayed within sixty (60) days; or (iii) if an order for relief
under the Bankruptcy Code (as now or hereafter in effect) is entered against
Borrower, Guarantor or any Subsidiary; or
(j) CHANGE IN CONTROL OF BORROWER. A Change in Control shall occur; or
(k) GUARANTOR DEFAULTS. If there occurs any default by Guarantor of its
obligations under the Guaranty including, without limitation, under Section 4
thereof; or if Guarantor revokes or purports to revoke its obligations under the
Guaranty; or if Guarantor claims that its obligations thereunder are invalid or
unenforceable; or
(l) GENZYME CREDIT AGREEMENT DEFAULT. If an Event of Default (as defined in
that certain Credit Agreement dated November 14, 1996 among Guarantor, the
subsidiary guarantors thereto, the Lenders thereto, the Lender as administrative
agent and The First National Bank of Boston (the "Genzyme Credit Agreement"))
exists or has occurred and is continuing.
8.2 LENDER'S REMEDIES. Upon the occurrence of any such Event of Default,
Lender may, at Lender's option, immediately exercise one or more of the
following rights: (a) declare all obligations of Borrower to Lender, including,
without limitation, the Commitments to be terminated, whereupon such obligations
shall immediately terminate; and (b) declare all obligations of Borrower to
Lender, including, without limitation, the Loans and all other amounts owing
under this Agreement, the Notes to be immediately due and payable, whereupon
they shall immediately become due and payable without presentment, demand,
protest or notice of any
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kind, all of which are hereby expressly waived; and (c) require that Borrower
pay to Lender cash collateral in an amount equal to the Letter of Credit
Outstandings; PROVIDED, however, that upon the occurrence of any such Event of
Default specified in Sections 8.1(h) or 8.1(i), the Commitments shall
immediately terminate and all obligations of Borrower to Lender, including,
without limitation, Loans and all other amounts owing under this Agreement, the
Notes shall immediately become due and payable without presentment, further
demand, protest or notice of any kind, all of which are hereby expressly waived;
and Borrower shall immediately pay to Lender cash collateral in an amount equal
to the Letter of Credit Outstandings.
8.3 CROSS DEFAULT It is agreed by Borrower that any Event of Default under
this Agreement will constitute an event of default under all Loans and all of
the Loan Documents and all other agreements and evidences of Indebtedness
between Borrower and Lender, whether now existing or hereafter executed and
whether or not such is an event of default therein.
8.4 SETOFF. In addition to any rights and remedies of Lender provided by
law, Lender shall have the right, (a) upon and during the continuance of an
Event of Default or (b) at any time, whether or not an Event of Default has
occurred and is continuing, in the event of any attachment, trustee process,
garnishment, or other levy or lien is, or is sought to be imposed, on any cash,
accounts or any material property of Borrower, and without prior notice to
Borrower, any such notice being expressly waived by Borrower to the extent
permitted by applicable law, and regardless of the adequacy of any collateral,
to set off and apply against any indebtedness, whether matured or unmatured, of
Borrower to Lender, any amount owing or otherwise available under any applicable
agreement or contract (including without limitation all deposits maintained at
Lender, whether general or special, time or demand, provisional or final, joint
or otherwise) from Lender to Borrower, and such right of setoff may be exercised
by Lender against Borrower or against any bankruptcy trustee,
debtor-in-possession, assignee for the benefit of creditors, receiver, or
execution, judgment or attachment creditor of Borrower, or against anyone else
claiming through or against Borrower or such Person.
ARTICLE 9. - MISCELLANEOUS
9.1 NOTICES. Except as otherwise specified herein, all notices to or upon
the parties hereto shall be in writing (including teletransmissions), shall be
given or made to the party to which such notice is required or permitted to be
given or made under this Agreement at the address or telex or telecopier number
set forth below or at such other address or telex or telecopier number as any
party hereto may hereafter specify to the others in writing, and (unless
otherwise specified herein) shall be deemed delivered on receipt, if
teletransmitted or delivered by hand, or three (3) Business Days after mailing,
and all mailed notices shall be by registered or certified mail, postage
prepaid:
If to Borrower to:
Genzyme Transgenics Corporation
5 Mountain Road
Framingham, MA 01701
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Attention: John B. Green, Chief Financial Officer
Fax No. (508) 270-2303
With a copy to:
Palmer & Dodge, LLP
One Beacon Street
Boston, MA 02108
Attention: Lynnette C. Fallon, Esquire
Facsimile No. (617) 227-4420
With a copy to Guarantor at:
Genzyme Corporation
One Mountain Road
Framingham, MA 01701
Attention: Evan Lebson, Treasurer
Fax No. 508-872-0827
With a copy to:
Palmer & Dodge, LLP
One Beacon Street
Boston, MA 02108
Attention: John L. Whitlock, Esquire
Facsimile No. (617) 227-4420
If to Lender to:
Fleet National Bank
High Technology Division
One Federal Street
Boston, MA 02211
Attention: Kimberly Martone
Fax No. 617-346-0151
With a copy to:
Jeffery L. Keffer, Esquire
Brown, Rudnick, Freed & Gesmer, P.C.
One Financial Center
Boston, MA 02111
Facsimile No. (617) 856-8201
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9.2 NO WAIVER OF RIGHTS. No failure to exercise nor any delay in
exercising, on the part of Lender, any right, remedy, power or privilege under
the Loan Documents shall operate as a waiver thereof; nor shall any single or
partial exercise of any right, remedy, power, or privilege operate as a waiver
of any further or complete exercise thereof. No waiver shall be effective unless
in writing. No waiver or condonation of any breach on one occasion shall be
deemed a waiver or condonation on any other occasion.
9.3 OBLIGATIONS ABSOLUTE; CUMULATIVE REMEDIES. All payments to be made by
the Borrower hereunder and under the Notes and other Loan Documents shall be
made in immediately available funds and shall be absolute and unconditional and
shall not be subject to set off, recoupment or counterclaim of any kind. Each of
the Loan Documents and the obligations of Borrower thereunder are in addition to
and not in substitution for any other obligations or security interests now or
hereafter held by Lender and shall not operate as a merger of any contract or
debt or suspend the fulfillment of or affect the rights, remedies, powers, or
privileges of Lender in respect of any obligation or other security interest
held by it for the fulfillment thereof. The rights and remedies provided in the
Loan Documents are cumulative and not exclusive of any other rights or remedies
provided by law.
9.4 SUCCESSORS. This Agreement shall be binding upon and inure to the
benefit of Borrower, Lender and all future holders of the Notes, and their
respective successors and assigns, except that Borrower may not assign or
transfer its rights or obligations hereunder without the prior written consent
of Lender. Lender shall have the unrestricted right at any time or from time to
time, and without Borrower's or Guarantor's consent, to assign all or any
portion of its rights and obligations hereunder to one or more banks or other
financial institutions (each, an "Assignee"), and Borrower and Guarantor agree
that they shall execute, or cause to be executed, such documents, including
without limitation, amendments to this Agreement and to any other documents,
instruments and agreements executed in connection herewith as Lender shall deem
necessary to effect the foregoing. In addition, at the request of Lender and any
such Assignee, Borrower shall issue one or more new promissory notes, as
applicable, to any such Assignee and, if Lender has retained any of its rights
and obligations hereunder following such assignment, to Lender, which new
promissory notes shall be issued in replacement of, but not in discharge of, the
liability evidenced by the Notes held by Lender prior to such assignment and
shall reflect the amount of the respective Commitments and Loans held by such
Assignee and Lender after giving effect to such assignment. Upon the execution
and delivery of appropriate assignment documentation, amendments and any other
documentation required by Lender in connection with such assignment, and the
payment by Assignee of the purchase price agreed to by Lender, and such
Assignee, such Assignee shall be a party to this Agreement and shall have all of
the rights and obligations of Lender hereunder (and under any and all other
guaranties, documents, instruments and agreements executed in connection
herewith) to the extent that such rights and obligations have been assigned by
Lender pursuant to the assignment documentation between Lender and such
Assignee, and Lender shall be released from its obligations hereunder and
thereunder to a corresponding extent. Lender may furnish any information
concerning Borrower in its possession from time to time to prospective Assignees
and participants, provided that Lender shall require any such prospective
Assignee or participant to agree in writing to maintain the confidentiality of
such information.
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9.5 GOVERNING LAW. This Agreement, the Notes and other Loan Documents shall
be governed by, and construed and interpreted in accordance with, the laws of
the Commonwealth of Massachusetts.
9.6 SUBMISSION TO JURISDICTION; WAIVER OF TRIAL BY JURY.
(a) For purposes of any action or proceeding involving the Loan
Documents or any other agreement or document referred to therein, Borrower
hereby submits to the jurisdiction of all federal and state courts located in
the Commonwealth of Massachusetts and consents that any order, process, notice
of motion or other application to or by any of said courts or a judge thereof
may be served within or without such court's jurisdiction by registered mail or
by Personal service, PROVIDED a reasonable time for appearance is allowed (but
not less than the time otherwise afforded by any law or rule).
(b) THE BORROWER AND LENDER EACH HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE (TO THE EXTENT PERMITTED BY APPLICABLE LAW) (i) ANY RIGHT IT
MAY HAVE TO A TRIAL BY JURY OF ANY DISPUTE ARISING UNDER OR RELATING TO THIS
AGREEMENT, ANY NOTE, ANY OTHER LOAN DOCUMENT OR ANY OTHER AGREEMENT OR DOCUMENT
REFERRED TO HEREIN OR THEREIN AND AGREES THAT ANY SUCH DISPUTE SHALL BE TRIED
BEFORE A JUDGE SITTING WITHOUT A JURY; AND (ii) ANY RIGHT TO CONTEST THE
APPROPRIATENESS OF ANY ACTION BROUGHT WITHIN THE JURISDICTION MENTIONED IN
PARAGRAPH (a) OF THIS SECTION BASED ON LACK OF PERSONAL JURISDICTION, IMPROPER
VENUE, OR FORUM NON CONVENIENS.
9.7 COMPLETE AGREEMENT, AMENDMENTS. This Agreement, together with the Notes
and other Loan Documents contains the entire agreement between the parties with
respect to the transactions contemplated hereby, and supersedes all
negotiations, presentations, warranties, commitments, offers, contracts and
writings prior to the date hereof relating to the subject matter. This Agreement
may only be amended, modified, waived, discharged or terminated by a writing
signed by the party to be charged with such amendment, modification, waiver,
discharge or termination.
9.8 EXPENSES. The Borrower shall pay on demand, regardless of whether any
Default or Event of Default has occurred or whether any proceeding to enforce
any Loan Document has been commenced, all out-of-pocket expenses (including,
without limitation, the reasonable fees and disbursements of counsel to Lender)
incurred by Lender in connection with (a) the negotiation, preparation, filing
or recording of the Loan Documents, and any future requests for amendments or
waivers of the Loan Documents (whether or not the transactions contemplated
thereby shall be consummated), (b) the collection of the Loans and any and all
other obligations of Borrower to Lender whether now existing or hereafter
arising, or with the preservation, exercise or enforcement of Lender's rights
and remedies under or in connection with the Loan Documents, including, without
limitation, any and all expenses incurred by Lender in or in connection with any
case commenced by or against Borrower under the Bankruptcy Code, and
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(c) any claim or liability for any stamp, excise or other similar taxes and any
penalties or interest with respect thereto that may be levied, collected,
withheld or assessed by any jurisdiction in connection with the execution and
delivery of the Loan Documents or any modification thereof. This covenant shall
survive payment of the Loans and termination of this Agreement. Borrower hereby
authorizes Lender to make Loans to pay any amount owed by Borrower under this
Section or to debit Borrower's deposit accounts if Borrower fails to pay such
amount promptly after demand.
9.9 INDEMNIFICATION. Borrower agrees to indemnify and hold Lender harmless
from and against any and all loss, liability, obligations, damages, penalties,
judgments, actions, investigations, claims, costs and expenses (including,
without limitation, reasonable attorneys' fees and disbursements) now or in the
future incurred by or asserted against Lender by any Person arising out of or in
connection with any past, present, or future action or inaction by Lender or
Borrower in connection with any Loan Document, or any transaction contemplated
thereby, except any action or inaction arising out of Lender's gross negligence
or willful misconduct as determined by a court of competent jurisdiction in an
order binding on Lender and not subject to appeal.
9.10 SURVIVAL OF AGREEMENTS. All covenants, agreements, representations and
warranties made herein and in the certificates delivered pursuant hereto shall
survive the making of Loans and the execution and delivery to Lender of the
Notes and shall continue in full force and effect so long as any Note is
outstanding and unpaid or this Agreement remains in effect. All agreements,
obligations and liabilities of Borrower under this Agreement concerning the
payment of money to Lender, other than the obligation to pay principal of and
interest on Loans, shall survive the payment in full of Loans and termination of
this Agreement.
9.11 SEVERABILITY. Any provision hereof 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. 9.12 DESCRIPTIVE HEADINGS. The Table of Contents and the
captions in this Agreement are for convenience of reference only and shall not
define or limit the provisions hereof.
9.13 COUNTERPARTS. This Agreement may be executed by one or more of the
parties on any number of separate counterparts, and all of said counterparts
taken together shall be deemed to constitute one and the same instrument.
9.14 PLEDGE TO FEDERAL RESERVE Lender may at any time pledge all or any
portion of its rights under the Loan Documents including any portion of the Note
to any of the twelve (12) Federal Reserve Banks organized under Section 4 of the
Federal Reserve Act, 12 U.S.C. Section 341. No such pledge or enforcement
thereof shall release Lender from its obligations under any of the Loan
Documents.
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9.15 LOST NOTE Upon receipt of an affidavit of an officer of Lender as to
the loss, theft, destruction or mutilation of the Note or any other Loan
Documents which is not of public record, and, in the case of any such loss,
theft, destruction or mutilation, upon receipt of an affidavit of surrender and
cancellation of such Note or other Loan Document, Borrower will issue, in lieu
thereof, a replacement Note or other Loan Document in the same principal amount
thereof and otherwise of like tenor.
[REMAINDER OF PAGE INTENTIONALLY BLANK]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as an instrument under seal by their respective duly authorized
officers as of the date first written above.
GENZYME TRANSGENICS CORPORATION
By:/s/ John B. Green
------------------------------------
Name: John B. Green
Title: Chief Financial Officer
FLEET NATIONAL BANK
By:/s/ Kimberly A. Martone
-------------------------------------
Name: Kimberly A. Martone
Title: Vice President
ACKNOWLEDGED BY GUARANTOR,
GENZYME CORPORATION
By:/s/ Evan Lebson
-------------------------------------
Name: Evan Lebson
Title: Treasurer
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SCHEDULE 1
DEFINITIONS
"Accumulated Funding Deficiency" - the amount referred to by such term as
defined in Section 302(a)(2) of ERISA.
"AFFILIATE" - as to any Person (a) any other Person which, directly or
indirectly, is in control of, is controlled by, or is under common control with
such Person, or (b) any other Person who is an officer or director of such
Person, or (c) any Person described in clause (a) above (other than any
Subsidiary all of the capital stock of which is owned by Borrower).
"BANKRUPTCY CODE" - The Bankruptcy Reform Act of 1978, as heretofore and
hereafter amended, and codified as 11 U.S.C. ss.ss.101, ET SEQ.
"BORROWING DATE" - the Business Day on which any Loan is made.
"BUSINESS DAY" - any day on which commercial banks are open for business in
Boston, Massachusetts.
"CAPITAL EQUIPMENT" - equipment that in accordance with GAAP is required or
permitted to be depreciated or amortized on Borrower's balance sheet.
"CAPITAL EXPENDITURES" - for any period, the sum of (i) all expenditures
that, in accordance with GAAP, are required to be included in land, property,
plant or equipment or similar fixed asset account (whether involving real or
personal property) and (ii) Capital Lease Obligations incurred during such
period (excluding renewals of Capital Leases).
"CAPITAL LEASE" - any capital lease, conditional sales contract or other
title retention agreement relating to the acquisition of Capital Equipment.
"CAPITAL LEASE OBLIGATIONS" - the aggregate capitalized amount of the
obligations of Borrower under all Capital Leases.
"CASH EQUIVALENTS" - (a) securities with maturities of 180 days or less from
the date of acquisition issued or fully guaranteed or insured as to payment of
principal and interest by the United States or any agency thereof, (b)
certificates of deposit with maturities of 365 days or less from the date of
acquisition issued by Lender or any domestic commercial bank having capital and
surplus reasonably acceptable to Lender and (c) commercial paper of a domestic
issuer rated at least either A-2 by Standard & Poor's or B-2 by Moody's
Investors Service with maturities of 180 days or less from the date of
acquisition.
"CHANGE IN CONTROL" - at any time that any Person (other than Guarantor),
together with the affiliates and associates of such Person within the meaning of
Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), shall acquire beneficial ownership within the meaning of Rule 13d of the
Exchange Act of ten (10%) percent or more of the voting stock or total equity of
the Borrower, or if the Guarantor shall cease to have beneficial ownership
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within the meaning of Rule 13d of the Exchange Act of at least thirty (30%)
percent or more of such voting stock or total equity of Borrower, or if a change
in the Board of Directors of Borrower in which the individuals who constituted
the Board of Directors at the beginning of the two (2) year period immediately
preceding such change (together with any other director whose election by the
Board of Directors was approved by at least two-thirds of the directors then in
office at the beginning of such period) cease for any reason to constitute a
majority of the directors of the Borrower then in office.
"COMMITMENTS" - each of the Revolving Credit Commitment and the Term Loan
Commitment.
"COMMONLY CONTROLLED ENTITY" - an entity, whether or not incorporated, which
is under common control with Borrower within the meaning of Section 414(b) or
(c) of the IRC.
"CONSOLIDATED" - when used with reference to any term, that term as applied
to the accounts of the Borrower and all of its Subsidiaries, consolidated in
accordance with GAAP.
"CONTINGENT LIABILITY" - any obligation of Borrower guaranteeing or in
effect guaranteeing any Indebtedness, leases, dividends or other obligations
("primary obligations") of any other Person (the "primary obligor") in any
manner, whether directly or indirectly.
"DEFAULT" - any event specified in Article 8, whether or not any requirement
for the giving of notice or lapse of time or any other condition has been
satisfied.
"DIVIDENDS" means, for any applicable period, the aggregate of all amounts
paid or payable (without duplication) as dividends (exclusive of dividends
payable solely in capital stock of Borrower), distributions or owner withdrawals
with respect to Borrower's shares of capital stock, whether now or hereafter
outstanding and includes any purchase, redemption or other retirement of any
shares of the Borrower's stock, directly or indirectly.
"DOLLARS" and "$" - lawful money of the United States. Any reference to
payment means payment in immediately available Dollar funds.
"ERISA" - the Employee Retirement Income Security Act of 1974, as amended
from time to time, including all regulations promulgated under such Act.
"EVENT OF DEFAULT" - any event specified in Article 8, PROVIDED that any
requirement for the giving of notice or lapse of time or any other condition has
been satisfied.
"GAAP" - those generally accepted accounting principles set forth in
Statements of the Financial Accounting Standards Board and in Opinions of the
Accounting Principles Board of the American Institute of Certified Public
Accountants or which have other substantial authoritative support in the United
States and are applicable in the circumstances, as applied on a consistent
basis. As used in the preceding sentence "consistent basis" shall mean that the
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<PAGE>
accounting principles observed in the current period are comparable in all
material respects to those applied in the preceding period.
"GUARANTY" - that certain Guaranty from Genzyme Corporation, a Massachusetts
corporation for the benefit of Lender with respect to the Obligations, date as
of the date hereof.
"GUARANTOR" - Genzyme Corporation, a corporation organized under the laws of
the Commonwealth of Massachusetts.
"HAZARDOUS MATERIAL" - any hazardous waste, toxic substance hazardous
chemical, radioactive material, hazardous material, oil or gasoline, under any
applicable federal or state statute, county or municipal law or ordinance,
including (without limitation) any substance defined as a "hazardous substance"
or "toxic substance" (or comparable term) in the Comprehensive Environmental
Response, Compensation and Liability Act, as amended (42 U.S.C. 9601, ET SEQ.),
the Hazardous Materials Transportation Act (49 U.S.C. 1802), or the Resource
Conservation and Recovery Act (42 U.S.C. 6901, ET SEQ.).
"INDEBTEDNESS" - with respect to any Person, any item that would properly be
included as a liability on the liability side of a balance sheet of such Person
as of any date as of which Indebtedness is to be determined and includes (but is
not limited to) (a) all obligations for borrowed money including all Loans, (b)
all obligations evidenced by bonds, debentures, notes or other similar
instruments, (c) all obligations to pay the deferred purchase price of property
or services, (d) all Capital Lease Obligations and (e) all obligations in
respect of advances made or to be made under letters of credit issued for such
Person's account and in respect of acceptances of drafts drawn by such Person.
"INITIAL BORROWING DATE" - the date of this Agreement.
"INTELLECTUAL PROPERTY" - shall mean "Intellectual Property," as defined in
Section 101(35A) of the Bankruptcy Code, now or hereafter owned by Borrower or
any of its Subsidiaries, together with all of the following property now or
hereafter owned by Borrower or any of its Subsidiaries: all domestic and foreign
patents and patent applications; inventions, discoveries and improvements,
whether or not patentable; trademarks, trademark applications and registrations;
service marks, service mark applications and registrations; copyrights,
copyright applications and registrations; all licenses therefor; trade secrets
and all other proprietary information.
"INVESTMENT" - any transfers of property to, contribution to capital of,
acquisition of stock, other securities or evidences of indebtedness of,
acquisition of businesses of, or acquisition of property of, any Person, other
than in the ordinary course of business.
"IRC" - the Internal Revenue Code of 1986, as amended from time to time and
including all regulations promulgated thereunder.
"JOINT VENTURE" - a single-purpose corporation, partnership, limited
liability company, joint venture or other similar legal arrangement (whether
created by contract or conducted
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through a separate legal entity) now or hereafter formed by Borrower or any of
its Subsidiaries with another Person in order to conduct a common venture or
enterprise with such Person.
"LETTER OF CREDIT" - an irrevocable stand-by letter of credit or documentary
letter of credit issued by Fleet National Bank for the account of Borrower.
"LETTER OF CREDIT OUTSTANDINGS" - at any time, the aggregate amount
available to be drawn under all Letters of Credit then outstanding, plus the
outstanding amount, if any, of all amounts previously drawn under Letters of
Credit which have not been reimbursed to Lender by Borrower plus all fees and
expenses accrued and that may accrue thereon until expiration thereof.
"LIEN" - any mortgage, deed of trust, pledge, hypothecation, assignment,
deposit arrangement, encumbrance (including, without limitation, any easement,
right-of-way, zoning or similar restriction or title defect), lien (statutory or
other) or preference, priority or other security agreement or preferential
arrangement of any kind or nature whatsoever (including, without limitation, any
conditional sale or other title retention agreement, any financing lease having
substantially the same economic effect as any of the foregoing and the filing of
any financing statement under the UCC or comparable law of any jurisdiction).
"LOAN" or "LOANS" - any Revolving Credit Loan and Term Loan.
"LOAN DOCUMENTS" - this Agreement, the Revolving Credit Note, Term Note, the
Guaranty, and all other instruments and documents executed in connection with
the Indebtedness covered hereby and thereby.
"MATERIAL ADVERSE CHANGE" means a material adverse change, as reasonably
determined by the Lender, in the property, business , operations, financial
conditions, liabilities or capitalization of Borrower and its Subsidiaries
(taken as a whole).
"MATERIAL ADVERSE EFFECT" - means a material adverse effect, as reasonably
determined by the Lender, on (a) the property, business , operations, financial
conditions, liabilities or capitalization of Borrower and its Subsidiaries
(taken as a whole); or (b) the validity or enforceability of any of the Loan
Documents.
"MULTIEMPLOYER PLAN" - a Plan which is a multiemployer plan as defined in
Section 3(37)(A) of ERISA or Section 414(f) of the IRC.
"NOTES" - the Revolving Credit Note and Term Note.
"OBLIGATIONS" means all loans, advances, interest, fees, debts, guaranties,
liabilities, obligations (including without limitation the Loans, Letters of
Credit and contingent obligations under guarantees), agreements, undertakings,
covenants and duties owing or to be performed or observed by Borrower to or in
favor of Lender, of every kind and description (whether or not evidenced by any
note or other instrument; for the payment of money; arising out of the Loans,
this Agreement or any other agreement between Lender and Borrower or any other
instrument of Borrower in favor of Lender; arising out of or relating or similar
to transactions described herein;
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<PAGE>
or contemplated as of the Closing Date), direct or indirect, absolute or
contingent, due or to become due, now existing or hereafter arising, including
without limitation all interest, fees, charges, and amounts chargeable to
Borrower under this Agreement.
"PBGC" - the Pension Benefit Guaranty Corporation established pursuant to
Subtitle A of Title IV of ERISA.
"PERSON" - an individual, partnership, corporation, business trust, joint
stock company, trust, unincorporated association, joint venture, governmental
authority or other entity of whatever nature.
"PLAN" - any pension plan, as defined in Section 3(2) of ERISA and any
welfare plan, as defined in Section 3(1) of ERISA, which is sponsored,
maintained or contributed to by Borrower or any Commonly Controlled Entity, or
in respect of which Borrower or a Commonly Controlled Entity is an "employer" as
defined in Section 3(5) of ERISA.
"Prohibited Transaction" - any of the transactions set forth in Section 406
of ERISA to the extent not exempt under Section 408 of ERISA.
"REPORTABLE EVENT" - any of the events set forth in Section 4043(b) of
ERISA.
"REVOLVING CREDIT COMMITMENT" - the commitment by the Lender to make
Revolving Credit Loans pursuant to Section 2.1.
"REVOLVING CREDIT COMMITMENT PERIOD" - the period from and including the
Initial Borrowing Date to and including the Termination Date.
"REVOLVING CREDIT LIMIT" - $17,500,000.00, as such amount may be reduced
pursuant to Section 2.6.
"REVOLVING CREDIT LOAN" - any loan made pursuant to Section 2.1.
"REVOLVING CREDIT NOTE" - a promissory note of Borrower made to evidence the
Revolving Credit Loans, in the form of EXHIBIT A, as it may be amended,
supplemented or otherwise modified, from time to time.
"SUBSIDIARY" - with respect to any Person, any corporation, partnership,
trust or other organization, whether or not incorporated, the majority of the
voting stock or voting rights of which is owned or controlled, directly or
indirectly, by such Person.
"TERM LOAN" - any loan made pursuant to Section 3.1.
"TERM LOAN COMMITMENT" - the commitment by the Lender to make Term Loans
pursuant to Section 3.1.
"TERM LOAN COMMITMENT PERIOD" - the period from and including the Initial
Borrowing Date to and including the second anniversary of the Initial Borrowing
Date.
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<PAGE>
"TERM LOAN LIMIT" - $7,100,000.
"TERM NOTE" - a promissory note of Borrower made to evidence the Term Loans
in the form of EXHIBIT B, as it may be amended, supplemented or otherwise
modified, from time to time.
"TERMINATION DATE" - the earlier of (a) December 28, 2001, and (b) the date
the Lender's commitment to make Loans is terminated pursuant to Section 8.2 of
Article 8.
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<PAGE>
EXHIBIT 10.57.2
REVOLVING CREDIT NOTE
$17,500,000.00 Boston, Massachusetts
December 28, 1998
1. PROMISE TO PAY.
FOR VALUE RECEIVED, GENZYME TRANSGENICS CORPORATION, a Massachusetts
corporation, having an address at 5 Mountain Road, Framingham, Massachusetts
01701, ("Borrower") promises to pay to the order of FLEET NATIONAL BANK, a
national banking association, having an address at One Federal Street, Boston,
Massachusetts 02110 ("Lender"), the principal sum of SEVENTEEN MILLION FIVE
HUNDRED THOUSAND DOLLARS ($17,500,000.00), or so much thereof as may be advanced
as Revolving Credit Loans from time to time under the Credit Agreement, defined
below, with interest thereon, or on the amount thereof from time to time
outstanding, to be computed, as hereinafter provided, on each advance from the
date of its disbursement until such principal sum shall be fully paid. Interest
and principal shall be payable as set forth in Section 4 below. The total
principal sum, or the amount thereof outstanding, together with any accrued but
unpaid interest, shall be due and payable in full on December 28, 2001
("Maturity Date").
2. CREDIT AGREEMENT.
This Note is issued pursuant to the terms, provisions and conditions of a
certain Credit Agreement between Borrower and Lender dated as of the date hereof
(the "Credit Agreement"), as amended from time to time, and evidences the
Revolving Credit Loans made pursuant thereto. Capitalized terms used herein
which are not otherwise specifically defined shall have the same meaning herein
as in the Credit Agreement.
3. INTEREST RATES.
3.1. BORROWER'S OPTIONS. Principal amounts outstanding hereunder shall
bear interest at the following rates, at Borrower's selection,
subject to the conditions and limitations provided for in this Note:
(i) Variable Rate or (ii) Libo Rate.
3.1.1. SELECTION TO BE MADE. Borrower shall select, and thereafter
may change the selection of, the applicable interest rate,
from the alternatives otherwise provided for in this Note,
by giving Lender a Notice of Rate Selection: (i) prior to
the end of each Interest Period applicable to a Libor
Advance, or (iii) on any Business Day on which Borrower
desires to convert an outstanding Variable Rate Advance to a
Libor Advance.
<PAGE>
3.1.2. NOTICE. A "Notice of Rate Selection" shall be a written
notice, given by cable, tested telex, telecopier (with
authorized signature), or by telephone if immediately
confirmed by such a written notice, from an Authorized
Representative of Borrower which: (i) is irrevocable with
respect to the interest rate, amount, and Interest Period
selected; (ii) is received by Lender not later than 10:00
o'clock A.M. Eastern Time: (a) if a Libo Rate is selected,
at least three (3) Business Days prior to the first day of
the Interest Period to which such selection is to apply, (b)
if a Variable Rate is selected, on the first day to which it
applies; and (iii) as to each selected interest rate option,
sets forth the aggregate principal amount(s) to which such
interest rate option(s) shall apply and the Interest
Period(s) applicable to each Libor Advance.
3.1.3. IF NO NOTICE. If Borrower fails to select an interest rate
option in accordance with the foregoing prior to the last
day of the applicable Interest Period of an outstanding
Libor Advance, on the last day of the applicable Interest
Period all outstanding principal amounts shall be deemed
converted to a Variable Rate Advance.
3.2. TELEPHONIC NOTICE. Without any way limiting Borrower's obligation to
confirm in writing any telephonic notice, Lender may act without
liability upon the basis of telephonic notice believed by Lender in
good faith to be from Borrower prior to receipt of written
confirmation. In each case Borrower hereby waives the right to
dispute Lender's record of the terms of such telephonic Notice of
Rate Selection in the absence of manifest error.
3.3. LIMITS ON OPTIONS. Each Libor Advance shall be in a minimum amount
of $250,000. At no time shall there be outstanding a total of more
than six (6) Libor Advances.
4. PAYMENT OF INTEREST AND PRINCIPAL.
4.1. PAYMENT AND CALCULATION OF INTEREST. All interest shall be: (a)
payable in arrears (i) on the first day of each month (with respect
to Variable Rate Advances) or (ii) on the last day of each Interest
Period and, if such Interest Period is longer than three months, at
three-month intervals following the first day of such Interest
Period (with respect to Libor Advances), until the principal
together with all interest and other charges payable with respect to
the Loan Advances shall be fully paid; and (b) calculated on the
basis of a 360 day year and the actual number of days elapsed. Each
change in the Prime Rate shall simultaneously change the Variable
Rate payable under this Note. Interest at the Libo Rate shall be
computed from and including the first day of the applicable Interest
Period to, but excluding, the last day thereof.
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<PAGE>
4.2. PRINCIPAL. The entire principal balance shall be due and payable on
the Maturity Date.
4.3. PREPAYMENT. The Loan Advances or any portion thereof may be prepaid
in full or in part at any time without premium or penalty with
respect to Variable Rate Advances and, with respect to Libor
Advances subject to a make-whole provision and upon payment of a
Yield Maintenance Fee.
4.4. MATURITY. At maturity all accrued interest, principal and other
charges due with respect to the Loan Advances shall be due and
payable in full and the principal balance and such other charges,
but not unpaid interest, shall continue to bear interest at the
default rate specified in the Credit Agreement until so paid.
4.5. DEFAULT RATE; LATE CHARGES. Upon and during the continuance of an
Event of Default at the election of the Lender, interest shall be
payable on the unpaid principal balance from time to time
outstanding at a rate per annum equal to the interest rate
applicable hereunder plus four percent (4%), until fully paid. Any
payment hereunder not paid within ten (10) days after the date such
payment is due shall be subject to a late fee equal to five percent
(5%) of the amount overdue.
4.6. MAKE WHOLE PROVISION. Borrower shall pay to Lender, immediately upon
request and notwithstanding contrary provisions contained in any of
the Loan Documents, such amounts as shall, in the reasonable
judgment of Lender (in the absence of manifest error), compensate
Lender for the loss, cost or expense which it may reasonably incur
as a result of (i) any payment or prepayment, under any
circumstances whatsoever, whether voluntary or involuntary, of all
or any portion of a Libor Advance on a date other than the last day
of the applicable Interest Period of a Libor Advance, or (ii) the
conversion, for any reason whatsoever, whether voluntary or
involuntary, of any Libor Advance to a Variable Rate Advance on a
date other than the last day of the applicable Interest Period. Such
amounts payable by Borrower shall be equal to any administrative
costs actually incurred plus, in any event, but without duplication,
a Yield Maintenance Fee. The "Yield Maintenance Fee" shall be an
amount equal to the product of: (a) the amount so prepaid or
converted, as the case may be, multiplied by (b) the difference
between the Libo Rate then in effect, or which would have been in
effect (computed separately for each outstanding maturity or
installment), and the Treasury Rate in effect on the date of the
occurrence (computed separately for each outstanding maturity or
installment), which product shall be multiplied by (c) a fraction,
the numerator of which is the number of days from the date of
occurrence to the last day of the applicable Interest Period (or, if
applicable, each Interest Period) and the denominator of which is
360 days; HOWEVER, if or to ------- the extent that the applicable
Libo Rate for the applicable Interest Period (computed separately
for each maturity or installment) is equal to or less than the
Treasury Rate, no Yield Maintenance Fee shall be payable.
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<PAGE>
5. CERTAIN DEFINITIONS AND PROVISIONS RELATING TO INTEREST RATE.
5.1. ADJUSTED LIBO RATE. The term "Adjusted Libo Rate" means for each
Interest Period the rate per annum obtained by dividing (i) the
Applicable Libo Rate for such Interest Period, by (ii) a percentage
equal to one hundred PERCENT (100%) minus the maximum reserve
percentage applicable ------- during such Interest Period under
regulations issued from time to time by the Board of Governors of
the Federal Reserve System for determining the maximum reserve
requirements (including, without limitation, any basic,
supplemental, marginal and emergency reserve requirements) for
Lender (or of any subsequent holder of this Note which is subject to
such reserve requirements) in respect of liabilities or assets
consisting of or including Eurocurrency liabilities (as such term is
defined in Regulation D of the Board of Governors of the Federal
Reserve System) having a term equal to the Interest Period.
5.2. APPLICABLE LIBO RATE. The term "Applicable Libo Rate" means, with
respect to each Interest Period, the rate of interest, expressed as
an annual rate, equal to the simple average, rounded up to the
nearest 1/32 of 1%, of the rates shown on the display referred to as
the "Telerate Page 3750" (or any display substituted therefor) of
the Dow Jones Telerate Service as being the respective rates at
which deposits in Dollars would be offered by the principal London
offices of each of the banks named thereon to major banks in the
London interbank market at approximately 11:00 A.M. (London time) on
the second London Banking Day before the first day of such Interest
Period for a period substantially coextensive with such Interest
Period.
5.3. APPLICABLE MARGIN. The "Applicable Margin" shall be determined based
upon the financial position and results of the Guarantor based upon
the financial statements and Compliance Certificates furnished by
the Guarantor pursuant to the Guaranty. The term "Applicable Margin"
means, for any period set forth below the percentage set forth below
opposite such period:
<TABLE>
<CAPTION>
PERIOD APPLICABLE MARGIN
<S> <C>
Level I Period 0.425%
Level II Period 0.550%
Level II Period 0.675%
Level IV Period 0.925%
</TABLE>
5.4. BANKING DAY. The term "Banking Day" means a day on which banks are
not required or authorized by law to close in the city in which
Lender's principal office is situated.
5.5. BUSINESS DAY; SAME CALENDAR MONTH. The term "Business Day" means any
Banking Day and, if the applicable Business Day relates to the
selection or
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<PAGE>
determination of any Libo Rate, any London Banking Day. If any day
on WHICH a payment is due is not a Business Day, then the payment
shall be due on the next day following which is a Business Day,
unless, with respect to Libor Advances, the effect would be to make
the payment due in the next calendar month, in which event such
payment shall be due on the next preceding day which is a Business
Day. Further, if there is no corresponding day for a payment in the
given calendar month (i.e., there is no "February 30th"), the
payment shall be due on the last Business Day of the calendar month.
5.6. CAPITAL EXPENDITURES. The term "Capital Expenditures" means, for any
period, expenditures (including, without limitation, the aggregate
amount of Capital Lease Obligations incurred during such period)
made by the Guarantor or any of its Subsidiaries to acquire or
construct fixed assets, plant and equipment (including renewals,
improvements and replacements, but excluding repairs) during such
period computed in accordance with GAAP.
5.7. CASH EQUIVALENTS. The term "Cash Equivalents" means any interest
bearing investment of Guarantor and its wholly owned Subsidiaries
which meets the definition of a "cash equivalent" under GAAP (i.e.,
purchased with a remaining maturity of 90 days or less). Such
investments shall be at least investment grade (A1/P1 for commercial
paper, BBB or better for bonds and similar investments).
5.8. "CAPITAL LEASE OBLIGATIONS" shall mean, for any Person, all
obligations of such Person to pay rent or other amounts under a
lease of (or other agreement conveying the right to use) property to
the extent such obligations are required to be classified and
accounted for as a capital lease on a balance sheet of such Person
under GAAP, and, for purposes of this Guaranty, the amount of such
obligations shall be the capitalized amount thereof, determined in
accordance with GAAP.
5.9. CONSOLIDATED. The term "Consolidated" means, when used with
reference to any term, that term as applied to the accounts of
Guarantor and all of its Subsidiaries consolidated in accordance
with GAAP.
5.10. CONSOLIDATED EBITDA. The term "Consolidated EBITDA" means, for any
period, the sum, for the Guarantor, of the following: (a)
Consolidated Operating Income for such period PLUS (b) depreciation
and amortization, but only to the extent deducted in determining
Consolidated Operating Income for such period.
5.11. CONSOLIDATED DEBT COVERAGE RATIO. The term "Consolidated Debt
Coverage Ratio" means for the Guarantor, at any date, the ratio, for
the Guarantor and its Consolidated Subsidiaries, of (a) the sum of
(i) Unrestricted Cash on such date plus (ii) Marketable Investments
on such date to (b) Consolidated Funded Debt on such date.
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<PAGE>
5.12. CONSOLIDATED FIXED CHARGE COVERAGE RATIO. The term "Consolidated
Fixed Charge Coverage Ratio" means for the Guarantor, for any
period, the ratio of (a) the sum of (i) Consolidated EBITDA for such
period LESS (ii) the aggregate amount of Capital Expenditures made
during such period LESS (iii) the amount of the taxes paid during
such period LESS (iv) the aggregate amount of all Dividend Payments
made during such period to (b) all Interest expense for such period.
5.13. CONSOLIDATED FUNDED DEBT. The term "Consolidated Funded Debt" means
for the Guarantor, at any time, the outstanding balance of all
Indebtedness in respect of borrowed money, Capital Lease
Obligations, letters of credit and trade acceptances for the
Guarantor and its Consolidated Subsidiaries.
5.14. CONSOLIDATED NET INCOME. The term "Consolidated Net Income" shall
mean, for any period, net income (or loss) for the Guarantor and its
Consolidated Subsidiaries (determined in accordance with GAAP),
PROVIDED HOWEVER, that Consolidated Net Income shall not include
amounts included in computing net income (or loss) in respect of (a)
the write-up of assets (other than Marketable Investments) after
December 31, 1995 and (b) extraordinary and non-recurring gains or
losses.
5.15. CONSOLIDATED OPERATING INCOME. The term "Consolidated Operating
Income" means for the Guarantor, for any period, the Consolidated
Net Income of the Guarantor for such period, PROVIDED, HOWEVER,
that, to the extent the following items have been included in
determining Consolidated Net Income, they shall NOT be considered in
computing Consolidated Operating Income: provision for income taxes,
interest expense, equity in the operating results of unconsolidated
Subsidiaries (including partnerships, joint ventures and Affiliates
but only to the extent that such results represent noncash,
nonoperating items) and other non-operating, non-cash items
including, but not limited to, write-off of acquired technology or
acquired, in-process research and development which, in accordance
with GAAP, must be charged to income. Furthermore, all charges
arising from the acquisition by Guarantor of Neozyme II Corporation
and/or Deknatel Snowden Pencer, Inc. which are included in the
determination of Consolidated Net Income for any period shall be
excluded from the computation of Consolidated Operating Income
whether such charges be of a cash or non-cash nature.
5.16. DIVIDEND PAYMENT. The term "Dividend Payment" means dividends (in
cash, Property or obligations) on, or other payments or
distributions on account of, or the setting apart of money for a
sinking or other analogous fund for, or the purchase, redemption,
retirement or other acquisition of, any shares of any class of stock
of, or any partnership or other equity interest issued by, the
Guarantor or of any warrants, options or other rights to acquire the
same (or to make any payments to any Person, such as "phantom stock"
payments, where the amount thereof is calculated with reference to
the fair market or equity value of the
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<PAGE>
Guarantor or any of its Subsidiaries), but excluding dividends
payable solely in shares of common stock of the Guarantor.
5.17. DOLLARS. The term "Dollars" or "$" means lawful money of the United
States.
5.18. EVENT OF DEFAULT. The term "Event of Default" has meaning given such
term in the Credit Agreement.
5.19. GUARANTEE. The term "Guarantee" means a guarantee, an endorsement, a
contingent agreement to purchase or to furnish funds for the payment
or maintenance of, or otherwise to be or become contingently liable
under or with respect to, the Indebtedness, other obligations, net
worth, working capital or earnings of any Person, or a guarantee of
the payment of dividends or other distributions upon the stock or
equity interests of any Person, or an agreement to purchase, sell or
lease (as lessee or lessor) property, products, materials, supplies
or services primarily for the purpose of enabling a debtor to make
payment of such debtor's obligations or an agreement to assure a
creditor against loss, and including, without limitation, causing a
bank or other financial institution to issue a letter of credit or
other similar instrument for the benefit of another Person, but
excluding endorsements for collection or deposit in the ordinary
course of business. The terms "Guarantee" and "Guaranteed" used as a
verb shall have a correlative meaning.
5.20. INDEBTEDNESS. The term "Indebtedness" means, for the Guarantor and
its Consolidated Subsidiaries: (a) obligations created, issued or
incurred by such Person for borrowed money (whether by loan, the
issuance and sale of debt securities or the sale of property to
another Person subject to an understanding or agreement, contingent
or otherwise, to repurchase such Property from such Person); (b)
obligations of such Person to pay the deferred purchase or
acquisition price of property or services, other than trade accounts
payable (other than for borrowed money) arising, and accrued
expenses incurred, in the ordinary course of business so long as
such trade accounts payable are payable within 120 days of the date
the respective goods or services are delivered or rendered; (c)
Indebtedness of others secured by a Lien on the property of such
Person, whether or not the respective indebtedness so secured has
been assumed by such Person; (d) obligations of such Person,
contingent or otherwise, in respect of letters of credit, bankers'
acceptances or similar instruments issued or accepted by banks and
other financial institutions for account of such person; (e) Capital
Lease Obligations of such Person; and (f) Guarantees by such Person
of Indebtedness of others.
5.21. INTEREST. The term Interest means, for any period, the sum, for the
Guarantor and its Consolidated Subsidiaries, of the following: (a)
all interest in respect of Indebtedness (including, without
limitation, the interest component of any payments in respect of
Capital Lease Obligations) accrued or capitalized during
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<PAGE>
such period (whether or not actually paid during such period); and
(b) all other amounts that would be accrued or capitalized during
such period as "interest expense" in accordance with GAAP.
5.22. INTEREST PERIOD.
5.22.1. The term "Interest Period" means with respect to each Libor
Advance: a period of an integral multiple of one month, but
no Interest Period shall be greater than three (3) months,
subject to availability, as selected, or deemed selected, by
Borrower at least three (3) Business Days prior to the end
of the current Interest Period or the commencement of the
next Interest Period. Each such Interest Period shall
commence on the Business Day so selected, or deemed
selected, by Borrower and shall end on the numerically
corresponding day in the month in which the Interest Period
ends; PROVIDED, HOWEVER: (i) if there is no such numerically
corresponding day, such Interest Period shall end on the
last Business Day of the applicable month, (ii) if the last
day of such an Interest Period would otherwise occur on a
day which is not a Business Day, such Interest Period shall
be extended to the next succeeding Business Day; but (iii)
if such extension would otherwise cause such last day to
occur in a new calendar month, then such last day shall
occur on the next preceding Business Day.
5.22.2. Intentionally omitted.
5.22.3. No Interest Period may be selected which would end beyond
the Maturity Date. If the last day of an Interest Period
would otherwise occur on a day which is not a Business Day,
such last day shall be extended to the next succeeding
Business Day, except as provided above in clause (A)
relative to a Libor Advance.
5.23. LEVEL I PERIOD. The term "Level I Period" means any period (a) from
and including the Business Day immediately following the Business
Day on which a senior financial officer of the Guarantor shall have
delivered to the Lender a Compliance Certificate, together with the
related financial statements referred to in Section 4 of the
Guaranty, demonstrating in reasonable detail that the Consolidated
Debt Coverage Ratio, as of the last day of the fiscal quarter of the
Guarantor most recently ended, is greater than or equal to 2.0 to
1.0 or that the Consolidated Fixed Charge Coverage Ratio for such
period was greater than 5.5 to 1.0, to but excluding the next
succeeding Reporting Date and (b) during which no Event of Default
shall have occurred and be continuing.
5.24. LEVEL II PERIOD. The term "Level II Period" means any period, other
than a Level I Period, (a) from and including the Business Day
immediately following the Business Day on which a senior financial
officer of the Guarantor shall have
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delivered to the Lender a Compliance Certificate, together with the
related financial statements referred to in Section 4 of the
Guaranty, demonstrating in reasonable detail that the Consolidated
Debt Coverage Ratio, as of the last day of the fiscal quarter of the
Guarantor most recently ended, is less than to 2.0 to 1.0 and
greater than or equal to 1.0 to 1.0 or that the Consolidated Fixed
Charge Coverage Ratio for such period was greater than or equal to
4.5 to 1.0 and less than or equal to 5.5 to 1.0, to but excluding
the next succeeding Reporting Date and (b) during which no Event of
Default shall have occurred and be continuing.
5.25. LEVEL III PERIOD. The term "Level III Period" means any period,
other than a Level I Period or Level II Period, (a) from and
including the Business Day immediately following the Business Day on
which a senior financial officer of the Guarantor shall have
delivered to the Lender a Compliance Certificate, together with the
related financial statements referred to in Section 4 of the
Guaranty hereof, demonstrating in reasonable detail that the
Consolidated Debt Coverage Ratio, as of the last day of the fiscal
quarter of the Guarantor most recently ended, is less than to 1.0 to
1.0 and that the Consolidated Fixed Charge Coverage Ratio for such
period was greater than or equal to 3.5 to 1.0 and less than 4.5 to
1.0, to but excluding the next succeeding Reporting Date and (b)
during which no Event of Default shall have occurred and be
continuing.
5.26. LEVEL IV PERIOD. The term "Level IV Period" means any period, other
than a Level I Period, Level II Period or Level III Period.
5.27. LIBOR ADVANCE. The term "Libor Advance" means any principal
outstanding under this Note which pursuant to this Note bears
interest at the Libo Rate.
5.28. LIBO RATE. The term "Libo Rate" means the per annum rate equal to
the Adjusted Libo Rate plus the Applicable Margin.
5.29. LOAN ADVANCE. The term "Loan Advance" means any portion of principal
outstanding under this Note.
5.30. LONDON BANKING DAY. The term "London Banking Day" means any day on
which dealings in deposits in Dollars are transacted in the London
interbank market.
5.31. MARKETABLE INVESTMENTS. The term "Marketable Investments" means any
interest-bearing debt obligations owned by Guarantor and its
wholly-owned Subsidiaries (excluding directors' qualifying shares
and items included as Cash Equivalents) which meet the definition of
marketable securities under GAAP. Such amounts shall exclude common
or preferred stock. Such securities shall include obligations issued
by the U.S. Treasury and other agencies of the U.S. government,
corporate bonds, bank notes, mortgage and asset backed securities,
finance company securities and auction rate preferred stocks. Such
securities shall be rated investment grade (BBB or better for bonds
or similar securities,
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A1/P1 for commercial paper and notes) and shall otherwise be
reasonably liquid investments.
5.32. MATURITY. The term "Maturity" means the Maturity Date, or, if
earlier, the date of acceleration of the Loans under the Credit
Agreement.
5.33. Intentionally omitted.
5.34. PRIME RATE. The term "Prime Rate" means the per annum rate of
interest so designated from time to time by Lender as its prime
rate. The Prime Rate is a reference rate and does not necessarily
represent the lowest or best rate being charged to any customer.
5.35. REPORTING DATE. The term "Reporting Date" means the first to occur
of (i) the Business Day following the Business Day that the Lender
receives a Compliance Certificate of the Guarantor providing the
information required to determine whether a period is a Level I
Period, Level II Period, Level III Period or Level IV Period and
(ii) the first Business Day after the date on which the quarterly or
annual financial statement and Compliance Certificate is required to
be delivered to the Lender pursuant to Section 4(a) of the Guaranty.
5.36. SUBSIDIARY. The term "Subsidiary" means any corporation, partnership
trust or other organization, whether or not incorporated, the
majority of the voting stock or voting rights of which is owned or
controlled, directly or indirectly, by Guarantor.
5.37. TREASURY RATE. The term "Treasury Rate" means, as of the date of any
calculation or determination, the latest published rate for United
States Treasury Notes or Bills (but the rate on Bills issued on a
discounted basis shall be converted to a bond equivalent) as
published weekly in the Federal Reserve Statistical Release
H.15(519) of Selected Interest Rates in an amount which approximates
(as reasonably determined by Lender) the amount (i) approximately
comparable to the portion of the Loan Advance to which the Treasury
Rate applies for the Interest Period, or (ii) in the case of a
prepayment, the amount prepaid and with a maturity closest to the
original maturity of the installment which is prepaid in whole or in
part.
5.38. UNRESTRICTED CASH. The term "Unrestricted Cash" means cash and Cash
Equivalents of the Guarantor and its wholly owned Subsidiaries that
are readily available to Guarantor and not subject to any limitation
or restriction on their use by the Guarantor.
5.39. VARIABLE RATE. The term "Variable Rate" means a per annum rate equal
at all times to the Prime Rate, with changes therein to be effective
simultaneously with any change in the Prime Rate.
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5.40. VARIABLE RATE ADVANCE. The term "Variable Rate Advance" means any
principal amount outstanding under this Note which pursuant to this
Note bears interest at the Variable Rate.
6. ADDITIONAL PROVISIONS RELATED TO INTEREST RATE SELECTION.
6.1. INCREASED COSTS. If, due to any one or more of: (i) the introduction
of any applicable law or regulation or any change (other than any
change by way of imposition or increase of reserve requirements
already referred to in the definition of Libo Rate) in the
interpretation or application by any authority charged with the
interpretation or application thereof of any law or regulation; or
(ii) the compliance with any guideline or request from any
governmental central bank or other governmental authority (whether
or not having the force of law), there shall be an increase in the
cost to Lender of agreeing to make or making, funding or maintaining
Libor Advances, including without limitation changes which affect or
would affect the amount of capital or reserves required or expected
to be maintained by Lender, with respect to all or any portion of
the Loan Advances, or any corporation controlling Lender, on account
thereof, then Borrower from time to time shall, upon written demand
by Lender made within ninety (90) days of such increase in cost, pay
Lender additional amounts sufficient to indemnify Lender against the
increased cost. A certificate as to the amount of the increased cost
and the reason therefor submitted to Borrower by Lender, in the
absence of manifest error, shall be conclusive and binding for all
purposes.
6.2. ILLEGALITY. Notwithstanding any other provision of this Note, if the
introduction of or change in or in the interpretation of any law,
treaty, statute, regulation or interpretation thereof shall make it
unlawful, or any central bank or government authority shall assert
by directive, guideline or otherwise, that it is unlawful, for
Lender to make or maintain Libor Advances or to continue to fund or
maintain Libor Advances then, on written notice thereof and demand
by Lender to Borrower, (a) the obligation of Lender to make Libor
Advances and to convert or continue any Loan Advances as Libor
Advances shall terminate and (b) Borrower shall convert all
principal outstanding under this Note into Variable Rate Advances.
6.3. ADDITIONAL LIBOR CONDITIONS. The selection by Borrower of a Libo
Rate and the maintenance of Loan Advances at such rate shall be
subject to the following additional terms and conditions:
6.3.1. AVAILABILITY. If, before or after Borrower has selected to
take or maintain a Libor Advance, Lender notifies Borrower
that:
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6.3.1.1 dollar deposits in the amount and for the maturity
requested are not available to Lender in the London
interbank market at the rate specified in the
definition of LIBO Rate set forth above, or
6.3.1.2 reasonable means do not exist for Lender to
determine the Libo Rate for the amounts and maturity
requested,
then the principal which would have been a Libor Advance shall be a Variable
Rate Advance.
6.3.2. PAYMENTS NET OF TAXES. All payments and prepayments of
principal and interest under this Note shall be made net of
any taxes and costs resulting from having principal
outstanding at or computed with reference to a Libo Rate.
Without limiting the generality of the preceding obligation,
illustrations of such taxes and costs are taxes, or the
withholding of amounts for taxes, of any nature whatsoever
including income, excise, interest equalization taxes (other
than United States or state income taxes) as well as all
levies, imposts, duties or fees whether now in existence or
as the result of a change in or promulgation of any treaty,
statute, regulation, or interpretation thereof or any
directive guideline or otherwise by a central bank or fiscal
authority (whether or not having the force of law) or a
change in the basis of, or the time of payment of, such
taxes and other amounts resulting therefrom.
6.4. VARIABLE RATE ADVANCES. Each Variable Rate Advance shall continue as
a Variable Rate Advance until the Maturity Date, unless sooner
converted or prepaid, in whole or in part, to a Libor Rate Advance,
subject to the limitations and conditions set forth in this Note.
6.5. CONVERSION OF OTHER ADVANCES. At the end of each applicable Interest
Period, the applicable Libor Advance shall be converted to a
Variable Rate Advance unless Borrower selects another option in
accordance with the provisions of this Note.
6.6. CHANGE TO APPLICABLE MARGIN IF GUARANTOR CREDIT AGREEMENT IS
REPLACED. In the event that the Credit Agreement, dated November 14,
1996, among the Guarantor, the Subsidiary Guarantors party thereto,
the Lenders party thereto, Fleet National Bank, as administrative
agent and The First National Bank of Boston, as documentation agent
(the "Guarantor Credit Agreement") is terminated and replaced by an
unsecured revolving credit facility in excess of $100,000,000
providing all or substantially all of the Guarantor's working
capital financing requirements as determined by Lender in its
reasonable discretion, the Applicable Margin as defined in Section
5.3 hereof shall be adjusted to be five (5) basis points in excess
of the applicable margin used in such replacement revolving credit
facility for libor or eurodollar type borrowings (provided that the
interest rates assigned to such libor or eurodollar type borrowings
are determined by reference to the same market that is utilized in
administering the Guarantor Credit
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Agreement), but if the Guarantor Credit Agreement is terminated and
not so replaced the Applicable Margin as defined in Section 5.3
hereof shall remain in effect.
7. ACCELERATION; EVENT OF DEFAULT.
At the option of the holder, this Note and the indebtedness evidenced hereby
shall become immediately due and payable without further notice or demand, and
notwithstanding any prior waiver of any breach or default, or other indulgence,
upon the occurrence at any time of any Event of Default as defined in the Credit
Agreement.
8. CERTAIN WAIVERS, CONSENTS AND AGREEMENTS.
Each and every party liable hereon or for the indebtedness evidenced hereby
whether as maker, endorser, guarantor, surety or otherwise hereby: (a) waives
presentment, demand, protest, suretyship defenses and defenses in the nature
thereof; (b) waives any defenses based upon and specifically assents to any and
all extensions and postponements of the time for payment, changes in terms and
conditions and all other indulgences and forbearances which may be granted by
the holder to any party now or hereafter liable hereunder or for the
indebtedness evidenced hereby; (c) agrees to any substitution, exchange,
release, surrender or other delivery of any security or collateral now or
hereafter held hereunder or in connection with the Credit Agreement, or any of
the other Loan Documents, and to the addition or release of any other party or
person primarily or secondarily liable; (d) agrees that if any security or
collateral given to secure this Note or the indebtedness evidenced hereby or to
secure any of the obligations set forth or referred to in the Credit Agreement,
or any of the other Loan Documents, shall be found to be unenforceable in full
or to any extent, or if Lender or any other party shall fail to duly perfect or
protect such collateral, the same shall not relieve or release any party liable
hereon or thereon nor vitiate any other security or collateral given for any
obligations evidenced hereby or thereby; (e) subject to the terms of the Credit
Agreement, agrees to pay all costs and expenses incurred by Lender or any other
holder of this Note in connection with the indebtedness evidenced hereby,
including, without limitation, all attorneys' fees and costs, for the
implementation of the Revolving Credit Loans evidenced hereby, the collection of
the indebtedness evidenced hereby and the enforcement of rights and remedies
hereunder or under the other Loan Documents, whether or not suit is instituted;
and (f) consents to all of the terms and conditions contained in this Note, the
Credit Agreement, and all other instruments now or hereafter executed evidencing
or governing all or any portion of the security or collateral for this Note and
for such Credit Agreement, or any one or more of the other Loan Documents.
9. DELAY NOT A BAR.
No delay or omission on the part of the holder in exercising any right hereunder
or any right under any instrument or agreement now or hereafter executed in
connection herewith, or any agreement or instrument which is given or may be
given to secure the indebtedness evidenced hereby or by the Credit Agreement, or
any other agreement now or hereafter executed in connection herewith or
therewith shall operate as a waiver of any such right or of any other right of
such holder, nor shall any delay, omission or waiver on any one occasion be
deemed to be a bar to or waiver of the same or of any other right on any future
occasion.
10. PARTIAL INVALIDITY.
The invalidity or unenforceability of any provision hereof, of the Credit
Agreement, of the other Loan Documents, or of any other instrument, agreement or
document now or hereafter executed in connection with the Credit Agreement made
pursuant hereto and thereto shall not impair or vitiate any other provision of
any
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of such instruments, agreements and documents, all of which provisions shall
be enforceable to the fullest extent now or hereafter permitted by law.
11. COMPLIANCE WITH USURY LAWS.
All agreements between Borrower and Lender are hereby expressly limited so that
in no contingency or event whatsoever, whether by reason of acceleration of
maturity of the indebtedness evidenced hereby or otherwise, shall the amount
paid or agreed to be paid to Lender for the use or the forbearance of the
indebtedness evidenced hereby exceed the maximum permissible under applicable
law. As used herein, the term "applicable law" shall mean the law in effect as
of the date hereof, PROVIDED, HOWEVER, that in the event there is a change in
the law which results in a higher permissible rate of interest, then this Note
shall be governed by such new law as of its effective date. In this regard, it
is expressly agreed that it is the intent of Borrower and Lender in the
execution, delivery and acceptance of this Note to contract in strict compliance
with the laws of the Commonwealth of Massachusetts from time to time in effect.
If, under or from any circumstances whatsoever, fulfillment of any provision
hereof or of any of the Loan Documents at the time performance of such provision
shall be due, shall involve transcending the limit of validity prescribed by
applicable law, then the obligation to be fulfilled shall automatically be
reduced to the limit of such validity, and if under or from any circumstances
whatsoever Lender should ever receive as interest an amount which would exceed
the highest lawful rate, such amount which would be excessive interest shall be
applied to the reduction of the principal balance evidenced hereby and not to
the payment of interest. This provision shall control every other provision of
all agreements between Borrower and Lender.
12. WAIVER OF JURY TRIAL.
BORROWER AND LENDER MUTUALLY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY
WAIVES THE RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON,
ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS NOTE OR ANY OTHER LOAN
DOCUMENTS CONTEMPLATED TO BE EXECUTED IN CONNECTION HEREWITH, OR ANY COURSE OF
CONDUCT, COURSE OF DEALINGS, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS
OF ANY PARTY. THIS WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR LENDER TO ACCEPT
THIS NOTE AND MAKE THE LOAN ADVANCES.
13. NO ORAL CHANGE.
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This Note and the other Loan Documents may only be amended, terminated, extended
or otherwise modified by a writing signed by the party against which enforcement
is sought. In no event shall any oral agreements, promises, actions, inactions,
knowledge, course of conduct, course of dealing, or the like be effective to
amend, terminate, extend or otherwise modify this Note or any of the other Loan
Documents.
14. RIGHTS OF THE HOLDER.
This Note and the rights and remedies provided for herein may be enforced by
Lender or any subsequent holder hereof. Wherever the context permits each
reference to the term "holder" herein shall mean and refer to Lender or the then
subsequent holder of this Note.
15. SETOFF.
Borrower hereby grants to Lender a lien, security interest and right of set off
as security for all liabilities and obligations to Lender, whether now existing
or hereafter arising, upon and against all deposits, credits, collateral and
property, now or hereafter in the possession, custody, safekeeping or control of
Lender or any entity under the control of Fleet Financial Group, Inc., or in
transit to any of them. At any time upon and during the continuance of an Event
of Default, without demand or notice, Lender may set off the same or any part
thereof and apply the same to any liability or obligation of Borrower even
though unmatured and regardless of the adequacy of any other collateral securing
the Loans. ANY AND ALL RIGHTS TO REQUIRE LENDER TO EXERCISE ITS RIGHTS OR
REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL WHICH SECURES THE LOANS, PRIOR TO
EXERCISING ITS RIGHT OF SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDIT OR OTHER
PROPERTY OF THE BORROWER ARE HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY
WAIVED.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, Borrower has caused this Note to be duly executed as of
the date set forth above as a sealed instrument.
Witness: GENZYME TRANSGENICS CORPORATION
/S/ Fredrick Stukle By: /s/ John B. Green
- --------------------------------- ---------------------------------
Witness Name: John B. Green
Title: Treasurer
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EXHIBIT 10.57.3
TERM NOTE
$7,100,000.00 Boston, Massachusetts
December 28, 1998
1. PROMISE TO PAY.
FOR VALUE RECEIVED, GENZYME TRANSGENICS CORPORATION, a Massachusetts
corporation, having an address at 5 Mountain Road, Framingham, Massachusetts
01701, ("Borrower") promises to pay to the order of FLEET NATIONAL BANK, a
national banking association, having an address at One Federal Street, Boston,
Massachusetts 02110 ("Lender"), the principal sum of SEVEN MILLION ONE HUNDRED
THOUSAND DOLLARS ($7,100,000.00), or so much thereof as may be advanced as Term
Loans from time to time under the Credit Agreement, defined below, with interest
thereon, or on the amount thereof from time to time outstanding, to be computed,
as hereinafter provided, on each advance from the date of its disbursement until
such principal sum shall be fully paid. Interest and principal shall be payable
as set forth in Section 4 below. The total principal sum, or the amount thereof
outstanding, together with any accrued but unpaid interest, shall be due and
payable in full on December 28, 2001 ("Maturity Date").
2. CREDIT AGREEMENT.
This Note is issued pursuant to the terms, provisions and conditions of a
certain Credit Agreement between Borrower and Lender dated as of the date hereof
(the "Credit Agreement"), as amended from time to time, and evidences the Term
Loans made pursuant thereto. Capitalized terms used herein which are not
otherwise specifically defined shall have the same meaning herein as in the
Credit Agreement.
3. INTEREST RATES.
3.1. BORROWER'S OPTIONS. Principal amounts outstanding hereunder shall
bear interest at the following rates, at Borrower's selection,
subject to the conditions and limitations provided for in this Note:
(i) Variable Rate or (ii) Libo Rate.
3.1.1. SELECTION TO BE MADE. Borrower shall select, and thereafter
may change the selection of, the applicable interest rate,
from the alternatives otherwise provided for in this Note,
by giving Lender a Notice of Rate Selection: (i) prior to
the end of each Interest Period applicable to a Libor
Advance, or (iii) on any Business Day on which Borrower
desires to convert an outstanding Variable Rate Advance to a
Libor Advance.
3.1.2. NOTICE. A "Notice of Rate Selection" shall be a written
notice, given by cable, tested telex, telecopier (with
authorized signature), or by telephone
<PAGE>
if immediately confirmed by such a written notice, from an
Authorized Representative of Borrower which: (i) is
irrevocable with respect to the interest rate, amount, and
Interest Period selected; (ii) is received by Lender not
later than 10:00 o'clock A.M. Eastern Time: (a) if a Libo
Rate is selected, at least three (3) Business Days prior to
the first day of the Interest Period to which such selection
is to apply, (b) if a Variable Rate is selected, on the
first day to which it applies; and (iii) as to each selected
interest rate option, sets forth the aggregate principal
amount(s) to which such interest rate option(s) shall apply
and the Interest Period(s) applicable to each Libor Advance.
3.1.3. IF NO NOTICE. If Borrower fails to select an interest rate
option in accordance with the foregoing prior to the last
day of the applicable Interest Period of an outstanding
Libor Advance, on the last day of the applicable Interest
Period all outstanding principal amounts shall be deemed
converted to a Variable Rate Advance.
3.2. TELEPHONIC NOTICE. Without in any way limiting Borrower's obligation
to confirm in writing any telephonic notice, Lender may act without
liability upon the basis of telephonic notice believed by Lender in
good faith to be from Borrower prior to receipt of written
confirmation. In each case Borrower hereby waives the right to
dispute Lender's record of the terms of such telephonic Notice of
Rate Selection in the absence of manifest error.
3.3. LIMITS ON OPTIONS. Each Libor Advance shall be in a minimum amount
of $250,000. At no time shall there be outstanding a total of more
than six (6) Libor Advances.
4. PAYMENT OF INTEREST AND PRINCIPAL.
4.1. PAYMENT AND CALCULATION OF INTEREST. All interest shall be: (a)
payable in arrears (i) on the first day of each month (with respect
to Variable Rate Advances) or (ii) on the last day of each Interest
Period and, if such Interest Period is longer than three months, at
three-month intervals following the first day of such Interest
Period (with respect to Libor Advances) until the principal together
with all interest and other charges payable with respect to the Loan
Advances shall be fully paid; and (b) calculated on the basis of a
360 day year and the actual number of days elapsed. Each change in
the Prime Rate shall simultaneously change the Variable Rate payable
under this Note. Interest at the Libo Rate shall be computed from
and including the first day of the applicable Interest Period to,
but excluding, the last day thereof.
4.2. PRINCIPAL. (a) The principal amount of the Term Loan advanced on the
Initial Borrowing Date shall be paid in twelve (12) quarterly
installments commencing on March 31, 1999 of which the first eleven
(11) installments shall be on the last
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day of each calendar quarter in the amount of FORTY-FIVE THOUSAND
NINE HUNDRED AND 59/100 DOLLARS ($45,900.59) (each being
one-fortieth of the amount of the first Term Loan) and the twelfth
(12th) installment shall be on December 28, 2001 and shall be in the
outstanding amount of such Term Loan.
(b) Term Loans made after the Initial Borrowing Date and prior to or on
December 31, 1999 shall be paid in eight (8) quarterly installments,
the first seven (7) of which shall be on the last day of each
calendar quarter commencing on March 31, 2000, with the first seven
(7) of such installments to be equal to the quotient of (i) the
aggregate principal amount of such Term Loans on December 31, 1999
divided by (ii) forty (40), and the eighth (8th) installment shall
be on December 17, 2001 and shall be in the outstanding amount of
such Term Loans.
(c) Term Loans made on or after January 1, 2000 and prior to or on
December 31, 2000 shall be paid in three (3) quarterly installments,
the first two (2) of which shall be on the last day of each calendar
quarter commencing on March 31, 2001, with the first two (2) of such
installments to be equal to the quotient of (i) the aggregate
principal amount of such Term Loans on December 31, 2000 divided by
(ii) forty (40), and the third (3rd) installment shall be on
December 28, 2001 and shall be in the outstanding amount of such
Term Loans.
4.3. PREPAYMENT. The Loan Advances or any portion thereof may be prepaid
in full or in part at any time without premium or penalty with
respect to Variable Rate Advances and, with respect to Libor
Advances subject to a make-whole provision and upon payment of a
Yield Maintenance Fee. Any partial prepayment of principal shall
first be applied to any installment of principal then due and then
be applied to the principal due in the reverse order of maturity,
and no such partial prepayment shall relieve Borrower of the
obligation to pay each subsequent installment of principal when due.
4.4. MATURITY. At maturity all accrued interest, principal and other
charges due with respect to the Loan Advances shall be due and
payable in full and the principal balance and such other charges,
but not unpaid interest, shall continue to bear interest at the
default rate specified in the Credit Agreement until so paid.
4.5. DEFAULT RATE; LATE CHARGES. Upon and during the continuance of an
Event of Default at the election of the Lender, interest shall be
payable on the unpaid principal balance from time to time
outstanding at a rate per annum equal to the interest rate
applicable hereunder plus four percent (4%), until fully paid. Any
payment hereunder not paid within ten (10) days after the date such
payment is due shall be subject to a late fee equal to five percent
(5%) of the amount overdue.
4.6. MAKE WHOLE PROVISION. Borrower shall pay to Lender, immediately upon
request and notwithstanding contrary provisions contained in any of
the Loan Documents, such amounts as shall, in the reasonable
judgment of Lender (in the absence of
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manifest error), compensate Lender for the loss, cost or expense
which it may reasonably incur as a result of (i) any payment or
prepayment, under any circumstances whatsoever, whether voluntary or
involuntary, of all or any portion of a Libor Advance on a date
other than the last day of the applicable Interest Period of a Libor
Advance, or (ii) the conversion, for any reason whatsoever, whether
voluntary or involuntary, of any Libor Advance to a Variable Rate
Advance on a date other than the last day of the applicable Interest
Period. Such amounts payable by Borrower shall be equal to any
administrative costs actually incurred plus, in any event, but
without duplication, a Yield Maintenance Fee. The "Yield Maintenance
Fee" shall be an amount equal to the product of: (a) the amount so
prepaid or converted, as the case may be, multiplied by (b) the
difference between the Libo Rate then in effect, or which would have
been in effect (computed separately for each outstanding maturity or
installment), and the Treasury Rate in effect on the date of the
occurrence (computed separately for each outstanding maturity or
installment), which product shall be multiplied by (c) a fraction,
the numerator of which is the number of days from the date of
occurrence to the last day of the applicable Interest Period (or, if
applicable, each Interest Period) and the denominator of which is
360 days; HOWEVER, if or to the extent that the applicable Libo Rate
for the applicable Interest Period (computed separately for each
maturity or installment) is equal to or less than the Treasury Rate,
no Yield Maintenance Fee shall be payable.
5. CERTAIN DEFINITIONS AND PROVISIONS RELATING TO INTEREST RATE.
5.1. ADJUSTED LIBO RATE. The term "Adjusted Libo Rate" means for each
Interest Period the rate per annum obtained by dividing (i) the
Applicable Libo Rate for such Interest Period, by (ii) a percentage
equal to one hundred PERCENT (100%) minus the maximum reserve
percentage applicable during such Interest Period under regulations
issued from time to time by the Board of Governors of the Federal
Reserve System for determining the maximum reserve requirements
(including, without limitation, any basic, supplemental, marginal
and emergency reserve requirements) for Lender (or of any subsequent
holder of this Note which is subject to such reserve requirements)
in respect of liabilities or assets consisting of or including
Eurocurrency liabilities (as such term is defined in Regulation D of
the Board of Governors of the Federal Reserve System) having a term
equal to the Interest Period.
5.2. APPLICABLE LIBO RATE. The term "Applicable Libo Rate" means, with
respect to each Interest Period, the rate of interest, expressed as
an annual rate, equal to the simple average, rounded up to the
nearest 1/32 of 1%, of the rates shown on the display referred to as
the "Telerate Page 3750" (or any display substituted therefor) of
the Dow Jones Telerate Service as being the respective rates at
which deposits in Dollars would be offered by the principal London
offices of each of the banks named thereon to major banks in the
London interbank market at approximately 11:00 A.M. (London time) on
the second London Banking Day
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before the first day of such Interest Period for a period
substantially coextensive with such Interest Period.
5.3. APPLICABLE MARGIN. The "Applicable Margin" shall be determined based
upon the financial position and results of the Guarantor based upon
the financial statements and Compliance Certificates furnished by
the Guarantor pursuant to the Guaranty. The term "Applicable Margin"
means, for any period set forth below the percentage set forth below
opposite such period:
<TABLE>
<CAPTION>
PERIOD APPLICABLE MARGIN
<S> <C>
Level I Period 0.425%
Level II Period 0.550%
Level II Period 0.675%
Level IV Period 0.925%
</TABLE>
5.4. BANKING DAY. The term "Banking Day" means a day on which banks are
not required or authorized by law to close in the city in which
Lender's principal office is situated.
5.5. BUSINESS DAY; SAME CALENDAR MONTH. The term "Business Day" means any
Banking Day and, if the applicable Business Day relates to the
selection or determination of any Libo Rate, any London Banking Day.
If any day on WHICH a payment is due is not a Business Day, then the
payment shall be due on the next day following which is a Business
Day, unless, with respect to Libor Advances, the effect would be to
make the payment due in the next calendar month, in which event such
payment shall be due on the next preceding day which is a Business
Day. Further, if there is no corresponding day for a payment in the
given calendar month (i.e., there is no "February 30th"), the
payment shall be due on the last Business Day of the calendar month.
5.6. CAPITAL EXPENDITURES. The term "Capital Expenditures" means, for any
period, expenditures (including, without limitation, the aggregate
amount of Capital Lease Obligations incurred during such period)
made by the Guarantor or any of its Subsidiaries to acquire or
construct fixed assets, plant and equipment (including renewals,
improvements and replacements, but excluding repairs) during such
period computed in accordance with GAAP.
5.7. CASH EQUIVALENTS. The term "Cash Equivalents" means any interest
bearing investment of Guarantor and its wholly owned Subsidiaries
which meets the definition of a "cash equivalent" under GAAP (i.e.,
purchased with a remaining maturity of 90 days or less). Such
investments shall be at least investment grade (A1/P1 for commercial
paper, BBB or better for bonds and similar investments).
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5.8. "CAPITAL LEASE OBLIGATIONS" shall mean, for any Person, all
obligations of such Person to pay rent or other amounts under a
lease of (or other agreement conveying the right to use) property to
the extent such obligations are required to be classified and
accounted for as a capital lease on a balance sheet of such Person
under GAAP, and, for purposes of this Guaranty, the amount of such
obligations shall be the capitalized amount thereof, determined in
accordance with GAAP.
5.9. CONSOLIDATED. The term "Consolidated" means, when used with
reference to any term, that term as applied to the accounts of
Guarantor and all of its Subsidiaries consolidated in accordance
with GAAP.
5.10. CONSOLIDATED EBITDA. The term "Consolidated EBITDA" means, for any
period, the sum, for the Guarantor, of the following: (a)
Consolidated Operating Income for such period PLUS (b) depreciation
and amortization, but only to the extent deducted in determining
Consolidated Operating Income for such period.
5.11. CONSOLIDATED DEBT COVERAGE RATIO. The term "Consolidated Debt
Coverage Ratio" means for the Guarantor, at any date, the ratio, for
the Guarantor and its Consolidated Subsidiaries, of (a) the sum of
(i) Unrestricted Cash on such date plus (ii) Marketable Investments
on such date to (b) Consolidated Funded Debt on such date.
5.12. CONSOLIDATED FIXED CHARGE COVERAGE RATIO. The term "Consolidated
Fixed Charge Coverage Ratio" means for the Guarantor, for any
period, the ratio of (a) the sum of (i) Consolidated EBITDA for such
period LESS (ii) the aggregate amount of Capital Expenditures made
during such period LESS (iii) the amount of the taxes paid during
such period LESS (iv) the aggregate amount of all Dividend Payments
made during such period to (b) all Interest expense for such period.
5.13. CONSOLIDATED FUNDED DEBT. The term "Consolidated Funded Debt" means
for the Guarantor, at any time, the outstanding balance of all
Indebtedness in respect of borrowed money, Capital Leases, letters
of credit and trade acceptances for the Guarantor and its
Consolidated Subsidiaries.
5.14. CONSOLIDATED NET INCOME. The term "Consolidated Net Income" shall
mean, for any period, net income (or loss) for the Guarantor and its
Consolidated Subsidiaries (determined in accordance with GAAP),
PROVIDED HOWEVER, that Consolidated Net Income shall not include
amounts included in computing net income (or loss) in respect of (a)
the write-up of assets (other than Marketable Investments) after
December 31, 1995 and (b) extraordinary and non-recurring gains or
losses.
5.15. CONSOLIDATED OPERATING INCOME. The term "Consolidated Operating
Income" means for the Guarantor, for any period, the Consolidated
Net Income of the Guarantor for such period, PROVIDED, HOWEVER,
that, to the extent the following
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items have been included in determining Consolidated Net Income,
they shall NOT be considered in computing Consolidated Operating
Income: provision for income taxes, interest expense, equity in the
operating results of unconsolidated subsidiaries (including
partnerships, joint ventures and Affiliates but only to the extent
that such results represent noncash, nonoperating items) and other
non-operating, non-cash items including, but not limited to,
write-off of acquired technology or acquired, in-process research
and development which, in accordance with GAAP, must be charged to
income. Furthermore, all charges arising from the acquisition by
Guarantor of Neozyme II Corporation and/or Deknatel Snowden Pencer,
Inc. which are included in the determination of Consolidated Net
Income for any period shall be excluded from the computation of
Consolidated Operating Income whether such charges be of a cash or
non-cash nature.
5.16. DIVIDEND PAYMENT. The term "Dividend Payment" means dividends (in
cash, Property or obligations) on, or other payments or
distributions on account of, or the setting apart of money for a
sinking or other analogous fund for, or the purchase, redemption,
retirement or other acquisition of, any shares of any class of stock
of, or any partnership or other equity interest issued by, the
Guarantor or of any warrants, options or other rights to acquire the
same (or to make any payments to any Person, such as "phantom stock"
payments, where the amount thereof is calculated with reference to
the fair market or equity value of the Guarantor or any of its
Subsidiaries), but excluding dividends payable solely in shares of
common stock of the Guarantor.
5.17. DOLLARS. The term "Dollars" or "$" means lawful money of the United
States.
5.18. EVENT OF DEFAULT. The term "Event of Default" has meaning given such
term in the Credit Agreement.
5.19. GUARANTEE. The term "Guarantee" means a guarantee, an endorsement, a
contingent agreement to purchase or to furnish funds for the payment
or maintenance of, or otherwise to be or become contingently liable
under or with respect to, the Indebtedness, other obligations, net
worth, working capital or earnings of any Person, or a guarantee of
the payment of dividends or other distributions upon the stock or
equity interests of any Person, or an agreement to purchase, sell or
lease (as lessee or lessor) property, products, materials, supplies
or services primarily for the purpose of enabling a debtor to make
payment of such debtor's obligations or an agreement to assure a
creditor against loss, and including, without limitation, causing a
bank or other financial institution to issue a letter of credit or
other similar instrument for the benefit of another Person, but
excluding endorsements for collection or deposit in the ordinary
course of business. The terms "Guarantee" and "Guaranteed" used as a
verb shall have a correlative meaning.
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<PAGE>
5.20. INDEBTEDNESS. The term "Indebtedness" means, for the Guarantor and
its Consolidated Subsidiaries: (a) obligations created, issued or
incurred by such Person for borrowed money (whether by loan, the
issuance and sale of debt securities or the sale of property to
another Person subject to an understanding or agreement, contingent
or otherwise, to repurchase such Property from such Person); (b)
obligations of such Person to pay the deferred purchase or
acquisition price of property or services, other than trade accounts
payable (other than for borrowed money) arising, and accrued
expenses incurred, in the ordinary course of business so long as
such trade accounts payable are payable within 120 days of the date
the respective goods or services are delivered or rendered; (c)
Indebtedness of others secured by a Lien on the property of such
Person, whether or not the respective indebtedness so secured has
been assumed by such Person; (d) obligations of such Person,
contingent or otherwise, in respect of letters of credit, bankers'
acceptances or similar instruments issued or accepted by banks and
other financial institutions for account of such person; (e) Capital
Lease Obligations of such Person; and (f) Guarantees by such Person
of Indebtedness of others.
5.21. INTEREST. The term "Interest" means, for any period, the sum, for
the Guarantor and its Consolidated Subsidiaries, of the following:
(a) all interest in respect of Indebtedness (including, without
limitation, the interest component of any payments in respect of
Capital Leases) accrued or capitalized during such period (whether
or not actually paid during such period); and (b) all other amounts
that would be accrued or capitalized during such period as "interest
expense" in accordance with GAAP.
5.22. INTEREST PERIOD.
5.22.1. The term "Interest Period" means with respect to each Libor
Advance: a period of an integral multiple of one month, but
no Interest Period shall be greater than three (3) months,
subject to availability, as selected, or deemed selected, by
Borrower at least three (3) Business Days prior to the end
of the current Interest Period or the commencement of the
next Interest Period. Each such Interest Period shall
commence on the Business Day so selected, or deemed
selected, by Borrower and shall end on the numerically
corresponding day in the month in which the Interest Period
ends; PROVIDED, HOWEVER: (i) if there is no such numerically
corresponding day, such Interest Period shall end on the
last Business Day of the applicable month, (ii) if the last
day of such an Interest Period would otherwise occur on a
day which is not a Business Day, such Interest Period shall
be extended to the next succeeding Business Day; but (iii)
if such extension would otherwise cause such last day to
occur in a new calendar month, then such last day shall
occur on the next preceding Business Day.
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<PAGE>
5.22.2. Intentionally omitted.
5.22.3. No Interest Period may be selected which would end beyond
the Maturity Date. If the last day of an Interest Period
would otherwise occur on a day which is not a Business Day,
such last day shall be extended to the next succeeding
Business Day, except as provided above in clause (A)
relative to a Libor Advance.
5.23. LEVEL I PERIOD. The term "Level I Period" means any period (a) from
and including the Business Day immediately following the Business
Day on which a senior financial officer of the Guarantor shall have
delivered to the Lender a Compliance Certificate, together with the
related financial statements referred to in Section 4 of the
Guaranty, demonstrating in reasonable detail that the Consolidated
Debt Coverage Ratio, as of the last day of the fiscal quarter of the
Guarantor most recently ended, is greater than or equal to 2.0 to
1.0 or that the Consolidated Fixed Charge Coverage Ratio for such
period was greater than 5.5 to 1.0, to but excluding the next
succeeding Reporting Date and (b) during which no Event of Default
shall have occurred and be continuing.
5.24. LEVEL II PERIOD. The term "Level II Period" means any period, other
than a Level I Period, (a) from and including the Business Day
immediately following the Business Day on which a senior financial
officer of the Guarantor shall have delivered to the Lender a
Compliance Certificate, together with the related financial
statements referred to in Section 4 of the Guaranty, demonstrating
in reasonable detail that the Consolidated Debt Coverage Ratio, as
of the last day of the fiscal quarter of the Guarantor most recently
ended, is less than to 2.0 to 1.0 and greater than or equal to 1.0
to 1.0 or that the Consolidated Fixed Charge Coverage Ratio for such
period was greater than or equal to 4.5 to 1.0 and less than or
equal to 5.5 to 1.0, to but excluding the next succeeding Reporting
Date and (b) during which no Event of Default shall have occurred
and be continuing.
5.25. LEVEL III PERIOD. The term "Level III Period" means any period,
other than a Level I Period or Level II Period, (a) from and
including the Business Day immediately following the Business Day on
which a senior financial officer of the Guarantor shall have
delivered to the Lender a Compliance Certificate, together with the
related financial statements referred to in Section 4 of the
Guaranty hereof, demonstrating in reasonable detail that the
Consolidated Debt Coverage Ratio, as of the last day of the fiscal
quarter of the Guarantor most recently ended, is less than to 1.0 to
1.0 and that the Consolidated Fixed Charge Coverage Ratio for such
period was greater than or equal to 3.5 to 1.0 and less than 4.5 to
1.0, to but excluding the next succeeding Reporting Date and (b)
during which no Event of Default shall have occurred and be
continuing.
5.26. LEVEL IV PERIOD. The term "Level IV Period" means any period, other
than a Level I Period, Level II Period or Level III Period.
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<PAGE>
5.27. LIBOR ADVANCE. The term "Libor Advance" means any principal
outstanding under this Note which pursuant to this Note bears
interest at the Libo Rate.
5.28. LIBO RATE. The term "Libo Rate" means the per annum rate equal to
the Adjusted Libo Rate plus the Applicable Margin.
5.29. LOAN ADVANCE. The term "Loan Advance" means any portion of principal
outstanding under this Note.
5.30. LONDON BANKING DAY. The term "London Banking Day" means any day on
which dealings in deposits in Dollars are transacted in the London
interbank market.
5.31. MARKETABLE INVESTMENTS. The term "Marketable Investments" means any
interest-bearing debt obligations owned by Guarantor and its
wholly-owned Subsidiaries (excluding directors' qualifying shares
and items included as Cash Equivalents) which meet the definition of
marketable securities under GAAP. Such amounts shall exclude common
or preferred stock. Such securities shall include obligations issued
by the U.S. Treasury and other agencies of the U.S. government,
corporate bonds, bank notes, mortgage and asset backed securities,
finance company securities and auction rate preferred stocks. Such
securities shall be rated investment grade (BBB or better for bonds
or similar securities, A1/P1 for commercial paper and notes) and
shall otherwise be reasonably liquid investments.
5.32. MATURITY. The term "Maturity" means the Maturity Date, or, if
earlier, the date of acceleration of the Loans under the Credit
Agreement.
5.33. Intentionally omitted.
5.34. PRIME RATE. The term "Prime Rate" means the per annum rate of
interest so designated from time to time by Lender as its prime
rate. The Prime Rate is a reference rate and does not necessarily
represent the lowest or best rate being charged to any customer.
5.35. REPORTING DATE. The term "Reporting Date" means the first to occur
of (i) the Business Day following the Business Day that the Lender
receives a Compliance Certificate of the Guarantor providing the
information required to determine whether a period is a Level I
Period, Level II Period, Level III Period or Level IV Period and
(ii) the first Business Day after the date on which the quarterly or
annual financial statement and Compliance Certificate is required to
be delivered to the Lender pursuant to Section 4(a) of the Guaranty.
5.36. SUBSIDIARY. The term "Subsidiary" means any corporation, partnership
trust or other organization, whether or not incorporated, the
majority of the voting stock
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<PAGE>
or voting rights of which is owned or controlled, directly or
indirectly, by Guarantor.
5.37. TREASURY RATE. The term "Treasury Rate" means, as of the date of any
calculation or determination, the latest published rate for United
States Treasury Notes or Bills (but the rate on Bills issued on a
discounted basis shall be converted to a bond equivalent) as
published weekly in the Federal Reserve Statistical Release
H.15(519) of Selected Interest Rates in an amount which approximates
(as reasonably determined by Lender) the amount (i) approximately
comparable to the portion of the Loan Advance to which the Treasury
Rate applies for the Interest Period, or (ii) in the case of a
prepayment, the amount prepaid and with a maturity closest to the
original maturity of the installment which is prepaid in whole or in
part.
5.38. UNRESTRICTED CASH. The term "Unrestricted Cash" means cash and Cash
Equivalents of the Guarantor and its wholly owned Subsidiaries that
are readily available to Guarantor and not subject to any limitation
or restriction on their use by the Guarantor.
5.39. VARIABLE RATE. The term "Variable Rate" means a per annum rate equal
at all times to the Prime Rate, with changes therein to be effective
simultaneously with any change in the Prime Rate.
5.40. VARIABLE RATE ADVANCE. The term "Variable Rate Advance" means any
principal amount outstanding under this Note which pursuant to this
Note bears interest at the Variable Rate.
6. ADDITIONAL PROVISIONS RELATED TO INTEREST RATE SELECTION.
6.1. INCREASED COSTS. If, due to any one or more of: (i) the introduction
of any applicable law or regulation or any change (other than any
change by way of imposition or increase of reserve requirements
already referred to in the definition of Libo Rate) in the
interpretation or application by any authority charged with the
interpretation or application thereof of any law or regulation; or
(ii) the compliance with any guideline or request from any
governmental central bank or other governmental authority (whether
or not having the force of law), there shall be an increase in the
cost to Lender of agreeing to make or making, funding or maintaining
Libor Advances, including without limitation changes which affect or
would affect the amount of capital or reserves required or expected
to be maintained by Lender, with respect to all or any portion of
the Loan Advances, or any corporation controlling Lender, on account
thereof, then Borrower from time to time shall, upon written demand
by Lender made within ninety (90) days of such increase in cost, pay
Lender additional amounts sufficient to indemnify Lender against the
increased cost. A certificate as to the amount of the increased
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<PAGE>
cost and the reason therefor submitted to Borrower by Lender, in the
absence of manifest error, shall be conclusive and binding for all
purposes.
6.2. ILLEGALITY. Notwithstanding any other provision of this Note, if the
introduction of or change in or in the interpretation of any law,
treaty, statute, regulation or interpretation thereof shall make it
unlawful, or any central bank or government authority shall assert
by directive, guideline or otherwise, that it is unlawful, for
Lender to make or maintain Libor Advances or to continue to fund or
maintain Libor Advances then, on written notice thereof and demand
by Lender to Borrower, (a) the obligation of Lender to make Libor
Advances and to convert or continue any Loan Advances as Libor
Advances shall terminate and (b) Borrower shall convert all
principal outstanding under this Note into Variable Rate Advances.
6.3. ADDITIONAL LIBOR CONDITIONS. The selection by Borrower of a Libo
Rate and the maintenance of Loan Advances at such rate shall be
subject to the following additional terms and conditions:
6.3.1. AVAILABILITY. If, before or after Borrower has selected to
take or maintain a Libor Advance, Lender notifies Borrower
that:
6.3.1.1. dollar deposits in the amount and for the maturity
requested are not available to Lender in the
London interbank market at the rate specified in
the definition of LIBO Rate set forth above, or
6.3.1.2. reasonable means do not exist for Lender to
determine the Libo Rate for the amounts and
maturity requested,
then the principal which would have been a Libor Advance shall be a Variable
Rate Advance.
6.3.2. PAYMENTS NET OF TAXES. All payments and prepayments of
principal and interest under this Note shall be made net of
any taxes and costs resulting from having principal
outstanding at or computed with reference to a Libo Rate.
Without limiting the generality of the preceding obligation,
illustrations of such taxes and costs are taxes, or the
withholding of amounts for taxes, of any nature whatsoever
including income, excise, interest equalization taxes (other
than United States or state income taxes) as well as all
levies, imposts, duties or fees whether now in existence or
as the result of a change in or promulgation of any treaty,
statute, regulation, or interpretation thereof or any
directive guideline or otherwise by a central bank or fiscal
authority (whether or not having the force of law) or a
change in the basis of, or the time of payment of, such
taxes and other amounts resulting therefrom.
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6.4. VARIABLE RATE ADVANCES. Each Variable Rate Advance shall continue as
a Variable Rate Advance until the Maturity Date, unless sooner
converted or prepaid, in whole or in part, to a Libor Rate Advance,
subject to the limitations and conditions set forth in this Note.
6.5. CONVERSION OF OTHER ADVANCES. At the end of each applicable Interest
Period, the applicable Libor Advance shall be converted to a
Variable Rate Advance unless Borrower selects another option in
accordance with the provisions of this Note.
6.6. CHANGE TO APPLICABLE MARGIN IF GUARANTOR CREDIT AGREEMENT IS
REPLACED. In the event that the Credit Agreement, dated November 14,
1996, among the Guarantor, the Subsidiary Guarantors party thereto,
the Lenders party thereto, Fleet National Bank, as administrative
agent and The First National Bank of Boston, as documentation agent
(the "Guarantor Credit Agreement") is terminated and replaced by an
unsecured revolving credit facility in excess of $100,000,000
providing all or substantially all of the Guarantor's working
capital financing requirements as determined by Lender in its
reasonable discretion, the Applicable Margin as defined in Section
5.3 hereof shall be adjusted to be five (5) basis points in excess
of the applicable margin used in such replacement revolving credit
facility for libor or eurodollar type borrowings (provided that the
interest rates assigned to such libor or eurodollar type borrowings
are determined by reference to the same market that is utilized in
administering the Guarantor Credit Agreement) but if the Guarantor
Credit Agreement is terminated and not so replaced the Applicable
Margin as defined in Section 5.3 hereof shall remain in effect.
7. ACCELERATION; EVENT OF DEFAULT.
At the option of the holder, this Note and the indebtedness evidenced hereby
shall become immediately due and payable without further notice or demand, and
notwithstanding any prior waiver of any breach or default, or other indulgence,
upon the occurrence at any time of any Event of Default as defined in the Credit
Agreement.
8. CERTAIN WAIVERS, CONSENTS AND AGREEMENTS.
Each and every party liable hereon or for the indebtedness evidenced hereby
whether as maker, endorser, guarantor, surety or otherwise hereby: (a) waives
presentment, demand, protest, suretyship defenses and defenses in the nature
thereof; (b) waives any defenses based upon and specifically assents to any and
all extensions and postponements of the time for payment, changes in terms and
conditions and all other indulgences and forbearances which may be granted by
the holder to any party now or hereafter liable hereunder or for the
indebtedness evidenced hereby; (c) agrees to any substitution, exchange,
release, surrender or other delivery of any security or collateral now or
hereafter held hereunder or in connection with the Credit Agreement, or any of
the other Loan Documents, and to the addition or release of any other party
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<PAGE>
or person primarily or secondarily liable; (d) agrees that if any security or
collateral given to secure this Note or the indebtedness evidenced hereby or to
secure any of the obligations set forth or referred to in the Credit Agreement,
or any of the other Loan Documents, shall be found to be unenforceable in full
or to any extent, or if Lender or any other party shall fail to duly perfect or
protect such collateral, the same shall not relieve or release any party liable
hereon or thereon nor vitiate any other security or collateral given for any
obligations evidenced hereby or thereby; (e) subject to the terms of the Credit
Agreement, agrees to pay all costs and expenses incurred by Lender or any other
holder of this Note in connection with the indebtedness evidenced hereby,
including, without limitation, all attorneys' fees and costs, for the
implementation of the Term Loans evidenced hereby, the collection of the
indebtedness evidenced hereby and the enforcement of rights and remedies
hereunder or under the other Loan Documents, whether or not suit is instituted;
and (f) consents to all of the terms and conditions contained in this Note, the
Credit Agreement, and all other instruments now or hereafter executed evidencing
or governing all or any portion of the security or collateral for this Note and
for such Credit Agreement, or any one or more of the other Loan Documents.
9. DELAY NOT A BAR.
No delay or omission on the part of the holder in exercising any right hereunder
or any right under any instrument or agreement now or hereafter executed in
connection herewith, or any agreement or instrument which is given or may be
given to secure the indebtedness evidenced hereby or by the Credit Agreement, or
any other agreement now or hereafter executed in connection herewith or
therewith shall operate as a waiver of any such right or of any other right of
such holder, nor shall any delay, omission or waiver on any one occasion be
deemed to be a bar to or waiver of the same or of any other right on any future
occasion.
10. PARTIAL INVALIDITY.
The invalidity or unenforceability of any provision hereof, of the Credit
Agreement, of the other Loan Documents, or of any other instrument, agreement or
document now or hereafter executed in connection with the Credit Agreement made
pursuant hereto and thereto shall not impair or vitiate any other provision of
any of such instruments, agreements and documents, all of which provisions shall
be enforceable to the fullest extent now or hereafter permitted by law.
11. COMPLIANCE WITH USURY LAWS.
All agreements between Borrower and Lender are hereby expressly limited so that
in no contingency or event whatsoever, whether by reason of acceleration of
maturity of the indebtedness evidenced hereby or otherwise, shall the amount
paid or agreed to be paid to Lender for the use or the forbearance of the
indebtedness evidenced hereby exceed the maximum permissible under applicable
law. As used herein, the term "applicable law" shall mean the law in effect as
of the date hereof, PROVIDED, HOWEVER, that in the event there is a change in
the law which results in a higher permissible rate of interest, then this Note
shall be governed by such new law as of its effective date. In this regard, it
is expressly agreed that it is the intent of Borrower and Lender in the
execution, delivery and acceptance of this Note to contract in strict
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<PAGE>
compliance with the laws of the Commonwealth of Massachusetts from time to time
in effect. If, under or from any circumstances whatsoever, fulfillment of any
provision hereof or of any of the Loan Documents at the time performance of such
provision shall be due, shall involve transcending the limit of validity
prescribed by applicable law, then the obligation to be fulfilled shall
automatically be reduced to the limit of such validity, and if under or from any
circumstances whatsoever Lender should ever receive as interest an amount which
would exceed the highest lawful rate, such amount which would be excessive
interest shall be applied to the reduction of the principal balance evidenced
hereby and not to the payment of interest. This provision shall control every
other provision of all agreements between Borrower and Lender.
12. WAIVER OF JURY TRIAL.
BORROWER AND LENDER MUTUALLY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY
WAIVES THE RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON,
ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS NOTE OR ANY OTHER LOAN
DOCUMENTS CONTEMPLATED TO BE EXECUTED IN CONNECTION HEREWITH, OR ANY COURSE OF
CONDUCT, COURSE OF DEALINGS, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS
OF ANY PARTY. THIS WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR LENDER TO ACCEPT
THIS NOTE AND MAKE THE LOAN ADVANCES.
13. NO ORAL CHANGE.
This Note and the other Loan Documents may only be amended, terminated, extended
or otherwise modified by a writing signed by the party against which enforcement
is sought. In no event shall any oral agreements, promises, actions, inactions,
knowledge, course of conduct, course of dealing, or the like be effective to
amend, terminate, extend or otherwise modify this Note or any of the other Loan
Documents.
14. RIGHTS OF THE HOLDER.
This Note and the rights and remedies provided for herein may be enforced by
Lender or any subsequent holder hereof. Wherever the context permits each
reference to the term "holder" herein shall mean and refer to Lender or the then
subsequent holder of this Note.
15. SETOFF.
Borrower hereby grants to Lender a lien, security interest and right of set off
as security for all liabilities and obligations to Lender, whether now existing
or hereafter arising, upon and against all deposits, credits, collateral and
property, now or hereafter in the possession, custody, safekeeping or control of
Lender or any entity under the control of Fleet Financial Group, Inc., or in
transit to any of them. At any time upon and during the continuance of an Event
of Default, without demand or notice, Lender may set off the same or any part
thereof and apply the same to any liability or obligation of Borrower even
though unmatured and regardless of the adequacy of any other collateral securing
the Loans. ANY AND ALL RIGHTS TO REQUIRE LENDER TO
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EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL WHICH
SECURES THE LOANS, PRIOR TO EXERCISING ITS RIGHT OF SETOFF WITH RESPECT TO SUCH
DEPOSITS, CREDIT OR OTHER PROPERTY OF THE BORROWER ARE HEREBY KNOWINGLY,
VOLUNTARILY AND IRREVOCABLY WAIVED.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, Borrower has caused this Note to be duly executed as of
the date set forth above as a sealed instrument.
Witness: GENZYME TRANSGENICS CORPORATION
/s/ Fredrick Stukle By:/s/ John B. Green
- ----------------------------------- -----------------------------------
Witness Name: John B. Green
Title: Treasurer
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EXHIBIT 10.57.4
AMENDED AND RESTATED REIMBURSEMENT AGREEMENT
This AMENDED AND RESTATED REIMBURSEMENT AGREEMENT dated as of December 28,
1998 (this "AGREEMENT") among GENZYME CORPORATION, a Massachusetts corporation
having its principal offices at One Kendall Square, Cambridge, Massachusetts
02139 (the "GUARANTOR"), GENZYME TRANSGENICS CORPORATION (the "BORROWER"), a
Massachusetts corporation having its principal offices at 5 Mountain Road,
Framingham, MA 01701, and GTC CANCER VACCINES, INC. TSI CORPORATION, SMI GENZYME
LTD., GENZYME TRANSGENICS SECURITIES CORPORATION, PRIMEDICA CORPORATION
(formerly TSI Holdings, Inc.), PRIMEDICA CAMBRIDGE, INC. (formerly
BioDevelopment Laboratories, Inc.), PRIMEDICA ROCKVILLE, INC. (formerly TSI
Washington Laboratories, Inc.), PRIMEDICA REDFIELD, INC. (formerly TSI Redfield
Laboratories, Inc.), PRIMEDICA WORCESTER, INC., (formerly TSI Mason
Laboratories, inc.), PRIMEDICA ARGUS RESEARCH LABORATORIES, INC. (formerly Argus
Research Laboratories, Inc.), TRANSGENIC INVESTMENTS, INC, and HEALTH SCIENCES
RESEARCH INCORPORATED (each a "SUBSIDIARY" and collectively, the "SUBSIDIARIES"
and with the Borrower, each a "CREDIT Party" and collectively, the "CREDIT
PARTIES").
WHEREAS, certain of the Credit Parties and other subsidiaries of the
Borrower entered into certain loan arrangements (the "BKB FACILITY") with
BankBoston, N.A. (formerly The First National Bank of Boston, "BKB") pursuant to
which BKB made loans to the Borrower, individually, and to the Credit Parties,
collectively;
WHEREAS, the Guarantor guaranteed the obligations of the Credit Parties
under the BKB Facility;
WHEREAS, as a condition to the Guarantor providing its guaranty, the
Borrower and certain of its subsidiaries executed a Reimbursement Agreement
dated June 30, 1995, as amended (the "ORIGINAL REIMBURSEMENT AGREEMENT") in
favor of the Guarantor;
WHEREAS, the Borrower is entering into a certain Credit Agreement dated as
of the date hereof (the "CREDIT AGREEMENT") with Fleet National Bank (the
"BANK") and terminating the BKB Facility;
WHEREAS, the Bank has required that the Guarantor execute a Guaranty dated
as of the date hereof (the "GUARANTY") in favor of the Bank as a condition to
the consummation of the transactions described in the Credit Agreement; and
WHEREAS, a condition of the Guarantor's execution of the Guaranty is that
the Credit Parties execute this Agreement and certain other agreements; and
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WHEREAS, the obligations of the Credit Parties hereunder are secured by
that certain Amended and Restated Security Agreement dated as of the date hereof
(the "SECURITY AGREEMENT") and a Mortgage and Security Agreement dated as of
June 30, 1995 as amended by the First Amendment to Mortgage and Security
Agreement dated as of December 15, 1995 and the Second Amendment to Mortgage and
Security Agreement dated as of the date hereof (the "SECOND AMENDMENT TO THE
MORTGAGE" and as so amended, the "MORTGAGE" and collectively with the Security
Agreement, the "COLLATERAL DOCUMENTS");
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, each Credit Party and the Guarantor
hereby agree as follows. This Agreement amends, restates and supersedes the
Original Reimbursement Agreement in its entirety.
1. CERTAIN DEFINED TERMS. Terms used herein and not otherwise defined
herein shall have the meanings assigned to them in the Credit Agreement. As used
in this Agreement, the following terms have the meanings specified below:
"CONVERTIBLE DEBT AGREEMENT" means the Second Amended and Restated
Convertible Debt Agreement dated as of the date hereof between the Borrower and
the Guarantor.
"DISPOSITION" means any sale, assignment, lease, transfer or other
disposition of any property (whether now owned or hereafter acquired) by any
Credit Party to any other Person excluding (a) the granting of Liens to the
Guarantor pursuant to the Collateral Documents, (b) any sale, assignment,
transfer or other disposition of (i) any property sold or disposed of in the
ordinary course of business and on ordinary business terms, (ii) any property no
longer used or useful in the business of the Credit Parties and (iii) any
collateral under and as defined in the Collateral Documents pursuant to an
exercise of remedies by the Guarantor thereunder and (c) any licensing of
intellectual property of any Credit Party in the ordinary course of business.
"DISPOSITION INVESTMENT" means, with respect to any Disposition, any
promissory notes or other evidences of indebtedness or Investments received by
any Credit Party in connection with such Disposition.
"EQUITY ISSUANCE" means any issuance or sale of equity securities by a
Credit Party to any Person other than (i) an Affiliate of such Credit Party or
(ii) the Guarantor; EXCLUDING the issuance or sale of equity securities under an
employee benefit plan approved by the stockholders of such Credit Party.
"GUARANTIED OBLIGATIONS" means the collective reference and "GUARANTIED
OBLIGATION" means the singular reference to any and all Guarantied Obligations
(as such term is defined in the Guaranty) that may arise under or in connection
with the Guaranty or under the Guaranty Agreement dated as of July 3, 1995, as
amended, made by the Guarantor in favor of BKB.
"GUARANTY TERM" means the period of time commencing on the date hereof and
ending on the date that the Guarantor has no obligations, contingent or
otherwise, under the Guaranty.
"INTEREST RATE" means ten percent (10%) PLUS the fluctuating rate per annum
equal to (i) the Variable Rate applicable under the Revolving Credit Note made
by the Borrower to the order
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of the Bank on the date hereof or (ii) if such note is no longer outstanding.
the rate that would be applicable under such instrument as in effect on the date
hereof.
"LIEN" means, with respect to any asset, (a) any mortgage, deed of trust,
lien, pledge, hypothecation, encumbrance, charge or security interest in, on or
of such asset, (b) the interest of a vendor or a lessor under any conditional
sale agreement, capital lease or title retention agreement (other than an
operating lease) (or any financing lease having substantially the same economic
effect as any of the foregoing) relating to such asset and (c) in the case of
securities, any purchase option, call or similar right of a third party with
respect to such securities.
"NET CASH PAYMENTS" means,
(a) with respect to any Equity Issuance, the aggregate amount of all
cash proceeds received by any Credit Party therefrom less all legal,
underwriting and similar fees and expenses in connection therewith (not
including any breakage fees for any LIBOR Advance); and
(b) with respect to any Disposition, the aggregate amount of all cash
payments actually received by any Credit Party directly or indirectly in
connection with such Disposition, whether at the time of such Disposition or
after such Disposition under deferred payment arrangements or Investments
entered into or received in connection with such Disposition (including, without
limitation, Disposition Investments); PROVIDED that
(i) Net Cash Payments shall be net of (I) the amount of any fees
and expenses payable by any Credit Party in connection with such
Disposition (but not including any breakage fees for any LIBOR Advance or,
if applicable, any other advance under the Credit Agreement) and (II) any
Federal, state and local income or other taxes estimated to be payable by
any Credit Party as a result of such Disposition, but only to the extent
that such estimated taxes are in fact paid to the relevant Federal, state
or local governmental authority within twelve months of the date of such
Disposition; and
(ii) Net Cash Payments shall be net of any repayments by any
Credit Party of Indebtedness to the extent that (I) such Indebtedness is
secured by a Lien on the property that is the subject of such Disposition
and (II) the transferee of (or holder of a Lien on) such property requires
that such Indebtedness be repaid as a condition to the purchase of such
property.
"PERMITTED ENCUMBRANCES" means liens with respect to assets of the Credit
Parties permitted pursuant to Section 6.3 of the Credit Agreement.
"REIMBURSEMENT AMOUNT" means, with respect to any satisfaction by the
Guarantor of a Guarantied Obligation of any Credit Party (whether such
satisfaction is achieved by a direct payment by the Guarantor to the Bank
pursuant to the Guaranty or by the Bank registering in its name all or any item
of collateral that the Guarantor may post from time to time to the Bank in
Bank's own name or in the name of its nominee or designee or otherwise),
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(a) the amount of such satisfaction by the Guarantor of a Guarantied
Obligation (including any breakage fees for any LIBOR Advance or, if applicable,
any other advance under the Credit Agreement), PLUS
(b) interest thereon at a rate equal to the Interest Rate, such
interest to accrue from the day such Guarantied Obligation is satisfied by the
Guarantor until the day the Guarantor receives reimbursement therefor pursuant
to this Agreement, PLUS
(c) all expenses incurred by the Guarantor in the collection of the
aforesaid or as otherwise permitted by Section 11 hereof, all of which shall
conclusively be deemed to have been incurred in reliance upon the Credit
Parties' covenant to pay same.
2. REIMBURSEMENT OF GUARANTIED OBLIGATIONS AND ACKNOWLEDGMENT OF
SUBROGATION RIGHTS. The Borrower and the Guarantor acknowledge and agree that if
the Guarantor shall make any payment to the Bank on account of the Guarantied
Obligations, or the Bank shall satisfy payment and performance of any of the
Guarantied Obligations by registering all or any item of collateral that the
Guarantor may post from time to time in the Bank's own name or in the name of
its nominee or designee or otherwise, then (i) the Borrower shall pay to the
Guarantor the Reimbursement Amount that accrues with respect thereto, and (ii)
the Guarantor shall be subordinated to the Bank with respect to such
Reimbursement Amount. All Reimbursement Amounts shall be due and payable, to the
extent that such payment shall not violate the Guaranty, on the tenth Business
Day after the Borrower receives notice of payment or satisfaction by the
Guarantor of a Guarantied Obligation,. All amounts payable hereunder shall be
paid in U.S. Dollars in immediately available funds, without set-off or
counterclaim. The obligations of the Borrower under this Agreement shall be
absolute, unconditional and irrevocable, and shall be performed strictly in
accordance with the terms hereof subject to the terms and conditions of the
Guaranty.
3. MANDATORY REDUCTION OF COMMITMENTS; SUSPENSION OF BORROWING.
3.1. REDUCTION BY THE BORROWER.
(a) OFFERING OF EQUITY. The Credit Parties agree, on or prior to the
closing of any Equity Issuance by any Credit Party, to deliver to the Guarantor
a statement certified by the chief financial officer of the Borrower, in form
and detail reasonably satisfactory to the Borrower, of the estimated amount of
the Net Cash Payments of such Equity Issuance that will (on the date of such
sale of securities) be received by any Credit Party in cash.
(b) SALE OF ASSETS. Without limiting the obligation of the Borrower to
obtain the consent of the Guarantor to any Disposition not otherwise permitted
hereunder, the Borrower agrees, on or prior to the occurrence of any Disposition
by any Credit Party, to deliver to the Guarantor a statement certified by the
chief financial officer of the Borrower, in form and detail reasonably
satisfactory to the Guarantor, of the amount of the Net Cash Payments (or other
consideration) of such Disposition that will (on or about the date of such
Disposition) be received by any Credit Party in cash (or otherwise).
(c) PAYMENT AND REDUCTION. The Borrower will, within 30 days of
closing of any such Equity Issuance or Disposition completed prior to January 1,
2000 and to the extent
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permitted by the Credit Agreement, prepay the Loans under the Credit Agreement
(and provide cover for Letter of Credit Outstandings as defined in the Credit
Agreement) in accordance with Section 3.4 below, and deliver a written notice to
the Bank and the Guarantor of an optional reduction of the Commitments
thereunder,
(i) in each case, in an aggregate amount equal to (a) 25% of the sum
of (i) the amount of the Net Cash Payments received by any Credit Party in cash
from any Equity Issuance or Disposition since the date hereof PLUS (ii) the fair
market value, at the time received, of any equity securities received by any
Credit Party from any Disposition since the date hereof in excess of $25,000,000
but not more than $35,000,000 PLUS (b) 50% of the sum of (i) the amount of the
Net Cash Payments received by any Credit Party in cash from any Equity Issuance
or Disposition since the date hereof PLUS (ii) the fair market value, at the
time received, of any equity securities received by any Credit Party from any
Disposition since the date hereof in excess of $35,000,000; and
(ii) thereafter, quarterly, on the date of the delivery by the
Borrower to the Bank pursuant to Section 6.1 of the Credit Agreement of the
financial statements for any quarterly fiscal period or fiscal year, to the
extent any Credit Party shall receive Net Cash Payments during the quarterly
fiscal period ending on the date of such financial statements in cash under
deferred payment arrangements or Disposition Investments entered into or
received in connection with any Disposition, in an amount equal to (A) (1) 25%
of the aggregate amount of Net Cash Payments of such Disposition in excess of
$25,000,000 but not more than $35,000,000 PLUS (2) 50% of the aggregate amount
of Net Cash Payments of such Disposition in excess of $35,000,000 during such
period MINUS (B) any transaction expenses associated with Dispositions (not
including any breakage fees for any LIBOR Advance) and not previously deducted
in the determination of Net Cash Payments PLUS (or MINUS, as the case may be)
(C) any other adjustment received or paid by any Credit Party pursuant to the
respective agreements giving rise to Dispositions and not previously taken into
account in the determination of the Net Cash Payments.
3.2. REDUCTION BY THE GUARANTOR. To the extent that the Borrower fails to
prepay the Loans and reduce the Commitments as provided in Section 3.1, in
accordance with Section 10 the Guarantor may notify the Bank to reduce the
amount of the Commitments in accordance with Section 2.6 or 3.6 of the Credit
Agreement.
3.3. SUSPENSION OF BORROWING. Upon the consummation of Dispositions and
Equity Issuances prior to January 1, 2000 for which the Credit Parties receive
Net Cash Payments in excess of $25,000,000, the Borrower shall not thereafter
request any Loan under Section 2.2 of the Credit Agreement until January 1,
2000; PROVIDED that any Letter of Credit Outstanding under the Credit Agreement
may remain outstanding.
3.4. APPLICATION OF PAYMENTS AND REDUCTIONS. In the event of any required
prepayment of amounts outstanding under the Credit Agreement and reduction of
Commitments under the Credit Agreement pursuant to this Section 3, the
prepayments and Commitment reductions shall be applied as follows: If such
prepayment and reduction is made at a time when the Revolving Credit Commitment
remains outstanding, the prepayment shall be applied to the outstanding
Revolving Credit Loans and the reduction shall be applied to the Revolving
Credit
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Limit. After the Revolving Credit Loans have been paid in full, all
prepayments shall be applied to pay outstanding Term Loans in the manner
described in the Term Note. After the Revolving Credit Limit is reduced to zero,
any reductions to the Commitment shall be applied to the Term Loan Commitment.
4. GUARANTY BY SUBSIDIARIES.
4.1. THE GUARANTY. Each Subsidiary hereby jointly and severally guaranties
to the Guarantor and its respective successors and assigns the prompt payment in
full when due (whether at stated maturity, by acceleration or otherwise) of the
Reimbursement Amount and all other amounts from time to time owing to the
Guarantor by the Borrower hereunder or under the Convertible Debt Agreement, in
each case strictly in accordance with the terms thereof (such obligations being
herein collectively called the "SUBSIDIARY OBLIGATIONS"). Each Subsidiary hereby
further agrees that if the Borrower shall fail to pay in full when due (whether
at stated maturity, by acceleration or otherwise) any of the Subsidiary
Obligations, each Subsidiary will promptly pay the same, without any demand or
notice whatsoever, and that in the case of any extension of time of payment or
renewal of any of the Subsidiary Obligations, the same will be promptly paid in
full when due (whether at extended maturity, by acceleration or otherwise) in
accordance with the terms of such extension or renewal.
4.2. OBLIGATIONS UNCONDITIONAL. The obligations of each Subsidiary under
Section 4.1 are absolute and unconditional irrespective of the value,
genuineness, validity, regularity or enforceability of this Agreement or any
other agreement or instrument referred to herein or therein, or any
substitution, release or exchange of any other guaranty of or security for any
of the Subsidiary Obligations, and, to the fullest extent permitted by
applicable law, irrespective of any other circumstance whatsoever that might
otherwise constitute a legal or equitable discharge or defense of a surety or
Subsidiary, it being the intent of this Section 4.2 that the obligations of the
Subsidiaries hereunder shall be absolute and unconditional under any and all
circumstances. Without limiting the generality of the foregoing, it is agreed
that the occurrence of any one or more of the following shall not alter or
impair the liability of the Subsidiaries hereunder which shall remain absolute
and unconditional as described above:
(a) at any time or from time to time, without notice to such Subsidiaries,
the time for any performance of or compliance with any of the Subsidiary
Obligations shall be extended, or such performance or compliance shall be
waived;
(b) any of the acts mentioned in any of the provisions hereof or of any
other agreement or instrument referred to herein or therein shall be done or
omitted;
(c) the maturity of any of the Subsidiary Obligations shall be accelerated,
or any of the Subsidiary Obligations shall be modified, supplemented or amended
in any respect, or any right hereunder or under any other agreement or
instrument referred to herein or therein shall be waived or any other guaranty
of any of the Subsidiary Obligations or any security therefor shall be released
or exchanged in whole or in part or otherwise dealt with; or
(d) any lien or security interest granted to, or in favor of, the Guarantor
as security for any of the Subsidiary Obligations shall fail to be perfected.
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The Subsidiaries hereby expressly waive diligence, presentment, demand of
payment, protest and all notices whatsoever, and any requirement that the
Guarantor exhaust any right, power or remedy or proceed against the Borrower
hereunder or under the other Loan Documents or any other agreement or instrument
referred to herein or therein, or against any other Person under other Guaranty
of, or security for, any of the Subsidiary Obligations.
4.3. REINSTATEMENT. The obligations of each Subsidiary under this
Section 4 shall be automatically reinstated if and to the extent that for any
reason any payment by or on behalf of the Borrower in respect of the Subsidiary
Obligations is rescinded or must be otherwise restored by any holder of any of
the Subsidiary Obligations, whether as a result of any proceedings in bankruptcy
or reorganization or otherwise, and each of the Subsidiaries agrees that it will
indemnify the Guarantor on demand for all reasonable costs and expenses
(including fees and expenses of counsel) incurred by Guarantor in connection
with such rescission or restoration, including any such costs and expenses
incurred in defending against any claim alleging that such payment constituted a
preference, fraudulent transfer or similar payment under any bankruptcy,
insolvency or similar law.
4.4. SUBROGATION. Each Subsidiary hereby waives all rights of
subrogation or contribution, whether arising by contract or operation of law
(including, without limitation, any such right arising under the Federal
Bankruptcy Code of 1978, as amended) or otherwise by reason of any payment by it
pursuant to the provisions of this Section 4 and further agrees with the
Borrower for the benefit of each of its creditors (including, without
limitation, the Guarantor) that any such payment by it shall constitute a
contribution of capital by such Subsidiary to the Borrower.
4.5. REMEDIES. Each Subsidiary agrees that, as between such Subsidiary
and the Guarantor, the obligations of the Borrower hereunder may be declared to
be forthwith due and payable as provided in Section 2 or Section 10, as
applicable (and shall be deemed to have become automatically due and payable in
the circumstances provided in Section 2 or Section 10, as applicable) for
purposes of Section 4.1 notwithstanding any stay, injunction or other
prohibition preventing such declaration (or such obligations from becoming
automatically due and payable) as against the Borrower and that, in the event of
such declaration (or such obligations being deemed to have become automatically
due and payable), such obligations (whether or not due and payable by the
Borrower) shall forthwith become due and payable by such Subsidiary for purposes
of Section 4.1.
4.6. INSTRUMENT FOR THE PAYMENT OF MONEY. Each Subsidiary hereby
acknowledges that the guaranty in this Section 4 constitutes an instrument for
the payment of money, and consents and agrees that the Guarantor, at its sole
option, in the event of a dispute by the Subsidiaries in the payment of any
moneys due hereunder, shall have the right to summary judgment or such other
expedited procedure as may be available for a suit on a note or other instrument
for the payment of money.
4.7. CONTINUING GUARANTY. The guaranty in this Section 4 is a
continuing guaranty, and shall apply to all Subsidiary Obligations whenever
arising.
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4.8. RIGHTS OF CONTRIBUTION. The Subsidiaries hereby agree, as between
themselves, that if any Subsidiary shall become an Excess Funding Subsidiary (as
defined below) by reason of the payment by such Subsidiary of any Subsidiary
Obligations, each other Subsidiary shall, on demand of such Excess Funding
Subsidiary (but subject to the next sentence), pay to such Excess Funding
Subsidiary an amount equal to such Subsidiary's Pro Rata Share (as defined below
and determined, for this purpose, without reference to the properties, debts and
liabilities of such Excess Funding Subsidiary) of the Excess Payment (as defined
below) in respect of such Subsidiary Obligations. The payment obligation of a
Subsidiary to any Excess Funding Subsidiary under this Section 4.8 shall be
subordinate and subject in right of payment to the prior payment in full of the
obligations of such Subsidiary under the other provisions of this Section 4 and
such Excess Funding Subsidiary shall not exercise any right or remedy with
respect to such excess until payment and satisfaction in full of all of such
obligations.
For purposes of this Section 4.8, (i) "EXCESS FUNDING SUBSIDIARY" means, in
respect of any Subsidiary Obligations, a Subsidiary that has paid an amount in
excess of its Pro Rata Share of such Subsidiary Obligations, (ii) "EXCESS
PAYMENT" means, in respect of any Subsidiary Obligations, the amount paid by an
Excess Funding Subsidiary in excess of its Pro Rata Share of such Subsidiary
Obligations and (iii) "PRO RATA SHARE" means, for any Subsidiary, the ratio
(expressed as a percentage) of (x) the amount by which the aggregate present
fair saleable value of all properties of such Subsidiary (excluding any shares
of stock of, or ownership interest in, any other Subsidiary) exceeds the amount
of all the debts and liabilities of such Subsidiary (including contingent,
subordinated, unmatured and unliquidated liabilities, but excluding the
obligations of such Subsidiary hereunder and any obligations of any other
Subsidiary that have been guarantied by such Subsidiary) to (y) the amount by
which the aggregate fair saleable value of all properties of all of the Credit
Parties exceeds the amount of all the debts and liabilities (including
contingent, subordinated, unmatured and unliquidated liabilities, but excluding
the obligations of the Borrower and the Subsidiaries hereunder) of all of the
Credit Parties, determined (A) with respect to any Subsidiary that is a party
hereto on the date hereof, as of the date hereof, and (B) with respect to any
other Subsidiary, as of the date such Subsidiary becomes a Subsidiary hereunder.
4.9. GENERAL LIMITATION ON GUARANTY OBLIGATIONS. In any action or
proceeding involving any state or non-U.S. corporate law, or any state or
Federal or non-U.S. bankruptcy, insolvency, reorganization or other law
affecting the rights of creditors generally, if the obligations of any
Subsidiary under Section 4.1 would otherwise, taking into account the provisions
of Section 4.8, be held or determined to be void, invalid or unenforceable, or
subordinated to the claims of any other creditors, on account of the amount of
its liability under Section 4.1, then, notwithstanding any other provision
hereof to the contrary, the amount of such liability shall, without any further
action by such Subsidiary, the Guarantor or any other Person, be automatically
limited and reduced to the highest amount that is valid and enforceable and not
subordinated to the claims of other creditors as determined in such action or
proceeding.
4.10. RELEASE OF COLLATERAL AND GUARANTEES. The Guarantor agrees that
if all of the capital stock or assets of any Subsidiary that is owned by any
Credit Party are sold to any Person as permitted by the terms of this Agreement
and the Collateral Documents, or if any Subsidiary is merged or consolidated
with or into any other Person as permitted by the terms of
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this Agreement and such Subsidiary is not the continuing or surviving
corporation, the Guarantor shall, upon request of the Borrower (and upon the
receipt by the Guarantor of such evidence as the Guarantor may reasonably
request to establish that such sale, designation, merger or consolidation is
permitted by the terms of this Agreement), terminate the guaranty of such
Subsidiary under this Agreement and any related agreements and release any lien
created by the Collateral Documents on the assets or any capital stock of such
Subsidiary.
5. CERTAIN REPRESENTATIONS AND WARRANTIES.
5.1. CREDIT AGREEMENT REPRESENTATIONS. Each Credit Party hereby
represents and warrants to the Guarantor that the representations and warranties
contained in Section 4 of the Credit Agreement, which representations and
warranties are incorporated herein by reference as if fully set forth herein,
MUTATIS MUTANDI, are true and correct as of the date hereof as if made herein.
For purposes of this Section 5, "LOAN DOCUMENTS" shall mean, collectively, this
Agreement and the Collateral Documents, and "LENDER" shall mean the "GUARANTOR."
All other terms incorporated by reference in this Section 5 and not defined in
this Section 5 shall, for purposes of this Section 5, have the meanings set
forth in the Credit Agreement. All such representations and warranties are true
and correct as of the date hereof as if made herein with respect to this
Agreement, except for those matters set forth on SCHEDULE 5 attached hereto,
which Schedule shall list exceptions to such representations and warranties with
reference to the Section numbers included therein. Such representations and
warranties shall be deemed to survive with respect to the parties hereto
notwithstanding the earlier termination of the Credit Agreement.
5.2. YEAR 2000. The Credit Parties have reviewed their operations with
a view to assessing whether their business or operations will be vulnerable to
any significant risk that computer hardware, software or any equipment
containing embedded microchips used in their business or operations will not in
the case of dates or time periods occurring after December 31, 1999 function at
least as effectively as in the case of dates or time periods occurring prior to
January 1, 2000. Based upon such review, the Credit Parties have devised and are
in the process of implementing a program to correct such Year 2000 issues before
June 30, 1999. Upon completion of such program, the Credit Parties have no
reason to believe that the risks associated with such Year 2000 issues are
likely to have a material adverse effect on the business, assets, operations or
condition (financial or otherwise) of the Borrower, individually, or of the
Credit Parties taken as a whole.
6. CONDITIONS PRECEDENT TO ISSUANCE OF GUARANTY. The obligations of the
Guarantor to execute and deliver the Guaranty to the Bank hereunder shall not
become effective until the date on which each of the following conditions is
satisfied (or waived in accordance with Section 15):
6.1. COUNTERPARTS OF AGREEMENT. The Guarantor shall have received from
each party hereto either (i) a counterpart of this Agreement signed on behalf of
such party or (ii) written evidence satisfactory to the Guarantor (which may
include telecopy transmission of a signed signature page of this Agreement) that
such party has signed a counterpart of this Agreement.
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6.2. SECURITY INTERESTS IN PROPERTY. The Guarantor shall have received
evidence satisfactory to it that the Credit Parties shall have taken or caused
to be taken all such actions, executed and delivered or caused to be executed
and delivered all such agreements, documents and instruments, and made or caused
to be made all such filings and recordings that may be necessary or, in the
opinion of the Guarantor, desirable in order to create in favor of the
Guarantor, a valid and (upon such filing and recording) perfected first priority
security interest in the entire personal and mixed property collateral subject
only to Permitted Encumbrances. Such actions shall include, without limitation,
the following:
(a) COLLATERAL DOCUMENTS. Delivery to the Guarantor of all the
Collateral Documents (except as provided in Section 6.3 below), duly executed by
the applicable Credit Party together with accurate and complete schedules to all
such Collateral Documents;
(b) STOCK CERTIFICATES AND INSTRUMENTS. Delivery to the Guarantor of
certificates (which certificates shall be accompanied by irrevocable undated
stock powers, duly endorsed in blank and otherwise satisfactory in form and
substance to the Guarantor) representing all capital stock pledged pursuant to
the Security Agreement;
(c) LIEN SEARCHES AND UCC TERMINATION STATEMENTS. Delivery to the
Guarantor of (A) the results of a recent search, by a Person satisfactory to the
Guarantor, of all effective UCC financing statements and fixture filings and all
judgment and tax lien filings which may have been made with respect to any
personal or mixed property of any Credit Party, together with copies of all such
filings disclosed by such search, and (B) UCC termination statements duly
executed by all applicable Persons for filing in all applicable jurisdictions as
may be necessary to terminate any effective UCC financing statements or fixture
filings disclosed in such search (other than any such financing statements or
fixture filings in respect of Liens permitted to remain outstanding pursuant to
the terms of this Agreement);
(d) UCC FINANCING STATEMENTS. Delivery to the Guarantor of UCC
financing statements duly executed by each applicable Credit Party with respect
to all personal and mixed property collateral of such Credit Party, for filing
in all jurisdictions as may be necessary or, in the opinion of the Guarantor,
desirable to perfect the security interests created in such Collateral pursuant
to the Collateral Documents; and
(e) PERFECTION CERTIFICATES. Delivery to the Guarantor by each Credit
Party of a perfection certificate dated the date hereof substantially in the
form of SCHEDULE I to the form of Security Agreement annexed hereto duly
executed by the chief financial officer of the Borrower.
6.3. MORTGAGE AMENDMENT. The Guarantor shall have received from the
Borrower a fully executed and notarized Second Amendment to the Mortgage in
proper form for recording in the appropriate recording office in the applicable
jurisdiction.
6.4. ENVIRONMENTAL INDEMNITY. The Guarantor shall have received from
the Borrower a fully executed and notarized hazardous materials indemnity
agreement, in form and substance satisfactory to the Guarantor, with respect to
the indemnification of the Guarantor for any liabilities that may be imposed on
or incurred by any of them as a result of any hazardous materials.
10
<PAGE>
6.5. CONVERTIBLE DEBT AGREEMENT. The Guarantor shall have received
from the Borrower a fully executed Convertible Debt Agreement together with a
fully executed Amended and Restated Convertible Revolving Credit Note.
6.6. WARRANT. The Guarantor shall have received from the Borrower a
fully executed and validly issued Warrant to Purchase Common Stock entitling the
Guarantor to purchase up to 288,000 shares of the Borrower's common stock.
6.7. INTERCREDITOR AGREEMENT. The Guarantor shall have received from
the Borrower and Finova Technology Finance, Inc., ("Finova") a fully executed
amendment to the Intercreditor Agreement dated July 3, 1995 among the Guarantor,
the Borrower, certain subsidiaries of the Borrower and Finova, in form and
substance satisfactory to the Guarantor.
6.8. CORPORATE ACTION AND ENFORCEABILITY. The Guarantor shall have
received from the Credit Parties evidence reasonably satisfactory to it of the
corporate authority for, and the validity and enforceability of, this Agreement,
the Collateral Documents and the other agreements and instruments delivered
pursuant to this Agreement.
7. CERTAIN AFFIRMATIVE COVENANTS OF THE CREDIT PARTIES.
7.1. INFORMATION. Until the Guaranty Term has ended or, if later,
until all Reimbursement Amounts then outstanding and all fees due and payable
hereunder have been paid in full, the Borrower shall promptly furnish to the
Guarantor such information regarding the status of the Borrower's obligations
under the Credit Agreement as the Guarantor may from time to time reasonably
request; PROVIDED, HOWEVER, that the Guarantor shall hold as confidential any
non-public information so received.
7.2. NOTICES. Until the Guaranty Term has ended or, if later, until
all Reimbursement Amounts then outstanding and all fees due and payable
hereunder have been repaid in full, the Borrower shall send to the Guarantor a
copy of any written notice or correspondence under or relating to the Credit
Agreement promptly upon the giving or receipt of same by the Borrower.
7.3. FURTHER DOCUMENTATION; PLEDGE OF INSTRUMENTS. At any time and
from time to time, until the Guaranty Term has ended, upon the request of the
Guarantor and at the sole expense of the Credit Parties, the Credit Parties or
any of them shall promptly and duly execute and deliver such further instruments
and documents and take such further action as the Guarantor may reasonably
request for the purpose of obtaining or preserving the full benefits of this
Agreement.
7.4. CERTAIN OBLIGATIONS RESPECTING SUBSIDIARIES AND COLLATERAL
SECURITY.
(a) ADDITIONAL SUBSIDIARIES. In the event that any Credit Party shall
form or acquire any new domestic Subsidiary after the date hereof, such Credit
Party will, and will cause each of its Subsidiaries to, cause such new
Subsidiary within five Business Days of such formation or acquisition:
11
<PAGE>
(i) to execute and deliver to the Guarantor the following
documents: (1) a counterpart to this Agreement (and thereby to become a
party to this Agreement, as a "Subsidiary" hereunder), (2) a counterpart to
the Security Agreement, and (3) mortgages and such other instruments,
documents and agreements, in form and substance satisfactory to the
Guarantor, as may be required by the Guarantor; and
(ii) to take such action (including delivering such shares of
stock and executing and delivering such UCC financing statements) as shall
be necessary to create and perfect valid and enforceable first priority
Liens consistent with the provisions of the applicable Collateral
Documents; and
(iii) to deliver such proof of corporate action, incumbency of
officers and other documents as is consistent with those delivered by each
Subsidiary pursuant to Section 6.8 upon the date hereof or as the Guarantor
shall have reasonably requested.
8. CERTAIN NEGATIVE COVENANTS OF THE CREDIT PARTIES. Except as otherwise
specifically provided below, until this Agreement has terminated or, if later,
all Reimbursement Amounts then outstanding and all fees due and payable
hereunder have been paid to the Guarantor:
8.1. NO AMENDMENTS TO OR ASSIGNMENTS OF DOCUMENTS. The Borrower shall
not enter into any extension of or amendment or modification to the Credit
Agreement or the Loan Documents (as defined in the Credit Agreement), nor shall
the Borrower assign or transfer any of its rights or obligations thereunder,
without in any such case obtaining the prior written consent of the Guarantor.
8.2. RESTRICTIONS ON INCURRENCE OF DEBT. No Credit Party shall,
without the prior written consent of the Guarantor, which consent may be
withheld by the Guarantor in its sole and absolute discretion, create, incur,
assume or suffer to exist any Indebtedness except for Indebtedness permitted
under the Credit Agreement (without a waiver from the Bank) unless the same is
subordinated, on terms satisfactory to the Guarantor, to the Credit Parties'
obligations under this Agreement.
8.3. OWNERSHIP OF SUBSIDIARIES. No Credit Party shall sell, transfer
or otherwise dispose of any shares of stock in any Subsidiary owned by it, nor
permit any Subsidiary to issue any shares of stock of any class whatsoever to
any Person other than to a Credit Party. The Credit Parties will take such
action from time to time as shall be necessary to ensure that the percentage of
the equity capital of any class or character owned by it in any Subsidiary on
the date hereof (or, in the case of any newly formed or newly acquired
Subsidiary, on the date of formation or acquisition) is not at any time
decreased, other than by reason of transfers to another Credit Party. In the
event that any additional shares of stock shall be issued to any Credit Party,
the respective holder of such shares of stock shall forthwith deliver to the
Guarantor pursuant to the Security Agreement the certificates evidencing such
shares of stock, accompanied by undated stock powers executed in blank and to
take such other action as the Guarantor shall request to perfect the security
interest created therein pursuant to the Security Agreement.
12
<PAGE>
9. EVENTS OF DEFAULT. The following shall be "EVENTS OF DEFAULT" hereunder:
9.1. the Credit Parties shall fail to pay any Reimbursement Amount or
other amount payable under this Agreement or any fee payable under this
Agreement, when and as the same shall become due and payable, whether at the due
date thereof or at a date fixed for prepayment thereof or otherwise;
9.2. the Borrower shall fail to prepay the Loans and reduce the
Commitments under the Credit Agreement in accordance with the terms of Section
3.1 hereof;
9.3. any representation or warranty made or deemed made by or on
behalf any Credit Party in or in connection with this Agreement or any amendment
or modification hereof, shall prove to have been incorrect in any material
respect when made or deemed made;
9.4. any Credit Party shall fail to observe or perform any material
covenant, condition or agreement contained in Sections 7 or 8 hereof;
9.5. any Credit Party shall assert that its obligations hereunder
shall be invalid or unenforceable or any Credit Party shall assert that its
obligations under the Collateral Documents shall be invalid or unenforceable;
9.6. any of the following shall occur: (i) the Liens created by the
Collateral Documents shall at any time (other than by reason of the Guarantor
relinquishing such Lien or expiration in accordance with the terms thereof)
cease to constitute valid and perfected Liens on the Collateral intended to be
covered thereby; (ii) except for expiration in accordance with its respective
terms, any Collateral Document shall for whatever reason be terminated, or shall
cease to be in full force and effect; or (iii) the enforceability of any
Collateral Document shall be contested by any Credit Party;
9.7. an event of default under the Credit Agreement shall have
occurred; or
9.8. an event of default under Section 8.1(h) or 8.1(i) of the Credit
Agreement shall have occurred.
10. REMEDIES. Upon the occurrence of an Event of Default the Guarantor
shall, by notice to the Credit Parties, take any or all of the following
actions, at the same or different times:
10.1. If an Event of Defaultshall occur and be continuing, the
Guarantor may immediately reduce the amount of the Revolving Credit Limit and
the Term Loan Limit under the Credit Agreement to the amount of Revolving Credit
Loans and Term Loans, respectively, outstanding on the date of such reduction.
10.2. If an Event of Default under Section 9.2 shall occur and be
continuing and the Borrower receives notice from the Guarantor demanding the
deposit of cash collateral pursuant to this paragraph, in addition to the
Guarantor's rights under Section 10.1, the Borrower shall immediately deposit
with the Guarantor an amount in cash equal to the amount of the
13
<PAGE>
required prepayment of the Loans pursuant to Section 3.1 hereof as of such date
plus any accrued and unpaid interest thereon at the Interest Rate.
10.3. If an Event of Default under Section 9.8 shall occur and be
continuing, in addition to the Guarantor's rights under Section 10.1, in
addition to the Guarantor's rights under Section 10.1, the Borrower shall
immediately deposit with the Guarantor an amount in cash equal to the amount of
the Commitments plus any accrued and unpaid interest thereon at the Interest
Rate without presentment, demand, protest or notice of any kind, all of which
are hereby expressly waived.
10.4. If any other Event of Default shall occur and be continuing and
the Borrower receives notice from the Guarantor demanding the deposit of cash
collateral pursuant to this paragraph, the Borrower shall immediately deposit
with the Guarantor an amount in cash equal to the amount of the Commitments plus
any accrued and unpaid interest thereon at the Interest Rate.
10.5. The Guarantor may, in its sole discretion, hold any funds (and
any interest earned thereon) received pursuant to this Section 10 as collateral
for the repayment of the Reimbursement Amount or the Guarantor may, to the
extent permitted by the Credit Agreement, (a) pay any funds received pursuant to
this Section 10 to the Bank to reduce the amount of Loans outstanding (i) with
respect to any payment received under Section 10.2, by the amount of such
payment or (ii) with respect to any payment received under Section 10.3 or 10.4,
to zero and (b)(i) with respect to any payment received under Section 10.1
reduce the Commitments by the amount of such payment; PROVIDED that any failure
of the Borrower to deposit funds with the Guarantor as required by this Section
10 shall not restrict the right of the Guarantor to reduce the Commitments by
the amount of such required deposit to the extent permitted by the Credit
Agreement or (ii) with respect to any payment received under Section 10.3 or
10.4 terminate the Commitments, in each case, as provided in Section 2.6 or 3.6
of the Credit Agreement. All reductions of Commitments under this Section 10
shall be applied in accordance with Section 3.4.
10.6. The Guarantor may, subject to the provisions of the Guaranty,
exercise all of the rights as secured party and mortgagee under the Collateral
Documents to the extent permitted by applicable law.
At such time when the Commitments have been terminated and no Loans remain
outstanding, the Guarantor shall return any cash collateral described above to
the Borrower.
11. FEES AND EXPENSES. The Credit Parties shall pay all reasonable costs
and expenses (including attorneys' fees) incurred by the Guarantor in the
collection of any Reimbursement Amount, in the enforcement by the Guarantor of
the obligations of the Credit Parties hereunder or under the Collateral
Documents or otherwise incurred in connection with the Guaranty.
12. CONSTRUCTION. This Agreement shall be deemed to be a contract made
under the laws of The Commonwealth of Massachusetts, and shall be construed in
accordance with the laws of The Commonwealth of Massachusetts. The descriptive
headings of the several Sections
14
<PAGE>
hereof are for convenience only and shall not control or affect the meaning or
construction of any of the provisions hereof. This Agreement, together with the
Guaranty, the Collateral Documents and the Exhibits hereto or thereto,
constitutes the entire agreement and understanding between the parties hereto
with respect to the subject matter hereof, supersedes all prior agreements,
understandings or representations pertaining to the subject matter hereof,
whether oral or written, and may not be contradicted by evidence of any alleged
oral agreement.
13. NOTICES. Except as otherwise specifically provided in this Agreement,
all notices and other communications hereunder shall be in writing and shall be
delivered in person, mailed by United States registered or certified first class
mail, postage prepaid, sent by overnight courier, or telexed, telegraphed, or
telecopied (which is confirmed) to the parties hereto addressed as follows:
To the Guarantor: GENZYME CORPORATION
One Kendall Square
Cambridge, Massachusetts 02139
Attn: Chief Financial Officer
Telefax Number: (617) 252-7844
With a copy to:
GENZYME CORPORATION
One Kendall Square
Cambridge, Massachusetts 02139
Attn: Chief Legal Officer
Telefax Number: (617) 252-7553
To the Credit Parties: GENZYME TRANSGENICS CORPORATION
5 Mountain Road
Framingham, MA 01701
Attn: John B. Green
Telefax Number: (508) 270-2303
Any such notice or demand shall be deemed to have been duly given or made
and to have become effective (a) if delivered by hand or overnight courier, or
sent by telegraph, telecopier, or telex, at the time of the receipt thereof or
the sending of such telegraph, telecopy, facsimile or telex, if during normal
business hours on a Business Day, and (b) if sent by registered or certified
first-class mail, postage prepaid, on the third Business Day following the
mailing thereof.
14. EXECUTION IN COUNTERPARTS; EXECUTION BY FACSIMILE SIGNATURE. For the
convenience of the parties and to facilitate execution, this Agreement may be
executed in two or more counterparts, each of which shall be deemed an original,
but all of which shall constitute one and the same document.
15. AMENDMENTS; ASSIGNMENTS. This Agreement may not be amended or modified,
nor may compliance with any condition or covenant set forth herein be waived,
except by a writing duly and validly executed by each party hereto, or in the
case of a waiver, the party waiving compliance. No Credit Party may assign this
Agreement.
15
<PAGE>
16. WAIVER OF STAY OR EXTENSION LAWS. No Credit Party (to the extent
permitted by law) shall not at any time insist upon, or plead, or in any manner
whatsoever claim or take the benefit or advantage of, any stay, extension or
usury law wherever enacted, now or at any time hereafter in force, which may
affect the covenants or the performance of this Agreement; and each Credit Party
(to the extent it may lawfully do so) hereby expressly waives all benefit or
advantage of any such law.
17. NO WAIVER. No failure of the Guarantor to exercise, and no delay by in
exercising any right, power or privilege hereunder shall operate as a waiver
thereof; nor shall any single or partial exercise of any right, power or
privilege hereunder 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 and not exclusive of any rights or remedies provided by
law.
18. CONSENT. The Guarantor hereby consents to the Indebtedness incurred by
the Borrower pursuant to the Credit Agreement and waives any default under any
agreement between the Borrower and the Guarantor caused thereby. The Bank may
rely on this consent.
16
<PAGE>
IN WITNESS WHEREOF the parties hereto have executed or caused their duly
authorized representatives to execute this Agreement as of the date set forth
above.
GENZYME CORPORATION
By: /s/ Evan Lebson
---------------
Evan Lebson
Treasurer
GENZYME TRANSGENICS CORPORATION
By: /s/ John B. Green
John B. Green
Vice President and Chief Financial Officer
GTC CANCER VACCINES, INC.
By: /s/ John B. Green
-----------------
John B. Green
Vice President and Chief Financial Officer
TSI CORPORATION
By: /s/ John B. Green
-----------------
John B. Green
Vice President and Chief Financial Officer
GENZYME TRANSGENICS SECURITIES CORPORATION
By: /s/ John B. Green
-----------------
John B. Green
Vice President and Chief Financial Officer
PRIMEDICA CORPORATION (formerly TSI
Holdings, Inc.)
By: /s/ John B. Green
-----------------
John B. Green
Vice President and Chief Financial Officer
<PAGE>
PRIMEDICA CAMBRIDGE, INC. (formerly
BioDevelopment Laboratories, Inc.)
By: /s/ John B. Green
-----------------
John B. Green
Vice President and Chief Financial Officer
PRIMEDICA ROCKVILLE, INC. (formerly TSI
Washington Laboratories, Inc.)
By: /s/ John B. Green
-----------------
John B. Green
Vice President and Chief Financial Officer
PRIMEDICA REDFIELD, INC. (formerly TSI Redfield
Laboratories, Inc.)
By: /s/ John B. Green
-----------------
John B. Green
Vice President and Chief Financial Officer
PRIMEDICA WORCESTER, INC., (formerly TSI
Mason Laboratories, Inc.)
By: /s/ John B. Green
-----------------
John B. Green
Vice President and Chief Financial Officer
PRIMEDICA ARGUS RESEARCH
LABORATORIES, INC. (formerly Argus Research
Laboratories, Inc.)
By: /s/ John B. Green
-----------------
John B. Green
Vice President and Chief Financial Officer
TRANSGENICS INVESTMENTS, INC.
By: /s/ John B. Green
-----------------
John B. Green
Vice President and Chief Financial Officer
HEALTH SCIENCES RESEARCH INCORPORATED
By: /s/ John B. Green
-----------------
John B. Green
Vice President and Chief Financial Officer
<PAGE>
Schedule 5
Exceptions to Representations and Warranties
None
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements
of Genzyme Transgenics Corporation on Forms S-3 (File Nos. 33-82982,
33-97024, 333-25769, 333-49497, 333-51657, 333-59245) and Forms S-8 (File
Nos. 33-69516, 33-69518, 33-69520, 33-84706, 33-88030, 33-92970, 33-92998,
333-04535, 333-29059, 333-29975, 333-29977, 333-34119, 333-56747, 333-56749)
of our report dated February 25, 1999, on our audits of the consolidated
financial statements of Genzyme Transgenics Corporation as of January 3, 1999
and December 28, 1997, and for the three fiscal years in the period ended
January 3, 1999, which report is included in this Annual Report on Form 10-K.
We also consent to the incorporation by reference into those registration
statements of our report, dated March 22, 1999, on our audit of the financial
statements of ATIII LLC as of December 31, 1998, and for the period from
January 1, 1998 (date of inception) to December 31, 1998, which report is
also included in this Annual Report on Form 10-K. We also consent to the
reference to us under the heading "Selected Financial Data" in this Annual
Report on Form 10-K.
/s/ PricewaterhouseCoopers LLP
- ------------------------------
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 2, 1999
<PAGE>
EXHIBIT 99
IMPORTANT FACTORS REGARDING FORWARD-LOOKING STATEMENTS
April 1999
From time to time, Genzyme Transgenics Corporation ("GTC" or the
"Company"), through its management, may make forward-looking public statements,
such as statements concerning then expected future revenues or earnings or
concerning projected plans, performance, product development and
commercialization as well as other estimates relating to future operations.
Forward-looking statements may be in reports filed under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), in press releases or in oral
statements made with the approval of an authorized executive officer. The words
or phrases "will likely result," "are expected to," "will continue," "is
anticipated," "estimate," "project," or similar expressions are intended to
identify "forward-looking statements" within the meaning of Section 21E of the
Exchange Act and Section 27A of the Securities Act of 1933, as amended, as
enacted by the Private Securities Litigation Reform Act of 1995.
The Company wishes to caution readers not to place undue reliance on
these forward-looking statements which speak only as of the date on which they
are made. In addition, the Company wishes to advise readers that the factors
listed below, as well as other factors not currently identified by management,
could affect the Company's financial or other performance and could cause the
Company's actual results for future periods to differ materially from any
opinions on statements expressed with respect to future periods or events in any
current statement.
The Company will not undertake and specifically declines any obligation
to publicly release any revisions which may be made to any forward-looking
statements to reflect events or circumstances after the date of such statements
or to reflect the occurrence of anticipated or unanticipated events which may
cause management to re-evaluate such forward-looking statements.
In connection with the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, the Company is hereby filing
cautionary statements identifying important factors that could cause the
Company's actual results to differ materially form those projected in
forward-looking statements of the Company made by or on behalf of the Company.
HISTORY OF OPERATING LOSSES; NEED FOR ADDITIONAL FUNDS. GTC has had
operating losses since its inception and expects such losses to continue for the
next several years. For the period from its inception in 1993 to January 3,
1999, the Company incurred cumulative losses of approximately $48.4 million.
GTC's losses have resulted principally from costs incurred in connection with
research activities and from expenses in excess of revenues from the Company's
contract research organization ("CRO") services. GTC's sources of revenues to
date have consisted primarily of research and development contracts and CRO
<PAGE>
services. Such revenues to date have not been sufficient to generate profits.
The Company expects to continue to incur significant operating losses until such
time as product sales and CRO service revenues are sufficient to fund its
operations. No assurance can be given that the Company will become profitable.
The Company currently believes that existing cash resources and
available financing will be sufficient to meet its operating cash flow needs and
capital requirements at least for the next year. The development of transgenic
products by the Company will require the commitment of substantial resources to
conduct costly and time-consuming research, preclinical testing and clinical
trials necessary to bring such products to market. If GTC's businesses do not
achieve profitable operations at or prior to the time such existing resources
are exhausted, the Company will need to obtain additional financing, through
public or private financings, including debt or equity financings, or through
collaborative or other arrangements with corporate partners, as appropriate.
Adequate funds for the Company's operations from such sources may not be
available when needed or on terms acceptable to the Company. If additional
financing cannot be obtained when needed or on acceptable terms, GTC could be
forced to delay, scale back or eliminate certain of its research and development
programs or to license to other parties rights to commercialize products or
technologies that the Company would otherwise seek to develop internally as well
as delaying or forgoing timely expansion, improvement or investment in the
Company's contract research services.
The foregoing forward-looking statements regarding the Company's
expectations of the need for additional funds are subject to risks and
uncertainties. The Company's cash requirements may vary materially from those
now planned, depending upon the results of existing businesses, the terms of
future collaborations, results of research and development, competitive and
technological advances, regulatory requirements and other factors.
EARLY STAGE OF TRANSGENIC TECHNOLOGY. Development of products based on
transgenic technology is subject to a number of significant technological risks
and the time period required for any such development is both lengthy and
uncertain. Neither GTC nor, to GTC's knowledge, any other entity has completed
human clinical trials of any protein produced in the milk of transgenic animals,
and there can be no assurance that GTC will be able to do so successfully. There
can be no assurance that any transgenically produced protein will be safe or
effective. All of the proteins that GTC is developing will require significant
additional research, development and testing and will require the expenditure of
substantial additional capital prior to their commercialization. In addition,
there can be no assurance that research and discoveries by others will not
render GTC's technology obsolete or noncompetitive.
NO ASSURANCE OF COMMERCIAL SUCCESS OF TRANSGENIC PRODUCTS. The
successful commercialization of any transgenic protein product by the Company
will depend on many factors, including the successful completion of clinical
testing, the response of medical professionals to the data from clinical trials,
the Company's ability to create or access a sales force able to market such
transgenic products, the Company's ability to supply a sufficient amount of
product to meet market demand, the degree to which third-party reimbursement for
use of such product is available and the number and relative efficacy of
competitive products that may subsequently enter the market, as well as, with
respect to transgenic products designed to replace or supplement products
currently being marketed, the relative cost-effectiveness of the
Exhibit 99 -- page 2
<PAGE>
transgenic products. There can be no assurance that the Company or its
collaborative partners will be successful in efforts to develop and implement a
commercialization strategy for any such products.
GTC does not currently have a sales force to market any transgenic
products it may develop. The Company anticipates that, for products it develops
independently, it will enter into marketing arrangements with larger
pharmaceutical or biotechnology companies which have established sales forces
that are able to market such products. There can be no assurance that any
marketing or distribution arrangements will be available on acceptable terms or
that, in the alternative, GTC will be able to establish its own sales force
successfully. Unforeseen delays in this process may have an adverse effect on
the commercialization of any of the Company's products.
Third-party payors are increasingly attempting to contain health care
costs by limiting both coverage and the level of reimbursement for new
therapeutic products. The successful commercialization of any products developed
by the Company may depend on obtaining coverage and reimbursement for the use of
these products from third-party payors.
In addition, the successful commercialization of the Company's products
will require that medical professionals become convinced of the efficacy of the
products in treating a particular condition and incorporate such products as
standard practice in relevant therapeutic protocols. There can be no assurance
that any transgenic product developed by GTC will be accepted by the medical
profession.
GOVERNMENT REGULATION. Transgenic products will require approval by the
U.S. Food and Drug Administration ("FDA") prior to marketing in the United
States. In addition, the manufacturing and marketing of such products, and
certain areas of research related to them, are subject to regulations by other
U.S. governmental authorities including the United States Department of
Agriculture (the "USDA") and the Environmental Protection Agency (the "EPA").
Comparable authorities are involved in other countries.
In cases where the Company expects to obtain revenue from the sale of
transgenic products, whether through direct sales, marketing relationships with
others or royalty arrangements, the Company will incur the risk of such product
failing to satisfy applicable regulatory requirements prior to marketing. The
approval process involves two parts, governing first the approval of an
individual pharmaceutical product as safe and effective and second the approval
of the manufacturing process as complying with applicable FDA current good
manufacturing practices regulations ("GMPs"). In 1995, the FDA and comparable
European regulatory authorities issued guidelines regarding the production of
therapeutic proteins in transgenic animals. While the FDA's guidelines, known as
Points to Consider guidelines ("Points to Consider"), cover issues specific to
transgenic production, the basic regulatory framework for FDA approval will also
apply to transgenic therapeutic products submitted for approval. To GTC's
knowledge, no protein produced in the milk of a transgenic animal has been
submitted for regulatory approval in the United States or elsewhere.
The FDA and comparable agencies in foreign countries impose substantial
requirements upon the introduction of therapeutic pharmaceutical products
through lengthy and detailed
Exhibit 99 -- page 3
<PAGE>
laboratory and clinical testing procedures, sampling activities and other costly
and time-consuming procedures. Satisfaction of these requirements typically
takes several years or more and can vary substantially based upon the type,
complexity and novelty of the product. With respect to therapeutic products, the
standard FDA approval process includes preclinical laboratory and animal
testing, submission of an IND to the FDA, appropriate human clinical trials to
establish safety and effectiveness and submission of either a Biologics License
Application or a New Drug Application ("NDA") prior to market introduction. With
respect to obtaining approval for the production facilities to be used in
producing a therapeutic product, the Company expects to be subject to both the
requirements for establishment license applications and the Points to Consider
issued with respect to transgenic recombinant products.
The effect of government regulation may be to delay marketing of the
Company's products for a considerable or indefinite period of time, impose
costly procedural requirements upon the Company's activities and may furnish a
competitive advantage to larger companies or companies more experienced in
regulatory affairs. There can be no assurance that the FDA or other regulatory
approvals for any products developed by the Company will be granted on a timely
basis or at all. Any delay in obtaining or any failure to obtain such approvals
could adversely affect the Company's ability to generate revenue. Even if
initial regulatory approvals for the Company's product candidates are obtained,
the Company, its products and its transgenic manufacturing processes would be
subject to continual review and periodic inspection. There can be no assurance
that the FDA will permit the marketing of any transgenic product for any
particular indication, if at all.
The Company's operations are also subject to federal, state and local
laws, rules, regulations and policies governing the use, generation,
manufacture, storage, air emission, effluent discharge, handling and disposal of
certain materials and waste, including but not limited to animal waste and waste
water.
DEPENDENCE OF TESTING SERVICES ON CURRENT GOVERNMENT REGULATORY
REQUIREMENTS. The market for GTC's preclinical testing services is dependent
upon the maintenance of strict standards for the conduct of laboratory and
clinical tests and related procedures which are promulgated by governmental
entities responsible for public health and welfare, including the FDA, and by
regulatory authorities in foreign countries. The process of obtaining these
approvals varies according to the nature and use of the product and routinely
involves lengthy and detailed laboratory and clinical testing and other costly
and time-consuming procedures. The Company offers the customers of its
preclinical testing and development services the necessary expertise to comply
with these complex regulations. If the regulatory structure were to change in a
way which reduced the need for such services, the Company could be materially
adversely affected.
DEPENDENCE ON GENZYME. GTC has entered into a number of contractual
agreements with Genzyme, including a research and development agreement pursuant
to which Genzyme provides purification services to GTC for transgenically
produced proteins (the "Genzyme R&D Agreement"), a lease of GTC's facility in
Framingham, Massachusetts, and an agreement to provide funding for the
development of AT-III (the "Genzyme Collaboration Agreement").
Exhibit 99 -- page 4
<PAGE>
Under the Genzyme R&D Agreement, Genzyme is obligated to use
commercially reasonable efforts to perform purification services for GTC. GTC
does not currently have personnel capable of undertaking such purification
services. Until such time, if ever, as GTC develops its own capabilities in this
regard, there can be no assurance that Genzyme will be able to provide such
services when and as required by GTC or that GTC would be able to obtain
omparable services elsewhere.
Under the Genzyme Collaboration Agreement, Genzyme has agreed to
provide funding for transgenic AT-III development in exchange for co-marketing
rights to AT-III in all territories other than Asia. The term of the agreement
is perpetual, except that either party may terminate the agreement for certain
material breaches, failure to make payments, and either upon the grant, or
certain absences of a grant, by the FDA of a license to market an AT-III
product. There can be no assurance, should the agreement terminate before
completion of the development of an AT-III product, that Genzyme and GTC could
reach an agreement to extend Genzyme's development funding, that the Company
would be able to fund such program on its own or that the Company would be able
to obtain such funding from a third party on acceptable terms, if at all.
POTENTIAL CONFLICTS OF INTEREST WITH GENZYME. Genzyme is the largest
single stockholder of GTC. Assuming exercise of currently exercisable warrants
for 241,000 shares of Common Stock, Genzyme beneficially owns approximately 40%
of the outstanding Common Stock of GTC.
Genzyme's ownership interest gives it significant influence over any
election of directors and any other action requiring approval by the holders of
a majority of the Common Stock. Three members of GTC's Board of Directors also
serve as directors and/or executive officers of Genzyme. The interests of
Genzyme on the one hand and GTC on the other hand may, from time to time,
differ.
DEPENDENCE ON COLLABORATORS. The success of GTC's transgenic protein
production business will depend, in large part, on GTC's ability to enter into
arrangements with biotechnology and pharmaceutical companies for the transgenic
production of proteins to which such companies have proprietary rights or to
fund the development of transgenic proteins which are in the public domain or
the subject of expiring patents. To date, the scope of these agreements has
generally been limited to demonstrating the feasibility of transgenic production
of targeted proteins in particular animal species.
There can be no assurance that these feasibility studies will be
successful or lead to agreements for the commercial production of any proteins.
Depending upon the terms of any future collaborations, the Company's role in
such collaborations may be limited to the production aspects of the proteins
under development. As a result, GTC may also be dependent on collaborators for
other aspects of the development, preclinical and clinical testing, regulatory
approval and commercialization of any transgenic product.
UNCERTAINTY REGARDING PATENTS AND PROPRIETARY TECHNOLOGY. GTC has
relied upon trade secrets, proprietary know-how and continuing technological
innovation to develop and maintain its competitive position and to protect its
proprietary
Exhibit 99 -- page 5
<PAGE>
technology. In part, these legal rights are protected by contracts with
employees, consultants and business partners. There can be no assurance that
trade secrets possessed by GTC will be maintained, that secrecy obligations will
be honored or that others will not independently develop similar or superior
technology. There is no assurance that patent applications filed by GTC will
result in patents being issued or that any patents issued to or licensed by GTC
will be held valid. The Company may also be subject to claims that result in the
revocation of patent rights previously licensed to GTC as a result of which the
Company may be required to obtain licenses from others to continue to develop,
test or commercialize its products. There can be no assurance that GTC will be
able to obtain such licenses on acceptable terms, if at all. In addition, there
may be pending or issued patents held by parties not affiliated with GTC that
relate to the technology utilized by GTC. As a result, GTC may need to acquire
licenses to, or contest the validity of, such patents or any other similar
patents which may be issued. GTC could incur substantial costs in defending
itself against challenges to patent or infringement claims made by third parties
or in enforcing any patent rights of its own. The loss or exposure of trade
secrets possessed by GTC could also adversely affect its business.
RISK OF SERVICE OR PRODUCT LIABILITY. GTC's business exposes it to
potential product and professional liability risks which are inherent in the
testing, production, marketing and sale of human therapeutic products. While GTC
has obtained product and professional liability insurance under an insurance
policy arrangement with Genzyme and Genzyme's affiliates, there can be no
assurance that such insurance will be sufficient to cover any claim. Uninsured
product or service liability could have a material adverse effect on the
financial results of GTC. In addition, there can be no assurance that any
insurance will provide GTC with adequate protection against potential
liabilities. Potential liability also may arise from the handling by GTC of
clinical samples containing human blood and tissues, which may contain human
pathogens; liability may also arise from handling animal blood and tissue which
may contain zoonotic pathogens. Although such products are used only in the
laboratory, inadvertent human contact may occur.
RETENTION OF KEY PERSONNEL. Although GTC believes that the size and
qualifications of its current staff are adequate for its current business, the
Company must continue to attract and retain qualified scientific, technical,
marketing and management personnel as its business expands. There is intense
competition for qualified personnel in the areas of the Company's activities,
and there can be no assurance that GTC will be able to continue to attract and
retain the qualified personnel necessary for the development of its business.
Loss of the services of, or failure to recruit, key scientific and technical
personnel could have a material adverse effect on GTC's business.
PUBLIC CONCERNS. Certain of GTC's activities involve animal testing and
genetic engineering in animals. Such activities have been the subject of
controversy and adverse publicity. Animal rights groups and various other
organizations and individuals have attempted to stop animal testing and genetic
engineering activities by pressing for legislation and regulation in these
areas. To the extent the activities of such groups are successful, GTC's
business may be adversely affected.
Exhibit 99 -- page 6
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