-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HQO9mRVKpWI4KfXzmP3wGd0BmdYOho8I6bMeQu9Kw071A2eVuu3lGPM8SFXc56nm ywQZB1FBJ1ohykGUQWTvcQ== 0000927016-97-002283.txt : 19970813 0000927016-97-002283.hdr.sgml : 19970813 ACCESSION NUMBER: 0000927016-97-002283 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970628 FILED AS OF DATE: 19970812 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: PERSEPTIVE BIOSYSTEMS INC CENTRAL INDEX KEY: 0000859640 STANDARD INDUSTRIAL CLASSIFICATION: LABORATORY ANALYTICAL INSTRUMENTS [3826] IRS NUMBER: 042987616 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-20032 FILM NUMBER: 97656868 BUSINESS ADDRESS: STREET 1: 500 OLD CONNECTICUT PATH CITY: FRAMINGHAM STATE: MA ZIP: 01701 BUSINESS PHONE: 5083837700 MAIL ADDRESS: STREET 1: 500 OLD CONNECTICUT PATH CITY: FRAMINGHAM STATE: MA ZIP: 01701 10-Q 1 QUARTERLY REPORT FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended June 28, 1997 or ( ) Transition Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the Transition Period From_____________ To ________ Commission File Number: 0-20032 PerSeptive Biosystems, Inc. --------------------------- (Exact name of registrant as specified in its charter) Delaware 04-2987616 -------- ---------- (State or other jurisdiction of (IRS Employer ID No.) incorporation or organization) 500 Old Connecticut Path, Framingham, MA 01701 - ---------------------------------------- ----- (Address of principal executive offices) (Zip Code) (508) 383-7700 -------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No___ ---- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock 21,508,119 Shares - ------------ ----------------- (Class) (Outstanding at Aug 7, 1997) PERSEPTIVE BIOSYSTEMS, INC. QUARTERLY REPORT ON FORM 10-Q JUNE 28, 1997 TABLE OF CONTENTS
Page No. -------- Part I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements: a) Consolidated Balance Sheets at June 28, 1997 (unaudited) and September 30, 1996 3 b) Consolidated Statements of Operations for the three and nine-month periods ended June 28, 1997 and June 29, 1996 (unaudited) 4 c) Consolidated Statements of Cash Flows for the nine-month periods ended June 28, 1997 and June 29, 1996 (unaudited) 5 d) Notes to the Consolidated Financial Statements (unaudited) 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Part II. OTHER INFORMATION Item 1. Legal Proceedings 14 Item 6. Exhibits and Reports on Form 8-K 16 SIGNATURES 17
2 PERSEPTIVE BIOSYSTEMS, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share data)
June 28, September 30, 1997 1996 --------------- -------------- (unaudited) ASSETS: Current assets: Cash and cash equivalents $ 7,069 $ 5,384 Short-term investments, available-for-sale 31,193 19,273 Trade accounts receivable, net of allowance for doubtful accounts of $1,931 at June 28, 1997 and $2,386 at September 30, 1996, respectively 18,930 16,052 Inventories, net 23,828 21,074 Other current assets 2,678 2,107 ----------- ------------ Total current assets 83,698 63,890 Fixed assets, net 28,579 32,017 Patent and license costs, net 5,571 5,913 Goodwill, net 17,738 18,518 Other long-term assets 1,714 1,317 ----------- ------------ Total assets $ 137,300 $ 121,655 =========== ============ LIABILITIES AND STOCKHOLDERS' EQUITY: Current liabilities: Accounts payable $ 11,930 $ 9,292 Accrued expenses 15,435 18,699 Current portion of deferred revenue 2,092 1,158 Short-term borrowing 5,019 5,032 Current portion of obligations and other current liabilities 2,110 3,137 ----------- ------------ Total current liabilities 36,586 37,318 Long-term liabilities: Convertible subordinated notes 27,230 27,230 Long-term debt 4,666 5,574 Capital lease obligations, less current portion 347 361 Deferred revenue and other liabilities 1,228 887 ----------- ------------ Total long-term liabilities 33,471 34,052 Commitments and contingencies STOCKHOLDERS' EQUITY Redeemable convertible preferred stock, $.01 par value; 4000 shares authorized; 2,000 shares issued and outstanding at June 28, 1997 and September 30, 1996; redemption value $20,000 at June 28, 1997 and September 30, 1996 19,123 18,053 Common stock, $.01 par value; 100,000,000 shares authorized; 21,461,072 and 21,315,456 shares issued and outstanding at June 28, 1997 and September 30, 1996 , respectively 216 213 Additional paid-in capital 159,374 158,556 Accumulated deficit (108,332) (125,094) ----------- ------------ 70,381 51,728 Cumulative translation adjustment (3,848) (1,373) Unrealized loss on investments 710 (70) ----------- ------------ Total stockholders' equity 67,243 50,285 ----------- ------------ Total liabilities and stockholders' equity $ 137,300 $ 121,655 =========== ============
The accompanying notes are an integral part of these financial statements 3 PERSEPTIVE BIOSYSTEMS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) (unaudited)
Three months ended Nine months ended ----------------------------- ------------------------------ June 28, June 29, June 28, June 29, 1997 1996 1997 1996 ----------------------------- ------------------------------ Revenue: Product revenue $ 25,880 $ 18,170 $ 70,174 $ 56,601 Contract revenue - - - 10,101 ------------ ------------ ------------ ------------- 25,880 18,170 70,174 66,702 ------------ ------------ ------------ ------------- Cost of goods sold: Cost of product revenue 13,244 9,165 35,578 27,865 Cost of contract revenue - - - 8,571 Other charges - - - 4,837 ------------ ------------ ------------ ------------- 13,244 9,165 35,578 41,273 ------------ ------------ ------------ ------------- Gross profit 12,636 9,005 34,596 25,429 Operating Expenses: Research and development 3,768 4,450 10,892 7,720 Selling general and administrative 9,923 9,865 29,434 30,512 Other charges - - - 13,496 Amortization 260 320 780 1,838 ------------ ------------ ------------ ------------- 13,951 14,635 41,106 53,566 ------------ ------------ ------------ ------------- Lose from operations (1,315) (5,630) (6,510) (28,137) ------------ ------------ ------------ ------------- Other income (expense): Interest expense, net (750) (768) (2,212) (2,190) Other income (expense), net 1,049 (79) 26,556 (90) ------------ ------------ ------------ ------------- Net (income)/loss before provision for income taxes (1,016) (6,477) 17,834 (30,417) Provision for income taxes - - - 100 ------------ ------------ ------------ ------------- Net income (loss) $ (1,016) $ (6,477) $ 17,834 $ (30,517) ============ ============ ============ ============= Net income/(loss) per common share Primary ($0.06) ($0.40) $0.78 ($2.08) Fully diluted $0.72 Weighted average common shares Primary 21,439 17,357 21,388 15,412 Fully diluted 24,850
The accompanying notes are an integral part of these financial statements. 4 PERSEPTIVE BIOSYSTEMS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)
Nine months ended June 28, June 29, ----------------------------------- 1997 1996 ---------------- ---------------- Cash from operating activities: Net income (loss) $ 17,834 $ (30,517) Adjustments to reconcile net income (loss) to net cash used in operating activities, net of acquired amounts Depreciation and amortization 5,613 7,846 Non-cash portion of gain on Chemgenics exchange (21,830) - Non-cash portion of other charges - 17,261 Changes in assets and liabilities: Decrease (increase) in accounts receivable (3,637) 1,037 Increase in inventories (3,811) (4,326) Decrease (increase) in other assets (968) 300 Increase in accounts payable 2,638 3,113 Decrease in accrued expenses (3,264) (5,857) Increase (decrease) in other liabilities 1,275 (3,254) -------------- ---------------- Net cash used in operating activities $ (6,150) $ (14,397) -------------- ---------------- Cash flows from investing activities Purchases of fixed assets (2,287) (8,180) Cash and investments acquired from PTC II - 11,851 Net proceeds from sales of securities available-for-sale 10,690 1,604 Increases in patents and licenses - (27) -------------- ---------------- Net cash provided by investing activities $ 8,403 $ 5,248 -------------- ---------------- Cash flows from financing activities Proceeds from capital lease financing - 306 Principal payments under capital lease obligations (1,042) (1,135) Net proceeds from facility financing - 2,407 Payment of finance costs (191) Net proceeds (payments) from short-term borrowing (237) 1,154 Proceeds from issuance of common stock 821 1,312 --------------- ---------------- Net cash (used in) provided by financing activities $ (458) $ 3,853 --------------- ---------------- Effect of exchange rate changes on cash and cash equivalents (110) (233) --------------- ---------------- Increase (decrease) in cash and cash equivalents 1,685 (5,529) Cash and cash equivalents, beginning of period 5,384 12,215 --------------- ---------------- Cash and cash equivalents, end of period $ 7,069 $ 6,686 =============== ================ Supplemental disclosure of cash flow information: Interest paid 2,203 1,896 Supplemental disclosure of non-cash activities: Accretion of Series A Preferred Stock 1,070 1,546 Stock issued: purchase costs of AMI acquisition 3,423 Stock and warrants issued in connection with PTC II acquisition 15,592
The accompanying notes are an integral part of these financial statements 5 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (1) BASIS OF PRESENTATION The accompanying consolidated balance sheet at June 28, 1997, and the consolidated statements of operations for the three- and nine-month periods ended June 28, 1997 and June 29, 1996, and the consolidated statements of cash flows for the nine-month periods ended June 28, 1997 and June 29, 1996 have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the "Commission"). Although certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, the Company believes that the disclosures are adequate to make the information presented not misleading and reflect all adjustments (consisting only of normal recurring adjustments) which are necessary for a fair presentation of results of operations for such periods. The results of operations for the three and nine- month periods ended June 28, 1997 are not necessarily indicative of the results expected for the year ended September 30, 1997. It is suggested that these financial statements be read in conjunction with the consolidated financial statements for the year ended September 30, 1996 and the notes thereto included in the Company's Annual Report on Form 10-K. 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. Actual results could differ from those estimates. (2) INVENTORIES Inventories consist of the following (in thousands):
June 28, 1997 September 30, 1996 ------------- ------------------ Raw material $ 9,470 $ 7,368 Work in process 2,191 2,751 Finished goods 12,167 10,955 ------- ------- Total inventories $23,828 $21,074 ======= =======
(3) NET INCOME (LOSS) PER COMMON SHARE Primary net income (loss) per common share is computed by dividing net income, including accretion on preferred stock, by the weighted average common shares and dilutive weighted average common stock equivalents outstanding during the period. Accretion on preferred stock was $357,000 and $1,070,000 for the three and nine months ended June 28, 1997 and $515,000 and $1,546,000 for the three and nine months ended June 29, 1996, respectively. Common stock equivalents consist of shares subject to stock options and warrants. Net loss per share for the three-month period ended June 28, 1997 and the three and nine-month periods ended June 29, 1996 exclude all common stock equivalents from the calculation of weighted average common shares outstanding, as their inclusion would be anti- dilutive. Fully diluted net income per common share is computed by dividing net income before accretion on preferred stock by the weighted average common shares outstanding during the period plus weighted average common stock equivalents and equivalent shares resulting from the assumed conversion of preferred stock. In February 1997, the Financial Accounting Standards Board issued Statement No. 128 ("SFAS 128"), "Earnings per Share," which is effective for fiscal years ended after December 15, 1997, including interim periods. SFAS 128 requires the presentation of basic and diluted earnings per share ("EPS"). Basic EPS, which replaces primary EPS, excludes dilution and is computed by dividing income available to common stockholders by the weighted-average number of common shares 6 outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. Diluted EPS is computed similarly to fully diluted EPS under the existing rules. SFAS 128 requires restatement of all prior-period earnings per share data presented after the effective date. The Company will adopt SFAS 128 in its fiscal year ended September 30, 1998 and has not yet determined the impact of such adoption. (4) LITIGATION AND OTHER MATTERS The Company has sued Pharmacia Biotech, Inc. and certain of its affiliates, and their parent Pharmacia AB (collectively, "Pharmacia"), now part of Pharmacia & Upjohn Co., Sepracor Inc. ("Sepracor") and BioSepra Inc. ("BioSepra"), a company partially owned by Sepracor, for willful infringement of three PerSeptive patents (U.S. Nos. 5,019,270, 5,228,989 and 5,384,042), covering the process of Perfusion Chromatography/(R) /and the manufacture, sale and use of chromatography particles and matrices that enable Perfusion Chromatography (collectively, the "Original Perfusion Patents"). The Company commenced its action against Pharmacia and Sepracor on October 14, 1993, and the consolidated action has been pending in the United States District Court for the District of Massachusetts. BioSepra was added as a party on May 19, 1994. The lawsuit also claims that Sepracor and BioSepra made false and misleading representations of fact with respect to the Company's products, and that BioSepra engaged in false and misleading advertising. The lawsuit, in an amended complaint filed by Purdue University and the Company, also claims that Sepracor and BioSepra infringe a fourth patent ("the Coatings Patent"), licensed exclusively by PerSeptive, covering novel coatings for chromatography media. The lawsuit seeks to enjoin the defendants from infringing the four patents and asks for treble damages, as well as other relief and damages. Pharmacia, Sepracor and BioSepra each have asserted that their products do not infringe the Original Perfusion Patents and that the Original Perfusion Patents are invalid and unenforceable, and have asserted counterclaims against the Company alleging that the Company's assertions that they have infringed the patents, and that statements allegedly made by the Company to customers concerning the litigation, constitute unfair competition, commercial disparagement, unfair trade practices, tortious interference with customer relationships and violation of the Lanham Act, and seeking an unspecified amount of damages, and, under certain asserted claims, double or treble damages, as well as attorneys' fees and expenses. The Company has denied any liability on these counterclaims. On January 9, 1996, the Court entered an order denying the Company's motion for partial summary judgment relating to the inventorship of the Original Perfusion Patents, granting the Defendants' motions for partial summary judgment that inventorship of the Original Perfusion Patents is improper for failure to name one or more persons as additional joint inventors, and requiring the Company to move to correct inventorship or have the patents declared invalid. On March 12, 1996, the Court entered a ruling directing the Company to correct inventorship and placed on the Company the burden of proving the absence of deceptive intent in the designation of inventors at a hearing. The Company moved to correct inventorship. The Company has preserved its right to appeal a number of issues, including the Court's January 9, 1996 order that the Original Perfusion Patents failed to name additional persons as joint inventors and the Court's March 12, 1996 order imposing the burden of proof on PerSeptive. The hearing was held in May and June 1996. On April 3, 1997, the Court issued a ruling denying the Company's motion to correct inventorship, ruling that the Company had not met its burden of proving that two British scientists, who worked for a company that is not a party to the litigation, were not named on the Original Perfusion Patents without deceptive intent within the meaning of Section 256 of Title 35 United States Code, and granted judgment in favor of Sepracor, BioSepra and Pharmacia on the Company's claims relating to the Original Perfusion Patents. On April 16, 1997, the Company filed a motion to permit an immediate appeal of the April 3, 1997 decision, and the related January 9, 1996 and March 12, 1996 decisions, to the United States Court of Appeals for the Federal Circuit, which has exclusive jurisdiction in the United States to hear appeals in patent cases. On April 30, 1997, the defendants filed a motion requesting that the District Court render a decision on the defendants' defense of inequitable conduct prior to permitting the Company's appeal. On July 30, 1997, the Company filed a motion seeking to (i) vacate the Court's April 3, 1997 decision and (ii) enter a final judgment that will permit the Company to appeal the Court's earlier January 9, 1996 and March 12, 1996 orders that the patents do not name all of the inventors and imposing the burden of proof on PerSeptive. The Company's motion is based on a decision by the Court of Appeals for the Federal Circuit in an unrelated case, Stark v. Advanced Magnetics, Inc., issued on July 11, 1997, ---------------------------------- which the Company contends rendered the Court's April 3, 1997 decision erroneous. The defendants filed motions again requesting that the District Court render a decision on their defense of inequitable conduct prior to permitting an appeal. The Court has not rendered a decision on the Company's or the defendants' motions. The Court has not yet considered the issue of infringement of the Original Perfusion Patents or the Coatings Patent. The Company intends to continue to vigorously pursue this litigation. 7 In September 1996 and February 1997, two new United States patents relating to Perfusion Chromatography systems were issued to the Company. Neither of these patents, which cover instruments and systems that perform the high-speed, high resolution chromatography which is the subject of the Original Perfusion Patents, are the subject of the current litigation. Prior to the issuance of these patents, the Company had submitted to the patent examiner the District Court's January 9, 1996 order, and non-confidential portions of related briefs filed by the parties, and the patents were issued naming only PerSeptive's scientific founders as the inventors nonetheless. Since November 1994, the Company has been responding to informal requests for information from the Commission relating to certain of the Company's financial matters. In May 1995, the Company was advised by the Commission that it had obtained a formal order of investigation so that, among other matters, it may utilize subpoena powers to obtain information relevant to its inquiry. The Commission has and may in the future utilize its subpoena powers to obtain information from various officers, directors and employees of the Company and from persons not presently associated with the Company. If, after completion of its investigation, the Commission finds that violations of the federal securities laws have occurred, the Commission has the authority to order persons to cease and desist from committing or causing such violations and any future violations. The Commission may also seek administrative, civil and criminal fines and penalties and injunctive relief. The Department of Justice has the authority in respect of criminal matters. There can be no assurance as to the timeliness of the completion of the investigation or as to the final result thereof, and no assurance can be given that the final result of the investigation will not have a material adverse effect on the Company. The Company is cooperating fully with the investigation, and has responded and will continue to respond to requests for information in connection with the investigation. (5) CHEMGENICS AND MILLENNIUM TRANSACTIONS In June 1996, the Company entered into a transaction with ChemGenics Pharmaceuticals, Inc. ("ChemGenics") (formerly Myco Pharmaceuticals, Inc.), in which the Company transferred certain assets and employees of the Company's drug discovery program to ChemGenics and granted a non-exclusive license to ChemGenics to use the Company's technology (including technology developed through PerSeptive Technologies II Corporation ("PTC II")) in the field of drug discovery in exchange for shares of ChemGenics common stock and warrants to purchase additional shares of ChemGenics Common stock exercisable until June 28, 2000. The warrants were exercisable at $5.00 per share. The Company was subject to certain contractual restrictions on the sale or distribution of its holdings of ChemGenics common stock. In December 1996, the Company and ChemGenics executed amendments to their agreements pursuant to which the Company exchanged a portion of its ChemGenics common stock for a promissory note for $3 million payable on the earlier of the closing of ChemGenics' initial public offering or December 31, 2002. The Company held approximately 34% of the outstanding common stock of ChemGenics as of December 28, 1996. In January, 1997 ChemGenics and Millennium Pharmaceuticals, Inc. ("Millennium") entered into an Agreement and Plan of Merger ("Agreement"). Under the terms of the Agreement, the stockholders of ChemGenics received common stock of Millennium in exchange for their common stock of ChemGenics. At the closing on February 10, 1997, the Company received 1,612,582 shares of Millennium common stock, $.001 par value per share ("Millennium common stock"), in exchange for its shares of ChemGenics common stock. In addition, the Company received $4 million cash in exchange for the warrants for ChemGenics common stock and in satisfaction of the above referenced promissory note. The parties to the Agreement contemplate that the transaction will qualify as a tax-free merger. The Company's shares of Millennium Common stock are subject to restrictions on sale which expire in increments between June and September 1997. In connection with this event, the Company recorded a gain of $25.8 million, reflecting the fair market value of the cash received and the Company's investment in Millennium common stock as of March 29, 1997. During the quarter ended June 28, 1997, the Company sold approximately 50% of its investment in Millennium for $12.9 million and realized a gain on the sale of approximately $800,000. The taxable gain arising from this transaction will be offset by available net operating loss carryforwards with the exception of a portion of the gain potentially subject to the federal Alternative Minimum Tax. 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This report contains forward-looking statements which involve risks and uncertainties. The Company's actual results may differ significantly from the results discussed in the forward-looking statements. Factors that may cause such a difference include, but are not limited to, those discussed below under the caption "Certain Factors That May Affect Future Results," as well as elsewhere in this Management's Discussion and Analysis of Financial Condition and Results of Operations, and those discussed in the Company's other filings with the Securities and Exchange Commission. RESULTS OF OPERATIONS THREE MONTHS ENDED JUNE 28, 1997 AND JUNE 29, 1996 Product revenue for the three months ended June 28, 1997 was $25,880,000 compared with $18,170,000 for the comparable 1996 period representing an increase of 42%. The increase in product revenue is attributable to continued strong growth in each of the analysis, purification and synthesis product lines as well as enhanced sales productivity arising from increased investments in the Company's North American field sales organization. Gross profit from product revenue for the three months ended June 28, 1997 and June 29, 1996 was $12,636,000 and $9,005,000, respectively. Gross margin from product revenue was 49% for the three months ended June 28, 1997 and 50% for the comparable period in 1996. The slight decline in gross margin between the comparable periods is attributable to various factors, including product and geographical revenue mix and the sale of lower margin refurbished products during the quarter. Research and development expenses for the three months ended June 28, 1997 amounted to $3,768,000, or 15% of product revenue, as compared with $4,450,000, or 24% of product revenue, for the comparable period in 1996. Actions have been taken to control the level of research and development expense actually incurred following the acquisition of PerSeptive Technologies II Corporation ("PTC II") in March 1996. This has been accomplished, in part, through the restructuring program that resulted in the elimination of a significant portion of the Company's research and development staffing and related variable support costs. Management intends to continue pursuing commercialization opportunities and alliances in order to obtain value from the technologies acquired from PTC II, as it has done in the transactions with ChemGenics Pharmaceuticals, Inc. ("ChemGenics") (formerly Myco Pharmaceuticals, Inc.)(subsequently merged with Millennium Pharmaceuticals, Inc. ("Millennium"). See Note (5). Management continues to evaluate the scope and direction of the various programs; however, there is no assurance that funding sources and/or third-party arrangements will be obtained or established to defray the cost of research and development or that any of these acquired technologies under development will ultimately be successfully commercialized. Selling, general and administrative expenses amounted to $9,923,000, or 38% of product revenue, during the three months ended June 28, 1997, as compared with $9,865,000, or 54% of product revenue during the comparable period in the prior year. The reduction in spending as a percent of sales is attributable to management's efforts to control these costs as well as improve the productivity of the resources utilized in these functional areas. Other income was $1,049,000 for the three months ended June 28, 1997 compared with other expense of $79,000 for the comparable period in 1996. This increase was due primarily to the realization of an $800,000 gain on the sale during the quarter of a portion of the Company's investment in Millennium common stock. Net interest expense was $750,000 during the three months ended June 29, 1997, as compared with $768,000 during the comparable period in the prior year. NINE MONTHS ENDED JUNE 28, 1997 AND JUNE 29, 1996 Product revenue for the nine months ended June 28, 1997 was $70,174,000 compared with $56,601,000 for the comparable period in 1996, representing an increase of 24%. The growth in product revenue is attributable to increasing sales in the 9 purification, analysis and synthesis product lines and further expansion of the Company's products into the international market place. Total revenue amounted to $70,174,000 and $66,702,000 for the nine months ended June 28, 1997 and June 29, 1996, respectively. The increase in total revenue is attributable to the continued sequential growth in the Company's core products business. This growth has been offset by the elimination of approximately $10 million in contract revenue previously derived under a contract research and development agreement between the Company and PTC II. The Company acquired PTC II in March 1996. Gross profit from product revenues for the nine months ended June 28, 1997 and June 29, 1996 was $34,596,000 and $25,429,000, respectively. Gross margin was 49% during the nine months ended June 28, 1997 as compared to 38% during the same period in the prior year. Factors contributing to the differences in gross margins between the periods relate to the nonrecurrence of the provision for other charges recorded in the prior period and the elimination of the $10 million of low margin contract research revenue in the current period. Included in cost of revenue for the nine months ended June 29, 1996 are other charges totaling $4.8 million. These charges represent provisions to write off inventory and other assets associated with actions taken to discontinue product lines as well as to reposition certain products within the purification, analysis and synthesis product lines. Research and development expenses for the nine months ended June 28, 1997 amounted to $10,892,000, or 16% of revenue, as compared with $7,720,000, or 14% of product revenue for the comparable period in the prior year. Research and development expenses, adjusted to include such expenses reflected in cost of contract revenue, have declined to $10,892,000, or 16% of product revenue, from $15,491,000, or 27% of product revenue, for the nine months ended June 28, 1997 and June 29, 1996, respectively. Actions have been taken to control the level of research and development expense actually incurred following the acquisition of PTC II in March 1996, including the restructuring program that resulted in the elimination of a significant portion of the Company's research and development staffing and related variable support costs. Management intends to continue pursuing commercialization opportunities and alliances in order to obtain value from the technologies acquired from PTC II, as it has done in the ChemGenics/Millennium transactions. See Note (5). Management continues to evaluate the scope and direction of the various programs; however, there is no assurance that funding sources and/or third-party arrangements will be obtained or established to defray the cost of research and development or that any of these acquired technologies will ultimately be successfully commercialized. Selling, general and administrative expenses amounted to $29,434,000 or 42% of revenue, during the nine months ended June 28, 1997, as compared with $30,512,000, or 46% of revenue, during the comparable period in the prior year. The reduction in both aggregate spending as well as spending as a percent of sales is attributable to management's efforts to control these costs as well as improve the productivity of the resources utilized in these functional areas. Other income was $26,556,000 for the nine months ended June 28, 1997 as compared to other expense of $90,000 for the comparable period in 1996. This increase was due primarily to the gain on the exchange of the Company's ChemGenics common stock, $.001 par value per share (the "ChemGenics common stock"), for Millennium common stock, $.001 par value per share (the "Millennium common stock"), the receipt of additional consideration in the form of cash upon the merger of ChemGenics with Millennium and the subsequent sale of a portion of the Company's investment in Millennium common stock. Net interest expense was $2,212,000 during the nine months ended June 28, 1997, as compared with $2,190,000 during the comparable period in the prior year. LIQUIDITY AND CAPITAL RESOURCES Cash, cash equivalents and investments at June 28, 1997 were $38,262,000 as compared to $24,657,000 at September 30, 1996. The increase in cash, cash equivalents and investments is due principally to the $25.8 million of cash and fair market value of the Company's investment in Millennium common stock. This was offset by expenditures of cash, cash equivalents and investments during the nine months ended June 28, 1997 primarily related to the funding of operational requirements and capital additions of $12,993,000 and the net repayment of borrowings of $458,000. Management anticipates additional cash usage relating to various factors including but not limited to expenditures relating to a significant new product launch and cash requirements associated with capital expenditures, ongoing litigation, working capital, operational needs and, if 10 PerSeptive were to elect to exercise its option to redeem $10,000,000 of Series A Preferred Stock in August, 1997 in cash, the satisfaction of redemption obligations. The Company believes that its capital resources are sufficient to fund its planned operations at least through the end of fiscal 1997. The Company believes that additional financing may be required for the development of some of its currently planned product introductions and to support the Company's future operations and revenue growth. The Company's future working capital and capital requirements will in general depend on numerous factors, including the progress of the Company's research and development of new products, the level of resources that the Company devotes to the development of manufacturing and marketing capabilities, the consistency of cash collections, the success of cost containment initiatives, the liquidation of investments, the amount of cash and investments used in meeting the preferred stock redemption obligation in August 1997, the competitive environment and the growth in the Company's business, which may cause the Company's actual future capital resources to differ materially, notwithstanding the forward-looking statement in the first sentence of this paragraph. The Company believes that the level of financial resources available to it is an important competitive factor. The Company is continually evaluating its liquidity position and may seek to raise additional capital through equity or debt financing or to enter into corporate partnering arrangements; however, there can be no assurance that the Company will be able to successfully raise additional capital at acceptable terms. In February 1997, the Financial Accounting Standards Board issued Statement No. 128 ("SFAS 128"), "Earnings per Share," which is effective for fiscal years ended after December 15, 1997, including interim periods. SFAS 128 requires the presentation of basic and diluted earnings per share ("EPS"). Basic EPS, which replaces primary EPS, excludes dilution and is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. Diluted EPS is computed similarly to fully diluted EPS under the existing rules. SFAS 128 requires restatement of all prior-period earnings per share data presented after the effective date. The Company will adopt SFAS 128 in its fiscal year ended September 30, 1998 and has not yet determined the impact of such adoption. CHEMGENICS AND MILLENNIUM TRANSACTIONS In June 1996, the Company entered into a transaction with ChemGenics Pharmaceuticals, Inc. ("ChemGenics") (formerly Myco Pharmaceuticals, Inc.), in which the Company transferred certain assets and employees of the Company's drug discovery program to ChemGenics and granted a non-exclusive license to ChemGenics to use the Company's technology (including technology developed through PTC II) in the field of drug discovery in exchange for shares of ChemGenics common stock and warrants to purchase additional shares of ChemGenics Common stock exercisable until June 28, 2000. The warrants were exercisable at $5.00 per share. The Company was subject to certain contractual restrictions on the sale or distribution of its holdings of ChemGenics common stock. In December 1996, the Company and ChemGenics executed amendments to their agreements pursuant to which the Company exchanged a portion of its ChemGenics common stock for a promissory note for $3 million payable on the earlier of the closing of ChemGenics' initial public offering or December 31, 2002. The Company held approximately 34% of the outstanding common stock of ChemGenics as of December 28, 1996. In January, 1997 ChemGenics and Millennium Pharmaceuticals, Inc. ("Millennium") entered into an Agreement and Plan of Merger ("Agreement"). Under the terms of the Agreement, the stockholders of ChemGenics received common stock of Millennium in exchange for their common stock of ChemGenics. At the closing on February 10, 1997, the Company received 1,612,582 shares of Millennium common stock, $.001 par value per share ("Millennium common stock"), in exchange for its shares of ChemGenics common stock. In addition, the Company received $4 million cash in exchange for the warrants for ChemGenics common stock and in satisfaction of the above referenced promissory note. The parties to the Agreement contemplate that the transaction will qualify as a tax-free merger. The Company's shares of Millennium Common stock are subject to restrictions on sale which expire in increments between June and September 1997. In connection with this event, the Company recorded a gain of $25.8 million, reflecting the fair market value of the cash received and the Company's investment in Millennium common stock as of March 29, 1997. During the quarter ended June 28, 1997, the Company sold approximately 50% of its investment in Millennium for $12.9 million and realized a gain on the sale of approximately $800,000. The taxable gain arising from this transaction will be offset by available net operating loss carryforwards with the exeception of a portion of the gain potentially subject to the federal Alternative Minimum Tax. 11 CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS Additional Financing Requirements. The Company believes additional long-term financing may be required for the development of some of its currently planned product introductions and to support its planned operations and capital expenditures in its core business relating to the purification, analysis and synthesis of biomolecules. The Company may seek to raise additional capital through equity or debt financing or to enter into corporate partnering arrangements; however, there can be no assurances that this funding will be made available or that terms acceptable to the Company will be reached. Investment in Millennium. The Company currently holds approximately 800,000 shares of registered Millennium common stock. Downward fluctuations in the market price of Millennium common stock will have an adverse effect on the value of the Company's investments. There can be no assurance that the Company will be able to realize cash from the sale of this stock equal to the value reflected in the Company's balance sheet as of June 28, 1997. Potential Fluctuations in Operating Results. The Company's operating results may vary significantly from quarter to quarter or year to year, depending on factors such as the timing of biopharmaceutical development and commercialization programs of the Company's customers, the timing of increased research and development and sales and marketing expenses, the timing and size of orders and the introduction of new products by the Company and the capital resources of the Company's customers. The Company's current and planned expense levels are based in part on its expectations as to future revenue. Consequently, results may vary significantly from quarter to quarter or year to year based on timing of revenue, and revenue or profits in any period will not necessarily be indicative of results in subsequent periods. In addition, the Company's stock price has been volatile and may be affected by general market conditions beyond the Company's control. Uncertainties Associated with Future Performance. The Company expects to continue to improve operating results in future periods; however, there can be no assurance that the Company will achieve or maintain profitability or that its revenue growth can be sustained in the future. The Company's success in the market for biopharmaceutical purification, analysis and synthesis products will depend, in part, on attracting and maintaining key employees, continued development of foreign sales operations, continued support from current customers, development of new customers, successful introduction and sale of new products and successful enforcement of the Company's patent rights. See "Legal Proceedings." Uncertainties Associated with Expansion of Marketing and Manufacturing Operations. The Company intends to continue expanding its sales and marketing efforts in the United States and internationally. The Company's ability to accomplish this objective is dependent on many factors including, among others, attracting and retaining sales and marketing professionals, expanding foreign sales operations and developing distributor relationships in certain markets. This continued expansion will involve significant additional expense and the risks inherent in integrating new sales and marketing personnel into the Company's existing organization. Increasing sales may also require the expansion of the Company's manufacturing capabilities, which would require significant capital expenditures and management attention. There can be no assurance that the Company will be able to accomplish its sales, marketing and manufacturing objectives. Potential Costs Associated with Patent Litigation. Patent litigation is widespread in the biotechnology industry and, in general, it is not possible to predict how any such litigation would affect the Company's business. The Company has sued two competitors for infringement of Company patents relating to Perfusion Chromatography. The defendants in that suit are seeking to have these patents declared invalid and they have asserted counterclaims against the Company. The Company may incur substantial additional expenses relating to this and other proceedings. There can be no assurance that the outcome of litigation and proceedings will not have a material adverse effect on the Company. See "Legal Proceedings." Patent and License Uncertainties. Proprietary rights relating to the Company's products will be protected from unauthorized use by third parties only to the extent that they are covered by valid and enforceable patents or are maintained in confidence as trade secrets. There can be no assurance that any pending patent applications filed by the Company will result in patents being issued or that any patents now or hereafter owned by the Company will afford protection against competitors. In the absence of patent protection, the Company's business may be adversely affected by competitors that independently develop functionally equivalent technology. The Company has established a policy of vigorously enforcing its patent rights. See "Legal Proceedings." If the Company participates in interference or other proceedings under the jurisdiction of the U.S. Patent and Trademark Office, such proceedings could result in substantial costs to the Company. Competitors, including those with substantially greater resources than the Company, may initiate litigation to challenge the validity of the Company's patents. Others may use their resources to design comparable products that do not infringe the Company's 12 patents. There may also be pending or issued patents of which the Company is not aware held by parties not affiliated with the Company that relate to the Company's products or technology. The Company may need to acquire licenses to, or contest the validity of, any such patents. It is likely that significant funds would be required to contest the validity of any such patents. There can be no assurance that any license required under any such patent would be made available on acceptable terms or that the Company would prevail in any such contest. Pending Governmental Investigation. Since November 1994, the Securities and Exchange Commission (the "Commission") has been conducting an investigation into certain financial matters of the Company arising from the Company's restatement of its financial statements for Fiscal 1993 and the first three fiscal quarters of Fiscal 1994, and related matters. If, after completion of its investigation, the Commission finds that violations of the federal securities laws have occurred, the Commission has the authority to order persons to cease and desist from committing or causing such violations and any future violations. The Commission may also seek administrative, civil and criminal fines and penalties and injunctive relief. The Department of Justice has the authority in respect of criminal matters. The Company has been cooperating fully with the investigation. There can be no assurance as to the timeliness of the completion of this investigation or as to the final result thereof, and no assurance can be given that the final result of the investigation will not have a material adverse effect on the Company. See "Legal Proceedings." Intense Competition and Risk of Technological Obsolescence. The Company encounters, and expects to continue to encounter, intense competition in the sale of its current and future products. There can be no assurance that developments by others will not render the Company's products or technologies obsolete or non-competitive. Many of the Company's competitors have substantially greater resources, manufacturing and marketing capabilities, research and development staff and production facilities than those of the Company. 13 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company has sued Pharmacia Biotech, Inc. and certain of its affiliates, and their parent Pharmacia AB (collectively, "Pharmacia"), now part of Pharmacia & Upjohn Co., Sepracor Inc. ("Sepracor") and BioSepra Inc. ("BioSepra"), a company partially owned by Sepracor, for willful infringement of three PerSeptive patents (U.S. Nos. 5,019,270, 5,228,989 and 5,384,042), covering the process of Perfusion Chromatography/(R) /and the manufacture, sale and use of chromatography particles and matrices that enable Perfusion Chromatography (collectively, the "Original Perfusion Patents"). The Company commenced its action against Pharmacia and Sepracor on October 14, 1993, and the consolidated action has been pending in the United States District Court for the District of Massachusetts. BioSepra was added as a party on May 19, 1994. The lawsuit also claims that Sepracor and BioSepra made false and misleading representations of fact with respect to the Company's products, and that BioSepra engaged in false and misleading advertising. The lawsuit, in an amended complaint filed by Purdue University and the Company, also claims that Sepracor and BioSepra infringe a fourth patent ("the Coatings Patent"), licensed exclusively by PerSeptive, covering novel coatings for chromatography media. The lawsuit seeks to enjoin the defendants from infringing the four patents and asks for treble damages, as well as other relief and damages. Pharmacia, Sepracor and BioSepra each have asserted that their products do not infringe the Original Perfusion Patents and that the Original Perfusion Patents are invalid and unenforceable, and have asserted counterclaims against the Company alleging that the Company's assertions that they have infringed the patents, and that statements allegedly made by the Company to customers concerning the litigation, constitute unfair competition, commercial disparagement, unfair trade practices, tortious interference with customer relationships and violation of the Lanham Act, and seeking an unspecified amount of damages, and, under certain asserted claims, double or treble damages, as well as attorneys' fees and expenses. The Company has denied any liability on these counterclaims. On January 9, 1996, the Court entered an order denying the Company's motion for partial summary judgment relating to the inventorship of the Original Perfusion Patents, granting the Defendants' motions for partial summary judgment that inventorship of the Original Perfusion Patents is improper for failure to name one or more persons as additional joint inventors, and requiring the Company to move to correct inventorship or have the patents declared invalid. On March 12, 1996, the Court entered a ruling directing the Company to correct inventorship and placed on the Company the burden of proving the absence of deceptive intent in the designation of inventors at a hearing. The Company moved to correct inventorship. The Company has preserved its right to appeal a number of issues, including the Court's January 9, 1996 order that the Original Perfusion Patents failed to name additional persons as joint inventors and the Court's March 12, 1996 order imposing the burden of proof on PerSeptive. The hearing was held in May and June 1996. On April 3, 1997, the Court issued a ruling denying the Company's motion to correct inventorship, ruling that the Company had not met its burden of proving that two British scientists, who worked for a company that is not a party to the litigation, were not named on the Original Perfusion Patents without deceptive intent within the meaning of Section 256 of Title 35 United States Code, and granted judgment in favor of Sepracor, BioSepra and Pharmacia on the Company's claims relating to the Original Perfusion Patents. On April 16, 1997, the Company filed a motion to permit an immediate appeal of the April 3, 1997 decision, and the related January 9, 1996 and March 12, 1996 decisions, to the United States Court of Appeals for the Federal Circuit, which has exclusive jurisdiction in the United States to hear appeals in patent cases. On April 30, 1997, the defendants filed a motion requesting that the District Court render a decision on the defendants' defense of inequitable conduct prior to permitting the Company's appeal. On July 30, 1997, the Company filed a motion seeking to (i) vacate the Court's April 3, 1997 decision and (ii) enter a final judgment that will permit the Company to appeal the Court's earlier January 9, 1996 and March 12, 1996 orders that the patents do not name all of the inventors. The Company's motion is based on a decision by the Court of Appeals for the Federal Circuit in an unrelated case, Stark v. Advanced Magnetics, Inc., ---------------------------------- issued on July 11, 1997, which the Company contends rendered the Court's April 3, 1997 decision erroneous. The defendants filed motions again requesting that the District Court render a decision on their defense of inequitable conduct prior to permitting an appeal. The Court has not rendered a decision on the Company's or the defendants' motions. The Court has not yet considered the issue of infringement of the Original Perfusion Patents or the Coatings Patent. The Company intends to continue to vigorously pursue this litigation. In September 1996 and February 1997, two new United States patents relating to Perfusion Chromatography systems were issued to the Company. Neither of these patents, which cover instruments and systems that perform the high-speed, high resolution chromatography which is the subject of the Original Perfusion Patents, are the subject of the current litigation. 14 Prior to the issuance of these patents, the Company had submitted to the patent examiner the District Court's January 9, 1996 order, and non-confidential portions of related briefs filed by the parties, and the patents were issued naming only PerSeptive's scientific founders as the inventors nonetheless. Since November 1994, the Company has been responding to informal requests for information from the Commission relating to certain of the Company's financial matters. In May 1995, the Company was advised by the Commission that it had obtained a formal order of investigation so that, among other matters, it may utilize subpoena powers to obtain information relevant to its inquiry. The Commission has and may in the future utilize its subpoena powers to obtain information from various officers, directors and employees of the Company and from persons not presently associated with the Company. If, after completion of its investigation, the Commission finds that violations of the federal securities laws have occurred, the Commission has the authority to order persons to cease and desist from committing or causing such violations and any future violations. The Commission may also seek administrative, civil and criminal fines and penalties and injunctive relief. The Department of Justice has the authority in respect of criminal matters. There can be no assurance as to the timeliness of the completion of the investigation or as to the final result thereof, and no assurance can be given that the final result of the investigation will not have a material adverse effect on the Company. The Company is cooperating fully with the investigation, and has responded and will continue to respond to requests for information in connection with the investigation. 15 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits - 10.1 - Employment Agreement dated as of January 17, 1997 between PerSeptive Biosystems, Inc. and John F. Smith 10.2 - Employment Agreement dated as of January 17, 1997 between PerSeptive Biosystems, Inc. and Noubar B. Afeyan 27 - Financial Data Schedule (b) Reports on Form 8-K - None [The remainder of this page is intentionally left blank.] 16 SIGNATURES - ---------- Pursuant to requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PERSEPTIVE BIOSYSTEMS, INC. Date: August 12,1997 By:/s/ Noubar B. Afeyan -------------- -------------------- Noubar B. Afeyan, Chairman and Chief Executive Officer (Principal Executive Officer) By:/s/ John F. Smith ----------------- John F. Smith, President and Director By:/s/ Thomas G. Ruane ------------------- Thomas G. Ruane, Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) 17 EXHIBIT INDEX Exhibit No. Description ----------- ----------- 10.1 Employment Agreement dated as of January 17, 1997 between PerSeptive Biosystems, Inc. and John F. Smith 10.2 Employment Agreement dated as of January 17, 1997 between PerSeptive Biosystems, Inc. and Noubar B. Afeyan 27 Financial Data Schedule EX-10.1 2 EMPLOYMENT AGREEMENT FOR JOHN F. SMITH EXHIBIT 10.1 EMPLOYMENT AGREEMENT AGREEMENT made as of this 17th day of January, 1997 by and between PerSeptive Biosystems, Inc., a Delaware corporation (the "Company") and John F. Smith ("Smith" or the "Employee"). WHEREAS, the Employee is currently employed as the President of the Company; and WHEREAS, the Company believes that it is in its best interest to ensure that the Employee continues to render services to the Company as hereinafter provided. NOW, THEREFORE, in consideration of the mutual covenants and obligations herein contained, it is mutually agreed between the parties hereto as follows: 1. Period of Employment. The Company hereby employs the Employee and the Employee agrees to serve the Company as provided in Section 2 hereof commencing on the date hereof (the "Commencement Date") and continuing until the earlier to occur of (i) July 16, 2000 (the "Expiration Date") or (ii) the occurrence of any of the circumstances described in Section 4 hereof. If the Employee's employment terminates upon the Expiration Date pursuant to clause (i) of the preceding sentence, the Employee shall not be entitled to receive any severance payments or other termination benefits, other than those required bylaw. The Employee retains the right to end his employment with the Company, for any reason, with or without cause, at any time after July 16, 1999 without any breach of the Employee's obligations under this Agreement. 2. Position and Responsibilities. The Employee shall be employed as the President of the Company, and the Employee shall exercise such powers and comply with and perform such directions and duties in relation thereto as may from time to time be vested in or given to him by the Chief Executive Officer of the Company, or, if there is no Chief Executive Officer of the Company other than the Employee, by the Board of Directors of the Company, and shall use his best endeavors to improve and extend the business of the Company. In his capacity as President, the Employee shall at all times report to, and his activities shall be subject to the direction and control of, the Chief Executive Officer of the Company, or, if there is no Chief Executive Officer of the Company other than the Employee, the Board of Directors of the Company, and the Employee shall devote his full business time and attention to his duties hereunder. The Employee hereby accepts said employment and agrees faithfully to perform said duties and render said services for the term of his employment. 3. Compensation. A. In consideration of all of the services to be rendered by the Employee to the Company, the Company will pay to the Employee a salary of $330,000 per annum, or such greater amount as the Chief Executive Officer or the Compensation Committee of the Board of Directors may, from time to time, determine. Such salary shall be payable in conformity with the Company's prevailing compensation practice, as such practice shall be established or modified from time to time and shall be subject to all taxes and other legally required payroll deductions and withholdings. B. At the sole discretion of the Compensation Committee of the Board of Directors, the Employee may also be entitled to receive bonus compensation or to participate in incentive compensation plans or programs as may be determined or established from time to time by the Compensation Committee. C. The Employee will be entitled to participate on the same basis with all other officers of the Company in the Company's standard benefits package generally available to other executive officers of the Company. D. The Company shall grant the Employee options to acquire 500,000 shares of common stock of the Company which options shall be granted as provided pursuant to the stock option agreements (the "Stock Options"). The Employee hereby acknowledges that such Options were granted effective July 16, 1996. E. The Company shall reimburse the Employee for reasonable expenses incurred directly by the employee in connection with his employment. Further, the Employee agrees to provide suitable and accurate documentation evidencing such costs incurred and the company shall provide reimbursement within a reasonable time after the receipt of such documentation. 4. Termination. The Employee's employment may be terminated prior to the Expiration Date as follows: A. At the Employee's Option. Subject to the Company's right to terminate the Employee's employment pursuant to Sections 4.B and 4.C below and the Employee's right to terminate his employment pursuant to Section 4.D, the Employee may terminate his employment for any reason, or for no reason, at any time upon at least sixty (60) days' prior notice. In the event the Employee terminates his employment pursuant to this Section, the Employee shall be entitled to no severance or other termination benefits, except as required by law. B. At the Election of the Company for Misconduct. The Company may, immediately and unilaterally, terminate the Employee's employment for "misconduct" at any time by notice to the Employee. Termination of the Employee's employment by the Company shall constitute a termination for "misconduct" if such termination is for one or more of the following reasons: dishonesty, gross negligence, or other wilful conduct which causes substantial damages, liabilities or cost to the Company. In the event that the Employee's employment is terminated for misconduct pursuant to this Section 4.B, the Employee shall not be entitled to any severance or other termination benefits, except as required by law. C. At the Election of the Company for Reasons Other than Misconduct. The Company may, immediately and unilaterally, terminate the Employee's employment at any -2- time for any reasons, or for no reason, and without cause by giving written notice to the Employee of the Company's election to so terminate. In the event that the Company exercises its right to terminate under this Section 4.C, the Employee shall be entitled to receive (i) severance payments in the form of salary continuation for the period from the termination date of the employee's employment through the Expiration Date, payable, at the election of the Company, monthly or quarterly in arrears (hereinafter sometimes called the "Severance Payments"), (ii) a cash performance bonus for each fiscal year of the company up to and including the Company's fiscal year ending September 30, 2000 that ends after the date of termination of the Employee's employment with the company for which the Employee did not in fact earn a cash performance bonus, such cash performance bonus to be in an amount equal to the highest cash performance bonus in fact paid to the Employee, or in fact earned and payable to the Employee, prior to the date of termination of his employment with the Company (the "Performance Bonus Amount"), and (iii) the Stock Options as provided in Section 3.D. hereof. The Performance Bonus Amount may be paid, at the election of the Company, in arrears in equal monthly or quarterly installments, and shall be subject to all taxes and other legally required payroll deductions and withholding. If the Employee neither received nor earned a cash performance bonus during his employment with the Company pursuant to this Agreement, no Performance Bonus Amount shall be payable pursuant to section 4.C.(ii) above. Nothing herein contained shall be deemed to constitute an obligation to pay the Employee a cash performance bonus with respect to any period during which the Employee is employed by the Company or not employed by the Company, other than as expressly set forth herein. D. At the Election of the Employee for Good Reason. Not withstanding any other provision of this Agreement, the Employee may terminate his employment for Good Reason if: (a) there is a material breach of this Agreement by the company, or (b) there is a Change In Control as defined in Section 4.D.1.(i-v) and the conditions described in Section 4.D.2.(i-iv) exist. In the event that the Employee exercises his right to terminate under this Section 4.D, the Employee shall be entitled to receive the Severance Payments, the Performance Bonus Amount if payable as provided in Section 4.C.(ii) hereof, which shall be paid as set forth in Section 4.C., and the Stock Options as provided in Section 3.D. hereof. 1. For purposes hereof, "Change In Control" means the occurrence of any of the following events during the Employee's employment during the term of this Agreement: (i) The Company is merged or consolidated or reorganized into or with another corporation or other legal person, and as a result of such merger, consolidation or reorganization less than a majority of the combined voting power of the then- outstanding securities of such surviving, resulting or reorganized corporation or person immediately after such transaction is held in the aggregate by the holders of the then-outstanding securities entitled to vote generally in the election of directors of the Company ("Voting Stock") immediately prior to such transaction; -3- (ii) The Company sells or otherwise transfers all or substantially all of its assets to any other corporation or other legal person, and as a result of such sale or transfer less than a majority of the combined voting power of the then- outstanding securities of such corporation or person immediately after such sale or transfer is held in the aggregate by the holders of Voting Stock of the Company immediately prior to such sale or transfer; (iii) There is a report filed on Schedule 13D or Schedule 14D-1 (or any successor schedule, form or report), each as promulgated pursuant to the 1934 Act, disclosing that any "person" (as such term is used in Section 13(d)(3) or Section 14(d)(2) of the 1934 Act) has become the "beneficial owner" (as such term is used in Rule 13d-3 under the 1934 Act) of securities representing 35% or more of the Voting Stock of the Company; or (iv) The Company files a report or proxy statement with the Securities and Exchange Commission pursuant to the 1934 Act disclosing in response to Form 8-K or Schedule 14A (or any successor schedule, form or report or item therein) that a Change In Control of the Company has occurred: (v) Individuals who, as of the date of this Agreement, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date of this Agreement whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; provided, however, that a "Change In Control" shall not be deemed to have occurred for purposes of this Agreement solely because (i) the Company, (ii) an entity in which the Company directly or indirectly beneficially owns 50% or more of the voting securities, or (iii) any Company-sponsored employee stock ownership plan or any other employee benefit plan of the Company, either files or becomes obligated to file a report or a proxy statement under or in response to Schedule 13D, Schedule 14D-1, Form 8-K or Schedule 14A (or any successor schedule, form or report) under the Securities Exchange Act of 1934, disclosing beneficial ownership by it of -4- shares of Voting Stock or because the Company reports that a Change In Control of the Company has or may have occurred or will or may occur in the future by reason of such beneficial ownership. 2. For purposes hereof, "Good Reason" means the occurrence of one or more of the following events following a Change In Control: (i) Failure to elect, reelect or otherwise maintain the Employee in the office or position in the Company which the Employee held immediately prior to a Change In Control, or the removal of the Employee as a director of the Company (or any successor thereto) if the Employee shall have been a director of the Company immediately prior to the Change In Control; (ii) A significant adverse change in the nature or scope of the authorities, powers, functions, responsibilities or duties attached to the position with the Company which the Employee held immediately prior to the Change In Control, a material reduction in the aggregate of the Employee's salary received from the Company, or the termination of the Employee's rights to any benefits to which he was entitled immediately prior to the Change In Control or a material reduction in scope or value thereof without the prior written consent of the Employee, any of which is not remedied within ten (10) calendar days after receipt by the Company of written notice from the Employee of such change, reduction or termination, as the case may be; (iii) A determination by the Employee made in good faith that as a result of a Change In Control and a change in circumstances thereafter significantly affecting his position, including without limitation a change in the scope of the business or other activities for which he was responsible immediately prior to the Change In Control, he has been rendered substantially unable to carry out, has been substantially hindered in the performance of, or has suffered a substantial reduction in, any of the authorities, powers, functions, responsibilities or duties attached to the position held by the Employee immediately prior to the Change In Control, which situation is not remedied within ten (10) calendar days after written notice to the Company from the Employee of such determination; (iv) The liquidation, dissolution, merger, consolidation or reorganization of the Company or transfer of all or a significant portion of its business and/or assets, unless the successor or -5- successors (by liquidation, merger, consolidation, reorganization or otherwise) to which all or a significant portion of its business and/or assets have been transferred (directly or by operation of law) shall have assumed all duties and obligations of the Company under this Agreement; (v) The Company shall relocate its principal executive offices, or require the Employee to have his principal location of work changed, to any location which is in excess of twenty (20) miles from the location thereof immediately prior to the Change In Control or the Company shall require the Employee to travel away from his office in the course of discharging his responsibilities or duties thereunder significantly more (in terms of either consecutive days or aggregate days in any calendar year) than was required of him prior to the Change In Control without, in either case, his prior written consent; or (vi) Without limiting the generality or effect of the foregoing, any material breach of this Agreement by the Company or any successor thereto. E. By Reason of Death or Disability. If the Employee dies during his employment during the term of this Agreement, the Company shall have no further obligation to pay compensation or other benefits, except that the Employee's estate shall be entitled to receive: (1) an amount equal to the balance of the Employee's salary through July 16, 2000 at his then current rate, (ii) if payable, an amount equal to the Performance Bonus Amount, payable in arrears in monthly or quarterly installments at the election of the Company, and (iii) Stock Options as provided in Section 3.D. If during the term of the Employee's employment he becomes disabled (by reason of physical disability, mental incompetence or otherwise) for such period of time and under circumstance which entitle him to receive disability benefits under the terms of any disability insurance policy now maintained or purchased for the Employee by the Company, then the Board of Directors of the Company, in its discretion, may elect to terminate the Employee's employment by reason of such disability as of the date benefits first became payable under such disability policy by giving the Employee written notice to such effect. Upon any such termination for disability, the Employee shall be entitled to receive (i) severance payments equal to the balance of the Employee's salary through July 16, 2000, at the Employee's then current rate; (ii) if payable, an amount equal to the Performance Bonus Amount, payable in arrears in monthly or quarterly installments at the election of the Company, reduced by any amounts received by the Employee pursuant to any disability insurance policy maintained or paid for by the Company; and (iii) Stock Options as provided in Section 3.D. The Employee shall be deemed to be disabled for the purposes of this Section 4.E. if he is unable to perform his duties hereunder for a period of three consecutive months. -6- F. Any severance payments shall be calculated on the basis of the Employee's annual salary rate at the time of termination and shall be payable in conformity with the Company's then current payroll practices and shall be subject to all taxes and other legally required payroll deductions and withholding. G. In the event of any termination of the Employees employment, including any termination pursuant to Section 1(i) hereof, in addition to any severance payments or Performance Bonus Amount which may be payable hereunder, the Employee shall receive all earned but unpaid salary, accrued but unused vacation and earned but unpaid bonus or incentive compensation, each as of the termination date, and all other benefits required by law. H. In the vent of any voluntary termination of the Employee's employment (other than for Good Reason) pursuant to Section 4.A, or any termination of the Employee's employment by the Company for Misconduct pursuant to Section 4.B, or as a result of disability pursuant to Section 4.E., then the Employee specifically agrees and acknowledges that he will be deemed to have resigned from all offices and directorship he holds with the Company, its subsidiaries, and/or affiliated entities effective as of his last day of employment. I. Gross-up. If any of the payments under Section 4 or -------- any other payments made or deemed made to the Employee pursuant to this Agreement or any other agreement including but not limited to the acceleration of stock options upon a Change of Control or the Death or Disability of the Employee (the "Payments") will be subject to the tax (the "Excise Tax") imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), (or any similar tax that may hereafter be imposed) the Company shall pay to the Employee an additional amount (the "Gross-Up Payment") such that the net amount retained by the Employee, after deduction of any Excise Tax on the Payments, without regard to this sentence, (after the deduction of any federal, state and local income tax upon the Gross-Up Payment), shall be equal to the Payments, without regard to this sentence. For purposes of determining whether any of the Payments will be subject to the Excise Tax and the amount of such Excise Tax, (A) any other payments or benefits received or to be received by the Employee in connection with a Change in Control of the Company or the Employee's termination of employment (whether pursuant to the terms of any Section of this Agreement or any other plan, arrangement or agreement with the Company, any person whose actions result in a Change In Control of the Company or any person affiliated with the Company or such person) shall be treated as "parachute payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of Section 280G(b)(1) shall be treated as subject to the Excise Tax, unless in the opinion of tax counsel selected by the Company's independent auditors and acceptable to the Employee such other payments or benefits (in whole or in part) do not constitute parachute payments, or such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered within the meaning of Section 280G(b)(4) of the Code in excess of the base amount within the meaning of Section 280G(b)(3) of the Code, or are otherwise not subject to the Excise Tax, (B) the amount of the Payments which shall be treated as subject to the Excise Tax shall be equal to the lesser of (I) the total amount of the Payments or (II) the amount of excess parachute payments within the meaning of Section 280G(b)(1) (after -7- applying clause (A), above), and (C) the value of any non-cash benefits or any deferred payment or benefit shall be determined by the Company's independent auditors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, the Employee shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of the Employee's residence on the Date of Termination, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of termination of the Employee's employment, the Employee shall repay to the Company at the time that the amount of such reduction in Excise Tax is finally determined the portion of the Gross-Up Payment attributable to such reduction (plus the portion of the Gross-Up Payment attributable to the Excise Tax imposed on the Gross-Up Payment being repaid by the Employee if such repayment results in a reduction in Excise Tax) plus interest on the amount of such repayment at the rate provided in Section 7872(f)(2) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of the Employee's employment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional gross-up payment in respect of such excess (plus any interest payable with respect to such excess) at the time that the amount of such excess is finally determined. 5. Non-Competition Agreement. The Employee and the Company have entered into a Non-Competition, Proprietary Information and Inventions Agreement dated as of July 16, 1996 (the "Non-Competition Agreement"), which shall remain in full force and effect in accordance with its terms. The Non-Competition Agreement shall survive, in accordance with its terms, any termination of Employee's employment, for any reason whatsoever. 6. Consent and Waiver by Third Parties. The Employee hereby represents and warrants that he has obtained all necessary waivers and/or consents from third parties as to enable him to accept and continue employment with the Company on the terms and conditions set forth herein and to execute and perform this Agreement and the Non-competition Agreement without being in conflict with any other agreement, obligation or understanding with any such third party. 7. Waivers and Modifications. This Agreement may be modified, and the rights and remedies of any provision hereof may be waived, only in writing, signed by both the Company and the Employee. No waiver by either party of any breach by the other or any provision hereof shall be deemed to be a waiver of any later or other breach thereof or as a waiver of any such or other provision of this Agreement. This Agreement sets forth all of the terms of the understandings between the parties with reference to the subject matter set forth herein and may not be waived, changed, discharged or terminated orally or by any course of dealing between the parties, but only by an instrument in writing signed by the party against whom any waiver, change, discharge or termination is sought. -8- 8. Governing Law. This Agreement shall be construed in accordance with the laws of the Commonwealth of Massachusetts. 9. Severability. In case any one or more of the provisions contained in this Agreement for any reason shall be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement, but this Agreement shall be construed as if such invalid, illegal or unenforceable provisions had never been contained herein. 10. Termination of All Prior Agreements; Entire Agreement. Upon execution of this Agreement, all prior employment agreements shall be terminated and of no further force or effect, except for the Non-Competition Agreement, which shall continue in full force and effect in accordance with its terms. This Agreement and the Non-Competition Agreement constitute the entire agreement and understanding between the Company and the Employee with respect to the subject matter hereof and thereof and supersede any other prior agreements or understandings, whether oral or written. 11. Notices. Any notice required or permitted to be given pursuant to this Agreement shall be in writing, and sent to the party for whom or which it is intended, at the address of such parties set forth below, by registered or certified mail, return receipt requested, or at such other address either party shall designate by notice to the other in the manner provided herein for giving notice. If to the Company: PerSeptive Biosystems, Inc. 500 Old Connecticut Path Framingham, MA 01701 Attn: Chairman of Compensation Committee With a copy to: Rufus C. King, Esquire Testa, Hurwitz and Thibeault, LLP 125 High Street High Street Tower Boston, MA 02110 If to the Employee: John F. Smith 11 Samuel Parlin Drive Acton, MA 01720 -9- IN WITNESS WHEREOF, each of the parties hereto has executed this Employment Agreement as of the date and year first above written. PERSEPTIVE BIOSYSTEMS, INC. By: /s/ Noubar B. Afeyan -------------------------------- Title: Chief Executive Officer John F. Smith /s/ John F. Smith ----------------------------------- Signature -10- EX-10.2 3 EMPLOYMENT AGREEMENT FOR NOUBAR AFEYAN EXHIBIT 10.2 EMPLOYMENT AGREEMENT AGREEMENT made as of this 17th day of January, 1997 by and between PerSeptive Biosystems, Inc., a Delaware corporation (the "Company") and Noubar B. Afeyan ("Afeyan" or the "Employee"). WHEREAS, the Employee is currently employed as the Chief Executive Officer and Chairman of the Board of Directors of the Company; WHEREAS, the Company believes that it is in its best interest to ensure that the Employee continues to render services to the Company as hereinafter provided; NOW, THEREFORE, in consideration of the mutual covenants and obligations herein contained, it is mutually agreed between the parties hereto as follows: 1. PERIOD OF EMPLOYMENT. The Company hereby employs the Employee and the Employee agrees to serve the Company as provided in Section 2 hereof commencing on the date hereof (the "Commencement Date") and continuing until the occurrence of any of the circumstances described in Section 4 hereof. 2. POSITION AND RESPONSIBILITIES. The Employee shall be employed as the Chief Executive Officer and Chairman of the Board of Directors of the Company, and the Employee shall exercise such powers and comply with and perform such directions and duties in relation thereto as may from time to time be vested in or given to him by the board of Directors of the Company and shall use his best endeavors to improve and extend the business of the Company. In his capacity as Chief Executive Officer, the Employee shall at all times report to, and his activities shall be subject to the direction and control of, the Board of Directors of the Company and the Employee shall devote his full business time and attention to his duties hereunder. The Employee hereby accepts said employment and agrees faithfully to perform said duties and render said services for the term of his employment. 3. COMPENSATION. A. In consideration of all of the services to be rendered by the Employee to the Company, the Company will pay to the Employee a salary of $330,000 per annum, or such greater amount as the Compensation Committee of the Board of Directors may, from time to time, determine. Such salary shall be payable in conformity with the Company's prevailing compensation practice, as such practice shall be established or modified from time to time and shall be subject to all taxes and other legally required payroll deductions and withholdings. B. At the sole discretion of the Compensation Committee of the Board of 2 Directors, the Employee may also be entitled to receive bonus compensation or to participate in incentive compensation plans or programs as may be determined or established from time to time by the Compensation Committee. C. The Employee will be entitled to participate on the same basis with all other officers of the Company in the Company's standard benefits package generally available to other executive officers of the Company. D. The Company shall reimburse the Employee for reasonable expenses incurred directly by the Employee in connection with his employment. Further, the Employee agrees to provide suitable and accurate documentation evidencing such costs incurred and the Company shall provide reimbursement within a reasonable time after the receipt of such documentation. 4. TERMINATION. The Employee's employment may be terminated as follows: A. AT THE EMPLOYEE'S OPTION. Subject to the Company's right to terminate the Employee's employment pursuant to Sections 4.B and 4.C below and the Employee's right to terminate his employment pursuant to Section 4.D, the Employee may terminate his employment for any reason, or for no reason, at any time upon at least sixty (60) days' prior notice. In the event the Employee terminates his employment pursuant to this Section, the Employee shall be entitled to no severance or other termination benefits, except as required by law. B. AT THE ELECTION OF THE COMPANY FOR MISCONDUCT. The Company may, immediately and unilaterally, terminate the Employee's employment for "misconduct" at any time by notice to the Employee. Termination of the Employee's employment by the Company shall constitute a termination for "misconduct" if such termination is for one or more of the following reasons: dishonesty, gross negligence, or other willful conduct which causes substantial damages, liabilities or cost to the Company. In the event that the Employee's employment is terminated for misconduct pursuant to this Section 4.B, the employee shall not be entitled to any severance or other termination benefits, except as required by law. C. AT THE ELECTION OF THE COMPANY FOR REASONS OTHER THAN MISCONDUCT. The Company may, immediately and unilaterally, terminate the Employee's employment at any time for any reason, or for no reason, and without cause by giving written notice to the Employee of the Company's election to so terminate. In the event that the Company exercises its right to terminate under this Section 4.C, the Employee shall be entitled to receive (i) severance payments equal to twenty-four (24) months salary at the Employee's then current rate payable, at the Company's election, monthly or quarterly in arrears in equal installments over twenty-four (24) months (herein sometimes called the "Severance Payments"), (ii) continuation of health insurance coverage on the same or substantially the same terms and conditions then applicable to such coverage until the earlier of (a) twenty-four (24) months from the date of termination or (b) the date on which Employee becomes eligible to participate in the health insurance plans of a subsequent employer, and (iii) if the Employee had received a cash performance bonus, or a cash performance bonus was earned and payable, with respect to a fiscal year of the Company ending within the three year period immediately preceding the date of such termination, an amount equal 3 to two (2) times the highest cash performance bonus in fact paid to the Employee, or in fact earned and payable to the Employee, for any fiscal year of the Company ending during such three year period (the "Performance Bonus Amount"), payable on the date of termination of the Employee's employment. The Performance Bonus Amount shall be subject to all taxes and other legally required payroll deductions and withholding. If the employee neither received nor earned a cash performance bonus during the three year period immediately preceding the date of such termination, no Performance Bonus Amount shall be payable pursuant to this section 4.C.(iii). Nothing herein contained shall be deemed to constitute an obligation to pay the Employee a cash performance bonus with respect to any period during which the Employee is employed by the Company or not employed by the Company, other than as expressly set forth herein. D. AT THE ELECTION OF THE EMPLOYEE FOR GOOD REASON. Not withstanding any other provision of this Agreement, the Employee may terminate his employment for Good Reason if: (a) there is a material breach of this Agreement by the Company, or (b) there is a Change in Control as defined in Section 4.D.1.(i-v) and the conditions described in Section 4.D.2.(i-iv) exist. in the event that the Employee exercises his right to terminate under this Section 4.D, the employee shall be entitled to receive the Severance Payments, benefits and, if payable as provided in Section 4.C.(iii) hereof, the Performance Bonus Amount, which shall be paid as set forth in Section 4.C. 1. For purposes hereof, "Change In Control" means the occurrence of any of the following events: (i) The Company is merged or consolidated or reorganized into or with another corporation or other legal person, and as a result of such merger, consolidation or reorganization less than a majority of the combined voting power of the then-outstanding securities of such surviving, resulting or reorganized corporation or person immediately after such transaction is held in the aggregate by the holders of the then-outstanding securities entitled to vote generally in the election of directors of the Company ("Voting Stock") immediately prior to such transaction; (ii) The Company sells or otherwise transfers all or substantially all of its assets to any other corporation or other legal person, and as a result of such sale or transfer less than a majority of the combined voting power of the then-outstanding securities of such corporation or person immediately after such sale or transfer is held in the aggregate by the holders of Voting Stock of the Company immediately prior to such sale or transfer; (iii) There is a report filed on Schedule 13D or Schedule 14D-1 (or any successor schedule, form or report), each as promulgated pursuant to the 1934 Act, disclosing that any "person" (as such term is used in Section 13(d)(3) or Section 14(d)(2) of the 1934 Act) has become the "beneficial owner" (as such term is used in Rule 13d-3 under the 1934 Act) of securities representing 35% or more of the Voting Stock of the Company; 4 (iv) The Company files a report or proxy statement with the Securities and Exchange Commission pursuant to the 1934 Act disclosing in response to Form 8-K or Schedule 14A (or any successor schedule, form or report or item therein) that a change in control of the Company has occurred; or (v) Individuals who, as of the date of this Agreement, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date of this Agreement whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board: provided, however, that a "Change In Control" shall not be deemed to have occurred for purposes of this Agreement solely because (i) the Company, (ii) an entity in which the Company directly or indirectly beneficially owns 50% or more of the voting securities, or (iii) any Company-sponsored employee stock ownership plan or any other employee benefit plan of the Company, either files or becomes obligated to file a report or a proxy statement under or in response to Schedule 13D, Schedule 14D-1, Form 8-K or Schedule 14A (or any successor schedule, form or report) under the Securities Exchange Act of 1934, disclosing beneficial ownership by it of shares of Voting Stock or because the Company reports that a change in control of the Company has or may have occurred or will or may occur in the future by reason of such beneficial ownership. 2. For purposes hereof, "Good Reason" means the occurrence of one or more of the following events following a Change In Control: (i) Failure to elect, reelect or otherwise maintain the Employee in the office or position in the Company which the Employee held immediately prior to a Change In Control, or the removal of the Employee as the Chairman of the Board or a director of the Company (or any successor thereto) if the Employee shall have been the Chairman of the Board or a director of the Company, as the case may be, immediately prior to the Change In Control; (ii) A significant adverse change in the nature or scope of the authorities, powers, functions, responsibilities or duties attached to the position with the Company which the Employee held immediately prior to the Change In Control, a material reduction in the aggregate of the Employee's salary received from the Company, or the termination of the Employee's rights to any benefits to which he was entitled immediately prior to the Change In Control or a material reduction in scope or value thereof without the prior written consent of the Employee, any of which is not remedied within ten (10) calendar days after receipt by the Company of written notice from the Employee of such change, reduction or termination, 5 as the case may be; (iii) A determination by the Employee made in good faith that as a result of a Change In Control and a change in circumstances thereafter significantly affecting his position, including without limitation a change in the scope of the business or other activities for which he was responsible immediately prior to the Change In Control, he has been rendered substantially unable to carry out, has been substantially hindered in the performance of, or has suffered a substantial reduction in, any of the authorities, powers, functions, responsibilities or duties attached to the position held by the Employee immediately prior to the Change In Control, which situation is not remedied within ten (10) calendar days after written notice to the Company from the Employee of such determination; (iv) The liquidation, dissolution, merger, consolidation or reorganization of the Company or transfer of all or a significant portion of its business and/or assets, unless the successor or successors (by liquidation, merger, consolidation, reorganization or otherwise) to which all or a significant portion of its business and/or assets have been transferred (directly or by operation of law) shall have assumed all duties and obligations of the Company under this Agreement; (v) The Company shall relocate its principal executive offices, or require the Employee to have his principal location of work changed, to any location which is in excess of twenty (20) miles from the location thereof immediately prior to the Change In Control or the Company shall require the Employee to travel away from his office in the course of discharging his responsibilities or duties thereunder significantly more (in terms of either consecutive days or aggregate days in any calendar year) than was required of him prior to the Change In Control without, in either case, his prior written consent; or (vi) Without limiting the generality or effect of the foregoing, any material breach of this Agreement by the Company or any successor thereto. E. BY REASON OF DEATH OR DISABILITY. If the Employee dies during his employment during the term of this Agreement, the Company shall have no further obligation to pay compensation or other benefits, except that the Employee's estate shall be entitled to receive an amount equal to twenty four (24) months of the employee's salary at his then current rate, and, if the Employee had received a cash performance bonus, or a cash performance bonus was earned and payable, with respect to a fiscal year of the Company ending within the three year period immediately preceding the date of the Employee's death, an amount equal to two (2) times the highest performance cash bonus in fact paid to the employee, or in fact earned and payable to the employee, for any fiscal year of the Company ending during such three year period, such amounts to be payable, at the election of the Company, monthly or quarterly in arrears over the twenty- four (24) months subsequent to the Employee's death. if during the term of the employee's employment he becomes disabled (by reason of physical disability, mental incompetence or otherwise) for such period of time and under circumstances which entitle him to receive disability benefits under the terms of any disability insurance policy now maintained or 6 to be purchased for the Employee by the Company, then the Board of Directors of the Company, in its discretion, may elect to terminate the Employee's employment by reason of such disability as of the date benefits first become payable under such disability policy by giving the employee written notice to such effect. Upon any such termination for disability, the employee shall be entitled to receive severance payments equal to twenty four (24) months salary at the Employee's then current rate payable over twenty four (24) months and, if the employee had received a cash performance bonus, or a cash performance bonus was earned and payable, with respect to a fiscal year of the Company ending within the three year period immediately preceding the date of such termination, an amount equal to two (2) times the highest performance cash bonus in fact paid to the employee, or in fact earned and payable to the Employee, for any fiscal year of the Company ending during such three year period, reduced by any amounts received by the employee pursuant to any disability insurance policy maintained or paid for by the Company. The employee shall be deemed to be disabled for the purposes of this Section 4.E. if he is unable to perform his duties hereunder for a period of three consecutive months. F. Any severance payments shall be calculated on the basis of the Employee's annual salary rate at the time of termination and shall be payable in conformity with the Company's then current payroll practices and shall be subject to all taxes and other legally required payroll deductions and withholding. G. In the event of any termination of the Employee's employment, in addition to any severance payments, benefits or cash performance bonus which may be payable hereunder, the Employee shall receive all earned but unpaid salary, accrued but unused vacation and earned but unpaid bonus or incentive compensation, each as of the termination date, and all other benefits required by law. H. In the event of any voluntary termination of the Employee's employment (other than for Good Reason) pursuant to Section 4.A, or any termination of the Employee's employment by the Company for Misconduct pursuant to Section 4.B, or as a result of disability pursuant to Section 4.E, then the Employee specifically agrees and acknowledges that he will be deemed to have resigned from all offices and directorships (including without limitation his position as Chairman of the Board and as a Director of the Company if he holds such position(s) at the time of any such termination) he holds with the Company, its subsidiaries, and/or affiliated entities, effective as of his last day of employment. I. Gross-up. If any of the payments under Section 4 or any other -------- payments made or deemed made to the Employee pursuant to this Agreement or any other agreement, including but not limited to the acceleration of stock options upon a Change In Control, or the Death or Disability of the Employee, (the "Payments," etc.) will be subject to the tax (the "Excise Tax") imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), (or any similar tax that may hereafter be imposed) the Company shall pay to the Employee an additional amount (the "Gross-Up Payment") such that the net amount retained by the Employee, after deduction of any Excise Tax on the Payments, without regard to this sentence, (after the deduction of any federal, state and local income tax upon the Gross-Up Payment), shall be equal to the Payments, without regard to this sentence. For purposes of determining whether any of the 7 Payments will be subject to the Excise Tax and the amount of such Excise Tax, (A) any other payments or benefits received or to be received by the Employee in connection with a Change in Control of the Company or the Employee's termination of employment (whether pursuant to the terms of any Section of this Agreement or any other plan, arrangement or agreement with the Company, any person whose actions result in a Change in Control of the company or any person affiliated with the Company or such person) shall be treated as "parachute payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of Section 280G(b)(1) shall be treated as subject to the Excise Tax, unless in the opinion of tax counsel selected by the Company's independent auditors and acceptable to the Employee such other payments or benefits (in whole or in part) do not constitute parachute payments, or such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered within the meaning of Section 280G(b)(4) of the Code in excess of the base amount within the meaning of Section 280G(b)(3) of the Code, or are otherwise not subject to the Excise Tax, (B) the amount of the Payments which shall be treated as subject to the Excise Tax shall be equal to the lesser of (I) the total amount of the Payments or (II) the amount of excess parachute payments within the meaning of Section 280G(b)(1) (after applying clause (A), above), and (C) the value of any non-cash benefits or any deferred payment or benefit shall be determined by the Company's independent auditors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, the Employee shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of the Employee's residence on the Date of Termination, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of termination of the Employee's employment, the Employee shall repay to the Company at the time that the amount of such reduction in Excise Tax is finally determined the portion of the Gross- Up Payment attributable to such reduction (plus the portion of the Gross-Up Payment attributable to the Excise Tax imposed on the Gross-Up Payment being repaid by the Employee if such repayment results in a reduction in Excise Tax) plus interest on the amount of such repayment at the rate provided in Section 7872(f)(2) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of the Employee's employment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional gross-up payment in respect of such excess (plus any interest payable with respect to such excess) at the time that the amount of such excess is finally determined. 5. NON-COMPETITION AGREEMENT. the employee and the Company have entered into a Non-competition, Proprietary Information and Inventions Agreement dated as of march 30, 1989 (the "Non-Competition Agreement"), which shall remain in full force and effect in accordance with its terms. The Non-Competition Agreement shall survive, in accordance with its terms, the termination of Employee's employment with the Company for any reason whatsoever. 8 6. CONSENT AND WAIVER BY THIRD PARTIES. The Employee hereby represents and warrants that he has obtained all necessary waivers and/or consents from third parties as to enable him to accept and continue employment with the company on the terms and conditions set forth herein and to execute and perform this Agreement and the Non-Competition Agreement without being in conflict with any other agreement, obligation or understanding with any such third party. 7. WAIVERS AND MODIFICATIONS. This Agreement may be modified, and the rights and remedies of any provision hereof may be waived, only in writing, signed by both the Company and the Employee. No waiver by either party of any breach by the other or any provision hereof shall be deemed to be a waiver of any later or other breach thereof or as a waiver of any such or other provision of this Agreement. This agreement sets forth all of the terms of the understandings between the parties with reference to the subject matter set forth herein and may not be waived, changed, discharged or terminated orally or by any course of dealing between the parties, but only by an instrument in writing signed by the party against whom any waiver, change, discharge or termination is sought. 8. GOVERNING LAW. This Agreement shall be construed in accordance with the laws of the Commonwealth of Massachusetts. 9. SEVERABILITY. In case any one or more of the provisions contained in this Agreement for any reason shall be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement, but this Agreement shall be construed as if such invalid, illegal or unenforceable provisions had never been contained herein. 10. TERMINATION OF ALL PRIOR AGREEMENTS; ENTIRE AGREEMENT. Upon execution of this Agreement, all prior employment agreements shall be terminated and of no further force or effect, except for the Non-Competition Agreement, which shall continue in full force and effect in accordance with its terms. This Agreement and the Non-Competition Agreement constitute the entire agreement and understanding between the Company and the Employee with respect to the subject matter hereof and thereof and supersede any other prior agreements or understandings, whether oral or written. 11. NOTICES. Any notice required or permitted to be given pursuant to this Agreement shall be in writing, and sent to the party for whom or which it is intended, at the address of such parties set forth below, by registered or certified mail, return receipt requested, or at such other address either party shall designate by notice to the other in the manner provided herein for giving notice. If to the Company: PerSeptive Biosystems, Inc. 500 Old Connecticut Path Framingham, MA 01701 Attention: Chairman of Compensation Committee With a copy to: 9 Rufus C. King, Esq. Testa, Hurwitz and Thibeault, LLP 125 High Street High Street Tower Boston, MA 02110 If to the Employee: Dr. Noubar B. Afeyan 6 Fairfield Avenue Lexington, MA 02173 IN WITNESS WHEREOF, each of the parties hereto has executed this Employment Agreement as of the date and year first above written. PERSEPTIVE BIOSYSTEMS, INC. By: /s/ Edward M. Kania, Jr. ___________________________ Title: Chairman, Compensation Committee Board of Directors Noubar B. Afeyan /s/ Noubar B. Afeyan ______________________________ Signature EX-27 4 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q FOR THE QUARTER ENDED JUNE 28, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS 9-MOS SEP-30-1997 SEP-30-1996 OCT-01-1996 OCT-01-1995 JUN-28-1997 JUN-29-1996 7,069 6,686 31,193 9,901 20,861 18,765 1,931 2,337 23,828 22,957 2,678 2,170 44,158 54,176 15,579 19,330 137,300 124,614 36,586 37,237 0 0 0 0 19,123 27,538 216 172 47,904 25,070 137,300 124,614 70,174 56,601 70,174 66,702 35,578 27,865 35,578 41,273 41,106 53,566 0 0 2,212 2,190 17,834 (30,417) 0 100 17,834 (30,517) 0 0 0 0 0 0 17,834 (30,517) 0.78 (2.08) 0.72 0
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