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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
- - Act of 1934
For the Quarterly period ended: June 30, 1996
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Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
- - Act of 1934
For the transition period from to
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Commission File Number 0-19410
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SEPRACOR INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 22-2536587
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(State or Other Jurisdiction of (I.R.S Employer Identification number)
Organization or Incorporation)
111 LOCKE DRIVE, MARLBOROUGH, MASSACHUSETTS 01752
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(Address of Principal Executive Offices) (Zip Code)
(508) 481-6700
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(Registrant's Telephone Number, Including Area Code)
33 LOCKE DRIVE, MARLBOROUGH, MASSACHUSETTS 01752
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(Former name, former address, and former fiscal
year if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months( or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock, par value $.10 per share 27,069,745
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Class Outstanding at August 5, 1996
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SEPRACOR INC.
<TABLE>
INDEX
PART I - FINANCIAL INFORMATION
<S> <C> <C>
Item 1. Consolidated Financial Statements
Consolidated Condensed Balance Sheets as of
June 30, 1996 and December 31, 1995 3
Consolidated Statements of Operations for the Three and Six
Month Periods Ended June 30, 1996 and 1995 4
Consolidated Statements of Cash Flows for the Six Month
Periods Ended June 30, 1996 and 1995 5
Notes to Consolidated Condensed Interim Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial 9
Condition and Results of Operations
PART II - OTHER INFORMATION 12
SIGNATURES 15
</TABLE>
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<TABLE>
SEPRACOR INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
<CAPTION>
June 30, December 31,
1996 1995
--------- ------------
ASSETS (in thousands)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 68,418 $ 135,818
Marketable securities 53,681 7,432
Cash in escrow 1,614
Accounts receivable 4,605 5,508
Inventories 3,305 3,412
Other current assets 1,102 524
--------- ---------
Total current assets 131,111 154,308
Property, plant and equipment, net 15,965 12,497
Investment in affiliates (Note 3) 15,481 17,949
Excess of investments over net assets acquired 10,166 10,633
Other assets 5,574 7,326
--------- ---------
Total Assets $ 178,297 $ 202,713
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,766 $ 3,325
Accrued expenses 7,221 5,900
Notes payable and current portion
of capital lease obligation and
current portion of long-term debt 870 3,152
Deferred revenue 3,962 3,500
Acquisition payable - 1,614
--------- ---------
Total current liabilities 15,819 17,491
Convertible subordinated debentures 80,880 80,880
Long-term debt and capital lease obligation 4,576 4,938
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Total liabilities 101,275 103,309
--------- ---------
Minority interest 4,297 4,677
Convertible redeemable preferred stock 5,800 5,500
Stockholders' equity:
Common stock 2,695 2,682
Additional paid-in capital 212,945 212,814
Accumulated deficit (149,130) (126,795)
Equity adjustments 415 526
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Total stockholders' equity 66,925 89,227
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Total liabilities and stockholders' equity $ 178,297 $ 202,713
========= =========
</TABLE>
The accompanying notes are an integral part
of the financial statements
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<TABLE>
SEPRACOR INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX-MONTH PERIODS ENDED
JUNE 30,1996 and 1995
(unaudited)
<CAPTION>
Three month periods ended Six month periods ended,
June 30, June 30,
-------- --------
(in thousands, except per share amounts)
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Product sales $ 3,869 $ 4,177 $ 6,826 $ 7,336
Collaborative research and development -- 88 25 287
License fees and royalties 673 141 804 282
-------- -------- -------- --------
Total revenues 4,542 4,406 7,655 7,905
Costs and expenses:
Cost of products sold 2,071 3,133 3,333 6,269
Research and development 7,737 5,451 14,016 10,099
Sales and marketing 844 1,712 1,876 3,483
Administration 2,997 3,319 5,911 6,529
Legal expense related to patents 183 220 403 409
Restructuring and impairment charge -- 4,144 -- 4,144
-------- -------- -------- --------
Total period expenses 13,832 17,979 25,539 30,933
Loss from operations (9,290) (13,573) (17,884) (23,028)
Equity in investee losses (Note 3) (2,094) (5,375)
Other income, net 146 (1) 432 91
-------- -------- -------- --------
Net loss before minority interests (11,238) (13,574) (22,827) (22,937)
Minority interests in subsidiaries (18) 3,409 492 5,448
-------- -------- -------- --------
Net loss $(11,256) $(10,165) $(22,335) $(17,489)
======== ======== ======== ========
Net loss per share $ (0.42) $ (0.54) $ (0.83) $ (0.93)
Weighted average number of common
and common equivalent shares outstanding 26,910 18,763 26,872 18,728
</TABLE>
The accompanying notes are an integral part
of the financial statements
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<TABLE>
Sepracor Inc.
Consolidated Statement of Cash Flows
(unaudited)
<CAPTION>
Six-month periods ended
June 30,
--------
(in thousands)
1996 1995
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(22,335) $(17,489)
Adjustments to reconcile net loss to net cash
used in operating activities:
Minority interests in subsidiaries (492) (5,448)
Depreciation and amortization 1,621 1,982
Provision for doubtful accounts 142 205
Loss on disposal of property and equipment 10
Restructuring and impairment costs 2,559
Equity investee losses 5,375
Changes in operating assets and liabilities:
Accounts receivable 541 5,847
Inventories 18 705
Other current assets (467) 190
Accounts payable 604 (3,426)
Accrued expenses 1,339 (1,376)
Deferred revenue 463 2,971
Accrued restructuring (135) 1,310
-------- --------
Net cash used in operating activities: (13,316) (11,970)
Cash flows from investing activities:
Purchases of marketable securities (77,749)
Sales of marketable securities 31,500 2,193
Additions to property and equipment (7,391) (2,259)
Proceeds from sale of equipment 90
Increase in other assets 1,574 (708)
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Net cash (used in) investing activities (51,976) (774)
Cash flows from financing activities:
Net proceeds from issuances of stock 480 5,477
Borrowings of long term debt 3,176
Repayments of long term debt (313) (152)
Repayments of capital lease obligations (55) (198)
Borrowings under line of credit agreements (2,255) (1,340)
-------- --------
Net cash provided by (used in) financing activities (2,143) 6,963
Effect of exchange rates on cash and cash equivalents 35 (12)
-------- --------
Net decrease in cash and cash equivalents (67,400) (5,793)
Cash and cash equivalents at begining of period 135,818 25,397
-------- --------
Cash and cash equivalents at end of period 68,418 $ 19,604
======== ========
</TABLE>
The accompanying notes are an integral part
of the financial statements
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SEPRACOR INC.
NOTES TO CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS
1. Basis of presentation:
The accompanying consolidated financial statements are unaudited and have been
prepared on a basis substantially consistent with the audited financial
statements. Certain information and footnote disclosures normally included in
the Company's annual financial statements have been condensed or omitted. The
consolidated condensed interim financial statements, in the opinion of
management, reflect all adjustments (including normal recurring accruals)
necessary for a fair presentation of the results for the interim periods ended
June 30, 1996 and 1995.
The results of operations for the interim periods are not necessarily indicative
of the results of operations to be expected for the fiscal year. These
consolidated interim financial statements should be read in conjunction with the
audited financial statements for the year ended December 31, 1995, which are
contained in the Company's Annual Report on Form 10-K for the year ended
December 31, 1995, filed with the Securities and Exchange Commission.
2. Inventories:
<TABLE>
Inventories consist of the following:
<CAPTION>
June 30, December 31,
1996 1995
---- ----
<S> <C> <C>
Raw materials $ 800 $1,104
Work in progress 547 279
Finished goods 1,958 2,029
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$3,305 $3,412
====== ======
</TABLE>
3. ChiRex:
In March 1996, ChiRex, a newly formed corporation that is a combination of
Sterling Organics Limited, a fine chemical manufacturer, and the chiral
chemistry business of Sepracor, which was conducted through its subsidiary
SepraChem, completed an initial public offering of common stock. ChiRex sold
6,700,000 shares at $13 per share. In exchange for the contribution of
SepraChem, Sepracor received 3,489,301 shares of ChiRex common stock and as a
result Sepracor owns approximately 32% of ChiRex. Sepracor accounted for this
transaction as a non-monetary exchange of assets and ,therefore, no gain or loss
was recorded as a result of this transaction. Since March 11, 1996, Sepracor
carries its investment in ChiRex using the equity method of accounting and,
accordingly, recorded $2,907,000 as its share of ChiRex's losses for the six
months ended June 30, 1996.
4. BioSepra loans:
In January 1996, Biosepra signed a Promissory Note for $350,000, or so much of
such sum as shall have been advanced by Sepracor. This amount is payable over
sixty installments and does not bear interest. BioSepra used the funds for
leasehold improvements in its new office space. As of June 30, 1996, BioSepra
had received $350,000 under the Promissory Note.
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In March 1996, Sepracor agreed to loan to BioSepra $3,500,000. In addition,
Sepracor agreed to loan BioSepra up to an additional $2,000,000 until March 1997
(the "loans"). Interest on the loans were prime plus 3/4%. The loans, including
any interest thereon, were convertible into the shares of BioSepra stock, at the
option of Sepracor at any time prior to payment. On June 10, 1996 Sepracor
agreed to loan the additional $2,000,000 to BioSepra. On June 10, 1996 Sepracor
converted the outstanding principal amount of $5,500,000 plus accrued interest
of $47,639 into 1,369,788 shares of BioSepra common stock. As a result of the
conversion Sepracor owns approximately 64% of BioSepra.
5. Litigation
Sepracor and BioSepra are defendants in three lawsuits brought by PerSeptive in
the United States District Court for the District of Massachusetts. In actions
commenced in October 1993 and January 1995, PerSeptive has alleged that
Sepracor's and BioSepra's manufacture and sale of HyperD chromatography media
infringe four of PerSeptive's United States patents. PerSeptive is seeking
unspecified monetary damages as well as injunctive relief. In a separate action,
PerSeptive has alleged that certain statements made by Sepracor and BioSepra
with respect to the performance of HyperD media, performance of PerSeptive's
POROS media, and the internal structures of POROS and HyperD media, including
statements made in BioSepra's prospectus dated March 24, 1994, constitute false
advertising.
BioSepra has received an opinion of its patent counsel, Pennie & Edmonds, to
the effect that a properly informed court should conclude the manufacture, use
and/or sale by BioSepra or its customers of the present HyperD products do not
infringe any valid claims of the three United States patents held by PerSeptive
relating to "perfusion chromatography". Allegations have also been made that
another United States patent, which relates to the chemistry of certain coatings
applied during the manufacture of HyperD (the "coatings patent"), is infringed
by the manufacture, sale or use of HyperD. BioSepra and Sepracor have asserted
a counterclaim charging PerSeptive with unfair competition.
On January 9, 1996, the United States District Court for the District of
Massachusetts in part granted Sepracor and BioSepra's request for summary
judgment with respect to three of PerSeptive's patents concerning "Perfusion
Chromatography" (the "January 9 Order"). The Court ruled that persons in
addition to those named in the three "perfusion" patents were inventors of the
alleged inventions claimed in those patents. This ruling may ultimately dispose
of PerSeptive's claims concerning the "perfusion" patents, depending on the
Court's resolution of PerSeptive's effort to correct the patents, and the
outcome on appeal by PerSeptive of the January 9 Order or appeal by any party of
any ruling regarding correction of inventorship.
In its January 9 Order, the Court ruled that PerSeptive's claims related
to the three "perfusion" patents would be dismissed on January 19, 1996, if
PerSeptive had not requested correction of inventorship by that date. The Court
postponed this deadline pending its ruling on PerSeptive's request for
certification of an immediate appeal of the January 9 Order to the United States
Court of Appeals for the Federal Circuit. On March 12, 1996, the Court denied
PerSeptive's motion for immediate appeal and scheduled a hearing on deceptive
intent on the part of PerSeptive, if PerSeptive moved to correct inventorship
(the "March 12 Order"). The Court required PerSeptive to make any motion to
correct by March 31, 1996. In response, PerSeptive requested that the Court
vacate its January 9 and March 12 Orders, or in the alternative, correct the
patents in such a way that the presently unnamed inventors obtained no rights to
license the patents. The court denied PerSeptive's motion to vacate, and
scheduled a hearing on PerSeptive's motion to correct the patents for 1996.
According to the January 9 and March 12 Orders, PerSeptive could correct
inventorship if it bears the burden of proving that its initial designation of
inventors was done without deceptive intent. PerSeptive has asserted that no
motion to correct need be filed, and that Sepracor and BioSepra bear the burden
of proving deceptive intent. PerSeptive also asserts that the unnamed inventors
should not be added to the patents or given any right to license the patents,
and that as a matter of law they did not err in not naming the two unnamed
inventors, and did not name inventors with deceptive intent. Sepracor and
BioSepra contend that if PerSeptive is able to correct inventorship, the
presently unnamed inventors would have independent rights to license the
"perfusion" patents unless the Court ruled that the unnamed inventors are not
entitled to such rights. If inventorship could not be corrected, the "perfusion"
patents would be held
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invalid, subject to appeal by PerSeptive. A decision by the District Court
to correct inventorship or preventing the unnamed inventors from licensing the
"perfusion" patents, would be subject to appeal by any party. PerSeptive could
appeal any decision invalidating the patents for willful misdesignation of
inventors. The hearing on deceptive intent is expected to be completed on August
8, 1996. PerSeptive also asserts that an additional perfusion chromatography
patent has been allowed but has not yet issued and that another patent related
to perfusion chromatography has been issued. Sepracor does not know what is
claimed in either patent.
There can be no assurance that Sepracor will prevail in the pending
litigation, and an adverse outcome in any of the patent infringement actions on
any of the chromatography patents would have a material adverse effect on
Sepracor's future business and operations. BioSepra has entered into a joint
development and distribution agreement with Beckman Instruments, Inc. BioSepra
is required to repay to Beckman all or part of certain payments if Sepracor
terminates Beckman's right to use and sell HyperD media because a court finds
HyperD media infringes any third party patents.
Substantial funds have been and continue to be expended in connection with
the defense of the litigation. Sepracor has agreed to control the defense of the
litigation, and Sepracor and BioSepra share equally in expenses, net of
insurance payments. In addition, in the event of any settlement or judgment
adverse to BioSepra, Sepracor has agreed to indemnify BioSepra from and against
any damages that BioSepra is required to pay with respect to its manufacture,
use or sale of HyperD media products occurring prior to March 24, 1994.
6. Summarized income statement information:
<TABLE>
The following is the summarized income statement information for HemaSure Inc.
and ChiRex Inc. for the three and six month periods ended June 30, 1996:
<CAPTION>
Six Months Ended Three Months Ended
June 30, 1996 June 30, 1996
------------- -------------
(in thousands)
<S> <C> <C>
HEMASURE
- --------
Net sales $ 2,081 $ 2,000
Gross profit (596) (288)
Income(loss) from continuing
operations (7,636) (4,524)
Net income(loss) $ (6,669) $(4,141)
CHIREX
- ------
Net sales $ 44,778 $21,976
Gross profit 8,406 4,890
Income(loss) from continuing
operations (7,372) 1,793
Net income(loss) $(10,434) $ 164
</TABLE>
8
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Overview
The consolidated financial statements include the accounts of Sepracor Inc.
and its majority and wholly owned subsidiaries, including BioSepra, SepraChem(
from January 1, 1996 to March 11, 1996), NEP and Versicor. In June 1996, NEP was
merged into Sepracor Inc.
In March 1996, ChiRex, a newly formed corporation that is a combination of
Sterling Organics Limited, a fine chemical manufacturer, and the chiral
chemistry business of Sepracor, which was conducted through its subsidiary
SepraChem, completed an initial public offering of common stock. ChiRex sold
6,700,000 shares at $13 per share. In exchange for the contribution of
SepraChem, Sepracor received 3,489,301 shares of ChiRex common stock and as a
result Sepracor owns approximately 32% of ChiRex. Sepracor accounted for this
transaction as a non-monetary exchange of assets and ,therefore, no gain or loss
was recorded as a result of this transaction. Since March 11, 1996, Sepracor
carries its investment in ChiRex using the equity method of accounting and,
accordingly, recorded $2,907,000 as its share of ChiRex's losses for the six
months ended June 30, 1996.
Three and six months ended June 30, 1996 and 1995
Product sales were $3,869,000 in the three months ended June 30, 1996 compared
to $4,177,000 in the same period in 1995. Product sales for the six months ended
June 30, 1996 were $6,826,000 compared to $7,336,000 in the same period in 1994.
Product sales are primarily attributable to BioSepra's sales of bioprocessing
media, supplies and equipment. The decrease in product sales in both periods was
primarily due to the discontinuation of sales of Biopass products, a subsidiary
of BioSepra which was sold by BioSepra in July 1995. The Company believes that
sales of BioSepra's HyperD media products, which were introduced in 1993, have
been adversely affected by, and may continue to be adversely affected by, the
pending patent litigation with PerSeptive BioSystems, Inc. ("PerSeptive") - see
"Legal Proceedings". BioSepra's future success will depend, in part, on its
ability to generate increased sales of its HyperD media products and ProSys
Workstation.
License fees and royalty income was $673,000 in the three months ended June 30,
1996 compared to $141,000 in the same period in 1995. License fees and royalty
income for the six months ended June 30, 1996 were $804,000 compared to $282,000
in the same period in 1995. The increase in license fee and royalty income for
both periods was due to revenue recognized at BioSepra under the Beckman
contract.
Cost of products sold as a percentage of product sales was 54% for the three
months ended June 30, 1996 compared to 75% for the same period in 1995. Costs of
products sold as a percentage of product sales was 49% for the six months ended
June 30, 1996 compared to 85% in the same period in 1995. Higher costs in 1995
were the result of sales of Biopass products, and to a lesser extent, reduced
overall manufacturing costs at BioSepra in 1996 as a result of the
cost-reduction program implemented in June 1995. Management expects fluctuations
in cost of products sold as a percentage of product sales as product mix changes
occur period to period.
Research and development expenses were $7,737,000 in the three months ended June
30, 1996 compared to $5,451,000 in the same period last year. Research and
development expenses were $14,016,000 for the
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six months ended June 30, 1996 compared to $10,099,000 in the same period
last year. Research and development spending was primarily focused on
preclinical and clinical trials in the Company's pharmaceutical program.
Selling, marketing, administrative and legal expense related to patents were
$4,024,000 for the three months ended June 30, 1996 compared to $5,251,000 for
the same period last year. Selling, marketing, administrative and legal expense
related to patents were $8,190,000 for the six months ended June 30, 1996
compared to $10,421,000 for the same period last year. The decrease in both
periods was primarily due to the impact of HemaSure no longer being consolidated
in the results of Sepracor in 1996 and the cost reduction program entered into
at BioSepra beginning in June 1995.
Equity in loss of investees was $2,094,000 for the three months ended June 30,
1996 and $5,375,000 for the six months ended June 30, 1996. There was no similar
amounts in 1995. The equity in loss consists of the Company's portion of
HemaSure's and ChiRex's net loss. Included in ChiRex's results were one-time
write-offs of $12,131,000 from ChiRex's initial public offering and resulting
transactions. Net other income was $146,000 for the three months ended June 30,
1996 compared to $(1,000) for the same period in 1995. Net other income was
$432,000 for the six months ended June 30, 1996 compared to $91,000 for the same
period last year. The increase in net other income for both periods is due to
higher interest income as a result of increased cash balances.
Minority interests in subsidiaries resulted in an increase of consolidated net
loss of $18,000 for the three months ended June 30, 1996 compared to a reduction
in the consolidated net loss of $3,409,000 for the same period last year.
Minority interests in subsidiaries resulted in a decrease of consolidated net
loss of $492,000 for the six months ended June 30, 1996 compared to $5,448,000
for the same period last year. The decrease in the three and six month periods
is the result of decreased losses of BioSepra and the impact of no longer
consolidating HemaSure.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents plus marketable securities of Sepracor and its
subsidiaries, including BioSepra, totaled $122,099,000 at June 30, 1996,
compared to $143,250,000 at December 31, 1995. Cash and cash equivalents plus
marketable securities of Sepracor, excluding BioSepra, at June 30, 1996 were
$117,275,000.
The net cash used in operating activities for the six months ended June 30, 1996
was $13,316,000. The net cash used in operating activities includes the net loss
of $22,335,000 and the minority interest in subsidiary portion of the net loss
of $492,000. This was offset by non-cash charges of $7,148,000. The Company's
accounts receivable balance at March 31,1996 decreased by $541,000 from the
December 31, 1995 balance primarily due to the collection of license fee and
trade receivables. The accounts payable and accrued expense balances increased a
total of $1,808,000 from the December 31, 1995 balances primarily due to the
timing of disbursements. The deferred revenue balance increased $463,000 from
the December 31, 1995 balance due to BioSepra's deferral of revenue in
connection with the Beckman arrangement. Under the Beckman arrangement, BioSepra
may be required to return to Beckman all or part of certain payments made by
Beckman under the arrangement if BioSepra fails to meet certain development
milestones or if BioSepra terminates Beckman's right to use and sell licensed
products, including HyperD media, because a court finds that any such licensed
products infringe any third-party patents.
In 1994, Sepracor, BioSepra and HemaSure entered into an equipment leasing
arrangement that provides for a total of up to $2,000,000 of financing to
Sepracor and its subsidiaries for the purpose of financing capital equipment in
the U.S. All outstanding amounts are collateralized by the assets so financed
and are guaranteed by Sepracor. At June 30, 1996, there was $1,238,000
outstanding under this credit facility.
At June 30, 1996, Sepracor guaranteed $1,244,000 of outstanding bank borrowings
of BioSepra SA, BioSepra's wholly owned French subsidiary.
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In 1994, Sepracor's wholly-owned subsidiary, Sepracor Canada Limited, entered
into two credit agreements with two Canadian provincial and federal business
development agencies for approximately $2,960,000 in term debt, of which
$2,590,000 is at an annual interest rate of 9.25% and $370,000 is interest free.
As of June 30, 1996, approximately $2,681,000 of such term debt was outstanding.
Sepracor guarantees $2,311,000 of this debt.
In January 1996, BioSepra signed a promissory note for $350,000, or so much of
such sum as shall have been advanced by Sepracor. This amount is payable over
sixty installments and does not bear interest. BioSepra used the funds for
leasehold improvements in its new office space. As of June 30, 1996 BioSepra had
received $350,000 under the Promissory Note.
In March 1996, Sepracor agreed to loan to BioSepra $3,500,000. In addition,
Sepracor agreed to loan BioSepra up to an additional $2,000,000 until March 1997
(the "loans"). Interest on the loans were at prime plus 3/4%. The loans,
including any interest thereon, were convertible into the shares of BioSepra
stock, at the option of Sepracor at any time prior to payment. On June 10, 1996
Sepracor agreed to loan the additional $2,000,000 to BioSepra. On June 10, 1996,
Sepracor converted the outstanding principal amount of $5,500,000 plus accrued
interest of $47,639 into 1,369,788 shares of BioSepra common stock. As a result
of the conversion Sepracor owns approximately 64% of BioSepra.
Certain of the information contained in this Quarterly Report on Form 10-Q, with
respect to the Company's other plans and strategy for business, consists of
forward looking statements. Important factors that could cause actual results to
differ materially from the forward -looking statements are described in the
Company's Annual Report on Form 10-K for the year ended December 31, 1995. In
addition, the Company will require substantial additional funds for its research
and product development programs, operating expenses, the pursuit of regulatory
approvals and expansion of its production, sales and marketing capabilities.
Adequate funds for these purposes, whether through equity or debt financings,
collaborative or other arrangements with corporate partners or from other
sources, may not be available when needed or on terms acceptable to the Company.
Insufficient funds could require the Company to delay, scale back or eliminate
certain of its research and product development programs or to license to third
parties to commercialize products or technologies that the Company would
otherwise develop or commercialize itself. While the Company believes that its
available cash balances, will be sufficient to meet its capital requirements
into 1998 the Company may need to raise additional funds to support its
long-term product development and commercialization programs. There can be no
assurance that such capital will be available on favorable terms, if at all. The
Company's cash requirements may vary materially from those now planned because
of results of research and development, results of product testing,
relationships with customers, changes in focus and direction of the Company's
research and development programs, competitive and technological advances,
patent developments, the FDA regulatory process, the capital requirements of
BioSepra and Versicor, and other factors.
Because of these factors, the Company believes that period-to-period comparisons
of its financial results are not necessarily meaningful and it expects that its
results of operations may continue to fluctuate from period to period in the
future.
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PART II
OTHER INFORMATION
Item 1. Legal proceedings
Sepracor and BioSepra are defendants in three lawsuits brought by PerSeptive in
the United States District Court for the District of Massachusetts. In actions
commenced in October 1993 and January 1995, PerSeptive has alleged that
Sepracor's and BioSepra's manufacture and sale of HyperD chromatography media
infringe four of PerSeptive's United States patents. PerSeptive is seeking
unspecified monetary damages as well as injunctive relief. In a separate action,
PerSeptive has alleged that certain statements made by Sepracor and BioSepra
with respect to the performance of HyperD media, performance of PerSeptive's
POROS media, and the internal structures of POROS and HyperD media, including
statements made in BioSepra's prospectus dated March 24, 1994, constitute false
advertising.
BioSepra has received an opinion of its patent counsel, Pennie & Edmonds, to the
effect that a properly informed court should conclude the manufacture, use
and/or sale by BioSepra or its customers of the present HyperD products do not
infringe any valid claims of the three United States patents held by PerSeptive
relating to "perfusion chromatography". Allegations have also been made that
another United States patent, which relates to the chemistry of certain coatings
applied during the manufacture of HyperD (the "coatings patent"), is infringed
by the manufacture, sale or use of HyperD. BioSepra and Sepracor have asserted a
counterclaim charging PerSeptive with unfair competition.
On January 9, 1996, the United States District Court for the District of
Massachusetts in part granted Sepracor and BioSepra's request for summary
judgment with respect to three of PerSeptive's patents concerning "Perfusion
Chromatography" (the "January 9 Order"). The Court ruled that persons in
addition to those named in the three "perfusion" patents were inventors of the
alleged inventions claimed in those patents. This ruling may ultimately dispose
of PerSeptive's claims concerning the "perfusion" patents, depending on the
Court's resolution of PerSeptive's effort to correct the patents, and the
outcome on appeal by PerSeptive of the January 9 Order or appeal by any party of
any ruling regarding correction of inventorship.
In its January 9 Order, the Court ruled that PerSeptive's claims related to
the three "perfusion" patents would be dismissed on January 19, 1996, if
PerSeptive had not requested correction of inventorship by that date. The Court
postponed this deadline pending its ruling on PerSeptive's request for
certification of an immediate appeal of the January 9 Order to the United States
Court of Appeals for the Federal Circuit. On March 12, 1996, the Court denied
PerSeptive's motion for immediate appeal and scheduled a hearing on deceptive
intent on the part of PerSeptive, if PerSeptive moved to correct inventorship
(the "March 12 Order"). The Court required PerSeptive to make any motion to
correct by March 31, 1996. In response, PerSeptive requested that the Court
vacate its January 9 and March 12 Orders, or in the alternative, correct the
patents in such a way that the presently unnamed inventors obtained no rights to
license the patents. The court denied PerSeptive's motion to vacate, and
scheduled a hearing on PerSeptive's motion to correct the patents for 1996.
According to the January 9 and March 12 Orders, PerSeptive could correct
inventorship if it bears the burden of proving that its initial designation of
inventors was done without deceptive intent. PerSeptive has asserted that no
motion to correct need be filed, and that Sepracor and BioSepra bear the burden
of proving deceptive intent. PerSeptive also asserts that the unnamed inventors
should not be added to the patents or given any right to license the patents,
and that as a matter of law they did not err in not naming the two unnamed
inventors, and did not name inventors with deceptive intent. Sepracor and
BioSepra contend that if PerSeptive is able to correct inventorship, the
presently unnamed inventors would have independent rights to license the
"perfusion" patents unless the Court ruled that the unnamed inventors are not
entitled to such rights. If inventorship could not be corrected, the "perfusion"
patents would be held invalid, subject to appeal by PerSeptive. A decision by
the District Court to correct inventorship or preventing the unnamed inventors
from licensing the "perfusion" patents, would be subject to appeal by any party.
PerSeptive could appeal any decision invalidating the patents for willful
misdesignation of inventors. The hearing on deceptive intent is expected to be
completed on August 8, 1996. PerSeptive
12
<PAGE> 13
also asserts that an additional perfusion chromatography patent has been
allowed but has not yet issued and that another patent related to perfusion
chromatography has been issued. Sepracor does not know what is claimed in either
patent.
There can be no assurance that Sepracor will prevail in the pending litigation,
and an adverse outcome in any of the patent infringement actions on any of the
chromatography patents would have a material adverse affect on Sepracor's future
business and operations. BioSepra is required to repay to Beckman all or part of
certain payments if Sepracor terminates Beckman's right to use and sell HyperD
media because a court finds HyperD media infringes any third party patents.
Substantial funds have been and continue to be expended in connection with the
defense of the litigation. Sepracor has agreed to control the defense of the
litigation, and Sepracor and BioSepra share equally in expenses, net of
insurance payments. In addition, in the event of any settlement or judgment
adverse to BioSepra, Sepracor has agreed to indemnify BioSepra from and against
any damages that BioSepra is required to pay with respect to its manufacture,
use or sale of HyperD media products occurring prior to March 24, 1994.
Items 2 - 3. None
- -----------
Item 4. Submission of Matters to Vote of Security Holder
- ------ ------------------------------------------------
<TABLE>
At the Company's Annual Meeting of Stockholders held on May 15, 1996, the
following proposals were adopted by the vote specified below:
<CAPTION>
Proposal Total For Each Director Withheld From Each Director
- -------- ----------------------- ---------------------------
<S> <C> <C>
Election of three Class II Directors:
Timothy J. Barberich 22,209,420 242,769
Robert F. Johnston 22,213,070 239,119
Keith Mansford 22,067,545 384,644
</TABLE>
<TABLE>
<CAPTION>
For Against Abstain No Vote
--- ------- ------- -------
<S> <C> <C> <C> <C>
Approval of amendment to the Company's
Restated Certificate of Incorporation
increasing the authorized number of
shares of Common Stock from
35,000,000 to 40,000,000 21,836,271 485,681 74,562 55,675
Approval of amendments to the Company's
1991 Restated Stock Option Plan 11,527,377 4,598,032 115,002 6,211,778
Approval of amendment to the Company's
1991 Director Stock Option Plan 14,510,070 1,630,481 99,860 6,211,778
Approval of 1996 Employee Stock
Purchase Plan 15,672,629 376,086 77,899 6,325,575
To act upon such other matters 19,854,282 1,915,236 682,671
</TABLE>
13
<PAGE> 14
In addition to the three Class II Directors who were reelected for a
three-year term at the Annual Meeting, the term of office of each of the
following directors continued after the meeting: James G. Andress, Robert J.
Cresci and James F. Mrazek(terms expiring in 1997); Digby W. Barrios and Alan A.
Steigrod (terms expiring in 1998).
Item 5. None
- -------
Item 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
a)Exhibits:
Exhibit listed in the Exhibit Index which immediately
precedes the exhibits attached thereto.
10.1 Amendment to the 1991 Restated Stock Option Plan (the
1991 Restated Stock Option Plan was previously filed
and is incorporated herein by reference to the
Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1995).
10.2 Amendment to the 1991 Director Stock Option Plan (the
1991 Director Stock Option Plan was previously filed
and is incorporated herein by reference to the
Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1995).
10.3 1996 Employee Stock Purchase Plan.
27.1 Financial Data Schedule
b) Reports on Form 8-K
None
14
<PAGE> 15
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.
SEPRACOR INC.
Date: August 12, 1996 /s/ Timothy J. Barberich
---------------------------
Timothy J. Barberich
President and Chief
Executive Officer
(Principal Executive Officer)
Date: August 12, 1996 /s/ Robert F. Scumaci
----------------------
Robert F. Scumaci
Senior Vice President Finance
and Administration
(Principal Financial and
Accounting Officer)
15
<PAGE> 1
EXHIBIT 10.1
Sepracor Inc.
Amendment to the 1991 Restated Stock Option Plan
------------------------------------------------
Adopted by the Board of Directors
on March 27, 1996
RESOLVED: That, subject to stockholder approval, the first sentence of Section 4
- -------- of the 1991 Restated Stock Option Plan (the "Stock Option Plan") be
and hereby is amended to read in its entirety as follows:
"Subject to adjustment as provided in Section 15 below, the
maximum number of shares of Common Stock of the Company which may be
issued and sold under the Plan (including the Plan as in effect prior
to this amendment and restatement) is 5,000,000 shares."
RESOLVED: That, subject to stockholder approval, Section 3(a) of the Stock
- -------- Option Plan be and hereby is amended by amending the last sentence of
such subsection to read in its entirety as follows:
"Subject to adjustment as provided in Section 15 below, the
maximum number of shares with respect to which options may be granted
to any employee under the Plan shall not exceed 500,000 shares of
common stock during any calendar year. For the purpose of calculating
such maximum number, (a) an option shall continue to be treated as
outstanding notwithstanding its repricing, cancellation or expiration
and (b) the repricing of an outstanding option or the issuance of a
new option in substitution for a cancelled option shall be deemed to
constitute the grant of a new additional option separate from the
original grant of the option that is repriced or cancelled."
<PAGE> 1
EXHIBIT 10.2
Sepracor Inc.
Amendment to the 1991 Director Stock Option Plan
------------------------------------------------
Adopted by the Board of Directors
on March 27, 1996
RESOLVED: That, subject to stockholder approval, Section 5(b) of the 1991
- -------- Director Stock Option Plan be and hereby is amended to read in its
entirety as follows:
"(b) SHARES SUBJECT TO OPTION. Each Initial Option granted under
the Plan shall be exercisable for 10,000 shares of Common Stock. Each
Reelection Option granted under the Plan shall be exercisable for
8,000 shares of Common Stock."
RESOLVED: That, subject to stockholder approval, Section 4(a) of the 1991
- -------- Director Stock Option Plan be and hereby is amended to read in its
entirety as follows:
"(a) The maximum number of shares which may be issued under the
Plan shall be 275,000 shares of the Company's Common Stock, par value
$.10 per share ("Common Stock"), subject to adjustment as provided in
Section 9 of the Plan."
<PAGE> 1
EXHIBIT 10.3
SEPRACOR INC.
1996 EMPLOYEE STOCK PURCHASE PLAN
The purpose of this Plan is to provide eligible employees of Sepracor Inc.
(the "Company") and certain of its subsidiaries with opportunities to purchase
shares of the Company's common stock, $.10 par value (the "Common Stock"). One
Hundred and Twenty Thousand Shares (120,000) shares of Common Stock in the
aggregate have been approved for this purpose.
1. ADMINISTRATION. The Plan will be administered by the Company's Board of
Directors (the "Board") or by a Committee appointed by the Board (the
"Committee"). The Board or the Committee has authority to make rules and
regulations for the administration of the Plan and its interpretation and
decisions with regard thereto shall be final and conclusive.
2. ELIGIBILITY. Participation in the Plan will neither be permitted nor
denied contrary to the requirements of Section 423 of the Internal Revenue Code
of 1986, as amended (the "Code"), and regulations promulgated thereunder. All
employees of the Company, including Directors who are employees, and all
employees of any subsidiary of the Company (as defined in Section 424(f) of the
Code) designated by the Board or the Committee from time to time (a "Designated
Subsidiary"), are eligible to participate in any one or more of the offerings of
Options (as defined in Section 9) to purchase Common Stock under the Plan
provided that:
(a) they are regularly employed by the Company or a Designated
Subsidiary for more than 20 hours a week and for more than five months in a
calendar year; and
(b) they are employees of the Company or a Designated Subsidiary on
the first day of the applicable Plan Period (as defined below).
No employee may be granted an option hereunder if such employee,
immediately after the option is granted, owns 5% or more of the total combined
voting power or value of the stock of the Company or any subsidiary. For
purposes of the preceding sentence, the attribution rules of Section 424(d) of
the Code shall apply in determining the stock ownership of an employee, and all
stock which the employee has a contractual right to purchase shall be treated as
stock owned by the employee.
<PAGE> 2
3. OFFERINGS. The Company will make one or more offerings ("Offerings") to
employees to purchase stock under this Plan. Offerings will begin each June 1
and December 1, or the first business day thereafter (the "Offering Commencement
Dates"). Each Offering Commencement Date will begin a six month period (a "Plan
Period") during which payroll deductions will be made and held for the purchase
of Common Stock at the end of the Plan Period. The Board or the Committee may,
at its discretion, choose a different Plan Period of twelve (12) months or less
for subsequent Offerings. Offerings under this Plan shall be as follows:
June 1, 1996 to November 30, 1996
December 1, 1996 to May 31, 1997
June 1, 1997 to November 30, 1997
December 1, 1997 to May 31, 1998.
4. PARTICIPATION. An employee eligible on the Offering Commencement Date of
any Offering may participate in such Offering by completing and forwarding a
payroll deduction authorization form to the employee's appropriate payroll
office at least 30 days prior to the applicable Offering Commencement Date. The
form will authorize a regular payroll deduction from the Compensation received
by the employee during the Plan Period. Unless an employee files a new form or
withdraws from the Plan, his deductions and purchases will continue at the same
rate for future Offerings under the Plan as long as the Plan remains in effect.
The term "Compensation" means the amount of money reportable on the employee's
Federal Income Tax Withholding Statement, excluding overtime, incentive or bonus
awards, allowances and reimbursements for expenses such as relocation allowances
for travel expenses, income or gains on the exercise of Company stock options
and similar items, whether or not shown on the employee's Federal Income Tax
Withholding Statement.
5. DEDUCTIONS. The Company will maintain payroll deduction accounts for all
participating employees. Payroll deductions may be at the rate of 1%, 2%, 3%,
4%, 5%, 6%, 7%, 8%, 9% or 10% of Compensation with any change in compensation
during the Plan Period to result in an automatic corresponding change in the
dollar amount withheld.
No employee may be granted an Option (as defined in Section 9) which
permits his rights to purchase Common Stock under this Plan and any other stock
purchase plan of the Company and its subsidiaries, to accrue at a rate which
exceeds $25,000 of the fair market value of such Common Stock (determined at the
Offering Commencement Date of the Plan Period) for each calendar year in which
the Option is outstanding at any time.
-2-
<PAGE> 3
6. DEDUCTION CHANGES. An employee may decrease or discontinue his payroll
deduction once during any Plan Period, by filing a new payroll deduction
authorization form. However, an employee may not increase his payroll deduction
during a Plan Period. If an employee elects to discontinue his payroll
deductions during a Plan Period, but does not elect to withdraw his funds
pursuant to Section 8 hereof, funds deducted prior to his election to
discontinue will be applied to the purchase of Common Stock on the Exercise Date
(as defined below).
7. INTEREST. Interest will not be paid on any employee accounts, except to
the extent that the Board or the Committee, in its sole discretion, elects to
credit employee accounts with interest at such per annum rate as it may from
time to time determine.
8. WITHDRAWAL OF FUNDS. An employee may at any time prior to the close of
business on the last business day in a Plan Period and for any reason
permanently draw out the balance accumulated in the employee's account and
thereby withdraw from participation in an Offering. Partial withdrawals are not
permitted. The employee may not begin participation again during the remainder
of the Plan Period. The employee may participate in any subsequent Offering in
accordance with terms and conditions established by the Board or the Committee,
except that employees who are also directors or officers of the Company within
the meaning of Section 16 of the Securities Exchange Act of 1934 (the "Exchange
Act") and the rules promulgated there under may not participate again for a
period of at least six months as provided in Rule 16b-3(d)(2)(i) or any
successor provision.
9. PURCHASE OF SHARES. On the Offering Commencement Date of each Plan
Period, the Company will grant to each eligible employee who is then a
participant in the Plan an option ("Option") to purchase on the last business
day of such Plan Period (the "Exercise Date"), at the Option Price hereinafter
provided for, such number of whole shares of Common Stock of the Company
reserved for the purposes of the Plan as does not exceed the number of shares
determined by dividing 6% of such employee's annualized Compensation for the
immediately prior six-month period by the price determined in accordance with
the formula set forth in the following paragraph but using the closing price on
the Offering Commencement Date of such Plan Period.
The purchase price for each share purchased will be 85% of the closing
price of the Common Stock on (i) the first business day of such Plan Period or
(ii) the Exercise Date, whichever closing price shall be less. Such closing
price shall be (a) the closing price on any national securities exchange on
which the Common Stock is listed, (b) the closing price of the Common Stock
-3-
<PAGE> 4
on the Nasdaq National Market or (c) the average of the closing bid and asked
prices in the over-the-counter-market, whichever is applicable, as published in
THE WALL STREET JOURNAL. If no sales of Common Stock were made on such a day,
the price of the Common Stock for purposes of clauses (a) and (b) above shall be
the reported price for the next preceding day on which sales were made.
Each employee who continues to be a participant in the Plan on the Exercise
Date shall be deemed to have exercised his Option at the Option Price on such
date and shall be deemed to have purchased from the Company the number of full
shares of Common Stock reserved for the purpose of the Plan that his accumulated
payroll deductions on such date will pay for pursuant to the formula set forth
above (but not in excess of the maximum number determined in the manner set
forth above).
Any balance remaining in an employee's payroll deduction account at the end
of a Plan Period will be automatically refunded to the employee, except that any
balance which is less than the purchase price of one share of Common Stock will
be carried forward into the employee's payroll deduction account for the
following Offering, unless the employee elects not to participate in the
following Offering under the Plan, in which case the balance in the employee's
account shall be refunded.
10. ISSUANCE OF CERTIFICATES. Certificates representing shares of Common
Stock purchased under the Plan may be issued only in the name of the employee,
in the name of the employee and another person of legal age as joint tenants
with rights of survivorship, or (in the Company's sole discretion) in the street
name of a brokerage firm, bank or other nominee holder designated by the
employee.
11. RIGHTS ON RETIREMENT, DEATH OR TERMINATION OF EMPLOYMENT. In the event
of a participating employee's termination of employment prior to the last
business day of a Plan Period, no payroll deduction shall be taken from any pay
due and owing to an employee and the balance in the employee's account shall be
paid to the employee or, in the event of the employee's death, (a) to a
beneficiary previously designated in a revocable notice signed by the employee
(with any spousal consent required under state law) or (b) in the absence of
such a designated beneficiary, to the executor or administrator of the
employee's estate or (c) if no such executor or administrator has been appointed
to the knowledge of the Company, to such other person(s) as the Company may, in
its discretion, designate. If, prior to the last business day of the Plan
Period, the Designated Subsidiary by which an employee is employed shall cease
to be a subsidiary of the Company, or if the employee is transferred to
-4-
<PAGE> 5
a subsidiary of the Company that is not a Designated Subsidiary, the employee
shall be deemed to have terminated employment for the purposes of this Plan.
12. OPTIONEES NOT STOCKHOLDERS. Neither the granting of an Option to an
employee nor the deductions from his pay shall constitute such employee a
stockholder of the shares of Common Stock covered by an Option under this Plan
until such shares have been purchased by and issued to him.
13. RIGHTS NOT TRANSFERABLE. Rights under this Plan are not transferable by
a participating employee other than by will or the laws of descent and
distribution, and are exercisable during the employee's lifetime only by the
employee.
14. APPLICATION OF FUNDS. All funds received or held by the Company under
this Plan may be combined with other corporate funds and may be used for any
corporate purpose.
15. ADJUSTMENT IN CASE OF CHANGES AFFECTING COMMON STOCK. In the event of a
subdivision of outstanding shares of Common Stock, or the payment of a dividend
in Common Stock, the number of shares approved for this Plan, and the share
limitation set forth in Section 9, shall be increased proportionately, and such
other adjustment shall be made as may be deemed equitable by the Board or the
Committee. In the event of any other change affecting the Common Stock such
adjustment shall be made as may be deemed equitable by the Board or the
Committee to give proper effect to such event.
16. MERGER. If the Company shall at any time merge or consolidate with
another corporation and the holders of the capital stock of the Company
immediately prior to such merger or consolidation continue to hold at least 80%
by voting power of the capital stock of the surviving corporation ("Continuity
of Control"), the holder of each Option then outstanding will thereafter be
entitled to receive at the next Exercise Date upon the exercise of such Option
for each share as to which such Option shall be exercised the securities or
property which a holder of one share of the Common Stock was entitled to upon
and at the time of such merger, and the Committee shall take such steps in
connection with such merger as the Committee shall deem necessary to assure that
the provisions of Paragraph 15 shall thereafter be applicable, as nearly as
reasonably may be, in relation to the said securities or property as to which
such holder of such Option might thereafter be entitled to receive thereunder.
In the event of a merger or consolidation of the Company with or into
another corporation which does not involve Continuity of Control, or of a sale
of all or substantially all of the assets of
-5-
<PAGE> 6
the Company while unexercised Options remain outstanding under the Plan, (a)
subject to the provisions of clauses (b) and (c), after the effective date of
such transaction, each holder of an outstanding Option shall be entitled, upon
exercise of such Option, to receive in lieu of shares of Common Stock, shares of
such stock or other securities as the holders of shares of Common Stock received
pursuant to the terms of such transaction; or (b) all outstanding Options may be
cancelled by the Board or the Committee as of a date prior to the effective date
of any such transaction and all payroll deductions shall be paid out to the
participating employees; or (c) all outstanding Options may be cancelled by the
Board or the Committee as of the effective date of any such transaction,
provided that notice of such cancellation shall be given to each holder of an
Option, and each holder of an Option shall have the right to exercise such
Option in full based on payroll deductions then credited to his account as of a
date determined by the Board or the Committee, which date shall not be less than
ten (10) days preceding the effective date of such transaction.
17. AMENDMENT OF THE PLAN. The Board may at any time, and from time to
time, amend this Plan in any respect, except that (a) if the approval of any
such amendment by the shareholders of the Company is required by Section 423 of
the Code or by Rule 16b-3 under the Exchange Act, such amendment shall not be
effected without such approval, and (b) in no event may any amendment be made
which would cause the Plan to fail to comply with Section 16 of the Exchange Act
and the rules promulgated thereunder, as in effect from time to time, or Section
423 of the Code.
18. INSUFFICIENT SHARES. In the event that the total number of shares of
Common Stock specified in elections to be purchased under any Offering plus the
number of shares purchased under previous Offerings under this Plan exceeds the
maximum number of shares issuable under this Plan, the Board or the Committee
will allot the shares then available on a pro rata basis.
19. TERMINATION OF THE PLAN. This Plan may be terminated at any time by the
Board. Upon termination of this Plan all amounts in the accounts of
participating employees shall be promptly refunded.
20. GOVERNMENTAL REGULATIONS. The Company's obligation to sell and deliver
Common Stock under this Plan is subject to listing on a national stock exchange
or quotation on the Nasdaq National Market and the approval of all governmental
authorities required in connection with the authorization, issuance or sale of
such stock.
-6-
<PAGE> 7
The Plan shall be governed by Delaware law except to the extent that such
law is preempted by federal law.
The Plan is intended to comply with the provisions of Rule 16b-3
promulgated under the Securities Exchange Act of 1934. Any provision
inconsistent with such Rule shall to that extent be inoperative and shall not
affect the validity of the Plan.
21. ISSUANCE OF SHARES. Shares may be issued upon exercise of an Option
from authorized but unissued Common Stock, from shares held in the treasury of
the Company, or from any other proper source.
22. NOTIFICATION UPON SALE OF SHARES. Each employee agrees, by entering the
Plan, to promptly give the Company notice of any disposition of shares purchased
under the Plan where such disposition occurs within two years after the date of
grant of the Option pursuant to which such shares were purchased.
23. EFFECTIVE DATE AND APPROVAL OF SHAREHOLDERS. The Plan shall take effect
on March 27, 1996, subject to approval by the shareholders of the Company as
required by Rule 16b-3 under the Exchange Act and by Section 423 of the Code,
which approval must occur within twelve months of the adoption of the Plan by
the Board.
Adopted by the Board of Directors
on March 27, 1996
Approved by the stockholders
on May 15, 1996
-7-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS FINANCIAL DATA SCHEUDULE CONTAINS INFORMATION EXTRACTED FROM FORM 10-Q AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FILING.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 68,418,000
<SECURITIES> 53,681,000
<RECEIVABLES> 4,605,000
<ALLOWANCES> 0
<INVENTORY> 3,305,000
<CURRENT-ASSETS> 131,111,000
<PP&E> 21,708,000
<DEPRECIATION> 5,743,000
<TOTAL-ASSETS> 178,297,000
<CURRENT-LIABILITIES> 15,819,000
<BONDS> 0
<COMMON> 0
5,800,000
0
<OTHER-SE> 66,925,000
<TOTAL-LIABILITY-AND-EQUITY> 178,297,000
<SALES> 6,826,000
<TOTAL-REVENUES> 7,655,000
<CGS> 3,333,000
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 22,206,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (22,827,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (22,335,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (22,335,000)
<EPS-PRIMARY> (0.83)
<EPS-DILUTED> 0
</TABLE>
