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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Year Ended December 31, 1996
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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 No.0-19410
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Sepracor Inc.
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(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
Incorporation or Organization Identification No.)
111 Locke Drive, Marlborough, Massachusetts 01752
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (508) 481-6700
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
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Common Stock, $.10 par value
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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to the
Form 10-K. [ ]
The aggregate market value of voting Common Stock held by nonaffiliates of the
registant was approximately $582,593,000, based on the last reported sale price
of the Common Stock on the Nasdaq consolidated transaction reporting system on
March 14, 1997.
Number of shares outstanding of the registrant's class of Common Stock as of
March 14, 1997: 27,416,123 shares.
Documents incorporated by reference:
1996 Annual Report to Stockholders - Part II
Proxy Statement for the 1997 Annual Meeting of Stockholders - Part III
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ITEM 1. BUSINESS
THE COMPANY
Sepracor Inc. ("Sepracor" or the "Company") is applying its expertise in
the field of chiral chemistry to develop and commercialize improved chemical
entities, called ICE(TM) Pharmaceuticals, which are fundamentally new, patented,
single-isomer or active metabolite forms of existing, widely-sold
pharmaceuticals. In its drug development program, Sepracor identifies existing
racemic drugs that might be replaced by improved single-isomer or
active-metabolite forms of such drugs. Sepracor then seeks to develop ICE
Pharmaceuticals that offer benefits over the parent racemic compounds, such as
reduced side effects, improved therapeutic efficacy, new indications or improved
dosage forms. The Company believes that it may be able to develop these improved
forms in less time, at lower cost and at reduced risk than that required for
typical drug development. Sepracor has 22 issued United States patents for the
use of ICE Pharmaceuticals. One of Sepracor's ICE Pharmaceuticals is currently
being marketed by Hoechst Marion Roussel, Inc. ("HMRI"). In addition, Sepracor
has five ICE Pharmaceuticals in human clinical trials, twelve in preclinical
trials and several in the chemistry stage of development. However, there can be
no assurance that any of these drugs will be developed successfully.
Sepracor is developing pharmaceuticals primarily for the respiratory,
urology and pain markets:
Respiratory
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LEVALBUTEROL (formerly known as (R)-albuterol), is the purified, active-isomer
form of the leading bronchodilator, racemic albuterol, sold by Glaxo Wellcome
plc as VentolinR and by Schering Plough Corporation as ProventilR. In the first
quarter of 1997, Sepracor completed a multi-site, pivotal Phase III trial
comparing two doses of levalbuterol with two doses ofracemic albuterol
inhalation solution given by nebulization. The results of the trial confirmed
the Company's Phase II results, which indicated an improved therapeutic index
for subjects receiving levalbuterol as compared with those receiving racemic
albuterol. This parallel-group, placebo controlled study involved 360 patients
at 32 clinics in the United States. The Company intends to file a New Drug
Application ("NDA") with the FDA in 1997 covering levalbuterol in inhalation
solution.
In addition, the Company has completed a pediatric dosing study to
establish appropriate dosage levels for levalbuterol for children. The study was
a 43-patient, double-blind, placebo-controlled, crossover trial comparing
levalbuterol with racemic albuterol and placebo. The trial compared four doses
of levalbuterol, two doses of racemic albuterol and a placebo. The study showed
that subjects on levalbuterol, at the highest dose tested, experienced improved
lung function, as measured by forced expiratory volume, over subjects treated
with doses of racemic albuterol. The study also showed that subjects taking
levalbuterol at doses that offered equivalent efficacy to the standard racemic
dose demonstrated an approximate 50% reduction in side effects, such as pulse
rate change and nervousness.
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(R,R)-FORMOTEROL, the first single-isomer, long-acting bronchodilator. This
asthma compound is under preclinical development by Sepracor as is designed to
offer rapid onset of action and longer duration, a combination that does not
exist in currently marketed compounds. Sepracor has patents in several
European countries covering the use of formoterol in treating asthma.
FEXOFENADINE or TERFENADINE CARBOXYLATE, is a non-sedating antihistamine
and a potentially improved version of HMRI's market leading product SeldaneR.
SeldaneR is required to show a warning label indicating that under certain
conditions rare cases of serious cardiovascular adverse effects have been
observed. Clinical trials have indicated that the active-metabolite of SeldaneR,
terfenadine carboxylate, also known as fexofenadine and marketed as Allegra(TM),
does not have these effects. Sepracor licensed to HMRI its United States use
patent on terfenadine carboxylate, which issued in December 1994. Sepracor will
receive royalties on United States sales of Allegra from HMRI when an HMRI
patent covering Allegra expires.
NORASTEMIZOLE, an active metabolite of the nonsedating antihistamine
astemizole, marketed by Johnson & Johnson as HismanalR, is in Phase I/II trials.
In clinical studies conducted to date, Norastemizole has shown quick onset of
action and long duration. The metabolite has not shown QT prolongation (a
measure of the potentially serious cardiovascular adverse effects) that is
sometimes evident in Hismanal(R). Sepracor believes that Norastemizole may be
more potent and offer equal or more rapid onset of action than other
nonsedating antihistamines.
Urology
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(S)-OXYBUTYNIN, the single-isomer form of the leading treatment for urinary
incontinence, racemic oxybutynin (marketed by HMRI as DitropanR), is now in
Phase I trials. Sepracor believes that drug therapy is not used extensively in
the incontinence treatment market largely because pharmaceutical treatments,
including racemic oxybutynin, can cause side effects such as dry mouth, nausea,
restlessness and cardiovascular effects. While substantial additional
preclinical and clinical work is needed to determine the safety and efficacy
profile of this drug, Sepracor believes, based on preclinical studies, that
S-oxybutynin may provide a more effective treatment for urinary incontinence
with reduced side effects. In July 1996, the Company received a U.S. patent for
the use of (S)-oxybutynin.
S-DOXAZOSIN, Sepracor is developing the S-isomer of racemic doxazosin, an alpha
blocker marketed as CarduraR by Pfizer Inc. ("Pfizer"). Pfizer's drug is used in
part to treat benign prostatic hyperplasia ("BPH"), a condition characterized by
enlargement of the prostate, that is estimated to affect a majority of males
over the age of 55. While further studies and clinical work are needed to
determine the safety and efficacy profile of this compound, Sepracor
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believes, based on preclinical studies, that S-doxazosin may exhibit reduced
orthostatic hypotension, or lowering of blood pressure, as compared with racemic
oxybutynin. In April 1996, Sepracor received a United States patent covering the
use of S-doxazosin for the treatment of BPH.
Pain
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R-KETOPROFEN. Racemic ketoprofen, marketed by Wyeth-Ayerst as OrudisR and Bayer
Corporation as ActronR, is a nonsteroidal anti-inflammatory drug ("NSAID") with
analgesic (pain-relieving), antipyretic (fever-lowering) and anti-inflammatory
properties. However, ketoprofen can cause serious gastrointestinal irritation.
Sepracor has completed two Phase II clinical trials on the use of
(R)-ketoprofen, the single isomer of racemic ketoprofen. These clinical trials
indicate that the R-isomer may be a more potent pain reliever and antipyretic
than acetaminophen, but with essentially no gastrointestinal side effects or
liver toxicity. While further clinical work is needed to determine the safety
and efficacy profile of this drug, these studies suggest that (R)-ketoprofen
has the potential to be an effective, prescription form NSAID for chronic pain.
The Company holds a United States patent on R-ketoprofen.
R-KETOROLAC. Sepracor believes, based on preclinical studies, that
(R)-ketorolac, a single-isomer version of racemic ketorolac, an NSAID marketed
by Roche as ToradolR, could be a drug candidate for effective relief with
reduced gastrointestinal effects. Sepracor holds a United States patent for the
use of R-ketorolac.
S-FLUOXETINE. Sepracor's (S)-fluoxetine is being developed for the new
indication of migraine prophylaxis. Current drug therapy for migraines is
dominated by agents used to relieve headaches rather than prevent them. Racemic
fluoxetine, marketed by Eli Lilly and Company as ProzacR, is a widely
prescribed antidepressant, but is not approved for migraine headache preventive
therapy. Phase II trials indicated that S-fluoxetine, when compared with a
placebo, produced a statistically significant decrease in the frequency of
migraine attacks. Sepracor holds a United States patent for the use of
S-fluoxetine in the treatment of migraines.
Other
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The Company is currently conducting preclinical studies on the single
isomer or active metabolite forms of other marketed compounds listed below.
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S-KETOPROFEN. Sepracor is conducting Phase II studies on the S-isomer of
ketoprofen in a toothpaste formulation for the treatment of periodontal
disease, including gingivitis and periodontitis. Periodontal disease affects
approximately three out of four adults over the age of 35. The most severe form
of periodontal disease, periodontitis, is characterized by the reabsorption of
the alveolar bone tissue surrounding the tooth, ultimately resulting in the
loosening and loss of teeth. Based upon preclinical studies, Sepracor believes
S-ketoprofen may reduce the bone loss associated with this condition. Sepracor
has a United States patent on the use of S-ketoprofen.
R-FLUOXETINE for the improved treatment of depression (racemic fluoxetine is
marketed by Eli Lilly and Company as ProzacR for the treatment of depression).
NORCISAPRIDE (active-metabolite form of cisapride, currently marketed by Johnson
& Johnson's as PropulsidR) as a treatment for gastrointestinal disturbance.
R-ONDANSETRON (single-isomer version of racemic ondansetron, marketed by
Glaxo-Wellcome's as ZofranR) for the treatment of nausea and vomiting. Sepracor
holds a United States patent for use of R-ondansetron.
2R,4S-ITRACONAZOLE (single-isomer version of racemic itraconazole, marketed by
Johnson & Johnson as SporanoxR) as a antimicrobial with potentially
reduced detrimental drug-drug interaction and liver toxicity. Sepracor holds a
United States patent for 2R,4S-itraconazole for the treatment of fungal, yeast
and dermatophyte infections; and
DESCARBOETHOXYLORATADINE (DCL). DCL, for which Sepracor received a patent in
January 1997, is an active metabolite of loratadine, a nonsedating antihistamine
marketed by Schering-Plough Corp. as Claritin. Sepracor holds a United States
patent for DCL for the treatment of allergic rhinitis.
Sepracor owns and operates a manufacturing facility in Windsor, Nova Scotia
which is designed to meet the requirements of current U.S. Good Manufacturing
Practices ("cGMP"). This facility has increased the Company's ability to
manufacture large quantities of chiral intermediates and bulk generic
single-isomer drugs.
In March 1996, SepraChem Inc., a wholly owned subsidiary of Sepracor
("SepraChem") and a supplier of chiral fine chemical intermediates that are used
by pharmaceutical companies in the production of single isomer drugs, and
Sterling Organics, a United Kingdom manufacturer of fine chemicals, were each
contributed (the "Contributions") to ChiRex Inc., a Delaware corporation
("ChiRex"), formed for the purpose of effecting the Contributions. In
consideration for the Contributions,
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Sepracor received shares of ChiRex common stock and the stockholders of
Sterling Organics received shares of ChiRex common stock and cash from the
proceeds of a public offering of ChiRex common stock which was completed
concurrently with the Contributions. Sepracor owns approximately 32% of ChiRex.
A registration statement for the offering to the public of the 3,489,301
shares of ChiRex common stock held by Sepracor was declared effective by the
Securities and Exchange Commission on March 24, 1997. Sepracor expects to
receive net proceeds of approximately $31,125,000 after payment of the
underwriting discounts and commissions but before payment of the other expenses
associated with the offering. The offering is expected to close on March 31,
1997.
In 1995, Sepracor established its subsidiary, Versicor Inc. ("Versicor"), a
combinatorial chemistry company, to apply Sepracor's expertise in chemical
synthesis and systems engineering to create diverse chemical libraries for drug
discovery. Versicor integrates biology/genomics, combinatorial chemistry, high-
throughput screening and informatics in a balanced format for the purpose of
discovering new anti-infective drugs against resistant pathogens.
In 1994, Sepracor established and independently financed two subsidiaries,
BioSepra Inc. ("BioSepra") and HemaSure Inc. ("HemaSure"), through initial
public offerings of their common stock. Sepracor's management undertook these
transactions to allow Sepracor to concentrate on its core pharmaceutical
business while allowing its subsidiaries to focus on the development and
commercialization of the Company's bioprocessing technologies.
BioSepra, a 64% subsidiary of the Company, develops, manufactures and
sells chromatographic media and systems for use by pharmaceutical companies in
the purification and production of biopharmaceuticals. BioSepra's products
enable pharmaceutical companies to reduce the time and cost required to develop
and manufacture biopharmaceuticals. HemaSure, a 37% owned subsidiary of the
Company, is applying its proprietary filtration and viral inactivation
technologies to develop products to increase the safety of donated blood and to
improve certain blood collection and transfusion procedures. These products
include a leukocyte reduction filter introduced in 1995 and antiviral filters
that are under development.
BIOSEPRA
BioSepra develops, manufactures and sells chromatographic media and
systems for use by pharmaceutical companies in the purification and production
of biopharmaceuticals. BioSepra's products enable pharmaceutical companies to
reduce the time and cost required to develop and manufacture
biopharmaceuticals. BioSepra's media products are currently used by
pharmaceutical companies in the production of several commercial
biopharmaceuticals, including interferons, insulin, human growth hormone,
special enzymes and vaccines.
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Purification is a critical process in almost every stage in the development and
commercialization of a biopharmaceutical, from research through production for
clinical trials to commercial production. It is estimated that biopharmaceutical
purification accounts for about one-half of overall commercial production costs.
Chromatography is the principal method used for biopharmaceutical
purification. In chromatographic processes, the solution containing both the
desired product and unwanted contaminants and impurities is flowed through
columns that are packed with chromatographic particles ("media"). As the
solution flows through the columns, the target biomolecules are absorbed by the
media. The productivity of a chromatographic media depends on the protein
binding capacity of the media, the speed at which biomolecules are able to reach
the binding sites and the ability of the media to achieve the desired product
purity (resolution).
The principal product lines of BioSepra include its advanced HyperDiffusion
Chromatography media, called HyperD(TM) media, established media products other
than HyperD media and the ProSys(TM) and BioSys(TM) Workstations.
HyperD Media. In March 1993, BioSepra introduced HyperD media, which
combines the high protein binding capacity of soft gels with the higher flow
advantages of rigid porous materials. The soft gel provides a high number of
protein binding sites, while the rigid porous materials (or shell) enables the
media to resist compression even as solution is flowing at high speeds. The
media is therefore able to achieve rapid flow rates while maintaining a high
level of protein binding capacity. The Company believes that HyperD media can,
in many purification applications, increase productivity. HyperD media is
currently being used by several major pharmaceutical companies in the
production of biopharmaceuticals.
In March 1995, BioSepra entered into a strategic marketing alliance with
Beckman Instruments, Inc. ("Beckman") under which Beckman will serve as its
exclusive worldwide distributor (except in Japan) of certain HyperD media in
several sizes of prepacked columns for use in the research and method
development markets. In 1996, BioSepra extended the agreement to include Japan
and the non-exclusive distribution of additional media for use in the research
and method development market. 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 Item 3 "Legal
Proceedings."
Established Media Products. BioSepra offers a line of established
chromatographic media products, most of which were introduced in the 1980s.
These products, which were developed for use primarily in the blood
fractionation industry,
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currently account for a significant but declining percentage of BioSepra's
sales. BioSepra plans to continue to sell these media products for use in
existing commercial-scale processes that use these products, as well as new
applications that do not require the high bioprocessing performance of HyperD
media.
ProSys and BioSys Workstations. In late 1994, BioSepra introduced its
ProSys Workstation, a computer-controlled high pressure liquid chromatography
instrument that provides both computer-aided bioprocess engineering capabilities
and automation of process experiments. The ProSys Workstation is controlled by
BioSepra's ProSys RPD(TM) Software, which is designed to enable customers to
optimize process parameters based on a small number of experiments and simulate
the performance of alternative designs in a commercial environment to determine
resulting process characteristics, equipment requirements and operating and
capital costs. Using the ProSys Workstation, a customer will be able to
automatically perform experiments, determine optional purification methods and
simulate commercial-scale production.
As part of the strategic alliance established in March 1995 with Beckman,
BioSepra developed the BioSys Workstation which is being marketed by Beckman
in the research segment of the protein purification market. The BioSys
Workstation is similar to the ProSys Workstation, but while the ProSys
Workstation focuses on the needs of the process development market, the BioSys
Workstation targets the research and method development market which is earlier
in the drug development paradigm. Using the BioSys Workstation, a customer is
able to automatically perform experiments and determine improved purification
methods. The first BioSys Workstation production unit was delivered to Beckman
in the first quarter of 1996 and Beckman started market introduction in the
second quarter of 1996.
Other Products. BioSepra sells several chemical products used in
biopharmaceutical research. The Company expects that sales of BioSepra's
historical line of chromatographic bioprocessing products will not increase in
1997 and that the future success of BioSepra's business will depend on market
acceptance of BioSepra's more recent products, such as HyperD media products,
the ProSys Workstation and the BioSys Workstation, in the faster growing markets
of the biopharmaceutical industry, such as monoclonal antibodies. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Factors Affecting Future Operating Results."
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VERSICOR
Versicor Inc., a majority-owned subsidiary of Sepracor, integrates
biology/genomics, combinatorial chemistry, high-throughput screening and
informatics in a balanced format to discover new anti-infective drugs against
resistant pathogens.
RESEARCH AND DEVELOPMENT
The Company's total research and development expenses were $17,723,000,
$21,707,000 and $35,828,000 for 1994, 1995 and 1996, respectively. In 1994, the
Company also incurred a non-recurring charge of $3,500,000 relating to the
purchase of in-process technology, representing that portion of the purchase
price paid for Biopass's ongoing research and development projects that had not
yet resulted in commercially viable products. Collaborative research and
development revenues totaled $303,000, $1,036,000 and $25,000 in 1994, 1995 and
1996, respectively.
MARKETING AND SALES
In preparing for commercialization of its respiratory product candidates,
Sepracor is building a specialty field sales force which initially will focus on
the top prescribers: hospital-based pulmonologists, allergists, pediatricians
and home health care providers.
Sepracor plans to co-promote products with a large pharmaceutical marketing
partner to focus on market segments (community based general practitioners and
internists) where the Company's own sales force is neither well situated nor
large enough to optimally penetrate the market. Products for co-promotion may
include Sepracor's levalbuterol inhaler formulations and antihistamines, all of
which are currently being developed.
In 1996, BioSepra marketed its products to the biopharmaceutical industrial
market through direct sales efforts in the United States and some parts of
Europe and through distributors in other countries. BioSepra markets and sells
its products through field sales representatives and distributors, supported by
application specialists, product managers, and technical support/application
develoment personnel in BioSepra's research and development department. Pursuant
to BioSepra's agreement with Beckman, Beckman distributes worldwide certain
HyperD media products and the BioSys Workstation.
MANUFACTURING
Sepracor. Sepracor's primary manufacturing operations are located in a
26,000-square-foot fine chemical manufacturing facility located on a five-acre
site in
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Windsor, Nova Scotia and the Company has an option to purchase additional
abutting land. The partially completed facility was acquired by the Company in
March 1994. During the balance of 1994, the Company completed construction and
made certain improvements designed to bring the facility and manufacturing
procedures to compliance with local laws and cGMP. Production at the Nova Scotia
facility began in February 1995. This facility has increased the Company's
ability to manufacture larger quantities of chiral intermediates and bulk
generic single-isomer drugs.
BioSepra. BioSepra's facilities are located in Marlborough,
Massachusetts and Villeneuve-la-Garenne, France. In Massachusetts, BioSepra
subleases approximately 13,000 square feet of space from Sepracor, and in
France, BioSepra subleases approximately 28,500 square feet of space in
Vilieneuve-la-Garenne. Of the total, approximately 20,440 square feet are used
for manufacturing operations. At its facility in France, BioSepra produces its
chromatographic media. The chromatography plant is currently operating at
approximately one-half of full capacity, and BioSepra therefore has the
capability to expand production as product sales increase. ProSys and BioSys
Workstations are designed and assembled in BioSepra's Marlborough,
Massachusetts facility. The Marlborough plant is currently operating at 60% of
capacity, and therefore BioSepra has the capability to expand production as
product sales increase.
COMPETITION
Sepracor. In developing ICE Pharmaceuticals, Sepracor's competitors are
originator companies developing single isomer forms of drugs and generic drug
companies, who will seek to market the racemic mixture following expiration of
the innovator's composition-of-matter patent. The Company expects that generic
drug company competitors will seek to compete against Sepracor's differentiated
product with lower pricing. In addition, any ICE Pharmaceutical developed by the
Company is likely to encounter competition from the original brand-name racemic
form of the drug following expiration of the innovator's composition-of-matter
patent.
In its ICE Pharmaceutical program, the Company expects to compete primarily
by obtaining use patents on the single-isomer or active-metabolite form of
existing, widely-sold racemic drugs and by establishing, through preclinical and
clinical tests, that such products in single-isomer or active-metabolite form
offer benefits over the racemic compounds, such as reduced side effects,
improved therapeutic efficacy, new indications or improved dosage forms. Any
such patents obtained by Sepracor should exclude others from marketing the
targeted single-isomer compound for the indications claimed in Sepracor's issued
use patents.
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BioSepra. BioSepra encounters intense competition in the sale of its
current and future products. BioSepra's principal competitors are Pharmacia
BioTech ("Pharmacia"), Bio-Rad and PerSeptive. These competitors, as well as
other companies selling or developing products for the bioseparations market,
have financial, marketing and other resources greater than those of BioSepra. In
addition, certain competitors have had long-term relationships with many of
BioSepra's existing and potential customers.
Sales of chromatographic media products typically involve long lead times
and customers generally evaluate several different media products before
committing to a volume purchase. Also, customers typically are reluctant to
change the media used in a production process previously approved by the FDA
because such a change would require extensive validation and in certain cases
would require additional FDA approval. For these reasons, BioSepra's future
success will depend in large part on its ability to sell its products to
customers at the early stages of their product development cycles. There can be
no assurance that BioSepra will be able to compete effectively against its
existing or future competitors or that developments by others will not render
BioSepra's products or technologies obsolete or noncompetitive.
Versicor. Versicor expects to encounter intense competition from
established pharmaceutical and biotechnology companies that develop
combinatorial chemistry capabilities in-house as well as other companies
developing and marketing diverse chemical libraries for drug discovery.
GOVERNMENT REGULATION
Sepracor. The Company and its customers are required to obtain the approval
of the FDA and similar health authorities in foreign countries to test
clinically and sell commercially pharmaceuticals and biopharmaceuticals for
human use.
Human therapeutics are normally subject to rigorous preclinical and
clinical testing. The standard process required by the FDA before a drug may be
marketed in the United States includes (i) preclinical laboratory tests, (ii)
submission to the FDA of an application for an IND, which must be approved
before human clinical trials may commence, (iii) adequate and well-controlled
human clinical trials to establish the safety and efficacy of the drug in its
intended indication, (iv) submission to the FDA of a New Drug Application
("NDA") and (v) FDA approval of the NDA prior to any commercial sale or shipment
of the drug.
Typically, clinical evaluation involves a three-phase process. In Phase I,
the initial introduction of the drug to humans, the drug is tested for safety
(adverse effects), dosage tolerance, absorption, distribution, metabolism and
excretion. Phase II involves studies in a limited patient population to (i)
determine the efficacy of the drug for specific targeted indications, (ii)
determine dosage tolerance and optimal
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dosage and (iii) identify possible adverse effects and safety risks. When a
compound is found to be effective and to have an acceptable safety profile in
Phase II evaluations, Phase III trials are undertaken to evaluate further
clinical efficacy and to further test for safety within an expanded patient
population at geographically dispersed clinical study sites. The process of
completing clinical testing, obtaining FDA regulatory approval and commencing
commercial marketing is likely to take a number of years. There can be no
assurance that Phase I, Phase II or Phase III testing will be completed
successfully within any specified time period, if at all, with respect to any of
the Company's products subject to such testing.
FDA regulations pertain not only to healthcare products, but also to the
processes and production facilities used to produce such products. Although the
Company has designed certain portions of its United States and Canadian
facilities to conform to cGMP, the FDA will not review the facilities for
compliance until the Company produces a product for which FDA commercial
approval has been sought. Sepracor is currently subject to environmental
regulation pursuant to a variety of federal, provincial and local legislation in
Canada. Environmental legislation provides for restrictions and prohibitions on
releases or emissions of various substances produced in, and waste by-products
from, Sepracor's operations.
BioSepra. BioSepra's customers are required to obtain the approval of the
FDA and similar health authorities in foreign countries to test clinically and
sell commercially pharmaceuticals for human use. Although BioSepra's products do
not require FDA approval for sale, the FDA and comparable foreign authorities
typically review the manufacturing procedures and inspect the facilities and
equipment of BioSepra's customers for compliance with applicable rules and
regulations. BioSepra's customers will often review and inspect BioSepra's
manufacturing facilities prior to ordering products for use in an FDA-approved
production process. BioSepra believes that its production and documentation
procedures are consistent with GMP.
In the production of a biopharmaceutical, any material change by a
manufacturer of process or equipment generally necessitates additional FDA
review and approval. Manufacturers are therefore typically reluctant to change
production methods for existing products. For this reason, BioSepra is likely to
encounter difficulties in selling its media products to customers which have
already applied for or obtained FDA licenses for production processes that
specify a different supplier's product.
PATENTS AND PROPRIETARY TECHNOLOGY
Sepracor. Sepracor (including its affiliates and subsidiaries) has filed
patent applications in the United States relating to chiral synthesis and
separations, membrane affinity separations, methods of protein purification and
single-isomer compounds. Sepracor has filed many patent applications in selected
countries other than the United States. In addition, the Company has licensed
from third parties
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certain rights under various patents and patent applications. Certain of these
patents and patent applications are licensed to subsidiaries of the Company as
described below.
To the extent that Sepracor invents or discovers a new or useful
improvement to an existing racemic mixture for a specific use, and files a
United States patent application for such use, a composition or method-of-use
patent may be issued. The Company has been issued U.S. patents on the use of
single-isomer or active metabolite form of drugs currently marketed as racemic
mixtures. The Company is currently pursuing a policy of aggressively seeking
patent protection for single-isomer forms of certain existing drugs now sold as
racemic mixtures. Even if a patent is issued to the Company for a single-isomer
form of a racemic mixture which is currently protected by a third party patent,
the Company may not be able to sell products based on any such patent issued to
the Company until the expiration of the third party patent.
BioSepra. Sepracor has entered into a Technology Transfer and License
Agreement with BioSepra under which Sepracor has transferred to BioSepra rights
to the technology developed by Sepracor relating to the separation of
biological molecules (excluding the fields of chiral synthesis, chiral
separations and the development, use and sale of chiral drugs and chiral drug
intermediates (collectively, the "Sepracor Field") and also excluding the field
of HemaSure, as described below). BioSepra holds several patents and pending
patent applications, including a United States composition-of-matter patent on
HyperD media and comparable foreign patent applications. BioSepra's additional
patents relate primarily to the composition of its other media products and
certain biopharmaceutical production processes.
EMPLOYEES
At March 1, 1997, Sepracor and its wholly owned subsidiaries employed 128
persons, of whom 66 were primarily engaged in research, development and
engineering activities, 18 in manufacturing, and the remainder in marketing,
sales, administration, finance and accounting; and BioSepra employed 59 persons.
ITEM 2. PROPERTIES
Sepracor's facilities, including those used by BioSepra and Versicor,
are located in Marlborough, Massachusetts, San Francisco, California and
Villeneuve-la-Garenne, France. In Massachusetts, the Company leases a total of
101,338 square feet of space in two buildings. Approximately 5,000 square feet
is devoted to manufacturing operations and the balance to research and
development and administration. Two leases currently in effect extend to June
2007 for 32,477 square feet and June 2007 for 68,861 square feet. In
California, Versicor leases approximately 17,000 square feet currently covered
by a lease in effect until September 1997. Versicor has also entered into
another lease for a facility that is currently under construction in San
Francisco, California. This lease is for approximately 55,000 square feet and
runs until 2009. In France, BioSepra leases approximately 28,500 square feet of
space under a contract that can be
-13-
<PAGE> 14
terminated by either party upon 18 months' notice. In Nova Scotia, Sepracor's
primary operating location is a 26,000-square-foot fine chemical manufacturing
facility located on a five-acre site in Windsor, Nova Scotia. The Company has an
option to purchase additional abutting land. The facility was acquired by the
Company in March 1994. Production at the Nova Scotia facility began in February
1995. To date, only pilot-scale quantities are manufactured at the facility. See
"Business -- Manufacturing" for information concerning facilities of BioSepra.
ITEM 3. LEGAL PROCEEDINGS
The Company and BioSepra are defendants in three lawsuits brought by
PerSeptive Biosystems, Inc., a competitor of BioSepra, in the United States
District Court for the District of Massachusetts. In actions commenced in
October 1993 and January 1995, PerSeptive has alleged that the Company'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 the Company and BioSepra with respect to
the performance of HyperD media, performance of PerSeptive's POROSR media, and
the internal structures of POROS and HyperD media, including statements made in
BioSepra's Prospectus dated March 24, 1994, constitute false advertising.
PerSeptive also asserts that an additional perfusion chromatography patent has
been allowed, and that another patent related to perfusion chromatography has
been issued. The new perfusion chromatography patent contains claims similar to
the other patents the Company and BioSepra are alleged to have infringed.
BioSepra has received an opinion of its patent counsel 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 U.S. patents held by PerSeptive relating to "perfusion
chromatography." PerSeptive has not formally claimed that the present HyperD
products infringe the fourth perfusion patent. Allegations have also been made
that another U.S. 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. The Company and BioSepra 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 the Company's 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 "perfusion" patents were inventors of the alleged
inventions claimed in those patents. This ruling may ultimately dispose of
PerSeptive's claims
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<PAGE> 15
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 which was
completed in August 1996. The District Court has not rendered a decision based
on the August hearing.
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 the Company 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. The Company
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.
There can be no assurance that the Company and BioSepra 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 the Company's and BioSepra'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
-15-
<PAGE> 16
payments if BioSepra 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. The Company has agreed to control the defense of
the litigation, and the Company and BioSepra share equally in expenses, net of
insurance payments. In addition, in the event of any settlement or judgment
adverse to BioSepra, the Company 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.
HemaSure is a defendant in two lawsuits brought by Pall Corporation
("Pall"). In complaints filed in February 1996 and November 1996, Pall alleged
that HemaSure's manufacture, use and/or sale of the LeukoNet product infringes
upon three patents held by Pall.
On October 14, 1996, in connection with the first action concerning U.S.
Patent No. 5,451,321, HemaSure filed a motion for summary judgement of
noninfringement. Pall filed a cross motion for summary judgment of infringement
at the same time. The parties are awaiting the Court's decision.
With respect to the second action concerning U.S. Patent Nos. 4,340,479
("the '479 patent") and 4,952,572 ("the '572 patent"), HemaSure has answered the
complaint stating that it does not infringe any claim of the asserted patents.
Further, Hemasure has counterclaimed for declaratory judgment of invalidity,
noninfringement and unenforceablility of the '572 patent, and a declaratory
judgment of noninfringement of the '479 patent, as a result of a license.
HemaSure believes, based on advice of its patent counsel, that a properly
informed court should conclude that the manufacture, use and/or sale by HemaSure
or its customers of the present LeukoNet product does not infringe any valid
enforceable claim of the three asserted Pall patents. However, there can be no
assurance that HemaSure will prevail in the pending litigations, and an adverse
outcome in a patent infringement action would have a material adverse effect on
HemaSure's future business and operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders of the Company,
through solicitation of proxies or otherwise, during the last quarter of the
year ended December 31, 1996.
EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
The following table sets forth the names, ages and positions of the current
executive officers of the Company.
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Timothy J. Barberich 48 President, Chief Executive
Officer and Director
David S. Barlow 40 Executive Vice President;
President, Pharmaceuticals
David P. Southwell 36 Executive Vice President;
Chief Financial Officer
James R. Hauske, Ph.D. 43 Senior Vice
President Discovery
Paul D. Rubin, M.D. 43 Senior Vice President Drug
Development
Robert F. Scumaci 37 Senior Vice President, Finance and
Administration and Treasurer
</TABLE>
Mr. Barberich, a founder of the Company, has been a director of the Company
and its President and Chief Executive Officer since the Company's inception.
Prior to founding the Company, Mr. Barberich served in a number of executive and
managerial capacities at Millipore Corporation, which he joined in 1973. Most
recently prior to founding Sepracor, Mr. Barberich served as Vice President and
General Manager of Millipore's Medical Products Division and as General Manager
of Millipore's Laboratory Products Division. Mr. Barberich is Chairman of the
Board of Directors of BioSepra.
-16-
<PAGE> 17
Mr. Barlow, has served as Executive Vice President and President,
Pharmaceuticals since October 1995. From July 1993 to October 1995, Mr.
Barlow held the position of Senior Vice President and General Manager of the
Pharmaceutical Division of Sepracor. From 1991 to 1993, he was President of the
Business Group, a management consulting firm. Previously, he was Vice President,
Worldwide Marketing and Business Development of Armour Pharmaceutical Company, a
subsidiary of Rhone-Poulenc Rorer Inc., from 1988 to 1991. Prior to that time,
he was associated with Pfizer, Inc. and Ares-Serono, Inc. in various business
planning and marketing positions. Mr. Barlow is a director of HemaSure.
Mr. Southwell, has served as Executive Vice President, Chief Financial
Officer of the Company since October 1995 and served as Senior Vice President
and Chief Financial Officer of the Company from July 1994 to October 1995. From
August 1988 until July 1994, Mr. Southwell was associated with Lehman Brothers,
a securities firm, in various positions with the investment banking division,
most recently in the position of Vice President.
Dr. Hauske has served as Senior Vice President, Discovery of the Company
since October 1995. Prior to joining the Company from June 1994 to October 1995
Dr. Hauske was employed by Arris Pharmaceuticals, a pharmaceutical company, as
Director of Combinatorial Chemistry and Receptor Chemistry. Before joining Arris
Pharmaceuticals, Dr. Hauske worked for Pfizer Central Research in Groton,
Connecticut. While, at Pfizer, Dr. Hauske was a member of the project management
team that discovered Pfizer's azamacrolide antibacterial zithromax(R).
Dr. Rubin has served as Senior Vice President, Drug Development of the
Company since April 1996. He was formerly Vice President and Worldwide Director
of Clinical Pharmacology for Glaxo-Wellcome, a pharmaceutical company, from 1993
until 1996 and Vice President, Immunology and Metabolic Disease for Abbott
Laboratories, a pharmaceutical company, from 1987 until 1993. Dr. Rubin was
responsible for early clinical development of Glaxo-Wellcome's entire
portfolio. While at Abbott Laboratories Dr. Rubin was responsible for the
development of the 5-lipoxygenase inhibitor, zileuton.
Mr. Scumaci has served as Senior Vice President, Finance and Administration
and Treasurer of the Company since March 1996. He was Vice President and
Controller of the Company from March 1995 until March 1996. From 1987 to 1994,
Mr. Scumaci was employed by Ares-Serono Group, a multinational pharmaceutical
company, most recently as Vice President -- Finance and Administration of North
American Operations. Previously, he was associated with Revlon and Coopers &
Lybrand in various finance and accounting capacities.
-17-
<PAGE> 18
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Incorporated by reference from the Company's 1996 Annual Report to
Stockholders (the "1996 Annual Report") under the headings "Supplemental
Stockholder Information -- Price Range of Common Stock" and "Supplemental
Stockholder Information -- Dividend Policy."
The Company did not issue or sell any equity securities during the quarter
ended December 31, 1996 that were not registered under the Securities Act of
1933, as amended.
ITEM 6. SELECTED FINANCIAL DATA
Incorporated by reference from the Company's 1996 Annual Report under the
heading "Sepracor Inc. Selected Financial Data."
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Incorporated by reference from the 1996 Annual Report under the heading
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements filed as part of this Annual Report on Form 10-K
are incorporated by reference from the 1996 Annual Report under the headings
"Consolidated Financial Statements and Notes Thereto" and are listed under Item
14 below.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no disagreements on accounting and financial disclosure
matters.
PART III
ITEMS 10-13.
The information required for Part III in this Annual Report on Form 10-K is
incorporated by reference from the Company's definitive proxy statement for the
Company's 1997 Annual Meeting of Stockholders. Such information will be
contained in the sections of such proxy statement captioned "Stock Ownership of
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<PAGE> 19
Certain Beneficial Owners and Management", "Proposal 1 - Election of
Directors", "Board and Committee Meetings", "Compensation for Directors",
"Compensation of Executive Officers", "Certain Relationships and Related
Transactions", "Employment Agreements" and "Section 16(a) Beneficial Ownership
Reporting Compliance." Information regarding executive officers of the Company
is also furnished in Part I of this Annual Report on Form 10-K under the
heading "Executive Officers of the Registrant".
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
<TABLE>
(a) The following documents are included or incorporated by reference from
the 1996 Annual Report.
<CAPTION>
Page*
-----
<S> <C> <C>
1. The following financial statements (and related notes) of the
Company are incorporated by reference from the 1996 Annual Report.
Report of Independent Accountants 23*
Consolidated Balance Sheets at December 31, 1996 and 1995 24*
Consolidated Statements of Operations for the Years Ended
December 31, 1996, 1995 and 1994 25*
Consolidated Statements of Stockholders' Equity for the Years
Ended December 31, 1996, 1995 and 1994 26*
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1995 and 1994 27*
Notes to the Consolidated Financial Statements 28*
<FN>
- --------------
*References are to page numbers in the 1996 Annual Report. The financial
statements (and related notes) are incorporated by reference from the 1996
Annual Report.
</TABLE>
2. The schedule listed below and the Report of Independent Accountants
on financial statement schedule are filed as part of this Annual
Report on Form 10-K:
-19-
<PAGE> 20
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants on Financial Statement
Schedule S-1
(i) Schedule II -- Valuation and Qualifying Accounts S-2
All other schedules are omitted as the information required is
inapplicable or the information is presented in the consolidated financial
statements or the related notes.
</TABLE>
3. The Exhibits listed in the Exhibit Index immediately preceding the
Exhibits filed as a part of this Annual Report on Form 10-K.
(b) No Current Reports on From 8-K have been filed by the Company during
the last quarter of the year ended December 31, 1996.
The following trademarks are mentioned in this Annual Report on Form 10-K:
Sepracor and ICE are trademarks of Sepracor. BioSepra, HyperD,
HyperDiffusion and ProSys are trademarks of BioSepra. HemaSure, LeukoNet,
LeukoVir, SteriPath, PlasmaSep and CellWasher are trademarks of HemaSure.
SepraChem and ChiRedox are trademarks of ChiRex. This Annual Report on Form 10-K
also contains trademarks of other companies.
-20-
<PAGE> 21
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SEPRACOR INC.
By: /s/ Timothy J. Barberich
-------------------------------------
Timothy J. Barberich
President and Chief Executive Officer
Date: March 31, 1997
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<PAGE> 22
<TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Timothy J. Barberich President, Chief Executive Officer March 31, 1997
- -------------------------- and Director (Principal Executive
Timothy J. Barberich Officer)
/s/ David P. Southwell Executive Vice President and March 31, 1997
- -------------------------- Chief Financial Officer
David P. Southwell
/s/ James G. Andress Director March 31, 1997
- --------------------------
James G. Andress
/s/ Digby W. Barrios Director March 31, 1997
- --------------------------
Digby W. Barrios
/s/ Robert J. Cresci Director March 31, 1997
- --------------------------
Robert J. Cresci
/s/ Robert F. Johnston Director March 31, 1997
- --------------------------
Robert F. Johnston
/s/ Keith Mansford Director March 31, 1997
- --------------------------
Keith Mansford
/s/ James F. Mrazek Director March 31, 1997
- --------------------------
James F. Mrazek
/s/ Alan A. Steigrod Director March 31, 1997
- --------------------------
Alan A. Steigrod
/s/ Robert F. Scumaci Senior Vice President, Finance and March 31, 1997
- -------------------------- Administration and Treasurer
Robert F. Scumaci (Principal Financial and
Accounting Officer)
</TABLE>
-22-
<PAGE> 23
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Board of Directors and Stockholders of
Sepracor, Inc.
Our report on the consolidated financial statements of Sepracor, Inc. has been
incorporated by reference in this Form 10-K from page 23 of the 1996 Annual
Report to Stockholders of Sepracor, Inc. In connection with our audits of such
financial statements, we have also audited the related financial statement
schedule listed in item 14(b) of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information to be included
therein.
/s/ Coopers & Lybrand LLP
Boston, Massachusetts
February 13, 1997.
S-1
<PAGE> 24
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To the Board of Directors and Shareholders of BioSepra Inc. and subsidiaries:
We have audited, in accordance with generally accepted auditing standards, the
consolidated financial statements of BioSepra Inc. and subsidiaries and have
issued our report thereon dated January 29, 1997. Our audit was made for the
purpose of forming an opinion on the basic financial statements taken as a
whole. The schedule listed in Item 14(a)2 herein is the responsibility of the
Company's managements and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states, in all material respects, the financial data required
to be set forth therein, in relation to the basic financial statements taken as
a whole.
/s/ Arthur Andersen LLP
Boston, Massachusetts
January 29, 1997
S-2
<PAGE> 25
SEPRACOR, INC.
Schedule II - Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
===================================================================================================================================
Column A Column B Column C Column D Column E
- -----------------------------------------------------------------------------------------------------------------------------------
Additions
Balance at ---------------- ----------------- ------------------
Description beginning Deductions(2) Balance at
of period Charged to costs Charged to end of period
and expenses other accounts (1)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996
Accounts Receivable Reserves $132,334 $172,000 $ (71,324) $233,010
Year ended December 31, 1995
Accounts Receivable Reserves 84,759 285,575 (214,000) (24,000) 132,334
Year ended December 31, 1994
Accounts Receivable Reserves $133,335 $ 61,000 $(109,576) $ 84,750
<FN>
</TABLE>
(1) These amounts relate to changes in the translation rate of the Company's
international subsidiary, and the write-off of the reserve from the sale of
Biopass S.A.
(2) Collections and bad debt write-offs. Also includes $70,324 as a result of
Sepracor merging its wholly-owned subsidiary, SepraChem Inc., into ChiRex Inc.
S-3
<PAGE> 26
Exhibit Index
-------------
<TABLE>
The following exhibits are filed as part of this Annual Report on Form
10-K.
<CAPTION>
Exhibit No. Description Page
- ----------- ----------- ----
<S> <C> <C> <C>
3.1(8) -- Restated Certificate of Incorporation of the Company as amended.
3.2(1) -- Amended and Restated By-Laws of the Company.
4.1(1) -- Specimen Certificate for shares of Common Stock, $.10 par
value, of the Company.
4.2(2) -- Form of 7% Convertible Subordinated Debenture due 2002.
10.1(1) -- Second Amended and Restated Registration Rights Agreement
dated as of June 28, 1991 by and among the Company and the
persons listed on Schedule I thereto.
(*)10.2 -- The Company's 1991 Restated Stock Option Plan, as amended
and restated.
(*)10.3 -- The Company's 1991 Director Stock Option Plan, as amended
and restated.
10.4(2) -- Lease as to Marlboro Industrial Park, dated December 12,
1995, between Valerie A. Colbert, Trustee of Second Marlboro
Development Trust under Declaration of Trust dated September
15, 1972 and the Company.
(*) 10.5 -- The Company's 1996 Employee Stock Purchase Plan, as amended
and restated.
10.6(3)+ -- License Agreement dated June 1, 1993, between the Company
and MMD.
10.7(3) -- Stock Purchase Agreement between the Company and MMD.
10.8(4) -- Technology Transfer and License Agreement dated as of
January 1, 1994 between the Company and BioSepra.
</TABLE>
-23-
<PAGE> 27
<TABLE>
<S> <C> <C> <C>
10.9(4) -- Technology Transfer and License Agreement dated as of
January 1, 1994 between the Company and HemaSure.
10.10(2) -- Technology Transfer and License Agreement, effective January
1, 1995, between Sepracor and SepraChem.
10.11(5) -- Series A Convertible Preferred Stock Purchase Agreement
dated September 30, 1994 by and among the Company and OFD
Partners, L.P.
(*) 10.12(6) -- Letter Agreement, dated September 30, 1993, between the
Company and David S. Barlow.
(*) 10.13(6) Letter Agreement, dated June 10, 1994, between the Company
and David Southwell.
(*) 10.14 -- Letter Agreement, dated February 23, 1996, between the
Company and Paul D. Rubin.
(*) 10.15 -- Letter Agreement, dated February 23, 1995, between the
Company and Robert F. Scumaci.
(*) 10.16 -- Consulting Agreement between the Company and Mr. Steigrod,
dated September 1, 1996.
(*) 10.17 -- Consulting Agreement between the Company and Mr. Mansford,
dated February 1, 1996.
10.18 -- Notes from Mr. Barlow to the Company
10.19 -- Promissory Note from Paul Rubin to the Company, dated May
23, 1997
10.20(6) -- Series B Preferred Stock Purchase Agreement dated March 14,
1995 between the Company and Beckman Instruments, Inc.
10.21(6) -- Revolving Credit and Security Agreement by and between Fleet
Bank of Massachusetts, N.A. and the Company dated December
28, 1994.
10.22(6) -- Intellectual Property Security Agreement by and between
Fleet Bank of Massachusetts, N.A. and the Company dated
December 28, 1994.
</TABLE>
-24-
<PAGE> 28
<TABLE>
<S> <C> <C> <C>
10.23(6) -- Pledge Agreement by and between Fleet Bank of Massachusetts,
N.A. and the Company dated December 28, 1994.
10.24 -- Amended and Restated Revolving Credit and Security
Agreement among Fleet National Bank, the Registrant and
Sepracor Securities Corporation, dated December 31, 1996.
10.25 -- Confirmation of and Amendment to Intellectual Property
Security Agreement, dated February 1997.
10.26 -- Guaranty Agreement, dated December 31, 1996, between the
Registrant and Fleet National Bank for Versicor Inc.
10.27 -- Deposit Pledge Agreement, dated December 31, 1996, between
the Registrant and Fleet National Bank.
10.28 -- Amended and Restated Promissory Note, dated December 31,
1996, between the Registrant, Sepracor Securities
Corporation and Fleet National Bank.
10.29 -- Guaranty Agreement, dated December 31, 1996, between the
Registrant and Fleet National Bank for Biosepra Inc.
10.30(2) -- Subscription Agreement, dated as of November 1, 1995, among
the Company, Lehman Brothers International (Europe) and
Smith Barney Inc.
10.31(2) -- Fiscal Agency Agreement, dated as of November 1, 1995,
between the Company and Chemical Bank, as Fiscal Agent.
10.32(7) -- Agreement and Plan of Merger by and among ChiRex Inc.,
SepraChem Inc., the Company, SepraChem Merger Corporation,
et al, dated as of February 6, 1996, as amended.
10.33(2) -- Sublease, dated as of December 12, 1995, between Digital
Equipment Corporation and the Company.
13 -- 1996 Annual Report to Stockholders (which shall be deemed
filed only with respect to those portions specifically
incorporated by reference herein).
21 -- Subsidiaries of the Company.
23.1 -- Consent of Coopers & Lybrand L.L.P.
23.2 -- Consent of Arthur Andersen LLP
27 -- Financial Data Schedule
99 -- Report of Arthur Andersen LLP
<FN>
- ----------------
(*) Management contract or compensatory plan or arrangement filed as an exhibit
to this Form pursuant to Items 14(a) and 14(c) of Form 10-K.
(1) Incorporated herein by reference from the Company's Registration Statement
on Form S-1 (File No. 33-41653).
(2) Incorporated by reference from the Company's Annual Report on Form 10-K
for the year ended December 31, 1995.
</TABLE>
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<PAGE> 29
(3) Incorporated by reference from the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1993.
(4) Incorporated by reference from the Company's Annual Report on Form 10-K for
the year ended December 31, 1993.
(5) Incorporated by reference from the Company's Ouarterly Report on Form 10-Q
for the quarter ended September 30,1994.
(6) Incorporated by reference from the Company's Annual Report on Form 10-K for
the year ended December 31, 1994.
(7) Incorporated by reference from the Company's Current Report on Form 8-K
dated March 25, 1996.
(8) Incorporated by reference to the Registrant's Registration Statement on
Form S-8, filed on June 5, 1996, relating to the 1991 Director Stock Option
Plan.
-26-
<PAGE> 1
Exhibit 10.2
SEPRACOR INC.
1991 AMENDED AND RESTATED STOCK OPTION PLAN
-------------------------------------------
Adopted by the Board of Directors on June 24, 1991
--------------------------------------------------
1. Purpose.
-------
The purpose of this plan (the "Plan") is to secure for Sepracor Inc. (the
"Company") and its shareholders the benefits arising from capital stock
ownership by employees and officers of, and consultants or advisors to, the
Company and its parent and subsidiary corporations who are expected to
contribute to the Company's future growth and success. Except where the context
otherwise requires, the term "Company" shall include the parent and all present
and future subsidiaries of the Company as defined in Sections 424(e) and 424(f)
of the Internal Revenue Code of 1986, as amended or replaced from time to time
(the "Code"). Those provisions of the Plan which make express reference to
Section 422 of the Code shall apply only to Incentive Stock Options (as that
term is defined in the Plan).
The Plan shall be treated as an amendment to and restatement of the
Company's 1985 Stock Option Plan, a copy of which is attached hereto as EXHIBIT
A. As amended and restated, the Plan shall apply to all options granted by the
Company on or after June 24, 1991, but shall apply, as so amended and restated,
to any option granted prior to such date if and only to the extent that the
agreement pursuant to which such option was granted is expressly amended in
writing to adopt the terms of the Plan. Any options granted prior to June 24,
1991 not so expressly amended shall continue to be governed by the terms set
forth in EXHIBIT A.
2. Type of Options and Administration.
----------------------------------
(a) TYPES OF OPTIONS. Options granted pursuant to the Plan shall be
authorized by action of the Board of Directors of the Company (or a Committee
designated by the Board of Directors) and may be either incentive stock options
("Incentive Stock Options") meeting the requirements of Section 422 of the Code
or non-qualified options which are not intended to meet the requirements of
Section 422 of the Code.
(b) ADMINISTRATION. The Plan will be administered by the Board of Directors
of the Company, whose construction and interpretation of the terms and
provisions of the Plan shall be final and conclusive. The Board of Directors may
in its sole discretion grant options to purchase shares of the Company's Common
Stock, par value $.10 per share ("Common Stock"), and issue shares upon exercise
of such
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<PAGE> 2
options as provided in the Plan. The Board shall have authority, subject to the
express provisions of the Plan, to construe the respective option agreements and
the Plan, to prescribe, amend and rescind rules and regulations relating to the
Plan, to determine the terms and provisions of the respective option agreements,
which need not be identical, and to make all other determinations in the
judgment of the Board of Directors necessary or desirable for the administration
of the Plan. The Board of Directors may correct any defect or supply any
omission or reconcile any inconsistency in the Plan or in any option agreement
in the manner and to the extent it shall deem expedient to carry the Plan into
effect and it shall be the sole and final judge of such expediency. No director
or person acting pursuant to authority delegated by the Board of Directors shall
be liable for any action or determination made in good faith. The Board of
Directors may, to the full extent permitted by or consistent with applicable
laws or regulations (including, without limitation, applicable state law and
Rule 16b-3 promulgated under the Securities Exchange Act of 1934 (the "Exchange
Act"), or any successor rule ("Rule 16b-3")), delegate any or all of its powers
under the Plan to a committee (the "Committee") appointed by the Board of
Directors, and if the Committee is so appointed all references to the Board of
Directors in the Plan shall mean and relate to such Committee.
(c) APPLICABILITY OF RULE 16b-3. Those provisions of the Plan which make
express reference to Rule 16b-3 shall apply to the Company only at such time as
the Company's Common Stock or another class of equity security is registered
under the Exchange Act, and then only to such persons as are required to file
reports under Section 16(a) of the Exchange Act (a "Reporting Person").
3. Eligibility.
----------
(a) GENERAL. Options may be granted to persons who are, at the time of
grant, employees or officers of, or consultants or advisors to, the Company;
PROVIDED, that Incentive Stock Options may be granted only to persons who are
eligible to receive such options under Section 422 of the Code. In addition, no
person shall be granted any Incentive Stock Option under the Plan who, at the
time such option is granted, owns, directly or indirectly, stock possessing more
than 10% of the total combined voting power of all classes of stock of the
Company, unless the requirements of Section 11(b) are satisfied. The attribution
of stock ownership provisions of Section 424(d) of the Code, and any successor
provisions thereto, shall be applied in determining the shares of stock owned by
a person for purposes of applying the foregoing percentage limitation. A person
who has been granted an option may, if he or she is otherwise eligible, be
granted an additional option or options if the Board of Directors shall so
determine. 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
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<PAGE> 3
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.
(b) GRANT OF OPTIONS TO DIRECTORS AND OFFICERS. From and after the
registration of the Common Stock of the Company under the Exchange Act, the
selection of an officer (as the term "officer" is defined for the purposes of
Rule 16b-3) as a recipient of an option, the timing of the option grant, the
exercise price of the option and the number of shares subject to the option
shall be determined either (i) by the full Board of Directors or (ii) by a
committee composed solely of two or more "Non-Employee Directors" having full
authority to act in the matter. For the purposes of the Plan, a director shall
be deemed to be a "Non-Employee Director" only if such person qualifies as a
"Non-Employee Director" within the meaning of Rule 16b-3, as such term is
interpreted from time to time.
4. Stock Subject to Plan.
---------------------
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. If an option granted under the Plan shall expire or
terminate for any reason without having been exercised in full, the unpurchased
shares subject to such option shall again be available for subsequent option
grants under the Plan. If shares issued upon exercise of an option under the
Plan are tendered to the Company in payment of the exercise price of an option
granted under the Plan, such tendered shares shall again be available for
subsequent option grants under the Plan; provided, that in no event shall (i)
the total number of shares issued pursuant to the exercise of Incentive Stock
Options under the Plan, on a cumulative basis, exceed the maximum number of
shares authorized for issuance under the Plan exclusive of shares made available
for issuance pursuant to this sentence or (ii) the total number of shares issued
pursuant to the exercise of options by persons who are required to file reports
under Section 16(a) of the Exchange Act, on a cumulative basis, exceed the
maximum number of shares authorized for issuance under the Plan exclusive of
shares made available for issuance pursuant to this sentence.
5. Forms of Option Agreements.
--------------------------
As a condition to the grant of an option under the Plan, each recipient of
an option shall execute an option agreement in such form not inconsistent with
the Plan as may be approved by the Board of Directors. Each option agreement
shall specifically state whether the options granted thereby are intended to be
Incentive Stock Options or non-qualified options. Such option agreements may
differ among recipients.
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<PAGE> 4
6. Purchase Price.
--------------
(a) GENERAL. The purchase price per share of stock deliverable upon the
exercise of an option shall be determined by the Board of Directors, PROVIDED,
HOWEVER, that (i) in the case of an Incentive Stock Option, the exercise price
shall not be less than 100% of the fair market value of such stock, as
determined by the Board of Directors, at the time of grant of such option, or
less than 110% of such fair market value in the case of options described in
Section 11(b), and (ii) in the case of a non-qualified option, the exercise
price shall not be less than 50% of the fair market value of such stock, as
determined by the Board of Directors, at the time of grant of such option.
(b) PAYMENT OF PURCHASE PRICE. Options granted under the Plan may provide
for the payment of the exercise price by delivery of cash or a check to the
order of the Company in an amount equal to the exercise price of such options,
or, to the extent provided in the applicable option agreement, (i) by delivery
to the Company of shares of Common Stock of the Company already owned by the
optionee having a fair market value equal in amount to the exercise price of the
options being exercised, (ii) by any other means which the Board of Directors
determines are consistent with the purpose of the Plan and with applicable laws
and regulations (including, without limitation, the provisions of Rule 16b-3 and
Regulation T promulgated by the Federal Reserve Board) or (iii) by any
combination of such methods of payment. The fair market value of any shares of
the Company's Common Stock or other non-cash consideration which may be
delivered upon exercise of an option shall be determined by the Board of
Directors.
7. Option Period.
-------------
Each option and all rights thereunder shall expire on such date as the
Board of Directors shall determine, except that (i) in the case of an Incentive
Stock Option, such date shall not be later than ten years after the date on
which the option is granted, (ii) in the case of an Incentive Stock Option
described in Section 11(b), such date shall not be later than five years after
the date on which the option is granted and (iii) in all cases, options shall be
subject to earlier termination as provided in the Plan.
8. Exercise of Options.
-------------------
Each option granted under the Plan shall be exercisable either in full or
in installments at such time or times and during such period as shall be set
forth in the agreement evidencing such option, subject to the provisions of the
Plan.
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<PAGE> 5
9. Transferability of Options.
--------------------------
Except as the Board of Directors may otherwise determine or provide in the
applicable option agreement, options shall not be sold, assigned, transferred,
pledged, or otherwise encumbered by the optionee to whom they are granted,
either voluntarily or by operation of law, except by will or the laws of descent
and distribution, and, during the life of the optionee, shall be exercisable
only by the optionee.
10. Effect of Termination of Employment or Other Relationship.
---------------------------------------------------------
Except as provided in Section 11(d) with respect to Incentive Stock
Options, the Board of Directors shall determine the period of time during which
an optionee may exercise an option following (i) the termination of the
optionee's employment or other relationship with the Company or (ii) the death
or disability of the optionee. Such periods shall be set forth in the agreement
evidencing such option.
11. Incentive Stock Options.
-----------------------
Options granted under the Plan which are intended to be Incentive Stock
Options shall be subject to the following additional terms and conditions:
(a) EXPRESS DESIGNATION. All Incentive Stock Options granted under the Plan
shall, at the time of grant, be specifically designated as such in the option
agreement covering such Incentive Stock Options.
(b) 10% SHAREHOLDER. If any employee to whom an Incentive Stock Option is
to be granted under the Plan is, at the time of the grant of such option, the
owner of stock possessing more than 10% of the total combined voting power of
all classes of stock of the Company (after taking into account the attribution
of stock ownership rules of Section 424(d) of the Code), then the following
special provisions shall be applicable to the Incentive Stock Option granted to
such individual:
(i) The purchase price per share of the Common Stock subject to such
Incentive Stock Option shall not be less than 110% of the fair market value of
one share of Common Stock at the time of grant; and
(ii) The option exercise period shall not exceed five years from the
date of grant.
(c) DOLLAR LIMITATION. For so long as the Code shall so provide, options
granted to any employee under the Plan (and any other incentive stock option
plans of the Company) which are intended to constitute Incentive Stock Options
shall not
-5-
<PAGE> 6
constitute Incentive Stock Options to the extent that such options, in the
aggregate, become exercisable for the first time in any one calendar year for
shares of Common Stock with an aggregate fair market value (determined as of the
respective date or dates of grant) of more than $100,000.
(d) TERMINATION OF EMPLOYMENT, DEATH OR DISABILITY. No Incentive Stock
Option may be exercised unless, at the time of such exercise, the optionee is,
and has been continuously since the date of grant of his or her option, employed
by the Company, except that:
(i) an Incentive Stock Option may be exercised within the period of
three months after the date the optionee ceases to be an employee of the Company
(or within such lesser period as may be specified in the applicable option
agreement), provided, that the agreement with respect to such option may
designate a longer exercise period and that the exercise after such three-month
period shall be treated as the exercise of a non-qualified option under the
Plan;
(ii) if the optionee dies while in the employ of the Company, or
within three months after the optionee ceases to be such an employee, the
Incentive Stock Option may be exercised by the person to whom it is transferred
by will or the laws of descent and distribution within the period of one year
after the date of death (or within such lesser period as may be specified in the
applicable option agreement); and
(iii) if the optionee becomes disabled (within the meaning of Section
22(e)(3) of the Code or any successor provision thereto) while in the employ of
the Company, the Incentive Stock Option may be exercised within the period of
one year after the date the optionee ceases to be such an employee because of
such disability (or within such lesser period as may be specified in the
applicable option agreement).
For all purposes of the Plan and any option granted hereunder, "employment"
shall be defined in accordance with the provisions of Section 1.421-7(h) of the
Income Tax Regulations (or any successor regulations). Notwithstanding the
foregoing provisions, no Incentive Stock Option may be exercised after its
expiration date.
12. Additional Provisions.
---------------------
(a) ADDITIONAL OPTION PROVISIONS. The Board of Directors may, in its sole
discretion, include additional provisions in any option agreement covering
options granted under the Plan, including without limitation restrictions on
transfer, repurchase rights, commitments to pay cash bonuses, to make, arrange
for or guaranty loans or to transfer other property to optionees upon exercise
of options, or
-6-
<PAGE> 7
such other provisions as shall be determined by the Board of Directors; PROVIDED
THAT such additional provisions shall not be inconsistent with any other term or
condition of the Plan and such additional provisions shall not cause any
Incentive Stock Option granted under the Plan to fail to qualify as an Incentive
Stock Option within the meaning of Section 422 of the Code.
(b) ACCELERATION, EXTENSION, ETC. The Board of Directors may, in its sole
discretion, (i) accelerate the date or dates on which all or any particular
option or options granted under the Plan may be exercised or (ii) extend the
dates during which all, or any particular option or options granted under the
Plan may be exercised; provided, however, that no such extension shall be
permitted if it would cause the Plan to fail to comply with Section 422 of the
Code or with Rule 16b-3.
13. General Restrictions.
--------------------
(a) INVESTMENT REPRESENTATIONS. The Company may require any person to whom
an option is granted, as a condition of exercising such option, to give written
assurances in substance and form satisfactory to the Company to the effect that
such person is acquiring the Common Stock subject to the option for his or her
own account for investment and not with any present intention of selling or
otherwise distributing the same, and to such other effects as the Company deems
necessary or appropriate in order to comply with federal and applicable state
securities laws, or with covenants or representations made by the Company in
connection with any public offering of its Common Stock.
(b) COMPLIANCE WITH SECURITIES LAWS. Each option shall be subject to the
requirement that if, at any time, counsel to the Company shall determine that
the listing, registration or qualification of the shares subject to such option
upon any securities exchange or under any state or federal law, or the consent
or approval of any governmental or regulatory body, or that the disclosure of
non-public information or the satisfaction of any other condition is necessary
as a condition of, or in connection with, the issuance or purchase of shares
thereunder, such option may not be exercised, in whole or in part, unless such
listing, registration, qualification, consent or approval, or satisfaction of
such condition shall have been effected or obtained on conditions acceptable to
the Board of Directors. Nothing herein shall be deemed to require the Company to
apply for or to obtain such listing, registration or qualification, or to
satisfy such condition.
14. Rights as a Shareholder.
-----------------------
The holder of an option shall have no rights as a shareholder with respect
to any shares covered by the option (including, without limitation, any rights
to receive dividends or non-cash distributions with respect to such shares)
until the date of issue of a stock certificate to him or her for such shares. No
adjustment shall be
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<PAGE> 8
made for dividends or other rights for which the record date is prior to the
date such stock certificate is issued.
15. Adjustment Provisions for Recapitalizations and Related Transactions.
--------------------------------------------------------------------
(a) GENERAL. If, through or as a result of any merger, consolidation, sale
of all or substantially all of the assets of the Company, reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse stock
split, or other similar transaction, (i) the outstanding shares of Common Stock
are increased or decreased or are exchanged for a different number or kind of
shares or other securities of the Company, or (ii) additional shares or new or
different shares or other securities of the Company or other non-cash assets are
distributed with respect to such shares of Common Stock or other securities, an
appropriate and proportionate adjustment may be made in (x) the maximum number
and kind of shares reserved for issuance under the Plan, (y) the number and kind
of shares or other securities subject to then outstanding options under the
Plan, and (z) the price for each share subject to any then outstanding options
under the Plan, without changing the aggregate purchase price as to which such
options remain exercisable, provided that no adjustment shall be made pursuant
to this Section 15 if such adjustment would cause the Plan to fail to comply
with Section 422 of the Code or with Rule 16b-3.
(b) BOARD AUTHORITY TO MAKE ADJUSTMENTS. Any adjustments under this
Section 15 will be made by the Board of Directors, whose determination as to
what adjustments, if any, will be made and the extent thereof will be final,
binding and conclusive. No fractional shares will be issued under the Plan on
account of any such adjustments.
16. Merger, Consolidation, Asset Sale, Liquidation, etc.
---------------------------------------------------
(a) GENERAL. In the event of a consolidation or merger or sale of all or
substantially all of the assets of the Company in which outstanding shares of
Common Stock are exchanged for securities, cash or other property of any other
corporation or business entity or in the event of a liquidation of the Company,
the Board of Directors of the Company, or the board of directors of any
corporation assuming the obligations of the Company, may, in its discretion,
take any one or more of the following actions, as to outstanding options: (i)
provide that such options shall be assumed, or equivalent options shall be
substituted, by the acquiring or succeeding corporation (or an affiliate
thereof), PROVIDED that any such options substituted for Incentive Stock Options
shall meet the requirements of Section 425(a) of the Code, (ii) upon written
notice to the optionees, PROVIDE that all unexercised options will terminate
immediately prior to the consummation of such transaction unless exercised by
the optionee within a specified period following the date of such notice, (iii)
in the event of a merger under the terms of which holders of the Common Stock of
the Company will receive upon consummation thereof a cash payment for
-8-
<PAGE> 9
each share surrendered in the merger (the "Merger Price"), make or provide for a
cash payment to the optionees equal to the difference between (A) the Merger
Price times the number of shares of Common Stock subject to such outstanding
options (to the extent then exercisable at prices not in excess of the Merger
Price) and (B) the aggregate exercise price of all such outstanding options in
exchange for the termination of such options, and (iv) provide that all or any
outstanding options shall become exercisable in full immediately prior to such
event.
(b) SUBSTITUTE OPTIONS. The Company may grant options under the Plan in
substitution for options held by employees of another corporation who become
employees of the Company, or a subsidiary of the Company, as the result of a
merger or consolidation of the employing corporation with the Company or a
subsidiary of the Company, or as a result of the acquisition by the Company, or
one of its subsidiaries, of property or stock of the employing corporation. The
Company may direct that substitute options be granted on such terms and
conditions as the Board of Directors considers appropriate in the circumstances.
17. No Special Employment Rights.
----------------------------
Nothing contained in the Plan or in any option shall confer upon any
optionee any right with respect to the continuation of his or her employment by
the Company or interfere in any way with the right of the Company at any time to
terminate such employment or to increase or decrease the compensation of the
optionee.
18. Other Employee Benefits.
-----------------------
Except as to plans which by their terms include such amounts as
compensation, the amount of any compensation deemed to be received by an
employee as a result of the exercise of an option or the sale of shares received
upon such exercise will not constitute compensation with respect to which any
other employee benefits of such employee are determined, including, without
limitation, benefits under any bonus, pension, profit-sharing, life insurance or
salary continuation plan, except as otherwise specifically determined by the
Board of Directors.
19. Amendment of the Plan.
---------------------
(a) The Plan was initially adopted by the Board of Directors on July 15,
1985, was amended on April 9, 1986, January 1, 1987, January 30, 1990 and August
27, 1990 and was readopted by the Board of Directors as a new Plan on June 24,
1991, each time subject to its becoming effective upon approval by the holders
of a majority of the outstanding shares of Common Stock of the Company.
-9-
<PAGE> 10
(b) The Board of Directors may at any time, and from time to time, modify
or amend the Plan in any respect, except that if at any time the approval of the
shareholders of the Company is required under Section 422 of the Code or any
successor provision with respect to Incentive Stock Options or under Rule 16b-3
or with respect to options held by persons who are required to file reports
pursuant to Section 16(a) of the Exchange Act, the Board of Directors may not
effect such modification or amendment without such approval.
(c) The termination or any modification or amendment of the Plan shall not,
without the consent of an optionee, affect his or her rights under an option
previously granted to him or her. With the consent of the optionee affected, the
Board of Directors may amend outstanding option agreements in a manner not
inconsistent with the Plan. The Board of Directors shall have the right to amend
or modify (i) the terms and provisions of the Plan and of any outstanding
Incentive Stock Options granted under the Plan to the extent necessary to
qualify any or all such options for such favorable federal income tax treatment
(including deferral of taxation upon exercise) as may be afforded incentive
stock options under Section 422 of the Code and (ii) the terms and provisions of
the Plan and of any outstanding option to the extent necessary to ensure the
qualification of the Plan under Rule 16b-3.
20. Withholding.
-----------
(a) The Company shall have the right to deduct from payments of any kind
otherwise due to the optionee any federal, state or local taxes of any kind
required by law to be withheld with respect to any shares issued upon exercise
of options under the Plan. Subject to the prior approval of the Company, which
may be withheld by the Company in its sole discretion, the optionee may elect to
satisfy such obligations, in whole or in part, (i) by causing the Company to
withhold shares of Common Stock otherwise issuable pursuant to the exercise of
an option or (ii) by delivering to the Company shares of Common Stock already
owned by the optionee. The shares so delivered or withheld shall have a fair
market value equal to such withholding obligation. The fair market value of the
shares used to satisfy such withholding obligation shall be determined by the
Company as of the date that the amount of tax to be withheld is to be
determined. An optionee who has made an election pursuant to this Section 20(a)
may only satisfy his or her withholding obligation with shares of Common Stock
which are not subject to any repurchase, forfeiture, unfulfilled vesting or
other similar requirements.
(b) Notwithstanding the foregoing, in the case of a director or officer, no
election to use shares for the payment of withholding taxes shall be effective
unless made in compliance with any applicable requirements of Rule 16b-3.
21. Cancellation and New Grant of Options, Etc.
------------------------------------------
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<PAGE> 11
The Board of Directors shall have the authority to effect, at any time and
from time to time, with the consent of the affected optionees, (i) the
cancellation of any or all outstanding options under the Plan and the grant in
substitution therefor of new options under the Plan covering the same or
different numbers of shares of Common Stock and having an option exercise price
per share which may be lower or higher than the exercise price per share of the
cancelled options or (ii) the amendment of the terms of any and all outstanding
options under the Plan to provide an option exercise price per share which is
higher or lower than the then-current exercise price per share of such
outstanding options.
22. Effective Date and Duration of the Plan.
---------------------------------------
(a) EFFECTIVE DATE. The Plan shall become effective when adopted by the
Board of Directors, but no Incentive Stock Option granted under the Plan shall
become exercisable unless and until the Plan shall have been approved by the
Company's shareholders. If such shareholder approval is not obtained within
twelve months after the date of the Board's adoption of the Plan, no options
previously granted under the Plan shall be deemed to be Incentive Stock Options
and no further Incentive Stock Options shall be granted. Amendments to the Plan
not requiring shareholder approval shall become effective when adopted by the
Board of Directors; amendments requiring shareholder approval (as provided in
Section 19) shall become effective when adopted by the Board of Directors, but
no Incentive Stock Option granted after the date of such amendment shall become
exercisable (to the extent that such amendment to the Plan was required to
enable the Company to grant such Incentive Stock Option to a particular
optionee) unless and until such amendment shall have been approved by the
Company's shareholders. If such shareholder approval is not obtained within
twelve months of the Board's adoption of such amendment, any Incentive Stock
Options granted on or after the date of such amendment shall terminate to the
extent that such amendment to the Plan was required to enable the Company to
grant such option to a particular optionee. Subject to this limitation, options
may be granted under the Plan at any time after the effective date and before
the date fixed for termination of the Plan.
(b) TERMINATION. Unless sooner terminated in accordance with Section 16,
the Plan shall terminate, with respect to Incentive Stock Options, upon the
earlier of (i) the close of business on the day next preceding the tenth
anniversary of the date of its adoption by the Board of Directors, or (ii) the
date on which all shares available for issuance under the Plan shall have been
issued pursuant to the exercise or cancellation of options granted under the
Plan. Unless sooner terminated in accordance with Section 16, the Plan shall
terminate with respect to options which are not Incentive Stock Options on the
date specified in (ii) above. If the date of termination is determined under (i)
above, then options outstanding on such date shall continue to have force and
effect in accordance with the provisions of the instruments evidencing such
options.
-11-
<PAGE> 12
23. Provision for Foreign Participants.
----------------------------------
The Board of Directors may, without amending the Plan, modify awards or
options granted to participants who are foreign nationals or employed outside
the United States to recognize differences in laws, rules, regulations or
customs of such foreign jurisdictions with respect to tax, securities, currency,
employee benefit or other matters.
-12-
<PAGE> 1
Exhibit 10.3
SEPRACOR INC.
1991 DIRECTOR STOCK OPTION PLAN, AS AMENDED AND RESTATED
1. Purpose
-------
The purpose of this 1991 Director Stock Option Plan (the "Plan") of
Sepracor Inc. (the "Company") is to encourage ownership in the Company by
outside directors of the Company whose continued services are considered
essential to the Company's future progress and to provide them with a further
incentive to remain as directors of the Company.
2. Administration
--------------
The Board of Directors shall supervise and administer the Plan. Grants of
stock options under the Plan and the amount and nature of the awards to be
granted shall be automatic in accordance with Section 5. However, all questions
of interpretation of the Plan or of any options issued under it shall be
determined by the Board of Directors and such determination shall be final and
binding upon all persons having an interest in the Plan.
3. Participation in the Plan
-------------------------
Directors of the Company who are not employees of the Company or any
subsidiary of the Company shall be eligible to participate in the Plan,
provided, however, that James G. Andress shall not be entitled to receive an
Initial Option (as defined below).
4. Stock Subject to the Plan
-------------------------
(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.
(b) If any outstanding option under the Plan for any reason expires or
is terminated without having been exercised in full, the shares allocable to the
unexercised portion of such option shall again become available for grant
pursuant to the Plan.
(c) All options granted under the Plan shall be nonstatutory options not
entitled to special tax treatment under Section 422 of the Internal Revenue Code
<PAGE> 2
of 1986, as amended to date and as it may be amended from time to time (the
"Code").
5. Terms Conditions and Form of Options
------------------------------------
Each option granted under the Plan shall be evidenced by a written
agreement in such form as the Board of Directors shall from time to time
approve, which agreements shall comply with and be subject to the following
terms and conditions:
(a) OPTION GRANT DATES. Options shall be granted (i) on the effective
date of the Plan, to all eligible directors who are directors as of such date,
and to all other eligible directors upon his or her election as a director, and
(ii) thereafter to all eligible directors immediately following each annual
meeting of stockholders (an "Annual Grant Date"), provided that only eligible
directors who have served as directors for at least six months or more prior to
an Annual Grant Date shall be entitled to an option pursuant to this subsection
(ii). An option granted pursuant to subsection (i) herein shall be referred to
herein as an "Initial Option" 'and an option granted pursuant to subsection (ii)
herein shall be referred to herein as a "Reelection Option".
(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."
(c) OPTION EXERCISE PRICE. The option exercise price per share for each
option granted under the Plan shall equal (i) the last reported sales price per
share of the Company's Common Stock on the Nasdaq National Market (or, if the
Company is traded on a nationally recognized securities exchange on the date of
grant, the reported closing sales price per share of the Company's Common Stock
by such exchange) on the date of grant (or if no such price is reported on such
date such price as reported on the nearest preceding day) or (ii) if the Common
Stock is not traded on Nasdaq or an exchange, the fair market value per share on
the date of grant as determined by the Board of Directors.
(d) TRANSFERABILITY OF OPTIONS. Except as the Board of Directors may
otherwise determine or provide in the applicable option agreement, options shall
not be sold, assigned, transferred, pledged or otherwise encumbered by the
optionee to whom they are granted, either voluntarily or by operation of law,
except by will or the laws of descent and distribution, and, during the life of
the optionee, shall be exercisable only by the optionee.
-2-
<PAGE> 3
(e) Exercise Period.
---------------
(i) INITIAL OPTION. Each Initial Option may be exercised on a
cumulative basis as to one-fifth of the shares subject to the option on each of
the first, second, third, fourth and fifth anniversaries of the date of grant of
such option; and
(ii) REELECTION OPTION. Each Reelection Option may be exercised in
full immediately prior to the annual meeting of stockholders next following the
date of grant.
(f) EXERCISE PERIOD UPON DISABILITY OR DEATH. Notwithstanding the
provisions of Section 5(e), an option granted under the Plan may be exercised,
to the extent then exercisable, by an optionee who becomes disabled (within the
meaning of Section 22(e)(3) of the Code or any successor provision thereto)
while acting as a director of the Company, or may be exercised, to the extent
then exercisable, upon the death of such optionee while a director of the
company by the person to whom it is transferred by will, by the laws of descent
and distribution, or by written notice filed pursuant to Section 5(h), in each
case within the period of one year after the date the optionee ceases to be such
a director by reason of such disability or death; provided that, no option shall
be exercisable after the expiration of ten years from the date of grant.
(g) EXERCISE PROCEDURE. Options may be exercised only by written notice
to the Company at its principal office accompanied by payment in cash or the
full consideration for the shares as to which they are exercised.
(h) EXERCISE BY REPRESENTATIVE FOLLOWING DEATH OF DIRECTOR. A director,
by written notice to the Company, may designate one or more persons (and from
time to time change such designation) including his legal representative, who,
by reason of the director's death, shall acquire the right to exercise all or a
portion of the option. If the person or persons so designated wish to exercise
any portion of the option, they must do so within the term of the option as
provided herein. Any exercise by a representative shall be subject to the
provisions of the Plan.
6. Assignments
-----------
Except as the Board of Directors may otherwise determine or provide in
the applicable option agreement, the rights and benefits under the Plan may not
be assigned except for the designation of a beneficiary as provided in Section
5.
7. Effective Date and Time for Granting Options
--------------------------------------------
(a) The Plan shall become effective December 31, 1991.
-3-
<PAGE> 4
(b) All options for shares subject to the Plan shall be granted, if at
all, not later than six (6) years after the approval of the Plan by the
Company's stockholders.
8. Limitation rights
-----------------
(a) NO RIGHT TO CONTINUE AS A DIRECTOR. Neither the Plan, nor the
granting of an option nor any other action taken pursuant to the Plan, shall
constitute or be evidence of any agreement or understanding, express or implied,
that the Company will retain a director for any period of time.
(b) NO STOCKHOLDERS' RIGHTS FOR OPTIONS. An optionee shall have no
rights as a stockholder with respect to the shares covered by his options until
the date of the issuance to him of a stock certificate therefor, and no
adjustment will be made for dividends or other rights (except as provided in
Section 9) for which the record date is prior to the date such certificate is
issued.
9. Changes in Common Stock
-----------------------
(a) If the outstanding shares of Common Stock are increased, decreased
or exchanged for a different number of kind of shares or other securities, or if
additional shares or new or different shares or other securities are distributed
with respect to such shares of Common Stock or other securities, through merger,
consolidation, dale of all or substantially all of the assets of the Company,
reorganization, recapitalization, reclassification, stock dividend, stock split,
reverse stock split or other distribution with respect so such shares of Common
Stock, or other securities, an appropriate and proportionate adjustment will be
made in (i) the maximum number and kind or shares reserved for issuance under
the Plan, (ii) the number and kind or shares or other securities subject to then
outstanding options under the Plan and (iii) the price for each share subject to
any then outstanding options under the Plan, without changing the aggregate
purchase price as to which such options remain exercisable. No fractional shares
will be issued under the Plan on account of any such adjustments.
(b) In the event that the Company is merged or consolidated into or with
another corporation (in which consolidation or merger the stockholders of the
Company receive distributions of cash or securities of another issuer as a
result thereof), or in the event that all or substantially all of the assets of
the Company is acquired by any other person or entity, or in the event of a
reorganization or liquidation of the Company, the Board of Directors of the
Company, or the board of directors of any corporation assuming the obligations
of the Company, shall, as to outstanding options, either (i) provide that such
options shall be assumed, or equivalent options shall be substituted, by the
acquiring or successor corporation (or an affiliate thereof), or (ii) upon
written notice to the optionees, provide that all
-4-
<PAGE> 5
unexercised options will terminate immediately prior to the consummation of such
merger, consolidation, acquisition, reorganization or liquidations unless
exercised by the optionee within a specified number of days following the date
of such notice.
10. Amendment of the Plan
---------------------
The Board of Directors may suspend or discontinue the Plan or review or
amend it in any respect whatsoever; provided, however, that without approval of
the stockholders of the Company no revision or amendment shall change the number
of shares subject to the Plan (except as provided in Section 9), change the
designation of the class of directors eligible to receive options, or materially
increase the benefits accruing to participants under the Plan.
11. Notice
------
Any written notice to the Company required by any of the provisions of
the Plan shall be addressed to the Treasurer of the Company and shall become
effective when it is received.
12. Governing Law
-------------
The Plan and all determinations made and actions taken pursuant hereto
shall be governed by the laws of the State of Delaware.
-5-
<PAGE> 1
Exhibit 10.5
SEPRACOR INC.
1996 EMPLOYEE STOCK PURCHASE PLAN, AS AMENDED AND RESTATED
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.
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
<PAGE> 2
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.
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).
<PAGE> 3
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.
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 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
<PAGE> 4
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 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. TRANSFERABILITY OF RIGHTS. Except as the Board of Directors may
otherwise determine or provide, rights under the Plan shall not be sold,
assigned, transferred, pledged or otherwise encumbered by an employee, either
voluntarily or by operation of law, except by will or the laws of descent and
distribution, and, during the life of the employee,shall be exercisable 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
<PAGE> 5
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 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
<PAGE> 6
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.
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.
<PAGE> 1
Exhibit 10.14
February 23, 1996
Paul D. Rubin, MD
7205 N. Fontana Place
Raleigh, NC 27615
Dear Paul:
On behalf of Sepracor Inc., I am very pleased to offer you the position of
Senior Vice President, Pharmaceutical Development, Sepracor Pharmaceuticals.
Reporting directly to me, you would be primarily responsible for establishing
and leading an outstanding pharmaceutical development team, capable of
developing several compounds in diverse therapeutic categories. Reporting
directly to you initially would be the clinical, regulatory and project
management functions.
In addition, you would be a key member of Sepracor's senior management team, and
be actively involved in strategic planning and decision making, and in
financing, business development and investor relations activities.
This position includes an annual salary of $240,000, paid bi-weekly at
$9,230.77. You would also receive a $50,000 signing bonus, three weeks vacation,
and be eligible to receive a year-end target bonus of $120,000.
Your "ownership in the Company" would derive from your participation in
Sepracor's incentive stock option plan for key employees. It is our intention to
grant you an option to purchase 150,000 shares of Sepracor Common Stock, subject
to the approval of the Board of Directors. Your stock options would vest in
equal installments over a five-year period. The exercise price per share would
be set at the market price on the day the Board of Directors approves this
grant.
You would also receive two additional stock option contracts, each for 25,000
shares. The first and second contracts would be granted on your six and twelve
month anniversary at Sepracor, respectively, based upon your achievement of
mutually agreed upon objectives.
We are also pleased to reimburse all of your relocation expenses, including
those related to real estate transactions, (e.g. legal fees, points on
mortgage), temporary living, reasonable house-hunting trips and moving. In
addition, to further facilitate your relocation, Sepracor will purchase your
home in North Carolina for a price based upon standard industry practices, (e.g.
the average of three independent
<PAGE> 2
appraisals), and provide you with five weeks salary to cover incidental expenses
related to your move.
In the event that you are terminated without cause, or if Sepracor is acquired
by a third party for a price per share of $2.00 or less above the strike price
of your 150,000 share stock option contract, you would receive one full year's
salary.
Enclosed for your review is a copy of our Employee Incentive Stock Option
Agreement and a description of Sepracor's insurance and benefits program. You
will note that we are providing the option to our employees and their families
of participating either in an HMO through BlueCross/BlueShield of Massachusetts
or Harvard Community Health Plan, or in a comprehensive point-of-service plan
through BlueCross/BlueShield. In addition, you will be eligible to participate
in Sepracor's 401k Employee Retirement Savings and Investment Plan. Also
enclosed is a copy of our standard employee confidentiality agreement, which you
would be asked to execute upon joining Sepracor.
Following your consideration of and agreement to this offer, please sign and
return a copy of this letter to my attention. Also, please provide me a list of
references at your earliest convenience, as this offer is contingent upon our
completion of a timely and satisfactory reference check. Should you have any
questions in the interim, please call me at the office at 508-481-6700, x252, or
feel free to call me at home at 617-237-3259.
Paul, I'm excited at the prospect of your joining Sepracor and making meaningful
contributions to our bright future. The entire Sepracor team is looking forward
to working with you, and I'm convinced that together we can create significant
value and have fun on the process.
Sincerely yours,
David S. Barlow
Executive Vice President, Sepracor Inc.
President, Pharmaceuticals
I accept your offer of employment as described above.
/s/Paul D.Rubin, MD March 4, 1996
- ------------------------------ ---------------
Paul D. Rubin, MD Date
cc: T. Barberich
<PAGE> 1
Exhibit 10.15
[SEPRACOR]
February 23, 1995
Robert F. Scumaci
68 Barstow Avenue
Norwell, MA 02061
Dear Bob:
On behalf of Sepracor Inc. (the "Company"), I am delighted to offer you the
position of Vice President and Corporate Controller of the Company. This
position reports to the Chief Financial Officer. In addition, this offer
includes the interim position of Chief Financial Officer of BioSepra, our
majority-owned subsidiary. This position reports to the Chief Executive Officer
of BioSepra, Jean-Marie Vogel, with dotted-line reporting to the Chief Financial
Officer of Sepracor. The aggregate compensation package will consist of the
following terms:
o $11,167 per month (per your letter of 2/23/95) plus a total bonus of up to
$25,000 per year. While this compensation is for both positions combined,
it will not change in the event a new CFO of BioSepra is hired.
o The Company will grant you an option to purchase stock, contingent on
approval by the Board of Directors of Sepracor and BioSepra, at a price
which will be the price of the traded stock on the day of the grant, for
20,000 shares of Sepracor and 20,000 shares of BioSepra. These shares will
vest over a five-year period starting on the first anniversary of your
employment with the Company.
o You and your family will be entitled to participate in Sepracor's
health-care insurance plan.
o You will be entitled to severance in the event of termination of
employment. This will consist of the following:
-- Terminated in year 1, six months severance
<PAGE> 2
-- Terminated in year 2-5, nine months severance
-- Terminated after year 5, twelve months severance.
-- It is our understanding that "severance," as defined in this
letter, consists of salary plus pro rata bonus paid monthly.
Severance will be paid until the earlier of (i) expiration under
the terms above, or (ii) re-employment. In addition to severance,
you will be entitled to reasonable outplacement services at
Sepracor's cost.
o You will be reimbursed for reasonable relocation expenses up to $40,000.
A benefits booklet is attached. Bob, I hope that this offer is satisfactory. The
potential for BioSepra and Sepracor are enormous, as we have discussed. You will
play an integral, and senior role in the expansion that we all expect.
Very truly yours,
/s/ David P. Southwell
Senior Vice President
Chief Financial Officer
<PAGE> 1
EXHIBIT 10.16
CONSULTING AGREEMENT
--------------------
This Consulting Agreement ("AGREEMENT"), effective as of September 1,
1996, is between SEPRACOR INC. ("SEPRACOR"), a Delaware corporation having its
principal office at 111 Locke Drive, Marlborough, Massachusetts 01752, and Alan
Steigrod, 601 Lido Park Drive, #7A, Newport Beach, CA 92663 ("CONSULTANT").
WHEREAS, SEPRACOR wishes to engage the services of the CONSULTANT in the
area of company acquisitions, upper respiratory markets, and specialty sales and
marketing capabilities and organizations ("FIELD"); and,
WHEREAS, the CONSULTANT wishes to provide consulting services to SEPRACOR
on the terms herewith set forth;
THEREFORE, SEPRACOR and CONSULTANT agree that:
1. TERM
The term of this AGREEMENT shall be until December 31, 1996, commencing on
September 1, 1996, unless sooner terminated in accordance with the provisions of
Section 9. It may be extended for additional periods of time as agreed by the
mutual consent of SEPRACOR and CONSULTANT.
2. SERVICES
During the term of this AGREEMENT, CONSULTANT agrees to diligently and
conscientiously use his best efforts to discharge projects in the FIELD as may
be reasonably requested from time to time by SEPRACOR. Responsibilities of
CONSULTANT include providing such advice and information relating to the FIELD
as SEPRACOR may reasonably request from time to time, and communicating with
various third parties on behalf of SEPRACOR on matters relating to the FIELD.
During the term of this AGREEMENT, CONSULTANT shall not take part in any
activity in the FIELD which is a conflict of interest with his activities on
behalf of SEPRACOR, and he shall not assist any other person or organization
that competes, or intends to compete with SEPRACOR in this FIELD.
Notwithstanding the provisions of this Section 2, nothing in this AGREEMENT
shall preclude CONSULTANT from providing consulting services to any other person
or entity for such projects which SEPRACOR and CONSULTANT have mutually agreed
are not within the FIELD.
3. COMPENSATION
SEPRACOR shall pay CONSULTANT at the rate of US$250.00 per hour, not to
exceed $2000.00 per day for 3 days per month, in consideration for consulting
services. SEPRACOR shall also reimburse CONSULTANT for all travel, office and
<PAGE> 2
related expenses reasonably incurred in connection with the performance of
duties as a consultant to SEPRACOR.
In a monthly invoice, CONSULTANT shall document the time spent and
expenses incurred in connection with providing consulting service to SEPRACOR.
SEPRACOR shall pay such invoice within thirty (30) days of its receipt.
The CONSULTANT shall not be entitled to any benefits, coverages, or
privileges, including, without limitation, social security, unemployment,
workers' compensation, medical or pension payments, or holiday/vacation pay or
other such benefits made available to employees of SEPRACOR.
4. INDEPENDENT CONTRACTOR
CONSULTANT shall be considered to be an independent contractor and not an
agent or employee of SEPRACOR and has no authority to bind SEPRACOR.
5. RECORDS AND REPORTS
CONSULTANT agrees to keep records, in such form as the parties may agree,
to make reports in writing to SEPRACOR at SEPRACOR's reasonable request and to
deliver to SEPRACOR upon termination of the AGREEMENT or at any other time upon
request by SEPRACOR all records, files memoranda, notes, designs, data, reports,
drawings, plans, software, software documentation, sketches, laboratory and
research notebooks and other documents (and all copies or reproductions of such
materials) relating to the business of SEPRACOR. Such written records shall be
available to and remain the sole property of SEPRACOR.
6. REPRESENTATIONS AND WARRANTIES
CONSULTANT represents and warrants that CONSULTANT is free to enter into
this AGREEMENT and perform the consulting services provided for in this
AGREEMENT. CONSULTANT agrees that all information CONSULTANT discloses to
SEPRACOR shall be received by SEPRACOR without further obligation to CONSULTANT
than as provided herein. CONSULTANT also represents that, except as he has
disclosed in writing to SEPRACOR, he is not bound by the terms of any agreement
with any previous employer or other party to refrain from using or disclosing
any trade secret or confidential or proprietary information in the course of his
performance of services under this AGREEMENT or to refrain from competing,
directly or indirectly, with the business of such previous employer or any other
party.
CONSULTANT further represents that his performance of all the terms of this
AGREEMENT does not and will not breach any agreement to keep in confidence
proprietary information, knowledge or data acquired by him in confidence or in
trust
2
<PAGE> 3
prior to the commencement of this AGREEMENT, and he will not disclose to
SEPRACOR or induce SEPRACOR to use any confidential or proprietary information
or material belonging to any previous employer or others.
If CONSULTANT is aware of circumstances under which SEPRACOR may not be
free to use CONSULTANT's information without liability of any kind, or the use
of which by SEPRACOR would result in a possible infringement of one or more
unexpired patents or other proprietary rights know to CONSULTANT, then
CONSULTANT agrees to disclose such circumstances to SEPRACOR and, upon
disclosure of such circumstance, CONSULTANT shall be under no obligation to
disclose further related information to SEPRACOR.
7. NON-DISCLOSURE AND OTHER RESTRICTIONS
While serving as a CONSULTANTS to SEPRACOR, CONSULTANT may obtain
knowledge or private information belonging to, or possessed or used by SEPRACOR
and its business. This knowledge or information (the "PROPRIETARY INFORMATION")
may include, but is not limited to, knowledge or information in the form of
proprietary, confidential or trade secret processes, plans, materials, formulas,
and the like relating to SEPRACOR's business, products and other activities.
CONSULTANT agrees to treat such knowledge or information as confidential.
CONSULTANT agrees that he will not, without the prior written consent of
SEPRACOR, at any time during the term of this AGREEMENT or extensions thereof as
provided in Section 1, and for a period of five (5) years after termination of
this AGREEMENT, directly or indirectly reveal, furnish or make known to any
person or use for CONSULTANT'S benefit or the benefit of others any PROPRIETARY
INFORMATION of SEPRACOR, disclosed to, learned of, developed, or otherwise
acquired by CONSULTANT while performing services for SEPRACOR. CONSULTANT is
permitted to disclose the information obtained under the terms of this AGREEMENT
to third parties only on a need-to-know basis related to the performance of work
under this AGREEMENT, provided that SEPRACOR has approved the disclosure in
advance, and only if such persons are bound to protect the confidentiality of
such information to the same extent as the CONSULTANT pursuant to this
AGREEMENT.
This obligation is specifically qualified and limited by the understanding
that CONSULTANT will not have any obligation or liability of any kind with
respect to any PROPRIETARY INFORMATION which:
3
<PAGE> 4
(a) is generally known to the public at the time of disclosure or
becomes generally known through no wrongful act on the part of the
CONSULTANT;
(b) becomes known to the CONSULTANT through disclosure by sources other
than SEPRACOR having the legal right to disclose such PROPRIETARY
INFORMATION;
(c) has been independently developed by the CONSULTANT without reference
to or use of the PROPRIETARY INFORMATION; or
(d) is required to be disclosed by the CONSULTANT to comply with
applicable laws or governmental regulations, provided that the
CONSULTANT provides prior written notice of such disclosure to
SEPRACOR and takes reasonable and lawful actions to avoid and/or
minimize the extent of such disclosure.
8. INTELLECTUAL PROPERTY
CONSULTANT agrees that all inventions, data, works, discoveries, designs,
technology and improvements, (whether or not protectable by a patent or a
copyright) ("INVENTIONS") related to the business of the SEPRACOR, which are
conceived of, made, reduced to practice, created, written, designed or
developed, authored or made by CONSULTANT, alone or in combination with others,
in the course of the performance of services under this AGREEMENT or thereafter
if resulting or directly derived from PROPRIETARY INFORMATION, shall be the sole
and exclusive property of SEPRACOR. The inventions are to be promptly reported
to SEPRACOR but otherwise maintained in confidence by CONSULTANT. All works
authored by the CONSULTANT under this AGREEMENT shall be deemed "works made for
hire" to the extent permitted by the copyright law.
CONSULTANT hereby assigns to SEPRACOR all INVENTIONS and any and all
related patents, copyrights, trademarks, trade names, and other industrial and
intellectual property rights and applications therefor, in the United States and
elsewhere, and appoints any officer of SEPRACOR as his duly authorized agent to
execute, file, prosecute and protect the same before any government agency,
court or authority.
CONSULTANT agrees to cooperate fully with SEPRACOR and its nominees to
obtain patents or register copyrights in any and all countries for these
INVENTIONS, and to execute all papers for use in applying for and obtaining such
protection thereon as SEPRACOR may desire, together with assignments thereof to
confirm SEPRACOR's ownership thereof, all at SEPRACOR'S expense.
<PAGE> 5
No rights are hereby given to SEPRACOR in any inventions conceived and
evidenced in an invention record or disclosure, or under any patents or patent
applications that CONSULTANT may own prior to the effective date of this
AGREEMENT or may subsequently acquire which do not arise out of the work
performed by CONSULTANT during the term of this AGREEMENT.
9. TERMINATION
SEPRACOR may terminate this AGREEMENT upon fourteen (14) days written
notice to the other party. Such termination will be without prejudice to any
right or remedy either SEPRACOR or CONSULTANT might have as a result of this
AGREEMENT or due to a failure of the other to perform its obligations under this
AGREEMENT.
If this AGREEMENT is terminated by SEPRACOR, CONSULTANT shall be entitled
to full payment for all expenses already incurred and for performance of
consulting services prior to the date of termination, for which SEPRACOR is
obligated to pay as described in Section 3 of this AGREEMENT, subject to the
limitations on reimbursement of expenses paid or incurred prior to the effective
date of termination. Such payments shall constitute full settlement of any and
all claims of CONSULTANT of every description against SEPRACOR. Notwithstanding
the foregoing, SEPRACOR may terminate this AGREEMENT, effective immediately upon
receipt of written notice, if CONSULTANT breaches or threatens to breach any
provision of this AGREEMENT.
10. NOTICES
Notices, and other communications required to be given hereunder shall be
effective when sent by either party by registered or certified mail to the other
party at the address set forth below or to such other address as one party may
from time-to- time designate by written notice to the other.
David S. Barlow Alan Steigrod
Sepracor Inc. 601 Lido Park Drive, #7A
Manager, Business Analysis Newport Beach, CA 92663
111 Lock Drive
Marlborough, MA 01752
Invoices are to be sent directly to:
ACCOUNTS PAYABLE
Sepracor Inc.
111 Locke Drive
Marlborough, MA 01752
5
<PAGE> 6
Invoices must be submitted with full letterhead information. They must be
signed, and clearly marked as an "INVOICE." If appropriate, invoices should also
reference either a protocol or purchase order number.
11. IMPOSSIBILITY OF PERFORMANCE
Neither of the parties hereto shall be liable in damages for any delay or
default which is caused by conditions beyond its control, including but not
limited to Acts of God, governmental restrictions, continuing domestic or
international problems such as war or insurrections, strikes, fires, floods,
work stoppages, embargoes, and/or lack of materials; provided however that any
party hereto shall have the right to terminate this AGREEMENT if the other party
is unable to fulfill its obligations hereunder due to any of the above-mentioned
causes.
12. SEPARABILITY AND WAIVER
If any of the terms, provisions, or conditions of this AGREEMENT or the
application thereof to any circumstances shall be ruled invalid or
unenforceable, the validity or enforceability of the remainder of this AGREEMENT
shall not be affected thereby, and each of the other terms, provisions, and
conditions of this AGREEMENT shall be valid and enforceable to the fullest
extent permitted by law.
A waiver or consent regarding any term, provision, or condition of this
AGREEMENT given by SEPRACOR on any one occasion shall be effective only in that
instance and shall not be construed as a bar or waiver of any right on any other
occasion.
13. AMENDMENT
This AGREEMENT may be amended or modified only by a written instrument
executed by both SEPRACOR and CONSULTANT.
14. SUCCESSORS AND ASSIGNS
This AGREEMENT shall be binding upon, and inure to the benefit of, both
parties and their respective successors and assigns, including any corporation
with which, or into which, SEPRACOR may be merged or which may succeed to its
assets or business, provided, however, that the obligations of CONSULTANT are
personal and shall not be assigned by CONSULTANT.
6
<PAGE> 7
15. ENTIRE AGREEMENT
This AGREEMENT constitutes the entire agreement between the parties and
supersedes all prior agreements and understandings, whether written or oral,
relating to the subject matter of this AGREEMENT.
IN WITNESS WHEREOF, the parties hereto have caused this six (6) page AGREEMENT
to be executed in duplicate.
SEPRACOR INC. ALAN STEIGROD
By: By:
--------------------------------- ---------------------------------
Name: /s/ David S. Barlow Name: /s/ Alan Steigrod
------------------------------ -------------------------------
Title: President, Pharmaceuticals Title: Consultant
----------------------------- ------------------------------
Date: September 3, 1996 Date: September 10, 1996
------------------------------- ------------------------------
7
<PAGE> 1
EXHIBIT 10.17
CONSULTING AGREEMENT
--------------------
This Consulting Agreement ("AGREEMENT"), effective as of February 1, 1996,
is between SEPRACOR INC. ("SEPRACOR"), a Delaware corporation having its
principal office at 33 Locke Drive, Marlborough, Massachusetts 01752, and Keith
Mansord, Ph.D., Principal, 9 Cavendish Road, Redhill, Surrey, RH1 4AL, England
("CONSULTANT").
WHEREAS, SEPRACOR wishes to engage the services of the CONSULTANT in the
area of development of chiral or pharmaceutical products ("FIELD"); and,
WHEREAS, the CONSULTANT wishes to provide consulting services to SEPRACOR
on the terms herewith set forth;
THEREFORE, SEPRACOR and CONSULTANT agree that:
1. TERM
The term of this AGREEMENT shall be one year, commencing on February 1,
1996, unless sooner terminated in accordance with the provisions of Section 9.
It may be extended for additional periods of time as agreed by the mutual
consent of SEPRACOR and CONSULTANT.
2. SERVICES
During the term of this AGREEMENT, CONSULTANT agrees to diligently and
conscientiously use his best efforts to discharge projects in the FIELD as may
be reasonably requested from time to time by SEPRACOR. Responsibilities of
CONSULTANT include providing such advice and information relating to the FIELD
as SEPRACOR may reasonably request from time to time, and communicating with
various third parties on behalf of SEPRACOR on matters relating to the FIELD.
During the term of this AGREEMENT, CONSULTANT shall not take part in any
activity in the FIELD which is a conflict of interest with his activities on
behalf of SEPRACOR and he shall not assist any other person or organization that
competes, or intends to compete with SEPRACOR in this FIELD. Notwithstanding the
provisions of this Section 2, nothing in this AGREEMENT shall preclude
CONSULTANT from providing consulting services to any other person or entity for
such projects which SEPRACOR and CONSULTANT have mutually agreed are not within
the FIELD.
3. COMPENSATION
SEPRACOR shall pay CONSULTANT at the rate of $1000 per month for
consulting services ("RETAINER FEE"). For payment of the RETAINER FEE, SEPRACOR
shall be entitled to receive up to 12 days of consulting services during the
twelve month term of AGREEMENT. For each day or portion of a day of service
<PAGE> 2
in excess of such twelve days, SEPRACOR shall pay CONSULTANT at the rate of $500
per half day, not to exceed $1000 per day, with a maximum of $15,000 over this
agreement in consideration for consulting services. SEPRACOR shall also
reimburse CONSULTANT for all travel, office and related expenses reasonably
incurred in connection with the performance of duties as a consultant to
SEPRACOR.
In a monthly invoice, CONSULTANT shall document the time spent and
expenses incurred in connection with providing consulting service to SEPRACOR.
SEPRACOR shall pay such invoice within thirty (30) days of its receipt.
The CONSULTANT shall not be entitled to any benefits, coverages, or
privileges, including, without limitation, social security, unemployment,
workers' compensation, medical or pension payments, or holiday/vacation pay or
other such benefits made available to employees of SEPRACOR.
4. INDEPENDENT CONTRACTOR
CONSULTANT shall be considered to be an independent contractor and not an
agent or employee of SEPRACOR and has no authority to bind SEPRACOR.
5. RECORDS AND REPORTS
CONSULTANT agrees to keep records, in such form as the parties may agree,
to make reports in writing to SEPRACOR at SEPRACOR's reasonable request and to
deliver to SEPRACOR upon termination of the AGREEMENT or at any other time upon
request by SEPRACOR all records, files, memoranda, notes, designs, data,
reports, drawings, plans, software, software documentation, sketches, laboratory
and research notebooks and other documents (and all copies or reproductions of
such materials) relating to the business of SEPRACOR. Such written records shall
be available to and remain the sole property of SEPRACOR.
6. REPRESENTATIONS AND WARRANTEES
CONSULTANT represents and warrants that CONSULTANT is free to enter into
this AGREEMENT and perform the consulting services provided for in this
AGREEMENT. CONSULTANT agrees that all information CONSULTANT discloses to
SEPRACOR shall be received by SEPRACOR without further obligation to CONSULTANT
than as provided herein. CONSULTANT also represents that, except as he has
disclosed in writing to SEPRACOR, he is not bound by the terms of any agreement
with any previous employer or other party to refrain from using or disclosing
any trade secret or confidential or proprietary information in the course of his
performance of services under this AGREEMENT or to refrain from competing,
directly or indirectly, with the business of such previous employer or any other
party.
-2-
<PAGE> 3
CONSULTANT further represents that his performance of all the terms of
this AGREEMENT does not and will not breach any agreement to keep in confidence
proprietary information, knowledge or data acquired by him in confidence or in
trust prior to the commencement of this AGREEMENT, and he will not disclose to
SEPRACOR or induce SEPRACOR to use any confidential or proprietary information
or material belonging to any previous employer or others.
If CONSULTANT is aware of circumstances under which SEPRACOR may not be
free to use CONSULTANT's information without liability of any kind, or the use
of which by SEPRACOR would result in a possible infringement of one or more
unexpired patents or other proprietary rights known to CONSULTANT, then
CONSULTANT agrees to disclose such circumstances to SEPRACOR and, upon
disclosure of such circumstance, CONSULTANT shall be under no obligation to
disclose further related information to SEPRACOR.
7. NON-DISCLOSURE AND OTHER RESTRICTIONS
While serving as a CONSULTANT to SEPRACOR, CONSULTANT may obtain knowledge
or private information belonging to, or possessed or used by, SEPRACOR and its
business. This knowledge or information (the "PROPRIETARY INFORMATION") may
include, but is not limited to, knowledge or information in the form of
proprietary, confidential or trade secret processes, plans, materials, formulas
and the like relating to SEPRACOR's business, products and other activities.
CONSULTANT agrees to treat such knowledge or information as confidential.
CONSULTANT agrees that he will not, without the prior written consent of
SEPRACOR, at any time during the term of this AGREEMENT or extensions thereof as
provided in Section 1, and for a period of five (5) years after termination of
this AGREEMENT, directly or indirectly reveal, furnish or made known to any
person or use for CONSULTANT's benefit or the benefit of others any PROPRIETARY
INFORMATION of SEPRACOR, disclosed to, learned of, developed or otherwise
acquired by CONSULTANT while performing services for SEPRACOR. CONSULTANT is
permitted to disclose the information obtained under the terms of this AGREEMENT
to third parties only on a need-to-know basis related to the performance of work
under this AGREEMENT, provided that SEPRACOR has approved the disclosure in
advance, and only if such persons are bound to protect the confidentiality of
such information to the same extent as the CONSULTANT pursuant to this
AGREEMENT.
This obligation is specifically qualified and limited by the understanding
that CONSULTANT will not have any obligation or liability of any kind with
respect to any PROPRIETARY INFORMATION which:
-3-
<PAGE> 4
(a) is generally known to the public at the time of disclosure or
becomes generally known through no wrongful act on the part of the
CONSULTANT;
(b) becomes known to the CONSULTANT through disclosure by sources other
than SEPRACOR having the legal right to disclose such PROPRIETARY
INFORMATION;
(c) has been independently developed by the CONSULTANT without reference
to or use of the PROPRIETARY INFORMATION; or
(d) is required to be disclosed by the CONSULTANT to comply with
applicable laws or governmental regulations, provided that the
CONSULTANT provides prior written notice of such disclosure to
SEPRACOR and takes reasonable and lawful actions to avoid and/or
minimize the extent of such disclosure.
8. INTELLECTUAL PROPERTY
CONSULTANT agrees that all inventions, data, works, discoveries, designs,
technology and improvements, (whether or not protectable by a patent or a
copyright) ("INVENTIONS") related to the business of the SEPRACOR, which are
conceived of, made, reduced to practice, created, written, designed or
developed, authored or made by CONSULTANT, alone or in combination with others,
in the course of the performance of services under this AGREEMENT or thereafter
if resulting or directly derived from PROPRIETARY INFORMATION, shall be the sole
and exclusive property of SEPRACOR. The inventions are to be promptly reported
to SEPRACOR but otherwise maintained in confidence by CONSULTANT. All works
authored by the CONSULTANT under this AGREEMENT shall be deemed "works made for
hire" to the extent permitted by the copyright law.
CONSULTANT hereby assigns to SEPRACOR all INVENTIONS and any and all
related patents, copyrights, trademarks, trade names, and other industrial and
intellectual property rights and applications therefor, in the United States and
elsewhere, and appoints any officer of SEPRACOR as his duly authorized agent to
execute, file, prosecute and protect the same before any government agency,
court or authority.
CONSULTANT agrees to cooperate fully with SEPRACOR and its nominees to
obtain patents or register copyrights in any and all countries for these
INVENTIONS, and to execute all papers for use in applying for and obtaining such
protection thereon as SEPRACOR may desire, together with assignments thereof to
confirm SEPRACOR's ownership thereof, all at SEPRACOR's expense.
-4-
<PAGE> 5
No rights are hereby given to SEPRACOR in any inventions conceived and
evidenced in an invention record or disclosure, or under any patents or patent
applications that CONSULTANT may own prior to the effective date of this
AGREEMENT or may subsequently acquire which do not arise out of the work
performed by CONSULTANT during the term of this AGREEMENT.
9. TERMINATION
Either SEPRACOR or CONSULTANT may terminate this AGREEMENT upon seven (7)
days written notice to the other party. Such termination will be without
prejudice to any right or remedy either SEPRACOR or CONSULTANT might have as a
result of this AGREEMENT or due to a failure of the other to perform its
obligations under this AGREEMENT.
If this AGREEMENT is terminated by SEPRACOR, CONSULTANT shall be entitled
to full payment for all expenses already incurred and for performance of
consulting services prior to the date of termination, for which SEPRACOR is
obligated to pay as described in Section 3 of this AGREEMENT, subject to the
limitations on reimbursement of expenses paid or incurred prior to the effective
date of termination. Such payments shall constitute full settlement of any and
all claims of CONSULTANT of every description against SEPRACOR. Notwithstanding
the foregoing, SEPRACOR may terminate this AGREEMENT, effective immediately upon
receipt of written notice, if CONSULTANT breaches or threatens to breach any
provision of this AGREEMENT.
10. NOTICES
Notices, and other communications required to be given hereunder shall be
effective when sent by either party by registered or certified mail to the other
party at the address set forth below or to such other address as one party may
from time-to-time designate by written notice to the other.
Timothy J. Barberich Keith Mansford, Ph.D.
Sepracor Inc. Mansford Associates
President Principal
33 Locke Drive 9 Cavendish Road
Marlborough, MA 01752 Redhill, Surrey RH1 4AL
England
Invoices are to be send directly to:
ACCOUNTS PAYABLE
Sepracor Inc.
33 Locke Drive
Marlborough, MA 01752
-5-
<PAGE> 6
Invoices are to be sent directly to:
ACCOUNTS PAYABLE
Sepracor Inc.
33 Locke Drive
Marlborough, MA 01752
Invoices must be submitted with full letterhead information. They must be
signed, and clearly marked as an "INVOICE." If appropriate, invoices should also
reference either a protocol or purchase order number.
11. IMPOSSIBILITY OF PERFORMANCE
Neither of the parties hereto shall be liable in damages for any delay or
default which is caused by conditions beyond its control, including but not
limited to Acts of God, governmental restrictions, continuing domestic or
international problems such as war or insurrections, strikes, fires, floods,
work stoppages, embargoes, and/or lack of materials; provided however that any
party hereto shall have the right to terminate this AGREEMENT if the other party
is unable to fulfill its obligations hereunder due to any of the above-mentioned
causes.
12. SEPARABILITY AND WAIVER
If any of the terms, provisions, or conditions of this AGREEMENT or the
application thereof to any circumstances shall be ruled invalid or
unenforceable, the validity or enforceability of the remainder of this AGREEMENT
shall not be affected thereby, and each of the other terms, provisions, and
conditions of this AGREEMENT shall be valid and enforceable to the fullest
extent permitted by law.
A waiver or consent regarding any term, provision, or condition of this
AGREEMENT given by SEPRACOR on any one occasion shall be effective only in that
instance and shall not be construed as a bar or waiver of any right on any other
occasion.
13. AMENDMENT
This AGREEMENT may be amended or modified only by a written instrument
executed by both SEPRACOR and CONSULTANT.
14. SUCCESSORS AND ASSIGNS
This AGREEMENT shall be binding upon, and inure to the benefit of, both
parties and their respective successors and assigns, including any corporation
with which, or into which, SEPRACOR may be merged or which may succeed to its
assets
-6-
<PAGE> 7
or business, provided, however, that the obligations of CONSULTANT are personal
and shall not be assigned by CONSULTANT.
15. ENTIRE AGREEMENT
This AGREEMENT constitutes the entire agreement between the parties and
supersedes all prior agreements and understandings, whether written or oral,
relating to the subject matter of this AGREEMENT.
IN WITNESS WHEREOF, the parties hereto have caused this seven (7) page AGREEMENT
to be executed in duplicate.
SEPRACOR INC. MANSFORD ASSOCIATES
By: /s/ Timothy J. Barberich By: /s/ Keith Mansford, Ph.D.
Title: President & Chief Executive Officer Title: Principal
Date: January 31,1996
-------------------
-7-
<PAGE> 1
EXHIBIT 10.18
PROMISSORY NOTE
---------------
$209,915 June 15, 1996
FOR VALUE RECEIVED, the undersigned Mr. David Barlow with an address of 44
Hundreds Circle Wellesley, MA 02181 (hereinafter referred to as the "Borrower"),
promises to pay to the order of Sepracor Inc. (together with any subsequent
holders of this Note, the "Lender"), at its office at 111 Locke Drive,
Marlborough, Massachusetts 01752, or at such other place as the Lender may from
time to time designate in writing, the principal sum of:
Two Hundred Nine Thousand Nine Hundred and Fifteen DOLLARS
This note is interest bearing prime plus 75 basis points compounded and
reset quarterly.
If not sooner paid, all outstanding principal shall be paid to the Lender
on the earlier of (a) date of termination from employment (b) one year from date
of Promissory Note.
This Note may be prepaid, in whole or from time to time in part, at
anytime, without premium or penalty.
All payments hereunder shall be payable in lawful money of the United
States which shall be legal tender for the public and private debts at the time
of payment.
It is expressly agreed that the occurrence of any one or more of the
following shall constitute an "Event of Default" hereunder: (a) failure to pay
upon termination of employment (b) failure to pay note on expiration. If any
such Event of Default hereunder shall occur, the Lender may, as its option,
declare to be immediately due and payable the then outstanding principal balance
under this Note, and all other amounts payable to the Lender hereunder, shall
become and be due and payable immediately. The failure of the Lender to exercise
said option to accelerate shall not constitute a waiver of the right to exercise
the same at any other time.
The Borrower will pay on demand all costs and expenses, including
reasonable attorneys' fees, incurred or paid by the Lender in enforcing or
collecting any of the obligations of the Borrower hereunder. The Borrower agrees
that all such costs and expenses and all other expenditures by the Lender on
account hereof, other than advances of principal, which are not reimbursed by
the Borrower immediately upon demand, all amounts due under this Note after
maturity, and any amounts due hereunder if an Event of Default shall occur
hereunder, shall bear interest at a fluctuating per annum rate equal to the sum
of the Prime Rate from time to time in effect plus five percent, but in no event
more than the maximum rate of interest then permitted by law (the "Default
Rate"), until such expenditures are repaid or this Note and such amounts as are
due are paid to the Lender.
<PAGE> 2
This Note is secured by Borrowers stock options in Sepracor Inc., and by
the property owned at 44 Hundreds Circle, Wellesley, MA 02181 (as from time to
time amended and in effect, the "Security") No sale transfer or assignment of
said stock options can be made without the express written consent of the
President and CEO of Sepracor.
All notices required or permitted to be given hereunder shall be in
writing and shall be effective when mailed, postage prepaid, by registered or
certified mail, addressed in the case of the Borrower and the Lender to them at
the address set forth above, or to such other address as either the Borrower or
the Lender may from time to time specify by like notice.
All of the provisions of this Note shall be binding upon and inure to the
benefit of the Borrower and the Lender and their respective successors and
assigns. If there is more than the undersigned Borrower, the obligations of each
Borrower shall be joint and several. This Note shall be governed by and
construed in accordance with the laws of The Commonwealth of Massachusetts.
The Borrower hereby consents to any extension of time of payment hereof,
release of all or any part of the security for the payment hereof, or release of
any party liable for this obligation, and waives presentment for payment,
demand, protest and notice of dishonor. Any such extension or release may be
made without notice to the Borrower and without discharging its liability.
IN WITNESS WHEREOF, the Borrower has executed and delivered this Note, on the
day and year first above written.
- ------------------------------ -----------------------------------
/s/ Timothy J. Barberich /s/ David S. Barlow
President and CEO Executive Vice President & President of
Pharmaceuticals
-----------------------------------
/s/ Ann M. Barlow
<PAGE> 3
PROMISSORY NOTE
---------------
$209,915 June 15, 1995
FOR VALUE RECEIVED, the undersigned Mr. David Barlow with an address of 44
Hundreds Circle Wellesley, MA 02181 (hereinafter referred to as the "Borrower"),
promises to pay to the order of Sepracor Inc. (together with any subsequent
holders of this Note, the "Lender"), at its office at 33 Locke Drive,
Marlborough, Massachusetts 01752, or at such other place as the Lender may from
time to time designate in writing, the principal sum of:
Two Hundred Nine Thousand Nine Hundred and Fifteen DOLLARS
This note is non interest bearing and Borrower is solely responsible for
all associated taxes relative to this non interest bearing feature.
If not sooner paid, all outstanding principal shall be paid to the Lender
on the earlier of (a) date of termination from employment (b) one year from date
of Promissory Note.
This Note may be prepaid, in whole or from time to time in part, at
anytime, without premium or penalty.
All payments hereunder shall be payable in lawful money of the United
States which shall be legal tender for the public and private debts at the time
of payment.
It is expressly agreed that the occurrence of any one or more of the
following shall constitute an "Event of Default" hereunder: (a) failure to pay
upon termination of employment (b) failure to pay note on expiration. If any
such Event of Default hereunder shall occur, the Lender may, as its option,
declare to be immediately due and payable the then outstanding principal balance
under this Note, and all other amounts payable to the Lender hereunder, shall
become and be due and payable immediately. The failure of the Lender to exercise
said option to accelerate shall not constitute a waiver of the right to exercise
the same at any other time.
The Borrower will pay on demand all costs and expenses, including
reasonable attorneys' fees, incurred or paid by the Lender in enforcing or
collecting any of the obligations of the Borrower hereunder. The Borrower agrees
that all such costs and expenses and all other expenditures by the Lender on
account hereof, other than advances of principal, which are not reimbursed by
the Borrower immediately upon demand, all amounts due under this Note after
maturity, and any amounts due hereunder if an Event of Default shall occur
hereunder, shall bear interest at a fluctuating per annum rate equal to the sum
of the Prime Rate from time to time in effect plus five percent, but in no event
more than the maximum rate of interest then permitted by law (the "Default
Rate"), until such expenditures are repaid or this Note and such amounts as are
due are paid to the Lender.
<PAGE> 4
This Note is secured by Borrowers stock options in Sepracor Inc., (as from
time to time amended and in effect, the "Security"). No sale transfer or
assignment of said stock options can be made without the express written consent
of the President and CEO of Sepracor.
All notices required or permitted to be given hereunder shall be in
writing and shall be effective when mailed, postage prepaid, by registered or
certified mail, addressed in the case of the Borrower and the Lender to them at
the address set forth above, or to such other address as either the Borrower or
the Lender may from time to time specify by like notice.
All of the provisions of this Note shall be binding upon and inure to the
benefit of the Borrower and the Lender and their respective successors and
assigns. If there is more than the undersigned Borrower, the obligations of each
Borrower shall be joint and several. This Note shall be governed by and
construed in accordance with the laws of The Commonwealth of Massachusetts.
The Borrower hereby consents to any extension of time of payment hereof,
release of all or any part of the security for the payment hereof, or release of
any party liable for this obligation, and waives presentment for payment,
demand, protest and notice of dishonor. Any such extension or release may be
made without notice to the Borrower and without discharging its liability.
IN WITNESS WHEREOF, the Borrower has executed and delivered this Note, on the
day and year first above written.
- ------------------------------ ---------------------------------------
/s/ Timothy J. Barberich /s/ David S. Barlow
President and CEO Executive Vice President & President of
Pharmaceuticals
<PAGE> 1
Exhibit 10.19
[SEPRACOR]
PROMISSORY NOTE
---------------
$65,000 May 23, 1997
FOR VALUE RECEIVED, the undersigned Dr. Paul Rubin with an address of 7205
Fontana Place, Raleigh, NC 27615 (hereinafter referred to as the "Borrower"),
promises to pay to the order of Sepracor Inc. (together with any subsequent
holders of this Note, the "Lender"), at its office at 111 Locke Drive,
Marlborough, Massachusetts 01752, or at such other place as the Lender may from
time to time designate in writing, the principal sum of:
Sixty Five Thousand DOLLARS
This note is non interest bearing, Borrower is responsible for all inputted
interest as calculated by IRS regulation.
If not sooner paid, all outstanding principal shall be paid to the Lender
on the earlier of (a) date of termination from employment (b) payment of 1996
bonus in Q197 (Note will be netted against payment).
This Note may be prepaid, in whole or from time to time in part, at
anytime, without premium or penalty.
All payments hereunder shall be payable in lawful money of the United
States which shall be legal tender for public and private debts at the time of
payment.
It is expressly agreed that failure to pay upon termination of employment
shall constitute an "Event of Default." If any such Event of Default hereunder
shall occur, the Lender may, at its option, declare to be immediately due and
payable the then outstanding principal balance under this Note, and all other
amounts payable to the Lender hereunder, shall become and be due and payable
immediately. The failure of the Lender to exercise said option to accelerate
shall not constitute a waiver of the right to exercise the same at any other
time.
The Borrower will pay on demand all costs and expenses, including
reasonable attorneys' fees, incurred or paid by the Lender in enforcing or
collecting any of the obligations of the Borrower hereunder. The Borrower agrees
that all such costs and expenses and all other expenditures by the Lender on
account hereof, other than advances of principal, which are not reimbursed by
the Borrower immediately upon
<PAGE> 2
demand, all amounts due under this Note after maturity, and any amounts due
hereunder if an Event of Default shall occur hereunder, shall bear interest at a
fluctuating per annum rate equal to the sum of the Prime Rate from time to time
in effect plus five percent, but in no event more than the maximum rate of
interest then permitted by law (the "Default Rate"), until such expenditures are
repaid or this Note and such amounts as are due are paid to the Lender.
This Note is secured by Borrowers stock options in Sepracor Inc., (as from
time to time amended and in effect, the "Security"). No sale transfer or
assignment of said stock options can be made without the express written consent
of the President and CEO of Sepracor.
All notices required or permitted to be given hereunder shall be in writing
and shall be effective when mailed, postage prepaid, by registered or certified
mail, addressed in the case of the Borrower and the Lender to them at the
address set forth above, or to such other address as either the Borrower or the
Lender may from time to time specify by like notice.
All of the provisions of this Note shall be binding upon and inure to the
benefit of the Borrower and the Lender and their respective successors and
assigns. If there is more than one undersigned Borrower, the obligations of each
Borrower shall be joint and several. This Note shall be governed by and
construed in accordance with the laws of The Commonwealth of Massachusetts.
The Borrower hereby consents to any extension of time of payment hereof,
release of all or any part of the security for the payment hereof, or release of
any party liable for this obligation, and waives presentment for payment,
demand, protest and notice of dishonor. Any such extension or release may be
made without notice to the Borrower and without discharging its liability.
IN WITNESS WHEREOF, the Borrower has executed and delivered this Note, on the
day and year first above written.
/s/ Timothy J. Barberich /s/ Dr. Paul Rubin
- ------------------------------ -------------------------------------
Timothy J. Barberich Dr. Paul Rubin
President and CEO Senior Vice President Drug Development
<PAGE> 1
Exhibit 10.24
-------------
===============================================================================
AMENDED AND RESTATED
REVOLVING CREDIT AND SECURITY AGREEMENT
AMONG
FLEET NATIONAL BANK,
SEPRACOR INC.
AND
SEPRACOR SECURITIES CORPORATION
-------------------------------
Dated as of December 31, 1996
==============================================================================
<PAGE> 2
TABLE OF CONTENTS
Title
-----
Section Page
- ------- ----
SECTION 1.
---------
DEFINITIONS
-----------
1.1. Definitions..................................................1
-----------
1.2. Accounting Terms............................................10
----------------
1.3. The Company.................................................10
-----------
1.4. Multiple Borrowers..........................................10
------------------
2.1. The Revolving Loans.........................................11
-------------------
2.2. Commitment Fee..............................................11
--------------
2.3. Reduction of Revolving Commitment Amount....................12
----------------------------------------
2.4. The Note....................................................12
--------
2.5. Capital Requirements........................................12
--------------------
2.6. Payments and Prepayments of the Revolving Loans.............13
-----------------------------------------------
2.7. Method of Payment...........................................13
-----------------
2.8. Overdue Payments............................................13
----------------
2.9. Holidays....................................................13
--------
2.10. Interest....................................................13
--------
2.11. Certain LIBOR Provisions....................................14
------------------------
2.12. Conditions for Basing Interest on the LIBOR Rate............16
------------------------------------------------
2.13. Indemnification for Funding and Other Losses................16
--------------------------------------------
2.14. Change in Applicable Laws, Regulations, etc.................17
-------------------------------------------
2.15. Taxes.......................................................17
-----
2.16. Foreign Exchange Facility...................................17
-------------------------
SECTION 3.
----------
CONDITIONS OF LOANS
-------------------
3.1. Conditions Precedent to Initial Revolving Loan..............18
----------------------------------------------
3.2. Conditions Precedent to all Revolving Loans.................20
-------------------------------------------
SECTION 4.
----------
REPRESENTATIONS AND WARRANTIES
------------------------------
1
<PAGE> 3
Section Page
- ------- ----
4.1. Organization and Qualification..............................21
------------------------------
4.2. Corporate Authority.........................................21
-------------------
4.3. Valid Obligations...........................................21
-----------------
4.4. Consents or Approvals.......................................22
---------------------
4.5. Title to Properties; Absence of Encumbrances................22
--------------------------------------------
4.6. Financial Statements........................................22
--------------------
4.7. Changes.....................................................22
-------
4.8. Defaults....................................................22
--------
4.9. Taxes.......................................................23
-----
4.10. Material Agreements.........................................23
-------------------
4.11. Material Licenses...........................................23
-----------------
4.12. Litigation..................................................23
----------
4.13. Use of Proceeds.............................................23
---------------
4.14. Existing Indebtedness.......................................23
---------------------
4.15. Existing Investments........................................23
--------------------
4.16. Subsidiaries................................................23
------------
4.17. Investment Company Act......................................24
----------------------
4.18. Compliance with ERISA.......................................24
---------------------
4.19. FDA Compliance, Etc.........................................24
-------------------
4.20. Environmental Matters.......................................24
---------------------
SECTION 5.
----------
AFFIRMATIVE COVENANTS
---------------------
5.1. Financial Statements and other Reporting Requirements.......25
-----------------------------------------------------
5.2. Conduct of Business.........................................27
-------------------
5.3. Maintenance and Insurance...................................27
-------------------------
5.4. Taxes.......................................................28
-----
5.5. Inspection by the Bank......................................28
----------------------
5.6. Maintenance of Books and Records............................29
--------------------------------
5.7. Maintenance of Accounts.....................................29
-----------------------
5.8. New Accounts and Investments................................29
----------------------------
5.9. Minimum Tangible Capital Base...............................29
-----------------------------
5.10. Minimum Cash or Equivalents.................................29
---------------------------
5.11. Minimum Liquidity Ratio.....................................29
-----------------------
5.12. Maximum Leverage............................................29
----------------
5.13. Further Assurances..........................................29
------------------
2
<PAGE> 4
Section Page
- ------- ----
SECTION 6.
----------
NEGATIVE COVENANTS
------------------
6.1. Indebtedness................................................30
------------
6.2. Contingent Liabilities......................................31
----------------------
6.3. Sale and Leaseback..........................................31
------------------
6.4. Encumbrances................................................31
------------
6.5. Lines of Business...........................................32
-----------------
6.6. Merger; Consolidation; Sale or Lease of Assets..............32
----------------------------------------------
6.7. Additional Stock Issuance...................................32
-------------------------
6.8. Restricted Payments.........................................32
-------------------
6.9. Transactions with Affiliates................................32
----------------------------
6.10. Investments.................................................33
-----------
6.11. ERISA.......................................................33
-----
6.12. Observance of Subordination Provisions, etc.................33
-------------------------------------------
SECTION 7.
----------
SECURITY
--------
7.1. Security Interest...........................................33
-----------------
7.2. Location of Records and Collateral; Name Change.............34
-----------------------------------------------
7.3. Status of Collateral........................................34
--------------------
SECTION 8.
---------
DEFAULTS
--------
8.1. Events of Default...........................................35
-----------------
8.2. Remedies....................................................37
--------
SECTION 9.
----------
MISCELLANEOUS
-------------
9.1. Notices.....................................................39
-------
9.2. Expenses....................................................39
--------
9.3. Set-Off.....................................................39
-------
9.4. Term of Agreement...........................................40
-----------------
3
<PAGE> 5
Section Page
- ------- ----
9.5. No Waivers..................................................40
----------
9.6. Governing Law; Jurisdiction.................................40
---------------------------
9.7. Amendment...................................................40
---------
9.8. Binding Effect of Agreement;Assignments; Participation......40
------------------------------------------------------
9.9. Amendment and Termination of Prior Loan Agreement...........41
------------------------------------------------
9.10. Currency Conversion.........................................41
------------------
9.11. Counterpart.................................................42
-----------
9.12. Partial Invalidit...........................................42
-----------------
9.13. Caption.....................................................42
-------
9.14. WAIVER OF JURY TRIAL........................................42
-------------------
9.15. Entire Agreement............................................42
---------------
EXHIBITS AND SCHEDULES
Exhibit A Amended and Restated Promissory Note
Exhibit B Compliance Certificate
Schedule 4.10 Material Agreements
Schedule 4.11 Material Licenses
Schedule 4.12 Litigation
Schedule 4,15 Investments
Schedule 4.16 Subsidiaries
Schedule 6.1 Indebtedness
Schedule 6.2 Guaranties
Schedule 6.4 Encumbrances
4
<PAGE> 6
AMENDED AND RESTATED REVOLVING CREDIT AND SECURITY AGREEMENT
Dated as of December 31, 1996
THIS AMENDED AND RESTATED REVOLVING CREDIT AND SECURITY AGREEMENT is made
as of December 31, 1996, by and among SEPRACOR INC., a Delaware corporation
having its chief executive office at 111 Locke Drive, Marlborough, Massachusetts
01752 ("SEPRACOR"), SEPRACOR SECURITIES CORPORATION, a Massachusetts corporation
having its chief executive office at 111 Locke Drive, Marlborough, Massachusetts
01752 ("SSC," collectively with Sepracor, the "COMPANY") and FLEET NATIONAL BANK
(the "BANK"), formerly known as Fleet National Bank of Connecticut, successor by
merger to Fleet Bank of Massachusetts, N.A., and having its office at 75 State
Street, Boston, Massachusetts 02109.
This Agreement amends, restates and supersedes the Revolving Credit and
Security Agreement dated as of December 28, 1994 as amended to date (the "PRIOR
CREDIT AGREEMENT") by and between Sepracor and Fleet Bank of Massachusetts,
N.A., pursuant to which the Bank agreed to establish a Revolving Line of Credit
and make Revolving Credit Loans (the "PRIOR LOANS") in an aggregate principal
amount at any time outstanding not in excess of the Available Aggregate
Revolving Commitment (as defined in the Prior Credit Agreement).
NOW, THEREFORE, the parties hereby agree as follows:
SECTION 1.
----------
DEFINITIONS
-----------
1.1. Definitions.
-----------
All capitalized terms used in this Agreement or in the Note or in any
certificate, report or other document made or delivered pursuant to this
Agreement (unless otherwise defined therein) shall have the meanings assigned to
them below:
ACCOUNT AND ACCOUNT RECEIVABLE. Include all rights to payment for goods
sold or leased or for services rendered, all sums of money or other proceeds due
or becoming due thereon, all instruments pertaining thereto, all guaranties and
security therefor, and all goods giving rise thereto and the rights pertaining
to such goods, including the right of stoppage in transit, and all related
insurance.
ACCOUNT CONTROL AGREEMENT. That certain Account Control Agreement dated as
of the date hereof among SSC, the broker named therein and the Bank.
1
<PAGE> 7
AFFILIATE. As applied to any Person, a spouse or relative of such Person,
any member, director or officer of such Person, any corporation, association,
firm or other entity of which such Person is a member, director or officer, and
any other Person directly or indirectly controlling, controlled by or under
direct or indirect common control with such Person.
AGREEMENT. This Amended and Restated Revolving Credit and Security
Agreement, as the same may be supplemented, amended or restated from time to
time.
ALTERNATIVE CURRENCY. The lawful currency of a foreign country which may be
established as an alternate currency by mutual agreement entered into between
the Bank and the Company hereafter as confirmed in writing, so long as any such
currency is freely transferable, convertible into Dollars and traded on the
interbank currency deposits market in which the Bank customarily funds foreign
currency loans.
ALTERNATIVE CURRENCY COMMITMENT. A commitment, to the extent mutually
agreed by the Bank and the Company, for (i) the exchange, for future delivery,
of an Alternative Currency into Dollars or Dollars into an Alternative Currency
or (ii) the purchase, for future delivery, of an Alternative Currency with
Dollars or Dollars with an Alternative Currency, in accordance with the Bank's
prevailing customs and practices; provided, that the aggregate Exchange Contract
Amount with respect to all such Alternative Currency Commitments shall not
exceed the Foreign Exchange Facility Sublimit.
ALTERNATIVE CURRENCY EQUIVALENT. The amount in Alternative Currency of
Dollars at the quoted spot rate at which the Bank's principal office in the
United States offers to exchange such Alternative Currency for Dollars at 11:00
a.m (Boston time) two (2) Business Days prior to the date on which such
equivalent is determined.
AUTHORIZED OFFICER. The president, chief financial officer or senior vice
president finance and administration of Sepracor.
AVAILABLE AGGREGATE REVOLVING COMMITMENT. The excess, if any, of (1) the
Revolving Commitment Amount minus (2) the aggregate of the principal amounts of
revolving loans outstanding under the BioSepra Credit Agreement and the Versicor
Credit Agreement minus (3) the sum of the Exchange Contract Amount of the
Company and the Exchange Contract Amount of BioSepra (as defined in BioSepra
Credit Agreement).
Bank. See Preamble.
----
Base Accounts. Accounts Receivable of the Company as to which the Bank
-------------
2
<PAGE> 8
has a perfected first security interest.
BIOSEPRA. BioSepra Inc., a Delaware corporation and a Subsidiary of the
Company and Affiliate of Versicor.
BIOSEPRA CREDIT AGREEMENT. That certain Amended and Restated Revolving
Credit and Security Agreement dated as of the date hereof between BioSepra and
the Bank.
Company. See Preamble.
-------
BUSINESS DAY. Any day other than a Saturday, Sunday or legal holiday on
which banks in Boston, Massachusetts are open for the conduct of a substantial
part of their commercial banking business.
CANADIAN INDEBTEDNESS. The indebtedness of Sepracor's wholly-owned Canadian
subsidiary, Sepracor Canada Limited, to certain Canadian investors in the
maximum principal amount of 4,891,000 Canadian Dollars which is guaranteed by
Sepracor.
CAPITAL EXPENDITURE. Any payment made directly or indirectly for the
purpose of acquiring or constructing fixed assets, real property or equipment
which in accordance with GAAP would be added as a debit to the fixed asset
account of the Person making such expenditure, including, without limitation,
amounts paid or payable under any conditional sale or other title retention
agreement or under any lease or other periodic payment arrangement which is of a
nature that payment obligations of the lessee or obligor thereunder would be
required by GAAP to be capitalized and shown as liabilities on the balance sheet
of such lessee or obligor.
CAPITAL LEASE. Any lease of property (real, personal or mixed) which, in
accordance with GAAP, should be capitalized on the lessee's balance sheet or for
which the amount of the asset and liability thereunder as if so capitalized
should be disclosed in a note to such balance sheet.
CASH EQUIVALENT AMOUNT. The sum of the following, without duplication, none
of which may be subject to any Encumbrances except for Encumbrances in favor of
the Bank or any of its Affiliates: (1) cash held by the Company in the United
States and at the Bank, plus (2) Qualified Investments of the Company held in
the United States, France and Canada, plus (3) Net Outstanding Amount of Base
Accounts.
CODE. The Internal Revenue Code of 1986 and the rules and regulations
thereunder, collectively, as the same may from time to time be supplemented or
amended and remain in effect.
3
<PAGE> 9
Collateral. See Section 7.1.
----------
Company. See Preamble.
-------
CONFIRMATION OF INTELLECTUAL PROPERTY SECURITY AGREEMENT. The Confirmation
of Intellectual Property Security Agreement dated as of the date hereof between
Sepracor and the Bank.
CONTROLLED GROUP. All trades or businesses (whether or not incorporated)
under common control that, together with the Company, are treated as a single
employer under Section 414(b) or 414(c) of the Code or Section 4001 of ERISA.
CORPORATE AFFILIATE. As applied to any Person, any corporation,
association, firm or other entity directly or indirectly controlling, controlled
by or under direct or indirect common control with such Person.
CORPORATE SERVICES AGREEMENTS. The Corporate Services Agreements between
Sepracor and each of its Subsidiaries, each as originally executed and delivered
to the Bank.
CROSS LICENSE AGREEMENT. The Cross License Agreement dated as of January 1,
1994 between BioSepra Inc., a Subsidiary of Sepracor, and Hemasure, as
originally executed and delivered.
DEFAULT. Any event or condition that, with the giving of notice or lapse of
time, or both, would constitute an Event of Default.
DEPOSIT PLEDGE AGREEMENT. The Deposit Pledge Agreement dated as of the date
hereof between Sepracor and the Bank.
Dollars or $. The lawful currency of the United States of America.
------- -
DOLLAR EQUIVALENT. The amount in Dollars of any Alternative Currency at the
quoted spot rate at which the Bank's principal office in the United States
offers to exchange Dollars for such Alternative Currency at 11:00 a.m. (Boston
time) two (2) Business Days prior to the date on which such equivalent is to be
determined.
Encumbrances. See Section 6.4.
------------
ENVIRONMENTAL LAWS. Any and all applicable foreign, federal, state and
local environmental, health or safety statutes, laws, regulations, rules,
ordinances, policies and rules or common law (whether now existing or hereafter
enacted or promulgated), of all governmental agencies, bureaus or departments
which may now or hereafter have jurisdiction over the Company or any of its
Subsidiaries and all applicable judicial and administrative and regulatory
decrees, judgments and
4
<PAGE> 10
orders, including common law rulings and determinations, relating to injury to,
or the protection of, real or personal property or human health or the
environment, including, without limitation, all requirements pertaining to
reporting, licensing, permitting, investigation, remediation and removal of
emissions, discharges, releases or threatened releases of Hazardous Materials,
chemical substances, pollutants or contaminants whether solid, liquid or gaseous
in nature, into the environment or relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of such
Hazardous Materials, chemical substances, pollutants or contaminants.
ERISA. The Employee Retirement Income Security Act of 1974 and the rules
and regulations thereunder, collectively, as the same may from time to time be
supplemented or amended and remain in effect.
EXCHANGE CONTRACT AMOUNT. At any time, the amount in Dollars or the Dollar
Equivalent of an Alternative Currency, as the case may be, which the Bank is
obligated to deliver to or exchange with the Company pursuant to Alternative
Currency Commitments.
Event of Default. Any event described in Section 8.1.
----------------
FDA. See Section 4.19.
---
Foreign Exchange. See Section 2.16.
----------------
Foreign Exchange Facility. See Section 2.16.
-------------------------
FOREIGN EXCHANGE FACILITY SUBLIMIT. $1,000,000 (including the Dollar
Equivalent of Alternative Currency); provided that the Foreign Exchange Facility
Sublimit shall be (i) proportionately reduced in connection with any reduction
of the Revolving Commitment Amount in accordance with Section 2.3 or (ii)
terminated in accordance with the termination of the Bank's commitment to make
further the Revolving Loans under Section 8.2 and, in either case, shall not be
subject to reinstatement.
GAAP. Generally accepted accounting principles as defined by the United
States Financial Accounting Standards Board, as from time to time in effect.
GUARANTIES. As applied to the Company and its Subsidiaries, all guarantees,
endorsements or other contingent or surety obligations with respect to
obligations of others whether or not reflected on the consolidated balance sheet
of the Company and its Subsidiaries, including any obligation to furnish funds,
directly or indirectly (whether by virtue of partnership arrangements, by
agreement to keepwell or otherwise), through the purchase of goods, supplies or
services, or by way of stock purchase, capital contribution, advance or loan, or
to enter into a contract
5
<PAGE> 11
for any of the foregoing, for the purpose of payment of obligations of any other
Person or entity.
GUARANTY AGREEMENT (BIOSEPRA). That certain Guaranty Agreement (Biosepra)
dated as of the date hereof executed by Sepracor guarantying the obligations of
BioSepra to the Bank.
GUARANTY AGREEMENT (VERSICOR). That certain Guaranty Agreement (Versicor)
dated as of the date hereof executed by Sepracor guarantying the obligations of
Versicor to the Bank.
HAZARDOUS MATERIAL. Any substance (i) the presence of which requires or may
hereafter require notification, investigation or remediation under any
Environmental Law; (ii) which is or becomes defined as a "hazardous waste,"
"hazardous material" or "hazardous substance" or "controlled industrial waste"
or "pollutant" or "contaminant" under any present or future Environmental Law or
amendments thereto including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act (42 U.S.C. Section 9601
et seq.) and any applicable local statutes and the regulations promulgated
thereunder; (iii) which is toxic, explosive, corrosive, flammable, infectious,
radioactive, carcinogenic, mutagenic or otherwise hazardous and is or becomes
regulated by any governmental authority, agency, department, commission, board,
agency or instrumentality of any foreign country, the United States, any state
of the United States, or any political subdivision thereof to the extent any of
the foregoing has or had jurisdiction over the Company; or (iv) without
limitation, which contains gasoline, diesel fuel or other petroleum products,
asbestos or polychlorinated biphenyls ("PCB's").
HEMASURE. Hemasure Inc., a Delaware corporation and an Affiliate of the
Company.
INDEBTEDNESS. As applied to the Company and its Subsidiaries, (i) all
obligations for borrowed money or other extensions of credit whether or not
secured or unsecured, absolute or contingent, including, without limitation,
Capital Leases, unmatured reimbursement obligations with respect to letters of
credit or guarantees issued for the account of or on behalf of the Company and
its Subsidiaries and all obligations representing the deferred purchase price of
property, other than accounts payable arising in the ordinary course of
business, (ii) all obligations evidenced by bonds, notes, debentures or other
similar instruments, (iii) all obligations secured by any mortgage, pledge,
security interest or other lien on property owned or acquired by the Company or
any of its Subsidiaries whether or not the obligations secured thereby shall
have been assumed, (iv) that portion of all obligations arising under Capital
Leases that is required to be capitalized on the consolidated balance sheet of
the Company and its Subsidiaries, (v) all Guaranties, and (vi) all obligations
that are immediately due
6
<PAGE> 12
and payable out of the proceeds of or production from property now or hereafter
owned or acquired by the Company or any of its Subsidiaries.
Intellectual Property. See Section 7.1.
---------------------
INTELLECTUAL PROPERTY SECURITY AGREEMENT. The Intellectual Property
Security Agreement dated as of December 28, 1994 between the Company and the
Bank whereby the Company has granted to the Bank a security interest in its
Intellectual Property, as amended and confirmed on the date hereof by the
Confirmation to the Intellectual Property Security Agreement.
INVENTORY. Goods, merchandise and other personal property, now owned or
hereafter acquired by the Company, which are held for sale or lease or are
furnished or to be furnished under a contract of service or are raw materials,
work in process or materials used or consumed or to be used or consumed in the
Company's business.
INVESTMENT. As applied to the Company and its Subsidiaries, the purchase or
acquisition of any share of capital stock, partnership interest, evidence of
indebtedness or other equity security of any other Person or entity, any loan,
advance or extension of credit to, or contribution to the capital of, any other
Person or entity, any real estate held for sale or investment, any commodities
futures contracts held other than in connection with bona fide hedging
transactions, any other investment in any other Person or entity, and the making
of any commitment or acquisition of any option to make an Investment.
INVESTMENT PROPERTY SECURITY AGREEMENT. That certain Investment Property
Security Agreement dated as of the date hereof between SSC and the Bank.
LOAN ACCOUNT. The account on the books of the Bank in which will be
recorded Revolving Loans made by the Bank to the Company pursuant to this
Agreement, payments made on such Revolving Loans and other appropriate debits
and credits as provided by this Agreement.
Loan Documents. See Section 8.2.
--------------
MANAGERIAL EXPENSE. All salaries, costs, fees and other expenses directly
or indirectly paid or payable by the Company to any shareholder or to any
Affiliate of the Company for management services, except the direct salaries and
expenses of executive personnel, the expenses of directors and fees and expenses
among and between the Company and its Affiliates in the ordinary course of
business and consistent with past practices.
Material Licenses. See Section 4.11.
-----------------
7
<PAGE> 13
Money Markets. See Section 9.10.
-------------
NET OUTSTANDING AMOUNT OF BASE ACCOUNTS. The net amount of Base Accounts
outstanding after (a) eliminating from the aggregate amount of outstanding Base
Accounts (i) such Accounts past due under the original terms of sale more than
sixty (60) days, (ii) any Base Account owed by any account debtor whose
principal place of business or chief executive office is not within the United
States or the District of Columbia ("FOREIGN ACCOUNT DEBTORS"), (iii) such
Accounts due from Affiliates or Subsidiaries of the Company, (iv) such Accounts
for services not yet rendered or goods not yet delivered, and (v) such Accounts
representing obligations in respect of any joint venture interest owned by the
Company and in respect of royalties and license fees payable to the Company by
any such joint venture or any joint venture therein, and (b) deducting from the
aggregate face amount of the remaining Base Accounts (i) net offsets from
accounts owing from account debtors, other than Foreign Account Debtors, which
maintain both receivable and payable balances with the Company, (ii) the
aggregate amount of outstanding claims asserted by account debtors, other than
Foreign Account Debtors, against the Company and (iii) all payments,
adjustments, and credits applicable thereto and all amounts due thereon
considered by the Bank to be difficult to collect or uncollectible by reason of
return, rejection, repossession, loss or damage of or to the merchandise giving
rise thereto, a merchandise or other dispute, insolvency of the account debtor
or any other reason, all as determined by the Bank in its sole and reasonable
discretion, which determination shall be final and binding upon the Company.
NOTE. The Amended and Restated Promissory Note of the Company,
substantially in the form of EXHIBIT A hereto, evidencing the obligations of the
Company to the Bank to repay the Revolving Loans.
Notice of Borrowing. See Section 2.1(b).
-------------------
OBLIGATIONS. Any and all obligations of the Company to the Bank of every
kind and description (i) hereunder and under the Note, (ii) under Alternative
Currency Commitments and under any and all documents pertaining thereto and
(iii) under the Guaranty Agreement (BioSepra) and the Guaranty Agreement
(Versicor), in each case, whether direct or indirect, absolute or contingent,
primary or secondary, due or to become due, now existing or hereafter arising,
regardless of how they arise or by what agreement or instrument, if any, and
including obligations to perform acts and refrain from taking action as well as
obligations to pay money.
Original Currency. See Section 9.10.
-----------------
PBGC. The Pension Benefit Guaranty Corporation or any entity succeeding to
any or all of its functions under ERISA.
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Permitted Encumbrances. See Section 6.4.
----------------------
PERSON. A corporation, an association, a partnership, a limited liability
company or partnership, a joint venture, an organization, a business, an
individual, a government or political subdivision thereof or a governmental
agency.
PLAN. At any time, an employee pension or other benefit plan that is
subject to Title IV of ERISA or subject to the minimum funding standards under
Section 412 of the Code and is either (i) maintained by the Company or any
member of the Controlled Group for employees of the Company or any member of the
Controlled Group or (ii) if such Plan is established, maintained pursuant to a
collective bargaining agreement or any other arrangement under which more than
one employer makes contributions and to which the Company or any member of the
Controlled Group is then making or accruing an obligation to make contributions
or has within the preceding five Plan years made contributions.
PRIME RATE. The rate of interest announced from time to time by the Bank at
its office in Boston, Massachusetts as its prime rate.
Prior Credit Agreement. See Preamble.
----------------------
Prior Loans. See Preamble.
-----------
QUALIFIED INVESTMENTS. As applied to the Company and its Subsidiaries,
investments in (i) notes, bonds or other obligations of the United States of
America or any agency thereof that as to principal and interest constitute
direct obligations of or are guaranteed by the United States of America; (ii)
certificates of deposit or other deposit instruments or accounts of banks or
trust companies organized under the laws of the United States or any state
thereof that have capital and surplus of at least $100,000,000, (iii) commercial
paper issued by companies organized under the laws of the United States or any
state thereof and that is rated not less than prime-two or A-2 or their
equivalents by Moody's Investors Service, Inc. or Standard & Poor's Corporation,
respectively, or their successors, (iv) mutual or closed end funds that invest
solely in investments described in clauses (i) through (iii) of this definition
and (v) any repurchase agreement secured by any one or more of the foregoing.
RESTRICTED PAYMENTS. (a) Any dividend or other distribution, direct or
indirect, on or on account of any shares of any class of stock of any of the
Company now or hereafter outstanding and (b) any redemption, purchase or other
acquisition, direct or indirect, of any shares of any class of stock of the
Company now or hereafter outstanding or of any warrants or rights to purchase
any such stock (including without limitation the repurchase of any such stock or
warrant or any refund of the purchase price thereof in connection with the
exercise by the holder thereof of any right of rescission or similar remedies
with respect thereto),
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(c) any Managerial Expense, and (d) any payment of principal of, premium, if
any, or interest on, or otherwise in respect of any Subordinated Indebtedness.
REVOLVING COMMITMENT AMOUNT. Ten Million Dollars ($10,000,000) or any
lesser amount, including zero, resulting from a termination or reduction of such
amount in accordance with Section 2.3 or Section 8.2.
REVOLVING CREDIT PERIOD. The period beginning on the date hereof and
extending through and including the Revolving Credit Termination Date.
REVOLVING CREDIT TERMINATION DATE. April 30, 1999 or such earlier date on
which the commitment to make Revolving Loans is terminated or the Revolving
Commitment Amount is reduced to zero in accordance with the terms of this
Agreement.
Revolving Loans. See Section 2.1(a).
---------------
Second Currency. See Section 9.10.
---------------
Sepracor. See Preamble.
--------
SSC. See Preamble.
---
SUBORDINATED INDEBTEDNESS. (a) the existing Indebtedness of the Company
which is designated as "Subordinated Indebtedness" in SCHEDULE 6.1 attached
hereto, and (b) any other Indebtedness of the Company consented to in writing by
the Bank which matures in its entirety later than the Note and by its terms (or
by the terms of the instrument under which it is outstanding and to which
appropriate reference is made in the instrument evidencing such Subordinated
Indebtedness) is made subordinate and junior in right of payment to the Note and
to the Company's other obligations to the Bank hereunder by provisions
reasonably satisfactory in form and substance to the Bank and its counsel.
SUBORDINATED NOTES. Sepracor's (i) 10% convertible subordinated notes
issued by Sepracor pursuant to the Securities Purchase Agreement dated as of
February 23, 1990 among Sepracor and the investors named therein as amended by
Amendment No. 1 dated as of July 13, 1990, Amendment No. 2 dated as of September
17, 1990 and Amendment No. 3 dated as of September 12, 1991 and (ii) $87,250,000
7% Convertible Subordinated Debentures due 2002 issued pursuant to Fiscal Agency
Agreement dated November 7, 1995 (in the form originally executed and delivered
to the Bank) between Sepracor and Chemical Bank as fiscal agent.
SUBSIDIARY. Any corporation, association, limited liability company, joint
stock company, business trust or other similar organization of which 50% or more
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of the ordinary voting power for the election of a majority of the members of
the board of directors or other governing body of such entity is held or
controlled by Sepracor or its Subsidiaries; or any other such organization the
management of which is directly or indirectly controlled by Sepracor or a
Subsidiary of Sepracor through the exercise of voting power or otherwise; or any
joint venture, whether incorporated or not, in which Sepracor has, at least, a
50% ownership interest.
TANGIBLE CAPITAL BASE. At any date as of which the amount thereof shall be
determined, the stockholders' equity of the Company determined in accordance
with GAAP plus the outstanding principal amount of any Subordinated Indebtedness
minus the sum of any amounts attributable to (a) goodwill, (b) intangible items
such as unamortized debt discount and expense, patents, trade and service marks
and names, copyrights and research and development expenses except prepaid
expenses, (c) all reserves not already deducted from assets, (d) any write-up in
the book value of assets resulting from any revaluation thereof subsequent to
the date of the financial statements referred to in Section 4.6 and (e) any and
all items included as assets on the balance sheet of the Company if and to the
extent such items consist of the equity in Subsidiaries or other joint ventures
holdings or similar investments.
TECHNOLOGY TRANSFER AGREEMENTS. The Technology Transfer and License
Agreements dated as of January 1, 1994 between Sepracor and each of its
Subsidiaries each as originally executed and delivered to the Bank.
Total Indebtedness. All Indebtedness of the Company.
------------------
TOTAL SENIOR LIABILITIES. Total Indebtedness MINUS the aggregate of
Subordinated Indebtedness.
U.S. SUBSIDIARY. With respect to any Person, each of such Person's
Subsidiaries having a principal place of business located in the United States.
VERSICOR. Versicor Inc., a Delaware corporation, a Subsidiary of Sepracor
and an Affiliate of BioSepra.
VERSICOR CREDIT AGREEMENT. That certain Revolving Credit, Term Loan and
Security Agreement dated as of the date hereof between Versicor and the Bank.
1.2. ACCOUNTING TERMS. All terms of an accounting character shall have the
meanings assigned thereto by GAAP applied on a basis consistent with the
financial statements referred to in Section of this Agreement, modified to the
extent, but only to the extent, that such meanings are specifically modified
herein.
1.3. THE COMPANY. All references herein to the Company and not to the
Company and its Subsidiaries shall refer only to the Company. All references to
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the Company and its Subsidiaries shall refer to the Company and its Subsidiaries
on a consolidated basis.
1.4. MULTIPLE BORROWERS. The term "Company" refers to more than one
corporation. All references to the Company are references to Sepracor and SSC.
All Obligations are joint and several between Sepracor and SSC, except for the
Obligations relating to the Guaranty Agreement (BioSepra) and the Guaranty
Agreement (Versicor). All representations and covenants shall apply and be
applied to each of Sepracor and SSC separately as well as jointly and are made
by each of Sepracor and SSC, including the financial covenants contained in
Sections 5.9 through 5.12. The Company designates Sepracor to act on behalf of
the Company for all purposes under this Agreement, including, without
limitation, the requesting of Revolving Loans hereunder, and reduction of the
Revolving Commitment Amount. Notice when given to Sepracor shall be sufficient
notice to the Company. Any document delivered to Sepracor shall be considered
delivered to each of Sepracor and SSC. Any Event of Default by Sepracor or SSC
shall be an Event of Default by the Company.
SECTION 2.
DESCRIPTION OF CREDIT
2.1. The Revolving Loans.
-------------------
(a) Upon the terms and subject to the conditions of this Agreement, and in
reliance upon the representations, warranties and covenants of the Company made
herein, the Bank agrees to make loans ("REVOLVING LOANS") to the Company
pursuant to Notices of Borrowing as delivered by the Company to the Bank from
time to time, from and after the date hereof and during the Revolving Credit
Period; PROVIDED, that (1) the aggregate principal amount of Revolving Loans
outstanding at any time shall not exceed the Available Aggregate Revolving
Commitment at such time and (2) at the time the Company requests a Revolving
Loan and after giving effect to the making thereof there has not occurred and is
not continuing any Default or Event of Default. The Company agrees that it shall
be an Event of Default if at any time the debit balance of the Loan Account
shall exceed the Available Aggregate Revolving Commitment unless the Company
shall, upon demand by the Bank, pay, within two (2) Business Days, cash to the
Bank to be credited to the Loan Account in such amount as shall be necessary to
eliminate the excess.
(b) Prior to 12:00 noon (Boston time) on the Revolving Loan request date,
an Authorized Officer shall notify the Bank in writing or by telephone confirmed
by (1) telex, (2) telecopy or (3) other facsimile transmission, on the same day
as the telephonic request (the "NOTICE OF BORROWING"), of the proposed
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date of borrowing and the principal amount requested. No Notice of Borrowing
shall be revocable by the Company.
(c) The Bank shall enter the Revolving Loans as debits in the Loan Account.
The Bank shall also record in the Loan Account all payments made by the Company
on account of the Revolving Loans, and may also record therein, in accordance
with customary accounting practices, other debits and credits, and all interest,
fees, charges and expenses chargeable to the Company under this Agreement. The
debit balance of the Loan Account shall reflect the amount of the Company's
Obligations to the Bank from time to time by reason of the Revolving Loans and
other appropriate charges hereunder. Periodically, the Bank shall render a
statement of account showing as of its date the debit balance of the Loan
Account which, unless within thirty (30) days of such date notice to the
contrary is received by the Bank from the Company, absent manifest error, shall
be considered correct and accepted by the Company and conclusively binding upon
it.
(d) Subject to the terms and conditions of this Agreement, the Bank shall
make each Revolving Loan on the effective date specified therefor by crediting
the amount of such Revolving Loan to the Company's demand deposit account with
the Bank.
2.2. COMMITMENT FEE. The Company shall pay to the Bank during the Revolving
Credit Period a commitment fee computed at the rate of one quarter of one
percent (0.25%) per annum on the average daily amount of the unborrowed portion
of the difference between (a) the Revolving Commitment Amount and (b) the sum of
the Revolving Commitment Amounts for each of Biosepra and Versicor, during each
quarter or portion thereof. Commitment fees shall be payable quarterly in
arrears, on the first day of January, April, July and October of each year
beginning on April 1, 1997, and on the last day of the Revolving Credit Period.
2.3. REDUCTION OF REVOLVING COMMITMENT AMOUNT. The Company may from time to
time by written notice delivered to the Bank by the Company at least five
Business Days prior to the date of the requested reduction, reduce by integral
multiples of Ten Thousand Dollars ($10,000) any unborrowed portion of the
Revolving Commitment Amount. No reduction of the Revolving Commitment Amount
shall be subject to reinstatement.
2.4. The Note.
--------
(a) The Revolving Loans shall be evidenced by the Note which is payable to
the order of the Bank and with a final maturity on the Revolving Credit
Termination Date. The Note shall be dated on or before the date of the first
Revolving Loan and shall have the blanks therein appropriately completed.
(b) The Bank shall, and is hereby irrevocably authorized by the Company
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<PAGE> 19
to, enter on the schedule forming a part of the Note or otherwise in its records
appropriate notations evidencing the date and the amount of each Revolving Loan,
the interest rate applicable thereto and the date and amount of each payment of
principal made by the Company with respect thereto; and in the absence of
manifest error, such notations shall constitute conclusive evidence thereof. The
Bank is hereby irrevocably authorized by the Company to attach to and make a
part of the Note a continuation of any such schedule as and when required. No
failure on the part of the Bank to make any notation as provided in this
subsection (b) shall in any way affect any Revolving Loan or the rights or
obligations of the Bank or the Company with respect thereto.
2.5. CAPITAL REQUIREMENTS. If after the date hereof, the Bank shall have
determined that the adoption or implementation of any applicable law, rule or
regulation regarding capital requirements for banks or bank holding companies,
or any change therein (including, without limitation, any change according to a
prescribed schedule of increasing requirements, whether or not known on the date
hereof), or any change in the interpretation or administration thereof by any
governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by the Bank with any
request or directive of such entity regarding capital adequacy (whether or not
having the force of law) has the effect of reducing the return on the Bank's
capital to a level below that which the Bank could have achieved (taking into
consideration the Bank's policies with respect to capital adequacy immediately
before such adoption, implementation, change or compliance and assuming that the
Bank's capital was fully utilized prior to such adoption, implementation, change
or compliance) but for such adoption, implementation, change or compliance as a
consequence of its Commitment to make Revolving Loans hereunder by any amount
deemed by the Bank to be material, the Company shall pay to the Bank as an
additional fee from time to time on demand such amount as the Bank shall have
determined to be necessary to compensate it for such reduction. The
determination by the Bank of such amount, if done on the basis of any reasonable
averaging and attribution methods, shall in the absence of manifest error be
conclusive, and at the Company's request, the Bank shall demonstrate the basis
of such determination.
2.6. PAYMENTS AND PREPAYMENTS OF THE REVOLVING LOANS. On at least two (2)
Banking Days, prior written notice to the Bank with respect to Revolving Loans
subject to an exercised LIBOR Option and on at least one (1) Banking Day, prior
written notice to the Bank with respect to all other Revolving Loans, the
Company may, at its option, prepay the Note in whole at any time or in part from
time to time without penalty or premium; PROVIDED, that any prepayment of any
LIBOR Portion shall be made together with the applicable LIBOR Premium. Any
interest accrued on the amounts so prepaid to the date of such payment must be
paid at the time of any such payment. No prepayment of the Revolving Loans shall
affect the Revolving Commitment Amount or impair the Company's right to borrow
as set
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forth in Section 2.1. On the Revolving Credit Termination Date, the Company
shall repay all outstanding Revolving Loans and the Note, together with all
unpaid interest thereon and all fees and other amounts due hereunder with
respect to the Revolving Loans.
2.7. METHOD OF PAYMENT. All payments and prepayments of principal and all
payments of interest shall be made by the Company to the Bank at 75 State
Street, Boston, Massachusetts 02109 in immediately available funds, on or before
11:00 a.m. on the due date thereof, free and clear of, and without any deduction
or withholding for, any taxes or other payments. The Bank may, and the Company
hereby authorizes the Bank to, debit the amount of any payment not made by such
time to the demand deposit account of the Company with the Bank.
2.8. OVERDUE PAYMENTS. (a) Upon the occurrence and during the continuance
of an Event of Default, interest on the outstanding principal amount of the Note
and (to the extent permitted by law) on accrued but unpaid interest shall
thereafter be payable on demand at a rate per annum equal to two percent (2%)
above the interest rate otherwise in effect with respect to such Revolving
Loans. Upon the cure of an Event of Default and the payment of interest at the
default rate through the date of such cure, the interest rate shall revert to
that provided for in Section 2.10.
(b) If a payment of principal or interest hereunder is not made in full
within 10 days of date when due, the Company will pay to the Bank a late fee
equal to five percent (5%) of the amount of such payment. Nothing in the
preceding sentence shall affect the Bank's right to exercise any of its rights
or remedies, including those provided in Section 8.2, if an Event of Default has
occurred.
2.9. HOLIDAYS. If any payment required by this Agreement becomes due on a
day that is not a Business Day such payment may be made on the next succeeding
Business Day, and such extension shall be included in computing interest in
connection with such payment.
2.10. INTEREST. The Note shall bear interest on the unpaid principal amount
thereof until paid in full at the rate or rates per annum determined (on the
basis of the actual number of days elapsed over a 360-day year) and payable as
follows:
(a) The rate of interest for any portion of the outstanding principal
amount of the Revolving Loans which is not then subject to an exercised LIBOR
Option under Section 2.11 of this Agreement shall be computed at the Prime Rate.
(b) The rate for any LIBOR Portion of the Revolving Loans shall be computed
at a rate equal to one and three-quarters percent (1.75%) above the
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<PAGE> 21
applicable LIBOR Rate.
(c) Interest on the Note shall be payable monthly in arrears on the first
Business Day of each month, commencing on January 1, 1997 and, in addition,
interest on any LIBOR Portion of the Revolving Loans in respect of any LIBOR
Period shall also be payable on the last day of such LIBOR Period, on the last
day of the third month for each LIBOR Portion with a 180-day LIBOR Period and at
maturity (whether by acceleration or otherwise). The rate of interest payable on
any portion of the outstanding principal balance of any Revolving Loan which is
not then subject to a LIBOR Option shall take effect simultaneously with the
corresponding change in the Prime Rate.
2.11. Certain LIBOR Provisions.
------------------------
(a) LIBOR OPTION. Subject to the provisions of this Section 2, the Company
shall have the right to have the interest on all or any portion of the principal
amount of any Revolving Loan, based on a LIBOR Rate.
(b) CERTAIN DEFINITIONS. As used herein, the following terms have the
following respective meanings:
BANKING DAY. (i) When used with respect to the LIBOR Option, a day on which
transactions may be effected in deposits of U.S. dollars in the London interbank
foreign currency deposits market and on which banks may conduct business in
London, England and Boston, Massachusetts and (ii) when used with respect to the
other provisions of this Agreement, any day excluding Saturday and Sunday and
excluding any other day which shall be in Boston, Massachusetts, a legal holiday
or a day on which banking institutions are authorized by law to close.
BOARD. The Board of Governors of the Federal Reserve System of the United
States.
LEGAL REQUIREMENT. Any requirement imposed upon the Bank by any law of the
United States of America or the United Kingdom or by any regulation, order,
interpretation, ruling or official directive (whether or not having the force of
law) of the Board, the Bank of England or any other board, central bank or
governmental or administrative agency, institution or authority of the United
States of America, the United Kingdom or any political subdivision of either
thereof.
LIBOR OPTION. The option granted pursuant to this Section 2 to have the
interest on all or a portion of the principal amount of the Revolving Loan based
on a LIBOR Rate.
LIBOR PERIOD. Any period, as provided below in this Section 2.11, of 30,
60, 90 or 180 days, commencing on any Banking Day; provided, however, that no
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LIBOR Period with respect to any LIBOR Portion of any Revolving Loan shall
extend beyond the maturity date of the Note. If any LIBOR Period so selected
would otherwise end on a date which is not a Banking Day, such LIBOR Period
shall instead end on the next preceding or succeeding Banking Day as determined
by the Bank in accordance with the then current banking practice in London. Each
determination by the Bank of any LIBOR Period shall, in the absence of manifest
error, be conclusive, and at the Company's request the Bank shall demonstrate
the basis for such determination.
LIBOR PORTION. That portion of the Revolving Loan specified in a LIBOR
Request, (i) which is not less than Five Hundred Thousand Dollars ($500,000),
(ii) which is an integral multiple of Ten Thousand Dollars ($10,000), (iii)
which does not exceed the outstanding balance of the Revolving Loan not already
subject to an exercised LIBOR Option, (iv) which, as of the date of the LIBOR
Request specifying such LIBOR Portion, has met the conditions for basing
interest on the LIBOR Rate in Section 2.12 of this Agreement and (v) the LIBOR
Period of which has commenced and not terminated.
LIBOR PREMIUM. With respect to the prepayment of any LIBOR Portion of any
Revolving Loan, whether voluntary or as a result of acceleration, an amount
equal to the product of (i) the excess, if any, of the rate of interest on the
principal amount so prepaid over the rate of interest on debt securities issued
by the Treasury of the United States of America on a date approximating the date
of payment of such principal amount and having a maturity date approximating the
last Banking Day of the applicable LIBOR Period, multiplied by (ii) the
principal amount so prepaid, multiplied by (iii) a fraction, the numerator of
which is the number of days remaining in the related LIBOR Period and the
denominator of which is 360.
LIBOR RATE. With respect to any LIBOR Portion for the related LIBOR Period,
an interest rate per annum (rounded upwards, if necessary, to the next higher
1/8 of 1%) equal to the product of (a) the Base LIBOR Rate (as hereinafter
defined) and (b) Statutory Reserves. For purposes of this definition, the term
"BASE LIBOR RATE" shall mean the rate (rounded to the nearest 1/8 of 1% or, if
there is no nearest 1/8 of 1%, the next higher 1/8 of 1%) at which deposits of
U.S. dollars approximately equal in principal amount to the LIBOR Portion and
for a maturity equal to the applicable LIBOR Period are offered to the Bank in
the London interbank foreign currency deposits market at approximately 11:00
a.m., London time, two (2) Banking Days prior to the commencement of such LIBOR
Period, for delivery on the first day of such LIBOR Period. Each determination
by the Bank of any LIBOR Rate shall, in the absence of manifest error, be
conclusive, and at the Company's request, the Bank shall demonstrate the basis
for such determination.
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<PAGE> 23
LIBOR REQUEST. Notice in writing (or by telephonic communications confirmed
by telex, telecopy or other facsimile transmission on the same day as the
telephone request) from the Company to the Bank requesting that interest on a
LIBOR Portion be based on the LIBOR Rate, specifying: (i) the first day of the
LIBOR Period, (ii) the length of the LIBOR Period consistent with the definition
of that term and (iii) a dollar amount of the LIBOR Portion consistent with the
definition of that term.
STATUTORY RESERVES. A fraction, the numerator of which is the number one
and the denominator of which is the number one minus the aggregate of the
maximum reserve percentages (including, without limitation, any marginal,
special, emergency or supplemental reserves), expressed as a decimal,
established by the Board and any other banking authority to which the Bank is
subject for Eurocurrency Liabilities (as defined in Regulation D of the Board).
Such reserve percentages shall include, without limitation, those imposed under
such Regulation D. LIBOR Portions of the Revolving Loans shall be deemed to
constitute Eurocurrency Liabilities and as such shall be deemed to be subject to
such reserve requirements without benefit of or credit for proration, exceptions
or offsets which may be available from time to time to the Bank under such
Regulation D. Statutory Reserves shall be adjusted automatically on and as of
the effective date of any change in any reserve percentage.
TAX. In relation to any LIBOR Portion and the applicable LIBOR Rate, any
tax, levy, impost, duty, deduction, withholding or other charges of whatever
nature required by any Legal Requirement (i) to be paid by the Bank and/or (ii)
to be withheld or deducted from any payment otherwise required hereby to be made
by the Company to the Bank, provided that the term "Tax" shall not include any
taxes imposed upon the net income of the Bank by the United States of America or
any political subdivision thereof (including state and local governmental
authorities).
2.12. CONDITIONS FOR BASING INTEREST ON THE LIBOR RATE. Upon the condition
that:
(a) The Bank shall have received a LIBOR Request from the Company prior to
noon at least two (2) Banking Days prior to the first day of the LIBOR Period
requested;
(b) There shall have occurred no change in applicable law which would make
it unlawful for the Bank to obtain deposits of U.S. dollars in the London
interbank foreign currency deposits market;
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(c) As of the date of the LIBOR Request and the first day of the LIBOR
Period, there shall exist no Event of Default, nor any Default, which has not
been waived by the Bank;
(d) The Bank shall not have determined in good faith that it is unable to
determine the LIBOR Rate in respect of the requested LIBOR Period or that it is
unable to obtain deposits of U.S. dollars in the London interbank foreign
currency deposits market in the applicable amounts and for the requested LIBOR
Period; and
(e) As of the first date of the LIBOR Period specified in such LIBOR
Request, and after having given effect thereto, there shall be no more than an
aggregate of four (4) LIBOR Portions outstanding;
then interest on the LIBOR Portion requested during the LIBOR Period requested
will be at the applicable LIBOR Rate.
2.13. INDEMNIFICATION FOR FUNDING AND OTHER LOSSES. Each LIBOR Request
shall be irrevocable and binding on the Company. Without limiting the generality
of Section 2.14, the Company shall indemnify the Bank against any loss or
expense incurred by the Bank as a result of any failure on the part of the
Company to fulfill, on or before the date specified in any LIBOR Request, the
applicable conditions set forth in this Agreement, including, without
limitation, any loss (including loss of anticipated profits) or expense incurred
by reason of the liquidation or redeployment of deposits or other funds acquired
by the Bank to fund or maintain the requested LIBOR Portion when interest on
such LIBOR Portion, as a result of such failure on the part of the Company, is
not based on the applicable LIBOR for the requested LIBOR Period. The Bank shall
determine the amount of such loss or expense incurred by it, and absent manifest
error such determination shall be conclusive, and at the Company's request the
Bank shall demonstrate the basis for such determination.
2.14. CHANGE IN APPLICABLE LAWS, REGULATIONS, ETC. If any Legal Requirement
shall make it unlawful for the Bank to fund through the purchase of U.S. dollar
deposits any LIBOR Portion, or otherwise to give effect to its obligations as
contemplated hereby, or shall impose on the Bank any costs based on or measured
by the excess above a specified level of the amount of a category of deposits or
other liabilities of the Bank, which includes deposits by reference to which the
LIBOR Rate is determined as provided herein or a category of extensions of
credit or other assets of the Bank which includes any LIBOR Portion, or shall
impose on the Bank any restrictions on the amount of such a category of
liabilities or assets which the Bank may hold, (a) the Bank may by notice
thereof to the Company terminate the LIBOR Option, (b) any LIBOR Portion subject
thereto shall immediately bear interest thereafter at the rate provided for in
Section 2.10(a), and
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(c) the Company shall indemnify the Bank against any loss, penalty or expense
incurred by the Bank by reason of the liquidation or redeployment of deposits or
other funds acquired by the Bank to fund or maintain such LIBOR Portion, as
provided in Section 2.13.
2.15. TAXES. It is the understanding of the Company and the Bank that the
Bank shall receive payments of amounts of principal of and interest on the
Revolving Loan with respect to the LIBOR Portions from time to time subject to a
LIBOR Option free and clear of, and without deduction for, any Taxes. If (a) the
Bank shall be subject to any such Tax in respect of any such LIBOR Portion or
part thereof or (b) the Company shall be required to withhold or deduct any such
Tax from any such amount, and (c) such Tax shall not have existed as of the date
of the applicable LIBOR Request, the LIBOR applicable to such LIBOR Portion
shall be adjusted by the Bank to reflect all additional costs incurred by the
Bank in connection with the payment by the Bank or the withholding by the
Company of such Tax and the Company shall provide the Bank with a statement
detailing the amount of any such Tax actually paid by the Company. Determination
by the Bank of the amount of such costs shall, in the absence of manifest error,
be conclusive, and at the Company's request, the Bank shall demonstrate the
basis of such determination. If after any such adjustment, any part of any Tax
paid by any Bank is subsequently recovered by the Bank, the Bank shall reimburse
the Company to the extent of the amount so recovered. A certificate of an
officer of the Bank setting forth the amount of such recovery and the basis
therefor shall, in the absence of manifest error, be conclusive.
2.16. FOREIGN EXCHANGE FACILITY. During the Revolving Credit Period, the
Bank agrees to provide the Company with a foreign exchange facility (the
"FOREIGN EXCHANGE FACILITY") pursuant to which the Bank will issue Alternative
Currency Commitments from time to time, consistent with the definition thereof.
In determining the amount of Dollars or an Alternative Currency purchased or
exchanged, the Bank shall use the same method employed in determining the Dollar
Equivalent or Alternative Currency Equivalent as set forth in each such
definition. All Alternative Currency Commitments of the Company including,
without limitation, fees, charges and any currency loss or similar loss, shall
be Obligations of the Company hereunder and shall be secured by the security
interest granted by the Company to the Bank in the Collateral. The Exchange
Contract Amount shall be recalculated hereunder on each date that it shall be
necessary to determine the unused portion of the Revolving Commitment Amount.
SECTION 3.
----------
CONDITIONS OF LOANS
-------------------
3.1. Conditions Precedent to Initial Revolving Loan. The obligation of the
----------------------------------------------
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Bank to make its initial Revolving Loan and to provide the Foreign Exchange
Facility is subject to the condition precedent that the Bank shall have
received, in form and substance satisfactory to the Bank and its counsel, the
following:
(a) this Agreement, duly executed by the Company;
(b) the Note, duly executed by the Company;
(c) the Confirmation of the Intellectual Property Security Agreement duly
executed by Sepracor in form and substance satisfactory to the Bank and its
counsel;
(d) the Investment Property Security Agreement duly executed by SSC and the
Account Control Agreement duly executed by SSC and the broker named therein;
(e) the BioSepra Credit Agreement duly executed by BioSepra and the
Versicor Credit Agreement duly executed by Versicor; and the Guaranty Agreement
(BioSepra), the Guaranty Agreement (Versicor) and the Deposit Pledge Agreement
each duly executed by Sepracor and the consummation of all transactions
contemplated thereby;
(f) the subordination provisions of the documentation for Sepracor's
Subordinated Notes and any other Subordinated Indebtedness of the Company shall
be satisfactory to the Bank and its counsel;
(g) a certificate of the Secretary or an Assistant Secretary of Sepracor
with respect to resolutions of the Board of Directors authorizing the execution
and delivery of this Agreement, the Note, the Confirmation of the Intellectual
Property Security Agreement, the Guaranty Agreement (BioSepra), the Guaranty
Agreement (Versicor) and the Deposit Pledge Agreement and identifying the
officer(s) authorized to execute, deliver and take all other actions required
under this Agreement, and providing specimen signatures of such officers;
(h) a certificate signed by an Authorized Officer of Sepracor, certifying
that the conditions of Section 3.2(b) have been fulfilled;
(i) the certificate of incorporation of Sepracor and all amendments and
supplements thereto, filed in the office of the Secretary of State of the State
of Delaware, each certified by said Secretary of State as being a true and
correct copy thereof;
(j) the Bylaws of Sepracor and all amendments and supplements thereto,
certified by the Secretary or an Assistant Secretary as being a true and correct
copy thereof;
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(k) a certificate of the Secretary of State of the State of Delaware, as to
legal existence and good corporate standing of Sepracor in such state and
listing all documents on file in the office of said Secretary of State;
(l) UCC-1 Financing Statements, for any new locations of Sepracor duly
executed by Sepracor and UCC-3 Financing Statements, changing the name of the
Bank as set forth in the preamble to this Agreement and any other necessary
revisions duly executed by Sepracor and the Bank, each recorded in the
appropriate filing offices;
(m) a certificate of the Clerk or an Assistant Clerk of SSC with respect to
resolutions of the Board of Directors authorizing the execution and delivery of
this Agreement, the Note, the Investment Property Security Agreement and the
Account Control Agreement and identifying the officer(s) authorized to execute,
deliver and take all other actions required under this Agreement, and providing
specimen signatures of such officers;
(n) a certificate signed by a principal officer of SSC, certifying that the
conditions of Section 3.2(b) have been fulfilled;
(o) the articles of organization of SSC and all amendments and supplements
thereto, filed in the office of the Secretary of the Commonwealth of the
Commonwealth of Massachusetts, each certified by said Secretary of the
Commonwealth as being a true and correct copy thereof;
(p) the Bylaws of SSC and all amendments and supplements thereto, certified
by the Clerk or an Assistant Clerk as being a true and correct copy thereof;
(q) a certificate of the Secretary of the Commonwealth of the Commonwealth
of Massachusetts, as to legal existence and good corporate standing of SSC in
such state and listing all documents on file in the office of said Clerk of
State;
(r) UCC-1 Financing Statements for each location of SSC duly executed by
SSC, each recorded in the appropriate filing offices;
(s) Lien searches against Sepracor in all appropriate state filing offices
and in the United States Patent and Trademark Office and the United States
Copyright Office;
(t) if necessary, UCC-3 Termination Statements and other appropriate lien
discharge documentation terminating all liens except those consisting of
Permitted Encumbrances.
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(u) Landlord Waiver as to the real property leased by Sepracor located at
111 Locke Drive and 33 Locke Drive, each in Marlborough, Massachusetts duly
executed by the lessor of such property;
(v) an insurance binder demonstrating compliance with Section 5.3;
(w) a certificate signed by an Authorized Officer of the Company,
certifying that there has been no material adverse change in the condition
(financial or otherwise), operations, properties, assets, liabilities or
earnings of the Company since the date of its most recent financial statement;
(x) an opinion addressed to it from Hale & Dorr LLP, counsel to the
Company, in form and substance satisfactory to the Bank and its counsel; and
(y) such other documents, and completion of such other matters, as counsel
for the Bank may deem necessary or appropriate.
3.2. CONDITIONS PRECEDENT TO ALL REVOLVING LOANS. The obligation of the
Bank to make each Revolving Loan, including the initial Revolving Loan, or
continue or convert the Revolving Loans to loans of another type, is further
subject to the following conditions:
(a) timely receipt by the Bank of the Notice of Borrowing as provided in
Section 2.1;
(b) the representations and warranties contained in Section 4 shall be true
and accurate in all material respects on and as of the date of such Notice of
Borrowing and on the effective date of the making, continuation or conversion of
each Revolving Loan as though made at and as of each such date (except to the
extent that such representations and warranties expressly relate to an earlier
date), and no Default or Event of Default shall have occurred and be continuing,
or would result from such Revolving Loan;
(c) the resolutions referred to in Section 3,1(g) shall remain in full
force and effect; and
(d) no change shall have occurred in any law or regulation or
interpretation thereof that, in the opinion of counsel for the Bank, would make
it illegal or against the policy of any governmental agency or authority for the
Bank to make Revolving Loans hereunder.
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The making of each Revolving Loan shall be deemed to be a representation
and warranty by the Company on the date of the making, continuation or
conversion of such Revolving Loan as to the accuracy of the facts referred to in
subsection (b) of this Section 3.2.
3.3. CONDITIONS PRECEDENT TO EACH TRANSACTION UNDER FOREIGN EXCHANGE
FACILITY. The obligation of the Bank to deliver Dollars or an Alternative
Currency, as the case may be, under the Foreign Exchange Facility is subject to
the following conditions:
(a) the Bank and the Company shall have agreed upon the Alternative
Currency for the purchase or exchange;
(b) timely receipt by the Bank of written confirmation of each proposed
exchange or purchase in form and substance satisfactory to the Bank, duly
executed by the Company;
(c) No reasonably identifiable disruption of international money markets
shall have occurred, and the Bank shall not have determined that it shall be
unable, in the exercise of reasonable efforts and through customary means to
affect foreign exchange transactions generally or with respect to the
Alternative Currency agreed upon in subsection (a) above;
(d) the Company shall have given the Bank reasonable notice of the proposed
purchase or exchange;
(e) such other documents, and completion of such other matters, as the Bank
and counsel for the Bank may deem necessary or appropriate.
SECTION 4.
----------
REPRESENTATIONS AND WARRANTIES
------------------------------
In order to induce the Bank to enter into this Agreement and to make the
Revolving Loans hereunder, the Company represents and warrants to the Bank that,
as of February __, 1997 (notwithstanding that this Agreement is dated as of
December 31, 1996):
4.1. ORGANIZATION AND QUALIFICATION. Each of the Company and its
Subsidiaries (a) is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation, (b) has all
requisite corporate power to own its property and conduct its business as now
conducted and as presently contemplated and (c) is duly qualified and in good
standing as a
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foreign corporation and is duly authorized to do business in each jurisdiction
where the nature of its properties or business requires such qualification,
except where the failure to be so qualified would not have a material adverse
effect on the financial condition, operations, properties or business.
4.2. CORPORATE AUTHORITY. The execution, delivery and performance of this
Agreement, the Note, the Confirmation of the Intellectual Property Security
Agreement, the Deposit Pledge Agreement, the Investment Property Security
Agreement, the Account Control Agreement, the Guaranty Agreement (BioSepra) and
the Guaranty Agreement (Versicor) and the transactions contemplated hereby are
within the corporate power and authority of Sepracor or SSC, as applicable, and
the execution, delivery and performance of the Note are within the corporate
power and authority of the Company and have been authorized by all necessary
corporate proceedings, and do not and will not (a) require any consent or
approval of the stockholders of the Company, (b) contravene any provision of the
charter documents or by-laws of the Company or any law, rule or regulation
applicable to the Company, (c) contravene any provision of, or constitute an
event of default or event that, but for the requirement that time elapse or
notice be given, or both, would constitute an event of default under, any other
agreement, instrument, order or undertaking binding on the Company, or (d)
result in or require the imposition of any Encumbrance on any of the properties,
assets or rights of the Company.
4.3. VALID OBLIGATIONS. This Agreement, the Note, the Confirmation of the
Intellectual Property Security Agreement, the Deposit Pledge Agreement, the
Investment Property Security Agreement, the Account Control Agreement, the
Guaranty Agreement (BioSepra) and the Guaranty Agreement (Versicor) and all of
their respective terms and provisions are the legal, valid and binding
obligations of Sepracor or SSC, as applicable, each enforceable in accordance
with their respective terms except as limited by bankruptcy, insolvency,
reorganization, moratorium or other laws affecting the enforcement of creditors'
rights generally, and except as the remedy of specific performance or of
injunctive relief is subject to the discretion of the court before which any
proceeding therefor may be brought.
4.4. CONSENTS OR APPROVALS. Except for the agreement of the broker that is
a party to the Account Control Agreement, the execution, delivery and
performance of this Agreement, the Note, the Confirmation of the Intellectual
Property Security Agreement, the Deposit Pledge Agreement, the Investment
Property Security Agreement, the Account Control Agreement, the Guaranty
Agreement (BioSepra) and the Guaranty Agreement (Versicor) and the transactions
contemplated herein do not require any approval or consent of, or filing or
registration with, any governmental or other agency or authority, or any other
party.
4.5. TITLE TO PROPERTIES; ABSENCE OF ENCUMBRANCES. Each of the Company
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and its Subsidiaries has good and marketable title to all of the properties,
assets and rights of every name and nature now purported to be owned by it,
including, without limitation, such properties, assets and rights as are
reflected in the financial statements referred to in Section 4.6 (except such
properties, assets or rights as have been disposed of in the ordinary course of
business since the date thereof), free from all Encumbrances except Permitted
Encumbrances hereto, and, except as so disclosed, free from all defects of title
that might materially adversely affect such properties, assets or rights, taken
as a whole.
4.6. FINANCIAL STATEMENTS. The Company has furnished the Bank the
consolidated and consolidating balance sheets of the Company and its
Subsidiaries as of December 31, 1995, and the related consolidated and
consolidating statements of income, changes in stockholders' equity and cash
flow for the fiscal year then ended, and related footnotes, audited and
certified by Coopers & Lybrand. The Company has also furnished the foregoing
unaudited financial statements to the Bank for the nine-month period ending
September 30, 1996 and financial projections for the 1996 fiscal year prepared
by the Company. All such financial statements, except for such projections, were
prepared in accordance with GAAP applied on a consistent basis throughout the
periods specified and present fairly the financial position of the Company and
its Subsidiaries as of such date and the results of the operations of the
Company and its Subsidiaries for such period. The projections were prepared in
good faith and based on assumptions which were reasonable when made. There are
no liabilities, contingent or otherwise, not disclosed in such financial
statements that involve a material amount.
4.7. CHANGES. Since the date of the financial statements for the nine-month
period ending September 30, 1996 referred to in Section 4.6, there have been no
changes in the assets, liabilities, financial condition, business or prospects
of the Company or any of its Subsidiaries other than changes in the ordinary
course of business, the effect of which has not, in the aggregate, been
materially adverse.
4.8. DEFAULTS. As of the date hereof, no Default or Event of Default
exists.
4.9. TAXES. The Company and each Subsidiary has filed all federal, state
and other tax returns required to be filed, and all taxes, assessments and other
governmental charges due from the Company and each Subsidiary have been fully
paid. The Company and each Subsidiary have established on their books reserves
adequate for the payment of all federal, state and other tax liabilities.
4.10. MATERIAL AGREEMENTS. SCHEDULE 4.10 hereto accurately and completely
lists all material leases, management, stockholder, partnership, joint venture,
stock redemption or retirement, employment (including severance), non-
competition and related agreements, if any, which are presently in effect in
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connection with the conduct of business of the Company and its Subsidiaries.
4.11. MATERIAL LICENSES. SCHEDULE 4.11 hereto accurately and completely
lists all material licenses and related agreements, if any, which are presently
in effect in connection with the conduct of business of the Company and its
Subsidiaries (the "MATERIAL LICENSES"), and all such Material Licenses are in
full force and effect.
4.12. LITIGATION. Except as set forth in SCHEDULE 4.12 hereto, there is no
litigation, arbitration, proceeding or investigation pending, or, to the
knowledge of the Company's or any Subsidiary's officers, threatened, against the
Company or any Subsidiary that, if adversely determined, could result in a
material judgment not fully covered by insurance, could result in a forfeiture
of all or any substantial part of the property of the Company or its
Subsidiaries, or could otherwise have a material adverse effect on the assets,
business or prospects of the Company or any Subsidiary.
4.13. USE OF PROCEEDS. (a) The Company will not, directly or indirectly,
use any part of the proceeds of any of the Revolving Loans (i) for the purpose
of making any Restricted Payment which is prohibited by Section 6.8 hereof, (ii)
for the purpose of purchasing or carrying any margin stock within the meaning of
Regulations U and X (12 C.F.R. Part 221 and 224) of the Board, or (iii) for any
other purpose which would violate any provision of any other applicable statute,
regulation, order or restriction.
(b) The proceeds of the Revolving Loans shall be used exclusively for the
working capital purposes of the Company and, with the prior written consent of
the Bank in its sole and absolute discretion, for certain acquisitions.
4.14. EXISTING INDEBTEDNESS. SCHEDULE 6.1 hereto accurately and completely
lists all existing Indebtedness of the Company and its Subsidiaries as of the
date hereof.
4.15. EXISTING INVESTMENTS. SCHEDULE 4.16 hereto accurately and completely
lists the record owner, location and any relevant account numbers of all
depository and operating accounts and marketable securities owned by the Company
and its Subsidiaries as of the date hereof.
4.16. SUBSIDIARIES. As of the date hereof, all the Subsidiaries of the
Company are listed in SCHEDULE hereto. The Company or a Subsidiary of the
Company is the owner, free and clear of all liens and encumbrances, except as
expressly provided in such schedule, of all of the issued and outstanding stock
of each Subsidiary. All shares of such stock have been validly issued and are
fully paid and nonassessable, and no rights to subscribe to any additional
shares have been granted, and no options, warrants or similar rights are
outstanding.
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4.17. INVESTMENT COMPANY ACT. Neither the Company nor any of its
Subsidiaries is subject to regulation under the Investment Company Act of 1940,
as amended.
4.18. COMPLIANCE WITH ERISA. The Company and each member of the Controlled
Group have fulfilled their obligations under the minimum funding standards of
ERISA and the Code with respect to each Plan and are in compliance in all
material respects with the applicable provisions of ERISA and the Code, and have
not incurred any liability to the PBGC or a Plan under Title IV of ERISA; and no
"prohibited transaction" or "reportable event" (as such terms are defined in
ERISA) has occurred with respect to any Plan.
4.19. FDA COMPLIANCE, ETC. Without limiting the scope of Section 4.2, the
Company and its Subsidiaries are in compliance in all material respects with all
applicable foreign and federal and state laws and regulations, including all
material rules, regulations and administrative orders of the United States Food
and Drug Administration (the "FDA") and of foreign authorities with jurisdiction
over the Company and its Subsidiaries. The Company and its Subsidiaries are in
compliance in all material respects with all of the applicable provisions of the
Food, Drug and Cosmetic Act, as amended.
4.20. Environmental Matters.
---------------------
(a) The Company and its Subsidiaries have obtained all permits, licenses
and other authorizations which are required under all Environmental Laws, except
to the extent failure to have any such permit, license or authorization would
not have a material adverse effect on the business, financial condition or
operations of the Company and its Subsidiaries. The Company and its Subsidiaries
are in compliance with the terms and conditions of all such permits, licenses
and authorizations, and are also in compliance with all other limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules and timetables contained in any applicable Environmental Law or in any
regulation, code, plan, order, decree, judgment, injunction, notice or demand
letter issued, entered, promulgated or approved thereunder, except to the extent
failure to comply would not have a material adverse effect on the business,
financial condition or operations of the Company and its Subsidiaries.
(b) No notice, notification, demand, request for information, citation,
summons or order has been issued, no complaint has been filed, no penalty has
been assessed and no investigation or review is pending or threatened by any
governmental or other entity with respect to any alleged failure by the Company
or any of its Subsidiaries, which could materially adversely affect the
properties, business, prospects, operating results or condition (financial or
otherwise) of the Company, to have any permit, license or authorization required
in connection with the conduct of its business or with respect to any
Environmental Laws, including,
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without limitation, Environmental Laws relating to the generation, treatment,
storage, recycling, transportation, disposal or release of any Hazardous
Materials.
(c) To the best of the Company's knowledge no oral or written notification
of a release of a Hazardous Material, which could materially adversely affect
the properties, business, prospects, operating results or condition (financial
or otherwise) of the Company, has been filed by or on behalf of the Company or
any of its Subsidiaries and no property now or previously owned, leased or used
by the Company or any of its Subsidiaries is listed or proposed for listing on
the National Priorities List under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, or on any similar state list
of sites requiring investigation or clean-up.
(d) There are no liens or encumbrances arising under or pursuant to any
Environmental Laws on any of the real property or properties owned, leased or
used by the Company or any of its Subsidiaries and no governmental actions have
been taken or are in process which could subject any of such properties to such
liens or encumbrances or, as a result of which the Company or any of its
Subsidiaries would be required to place any notice or restriction relating to
the presence of Hazardous Materials at any property owned by it in any deed to
such property.
(e) Neither the Company nor any of its Subsidiaries nor, to the best
knowledge of the Company, any previous owner, tenant, occupant or user of any
property owned, leased or used by the Company or any of its Subsidiaries has (i)
engaged in or permitted any operations or activities upon or any use or
occupancy of such property, or any portion thereof, for the purpose of or in any
way involving the handling, manufacture, treatment, storage, use, generation,
release, discharge, refining, dumping or disposal (whether legal or illegal,
accidental or intentional) of any Hazardous Materials on, under, in or about
such property, except to the extent commonly used in day-to-day operations of
such property and in such case only in compliance with all Environmental Laws,
or (ii) transported any Hazardous Materials to, from or across such property
except to the extent commonly used in day-to-day operations of such property
and, in such case, in compliance with, all Environmental Laws, except, in the
case of both clause (i) and clause (ii) above, where so doing would not have a
material adverse affect on the business, prospects, operating results or
condition (financial or otherwise) of the Company; nor to the best knowledge of
the Company have any Hazardous Materials migrated from other properties upon,
about or beneath such property, nor, to the best knowledge of the Company, are
any Hazardous Materials presently constructed, deposited, stored or otherwise
located on, under, in or about such property except to the extent commonly used
in day-to-day operations of such property and, in such case, in compliance with,
all Environmental Laws.
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SECTION 5.
----------
AFFIRMATIVE COVENANTS
---------------------
So long as the Bank has any commitment to lend hereunder or to deliver
Dollars or an Alternative Currency, as the case may be, under the Foreign
Exchange Facility or any Revolving Loan or other Obligation hereunder remains
outstanding, the Company covenants as follows:
5.1. FINANCIAL STATEMENTS AND OTHER REPORTING REQUIREMENTS. The Company
shall furnish to the Bank:
(a) as soon as available to the Company and its Subsidiaries, but in any
event within 90 days after the end of each of fiscal year, the consolidated and
consolidating balance sheet of the Company and its Subsidiaries as of the end
of, and the related consolidated and consolidating statement of income, changes
in stockholders' equity and cash flow for, such year, audited and certified by
Coopers & Lybrand (or other independent nationally recognized certified public
accountants reasonably acceptable to the Bank) in the case of such consolidated
statements, and certified by an Authorized Officer in the case of such
consolidating statements; and, concurrently with such financial statements, a
copy of said certified public accountants' management report and a written
statement by such accountants that, in the making of the audit necessary for
their report and opinion upon such financial statements they have obtained no
knowledge of any Default or Event of Default or, if in the opinion of such
accountants any such Default or Event of Default exists, they shall disclose in
such written statement the nature and status thereof;
(b) as soon as available to the Company, but in any event within 45 days
after the end of each fiscal quarter, the consolidated and consolidating balance
sheets of the Company and its Subsidiaries as of the end of, and the related
consolidated and consolidating statements of income for, the period then ended,
certified by an Authorized Officer but subject, however, to normal, recurring
year-end adjustments;
(c) as soon as available to the Company, but in any event concurrently with
the delivery of each financial statement pursuant to subsection 5.1(a), a copy
of each so-called management letter submitted to the Company or any of its
Subsidiaries by independent certified public accountants in connection with each
annual audit of the books of the Company and its Subsidiaries by such
accountants or in connection with any interim audit thereof pertaining to any
phase of the business of the Company or any such Subsidiary;
(d) concurrently with the delivery of each financial statement pursuant to
30
<PAGE> 36
subsections 5.1(a) and 5.1(b) and at any time reasonably requested by the Bank,
a completed compliance certificate substantially in the form of EXHIBIT B hereto
signed on behalf of the Company by an Authorized Officer;
(e) as soon as available to the Company and its Subsidiaries, but in any
event within 90 days after the end of each fiscal year, projections for the
Company and its consolidated Subsidiaries on a consolidating and consolidated
basis for the current fiscal year, including projected balance sheets, income
statements, cash flow statements and such other statements as the Bank may
reasonably request and in form and substance satisfactory to the Bank, all
prepared in good faith and based on assumptions which were reasonable when made;
(f) if and when the Company gives or is required to give notice to the PBGC
of any "Reportable Event" (as defined in Section 4043 of ERISA) with respect to
any Plan that might constitute grounds for a termination of such Plan under
Title IV of ERISA, or knows that any member of the Controlled Group or the plan
administrator of any Plan has given or is required to give notice of any such
Reportable Event, a copy of the notice of such Reportable Event given or
required to be given to the PBGC;
(g) immediately upon becoming aware of the existence of any condition or
event that constitutes a Default or Event of Default, written notice thereof
specifying the nature and duration thereof and the action being or proposed to
be taken with respect thereto;
(h) promptly upon becoming aware of any litigation or of any investigative
proceedings by a governmental agency or authority commenced or threatened
against the Company or any of its Subsidiaries of which it has notice, the
outcome of which would or might have a materially adverse effect on the assets,
business or prospects of the Company or the Company and its Subsidiaries on a
consolidated basis, written notice thereof and the action being or proposed to
be taken with respect thereto;
(i) promptly upon becoming aware of any investigative proceedings by a
governmental agency or authority commenced or threatened against the Company or
any of its Subsidiaries regarding any potential violation of Environmental Laws
or any spill, release, discharge or disposal of any Hazardous Material, written
notice thereof and the action being or proposed to be taken with respect
thereto;
(j) promptly after the same become available, copies of all proxy
statements and annual, quarterly and interim reports (excluding reports in
respect of the beneficial ownership of officers, directors and certain other
shareholders on Forms 3, 4 and 5 promulgated under the Securities Exchange Act
of 1934, as amended) as the Company shall send to shareholders or as the Company
may file
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with the Securities and Exchange Commission or any governmental authority at
any time having jurisdiction over the Company; and
(k) from time to time, such other financial data and information about the
Company or its Subsidiaries including, without limitation, a current aging of
Accounts, as the Bank may reasonably request.
5.2. Conduct of Business. Each of the Company and its Subsidiaries shall:
-------------------
(a) duly observe and comply in all material respects with all applicable
laws and valid requirements of any governmental authorities relative to its
corporate existence, rights and franchises, to the conduct of its business and
to its property and assets (including, without limitation, the Food, Drug and
Cosmetic Act, and all regulations promulgated by the FDA, all Environmental Laws
and ERISA), and shall maintain and keep in full force and effect all licenses
and permits necessary in any material respect to the proper conduct of its
business;
(b) maintain its corporate existence; and
(c) with respect to Sepracor, maintain its business in developing and
commercializing improved chemical entities and related products and services and
transacting related business; and with respect to SSC, maintain its business in
purchasing, selling, dealing in or holding securities on its own behalf and not
as a broker.
5.3. MAINTENANCE AND INSURANCE. Each of the Company and its Subsidiaries
shall maintain and keep its properties in good repair, working order and
condition, and from time to time make all needful improvements thereto so that
its business may be properly and advantageously conducted at all times. The
Company will maintain or cause to be maintained on all insurable properties now
or hereafter owned by the Company insurance against loss or damage by fire or
other casualty to the extent customary with respect to like properties of
companies conducting similar businesses and will maintain or cause to be
maintained, products liability, public liability and workmen's compensation
insurance insuring the Company to the extent customary with respect to companies
conducting similar businesses and, upon request, will furnish to the Bank
satisfactory evidence of the same. Each insurance policy pertaining to any of
the Collateral shall: (i) name the Bank as an insured pursuant to a so-called
"standard mortgagee clause"; (ii) provide that no action of the Company, or any
tenant or subtenant shall void such policy as to the Bank; and (iii) provide
that the Bank shall be notified of any proposed cancellation of such policy at
least thirty (30) days in advance of such proposed cancellation and will have
sufficient time to correct any deficiencies justifying such proposed
cancellation. All such policies shall be delivered to the Bank upon request. In
the event of a casualty loss, the Company may apply the
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<PAGE> 38
proceeds of any insurance to the restoration or replacement of the property or
asset which was the subject of such loss, PROVIDED that (A) the Company shall
have demonstrated to the reasonable satisfaction of the Bank that such property
or asset will be restored to substantially its previous condition or will be
replaced by a substantially identical property or asset, and (B) the Bank shall
have received, if requested by it, a favorable opinion from counsel for the
Company satisfactory in scope and form to the Bank, as to the Bank's having a
prior security interest in and valid first lien on such restored or replaced
property or asset.
5.4. TAXES. The Company shall pay or cause to be paid all taxes,
assessments or governmental charges on or against it or any of its Subsidiaries
or its or their properties on or prior to the time when they become due;
PROVIDED that this covenant shall not apply to any tax, assessment or charge
that is being contested in good faith by appropriate proceedings and with
respect to which adequate reserves have been established and are being
maintained in accordance with GAAP.
5.5. INSPECTION BY THE BANK. The Company shall permit the Bank or its
designees, at any reasonable time, and upon reasonable notice (or if a Default
or Event of Default shall have occurred and is continuing, at any time and
without prior notice), to (i) visit and inspect the properties of the Company
and its Subsidiaries, (ii) examine and make copies of and take abstracts from
the books and records of the Company and its Subsidiaries, (iii) discuss the
affairs, finances and accounts of the Company and its Subsidiaries with their
appropriate officers, employees and accountants, and (iv) to arrange for
verification of Accounts Receivable, under reasonable procedures, directly with
account debtors or by other methods; and shall do, make, execute and deliver all
such additional and further acts, things, deeds, assurances, and instruments as
the Bank may reasonably require more completely to vest in and assure to the
Bank its rights hereunder or in any Collateral and to carry into effect the
provisions and intent of this Agreement. In handling such information the Bank
shall exercise the same degree of care that it exercises with respect to its own
proprietary information of the same types to maintain the confidentiality of any
non-public information thereby received or received pursuant to Section 5 except
that disclosure of such information may be made (i) to the subsidiaries or
affiliates of the Bank in connection with their present or prospective business
relations with the Company and its Subsidiaries, (ii) to prospective transferees
or purchasers of an interest in the Revolving Loans if they agree to be bound by
the confidentiality obligations of this Section 5.5, (iii) as required by law,
regulation, rule or order, subpoena, judicial order or similar order and (iv) as
may be required in connection with the examination, audit or similar
investigation of the Bank.
5.6. MAINTENANCE OF BOOKS AND RECORDS. Each of the Company and its
Subsidiaries shall keep adequate books and records of account, in which true and
complete entries will be made reflecting all of its business and financial
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transactions, and such entries will be made in accordance with GAAP consistently
applied and applicable law.
5.7. MAINTENANCE OF ACCOUNTS. The Company and each of its U.S. Subsidiaries
will maintain its principal depository and operating accounts and cash
management services with the Bank at all times (except for Versicor which may
maintain its principal depository and operating accounts in California so long
as its principal place of business is located in California) and shall maintain
in such accounts sufficient funds to make all principal and interest payments
when due.
5.8. NEW ACCOUNTS AND INVESTMENTS. The Company will notify the Bank in
writing of any additions or changes in the ownership, location or relevant
account numbers of any depository and operating accounts with a balance equal to
or greater than $100,000 and marketable securities owned by the Company and its
Subsidiaries.
5.9. MINIMUM TANGIBLE CAPITAL BASE. The Company shall maintain at all times
a Tangible Capital Base of not less than $50,000,000.
5.10. MINIMUM CASH OR EQUIVALENTS. The Company shall maintain at all times
a Cash Equivalent Amount of not less than $40,000,000.
5.11. MINIMUM LIQUIDITY RATIO. At the end of each fiscal quarter, the Cash
Equivalent Amount of the Company shall be equal to or greater than 150% of its
Total Senior Liabilities.
5.12. MAXIMUM LEVERAGE. At the end of each fiscal quarter, the Total Senior
Liabilities of the Company shall be equal to or less than 100% of its Tangible
Capital Base.
5.13. FURTHER ASSURANCES. At any time and from time to time the Company
shall, and shall cause each of its Subsidiaries to, execute and deliver such
further instruments and take such further action as may reasonably be requested
by the Bank to effect the purposes of this Agreement and the Note.
SECTION 6.
----------
NEGATIVE COVENANTS
------------------
So long as the Bank has any commitment to lend hereunder or to deliver
Dollars or an Alternative Currency, as the case may be, under the Foreign
Exchange Facility or any Revolving Loan or other Obligation hereunder remains
outstanding, the Company covenants as follows:
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6.1. INDEBTEDNESS. Neither the Company nor any of its Subsidiaries shall
create, incur, assume, guarantee or be or remain liable with respect to any
Indebtedness other than the following:
(a) Indebtedness of the Company or any of its Subsidiaries to the Bank or
any of its Affiliates, including, without limitation, the Exchange Contract
Amount not in excess of the Foreign Exchange Facility Sublimit;
(b) Indebtedness existing as of the date hereof and disclosed in SCHEDULE
6.1 hereto and Guaranties disclosed on SCHEDULE 6.2 hereto and any refinancing
of such Indebtedness in amounts not exceeding the principal amount thereof and
on terms (including without limitation any subordination terms applicable
thereto) which are substantially the same as the terms of the refinanced
Indebtedness;
(c) Indebtedness of Sepracor to or from its Subsidiaries on the date hereof
so long as they remain Subsidiaries of Sepracor;
(d) Indebtedness of the Company to or from its Corporate Affiliates (except
for BioSepra and Versicor so long as they remain Subsidiaries of the Company) in
the aggregate principal amount outstanding at any time not in excess of
$10,000,000 and, with respect to each such Corporate Affiliate, not in excess of
$5,000,000 principal amount outstanding at any time;
(e) Indebtedness secured by Permitted Encumbrances;
(f) Indebtedness not in excess of 4,891,000 Canadian Dollars in respect of
Sepracor Canada Limited's obligation with respect to the Canadian Indebtedness
and the Company's guaranty of the Canadian Indebtedness and any refinancing of
such Indebtedness in amounts not exceeding the principal amount thereof and on
terms which are substantially the same terms as the terms of the refinanced
indebtedness;
(g) Indebtedness of BioSepra S.A., a wholly-owned Subsidiary of BioSepra,
to BNP Gennevilliers disclosed on SCHEDULE 6.1 hereto, and the refinancing of
such Indebtedness in amounts not exceeding the principal amount thereof and on
terms which are substantially the same as the terms of the refinanced
Indebtedness;
(h) Indebtedness in respect of Capital Leases and purchase money financing
for tangible property used in the Company's business in the aggregate principal
amount outstanding at any time not in excess of $5,000,000 LESS, with respect to
each of BioSepra and Versicor, any indebtedness in respect of Capital Leases and
purchase money financing for tangible property used in their businesses; and
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(i) Indebtedness of Biosepra, S.A. to the government of the Republic of
France or a French financial institution in the maximum principal amount of
22,725,000 French Francs incurred in connection with the construction of, the
purchase of equipment for, and the related expenses for, a new facility located
in the Paris/Cerge Pontise/Roissy Charles de Gaulle region of France.
6.2. CONTINGENT LIABILITIES. Neither the Company nor any of its
Subsidiaries shall create, incur, assume or remain liable with respect to any
Guaranties other than the following:
(a) Guaranties in favor of the Bank or any of its Affiliates; and
(b) Guaranties disclosed in SCHEDULE 6.2 hereto or in the financial
statements referred to in Section 4.6.
6.3. SALE AND LEASEBACK. Neither the Company nor any of its Subsidiaries
shall enter into any arrangement, directly or indirectly, whereby it shall sell
or transfer any property owned by it in order to lease such property or lease
other property that the Company or any such Subsidiary intends to use for
substantially the same purpose as the property being sold or transferred.
6.4. ENCUMBRANCES. Neither the Company nor any of its Subsidiaries shall
create, incur, assume or suffer to exist any mortgage, pledge, security
interest, lien or other charge or encumbrance, including the lien or retained
security title of a conditional vendor upon or with respect to any of its
property or assets ("ENCUMBRANCES"), or assign or otherwise convey any right to
receive income, including the sale or discount of accounts receivable with or
without recourse, except the following ("PERMITTED ENCUMBRANCES"):
(a) Encumbrances in favor of the Bank or any of its Affiliates;
(b) Encumbrances existing as of the date hereof and disclosed in SCHEDULE
6.4 hereto and securing any refinancing of Indebtedness provided that such
refinancing is permitted pursuant to Section 6.1(b);
(c) Encumbrances for purchase money obligations or Capital Leases permitted
pursuant to Section 6.1(f); PROVIDED that such Encumbrances shall not attach to
property and assets of the Company or any Subsidiary not purchased with the
proceeds of such purchase money obligations;
(d) liens for taxes, fees, assessments and other governmental charges to
the extent that payment of the same may be postponed or is not required in
accordance with the provisions of Section 5.4; and
(e) landlords' and lessors' liens in respect of rent not in default or
liens
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in respect of pledges or deposits under workmen's compensation, unemployment
insurance, social security laws, or similar legislation (other than ERISA) or in
connection with appeal and similar bonds incidental to litigation; mechanics',
laborers' and materialmen's and similar liens, if the obligations secured by
such liens are not then delinquent; liens securing the performance of bids,
tenders, contracts (other than for the payment of money); and statutory
obligations incidental to the conduct of its business and that do not in the
aggregate materially detract from the value of its property or materially impair
the use thereof in the operation of its business.
6.5. LINES OF BUSINESS. Neither the Company nor any Subsidiary will engage
in any line of business if as a result thereof the business of the Company and
its Subsidiaries taken as a whole would be materially different from what it was
on the date hereof.
6.6. MERGER; CONSOLIDATION; SALE OR LEASE OF ASSETS. Neither the Company
nor any of its Subsidiaries shall, without the prior written consent of the
Bank, sell, lease or otherwise dispose of assets or properties, other than sales
or leases of inventory in the ordinary course of business; or liquidate, merge
or consolidate into or with any other Person or entity, PROVIDED that any
Subsidiary of the Company may merge or consolidate into or with (i) the Company
if no Default or Event of Default has occurred and is continuing or would result
from such merger and if the Company is the surviving company or (ii) any other
wholly-owned Subsidiary of the Company.
6.7. ADDITIONAL STOCK ISSUANCE. The Company shall not permit any of its
Subsidiaries to issue any additional shares of such Subsidiary's capital stock
or other equity securities, any options therefor or any securities convertible
thereto other than to the Company; PROVIDED, that such Subsidiaries may issue
additional shares of its capital stock if after any such issuance the Company
has 50% or more of the ordinary voting power for the election of a majority of
the members of the board of directors or other governing body of such entity or
the Company has, at least, a 50% ownership interest.
6.8. RESTRICTED PAYMENTS. The Company will not directly or indirectly
declare, order, pay or make any Restricted Payment or set aside any sum or
property therefore if at the time of such proposed action or immediately after
giving effect thereto, any condition or event shall exist which constitutes a
Default or an Event of Default and unless such Restricted Payment is expressly
permitted by this Section 6.8.
Subject to the foregoing, the Company may (a) make any scheduled payment of
principal or interest on Subordinated Notes issued and outstanding on the date
of this Agreement in accordance with the subordination provisions for such
subordinated notes, (b) make payments under any Corporate Services
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Agreement, (c) make distributions of shares of its capital stock as stock splits
or stock dividends, and (d) make any other Restricted Payment in addition to
those referred to in the previous clause; PROVIDED, that in the last event the
Company shall have received the prior written consent of the Bank to such
proposed Restricted Payment.
The amount involved in any Restricted Payment declared, ordered, paid, made
or set apart in property shall be deemed to be the greater of the fair market
value thereof at the time of such distribution or payment (or the date of such
transaction, as the case may be), as determined in good faith by the Company, or
the net book value thereof on the books of the Company as at such time.
6.9. TRANSACTIONS WITH AFFILIATES. Except for Sepracor's Subsidiaries on
the date hereof so long as they remain Subsidiaries of Sepracor, the Company
will not, and will not permit any Corporate Affiliate to, directly or
indirectly, enter into any lease or other transaction with any shareholder or
with any Affiliate of the Company or such shareholder, on terms that are less
favorable to the Company or such Subsidiary than those which might be obtained
at the time from Persons who are not a shareholder or an Affiliate.
Notwithstanding the preceding sentence, the Company may (1) sublease its
facilities to BioSepra, Versicor and Hemasure; (2) enter into and perform the
Corporate Services Agreements, the Technology Transfer Agreements and the Cross
License Agreement, (3) enter into an amended and restated cross license
agreement replacing the Cross License Agreement if such amended and restated
agreement is in form and substance acceptable to the Bank and its counsel and
(4) engage in transactions expressly permitted by Sections 6.1, 6.6, and 6.7.
6.10. INVESTMENTS. Neither the Company nor any of its Subsidiaries shall
make or maintain any investments other than (i) existing and additional
investments in Subsidiaries on the date hereof so long as they remain
Subsidiaries of Sepracor, (ii) Qualified Investments, (iii) investments
consisting of foreign deposit accounts used for ordinary course working capital
purposes of the Company or its Subsidiaries; PROVIDED, that the aggregate
balance of foreign deposit accounts of Sepracor and its Subsidiaries shall not
at any time exceed $1,500,000 and (iv) investments in French Subsidiaries in
existence on or prior to December 28, 1994 but only to the extent such
investments are required for compliance with French statutory requirements
regarding corporate capitalization.
6.11. ERISA. Neither the Company nor any member of the Controlled Group
shall permit any Plan maintained by it to (i) engage in any "prohibited
transaction" (as defined in Section 4975 of the Code, (ii) incur any
"accumulated funding deficiency" (as defined in Section 302 of ERISA) whether or
not waived, or (iii) terminate any Plan in a manner that could result in the
imposition of a lien or encumbrance on the assets of the Company or any of its
Subsidiaries pursuant to Section 4068 of ERISA.
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6.12. OBSERVANCE OF SUBORDINATION PROVISIONS, ETC. The Company will not
make, or cause or permit to be made, any payments in respect of any Subordinated
Indebtedness in contravention of the subordination and other payment provisions
contained in the evidence of such Subordinated Indebtedness or in contravention
of any written agreement pertaining thereto, nor will the Company (a) amend,
modify or change in any manner any of such subordination or other payment
provisions without the prior written consent of the Bank or (b) amend, modify or
change in any manner adverse to the interests of the Bank any of the other
provisions set forth in the agreements under which such Subordinated
Indebtedness is outstanding or contained in the evidence of such Subordinated or
other Indebtedness.
SECTION 7.
----------
SECURITY
--------
7.1. SECURITY INTEREST. As security for the payment and performance of all
Obligations (including, without limitation, the Company's Obligations hereunder
and under the Guaranty Agreement (BioSepra) and the Guaranty Agreement
(Versicor), the Bank shall have and the Company hereby grants to the Bank a
continuing security interest in all property of the Company of every kind and
description, tangible or intangible, whether now or hereafter existing, whether
now owned or hereafter acquired, and wherever located, including but not limited
to the following (and together with all property in which the Bank may have a
security interest pursuant to any other security agreements, pledge agreements,
mortgages and other instruments creating a security interest in favor of the
Bank and securing the Obligations, collectively, the "COLLATERAL"): all
furniture, and similar property of the Company; all Accounts of the Company; all
contract rights of the Company; all other rights of the Company, including,
without limitation, amounts due from affiliates, tax refunds, and insurance
proceeds; all investment property (as defined in the Massachusetts Uniform
Commercial Code); all interest of the Company in goods or services as to which
an Account Receivable shall have arisen; all files, records (including, without
limitation, computer programs, tapes and related electronic data processing
software) and writings of the Company or in which it has an interest in any way
relating to the foregoing property; all goods, instruments, documents of title,
policies and certificates of insurance, securities, chattel paper, deposits,
cash or other property owned by the Company or in which it has an interest which
are now or may hereafter be in the possession of the Bank or as to which the
Bank may now or hereafter control possession by documents of title or otherwise;
all general intangibles of the Company (including, without limitation, all
patents, trademarks, trade names, service marks, copyrights and applications for
any of the foregoing; all rights to use patents, trademarks, trade names,
service marks, and copyrights of any Person and all trade secrets, know how and
other intellectual property rights (collectively "INTELLECTUAL PROPERTY"); and
any rights of the
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Company to retrieval from third parties of electronically processed and recorded
information pertaining to any of the types of collateral referred to in this
Section 7.1); any other property of the Company, real or personal, tangible or
intangible, in which the Bank now has or hereafter acquires a security interest
or which is now or may hereafter be in the possession of the Bank; any sums at
any time credited by or due from the Bank to the Company, including deposits;
and proceeds and products of all of the foregoing; PROVIDED THAT the Bank shall
not be deemed to have a security interest in any technology license entered into
by the Company and any third party other than an Affiliate or Subsidiary of the
Company prior to December 28, 1994 if the granting of such security interest by
the Company would be a violation of such technology license. The provisions of
this Section 7.1 applicable to general intangibles consisting of Intellectual
Property are supplemented by the provisions of the Intellectual Property
Security Agreement and any conflict between the provisions of this Agreement as
applicable to such general intangibles and the Intellectual Property Security
Agreement shall be resolved in favor of such Intellectual Property Security
Agreement.
7.2. LOCATION OF RECORDS AND COLLATERAL; NAME CHANGE. The Company shall
give the Bank written notice of each location at which Collateral is or will be
kept and of each office of the Company at which the records pertaining to its
Accounts Receivable and contract rights are kept. Except as such notice is
given, all Collateral is and shall be kept at 33 and 111 Locke Drive,
Marlborough, Massachusetts 01752, and all records of the Company pertaining to
Accounts and contract rights are and shall be kept at the Company's chief
executive offices at 111 Locke Drive, Marlborough, Massachusetts 01752 or at the
Bank. The Company shall give the Bank thirty (30) days, prior written notice of
any change in the name or corporate form of the Company or any change in the
name under which the Company's business is transacted.
7.3. STATUS OF COLLATERAL. As of the date hereof, the Company has good and
marketable title to all of its properties, assets and rights of every name and
nature now purported to be owned by it, including, without limitation, the
Collateral, free from all liens, charges and encumbrances whatsoever, except as
disclosed on SCHEDULE 6.4 hereof. At the time the Company pledges, sells,
assigns or transfers to the Bank any instrument, document of title, security,
chattel paper or other property (including Inventory, contract rights and
Accounts) or any proceeds or products thereof, or any interest therein, the
Company shall be the lawful owner thereof and shall have good right to pledge,
sell, assign or transfer the same; none of such property shall have been
pledged, sold, assigned or transferred to any Person other than the Bank or in
any way encumbered, except as disclosed in SCHEDULE 6.4 of this Agreement; and
the Company shall defend the same against the claims and demands of all Persons.
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SECTION 8.
----------
DEFAULTS
--------
8.1. EVENTS OF DEFAULT. There shall be an Event of Default hereunder if any
of the following events occurs:
(a) the Company shall fail to pay when due (i) any amount of principal of
any Revolving Loans, or (ii) any amount of interest thereon; or
(b) the Company shall fail to pay within three (3) days after receipt of
notice from the Bank any fees or expenses payable hereunder or under the Note;
or
(c) the Company shall fail to perform any term, covenant or agreement
contained in Sections 5 (except Section 5.3) or 6, Sepracor shall fail to
perform any term, covenant or agreement contained in the Intellectual Property
Security Agreement or SSC shall fail to perform any term, covenant or agreement
contained in the Investment Property Security Agreement or the Account Control
Agreement; or
(d) the Company shall fail to perform any term, covenant or agreement
(other than those referred to above in this Section 8.1) contained in this
Agreement and such default shall continue for twenty (20) days; or
(e) any representation or warranty of the Company made in this Agreement or
in the Note, or by Sepracor in the Intellectual Property Security Agreement or
by SSC in the Investment Property Security Agreement or the Account Control
Agreement, or by Sepracor or SSC in any other documents or agreements executed
in connection with the transactions contemplated by this Agreement or in any
certificate delivered hereunder shall prove to have been false in any material
respect upon the date when made or deemed to have been made; or
(f) the failure to pay at maturity, or within any applicable period of
grace, any obligations of the Company in excess of Five Hundred Thousand Dollars
($500,000) in the aggregate for borrowed monies or advances, or for the use of
real or personal property, or fail to observe or perform any term, covenant or
agreement evidencing or securing such obligations, the result of which failure
is to permit the holder or holders of such indebtedness to cause such
indebtedness to become due prior to its stated maturity upon delivery of
required notice, if any; or
(g) Sepracor or SSC shall default in any payment due on any Indebtedness in
respect of borrowed money, any Capital Lease or the deferred
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purchase price of property with an outstanding principal amount in excess of
Five Hundred Thousand Dollars ($500,000) and such default shall continue for
more than the period of grace, if any, specified therein and shall not have been
waived pursuant thereto; or
(h) Sepracor or any of its Subsidiaries shall (i) apply for or consent to
the appointment of, or the taking of possession by, a receiver, custodian,
trustee, liquidator or similar official of itself or of all or a substantial
part of its property, (ii) be generally not paying its debts as such debts
become due, (iii) make a general assignment for the benefit of its creditors,
(iv) commence a voluntary case under the Federal Bankruptcy Code (as now or
hereafter in effect), (v) take any action or commence any case or proceeding, as
debtor, under any law relating to bankruptcy, insolvency, reorganization,
winding-up or composition or adjustment of debts, or any other law providing for
the relief of debtors, (vi) fail to contest in a timely or appropriate manner,
or acquiesce in writing to, any petition filed against it in an involuntary case
under the Federal Bankruptcy Code or other law, (vii) take any action under the
laws of its jurisdiction of incorporation or organization similar to any of the
foregoing, or (viii) take any corporate action for the purpose of effecting any
of the foregoing; or
(i) a proceeding or case shall be commenced, without the application or
consent of Sepracor or any of its Subsidiaries in any court of competent
jurisdiction, seeking (i) the liquidation, reorganization, dissolution, winding
up, or composition or readjustment of its debts, (ii) the appointment of a
trustee, receiver, custodian, liquidator or the like of it or of all or any
substantial part of its assets, or (iii) similar relief in respect of it, under
any law relating to bankruptcy, insolvency, reorganization, winding-up or
composition or adjustment of debts or any other law providing for the relief of
debtors, and such proceeding or case shall continue undismissed, or unstayed and
in effect, for a period of 60 days; or an order for relief shall be entered in
an involuntary case under the Federal Bankruptcy Code, against Sepracor or such
Subsidiary; or action under the laws of the jurisdiction of incorporation or
organization of Sepracor or any of its Subsidiaries similar to any of the
foregoing shall be taken with respect to Sepracor or such Subsidiary and shall
continue unstayed and in effect for any period of 60 days; or
(j) a judgment or order for the payment of money shall be entered against
the Company or any of its Subsidiaries by any court, or a warrant of attachment
or execution or similar process shall be issued or levied against property of
the Company or such Subsidiary, that in the aggregate exceeds Five Hundred
Thousand Dollars ($500,000) in value and such judgment, order, warrant or
process shall continue undischarged or unstayed for 30 days; or
(k) the Company or any member of the Controlled Group shall fail to pay
when due an amount or amounts aggregating in excess of Fifty Thousand
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<PAGE> 48
Dollars ($50,000) that it shall have become liable to pay to the PBGC or to a
Plan under Title IV of ERISA; or notice of intent to terminate a Plan or Plans
shall be filed under Title IV of ERISA by the Company, any member of the
Controlled Group, any plan administrator or any combination of the foregoing; or
the PBGC shall institute proceedings under Title IV of ERISA to terminate or to
cause a trustee to be appointed to administer any such Plan or Plans or a
proceeding shall be instituted by a fiduciary of any such Plan or Plans against
the Company and such proceedings shall not have been dismissed within 30 days
thereafter; or a condition shall exist by reason of which the PBGC would be
entitled to obtain a decree adjudicating that any such Plan or Plans must be
terminated; or
(l) the Company shall cease to own directly at least 51% of the issued and
outstanding shares of the capital stock of each of BioSepra and Versicor having
ordinary voting power to elect a majority of the boards of directors of such
corporations; or
(m) a final nonappealable judgment shall be entered against BioSepra or the
Company by any court with respect to any patent litigation involving HyperD
chromatography media or BioSepra or the Company shall have entered into a
settlement in respect of any such litigation, which, in either case would have a
material adverse affect on the Company; or
(n) the termination, expiration or non-renewal of any license or other
Material Agreement which termination, expiration or non-renewal has a material
adverse effect on the existing business or prospects of the Company; or
(o) the Company shall fail to perform with respect to any material term,
covenant or agreement of any Alternative Currency Commitment.
8.2. REMEDIES. Upon the occurrence of an Event of Default described in
Sections 8.1(h) and 8.1(i), immediately and automatically, and upon the
occurrence of any other Event of Default, at any time thereafter while such
Event of Default is continuing, at the Bank's option and upon the Bank's
declaration:
(a) the Bank's commitment to make any further Revolving Loans hereunder and
to deliver Dollars or an Alternative Currency under any Alternative Currency
Commitment or under the Foreign Exchange Facility, generally, shall terminate;
(b) the unpaid principal amount of the Revolving Loans together with
accrued interest and all other Obligations hereunder shall become immediately
due and payable, including the unpaid principal amount of any Revolving Loan
subject to an exercised LIBOR Option together with accrued interest thereon and
the related LIBOR Premium in the same manner as though the Company had exercised
its right to prepayment pursuant to Section 2.6 of this Agreement,
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without presentment, demand, protest or further notice of any kind, all of which
are hereby expressly waived; and
(c) the Bank may exercise any and all rights it has under this Agreement,
the Note or any other documents or agreements executed in connection herewith,
or at law or in equity, and proceed to protect and enforce the Bank's rights by
any action at law, in equity or other appropriate proceeding.
(d) Upon the occurrence of any Event of Default and at any time thereafter
(unless such Event of Default shall theretofore have been remedied), at the
Bank's option: (i) the Bank shall thereupon be relieved of all of its
obligations to make any Revolving Loans hereunder; (ii) the Bank shall thereupon
be relieved of all of its obligations with respect to Alternative Currency
Commitments or under the Foreign Exchange Facility, generally; (iii) the unpaid
principal amount of the Note together with accrued interest thereon and all
other Obligations shall become immediately due and payable without presentment,
demand, protest or notice of any kind, all of which are hereby expressly waived;
and (iv) the Bank may exercise any and all rights it has under this Agreement,
the Note, the Intellectual Property Security Agreement or any other documents or
agreements executed in connection with the transactions contemplated by this
Agreement (the "LOAN DOCUMENTS"), or by law or equity, and proceed to protect
and enforce the Bank's rights by any action at law, suit in equity or other
appropriate proceeding, whether for specific performance or for an injunction
against a violation of any covenant contained herein or in any Loan Document or
in aid of the exercise of any power granted hereby or thereby or by law.
(e) Without limiting the rights of the Company set forth in this Section
8.2 above, upon the occurrence of any Event of Default and at any time
thereafter (such default not having been cured), the Bank shall have the right
to take immediate possession of the Collateral, and for that purpose the Bank
may, so far as the Company can give authority therefor, enter upon any premises
on which the Collateral may be situated and remove the same therefrom. The
Company waives demand and notice with respect to and assents to any repossession
of the Collateral. The Bank may dispose of the Collateral in any order and in
any manner it chooses and may refrain from the sale of any real property, held
as the Collateral, until the sale of personal property. Except for the
Collateral which is perishable or threatens to decline speedily in value or
which is of a type customarily sold on a recognized market, the Bank shall give
to the Company at least ten (10) days' prior written notice of the time and
place of any public sale of the Collateral or of the time after which any
private sale or any other intended disposition is to be made. The residue of any
proceeds of collection or sale, after satisfying all Obligations in such order
of preference as the Bank may determine and making proper allowance for interest
on Obligations not then due, shall be credited to any deposit account which the
Company may maintain with the Bank, or, if there is no such account, held
pending instructions from the Company.
44
<PAGE> 50
The Company shall remain liable for any deficiency.
(f) The Bank may at any time in its sole discretion (after an Event of
Default has occurred) transfer any securities or other property constituting the
Collateral into its own name or that of its nominee and receive the income
thereon and hold the same as security for Obligations or apply it on principal
or interest due on Obligations. Insofar as the Collateral shall consist of
Accounts or instruments, the Bank may, upon the occurrence of an Event of
Default, without notice to or demand on the Company, demand and collect such
Collateral as the Bank may determine. For the purpose of realizing the Bank's
rights therein, the Bank may receive, open and dispose of mail addressed to the
Company and endorse notes, checks, drafts, money orders, documents of title or
other evidences of payment, shipment or storage or any form of Collateral on
behalf of and in the name of the Company. The powers conferred on the Bank by
this Section are solely to protect the interest of the Bank and shall not impose
any duties on the Bank to exercise any powers.
(g) In addition to all other rights and remedies provided hereunder or by
law, the Bank shall have in any jurisdiction where enforcement of this Agreement
is sought the rights and remedies of a secured party under the Uniform
Commercial Code of Massachusetts.
SECTION 9.
----------
MISCELLANEOUS
-------------
9.1. NOTICES. Unless otherwise specified herein, all notices hereunder to
any party hereto shall be in writing and shall be deemed to have been given when
delivered by hand, or three (3) days after being properly deposited in the mails
postage prepaid, or when sent by telex, answerback received, or electronic
facsimile transmission, or when delivered to the telegraph company or overnight
courier, addressed to such party at its address indicated below:
If to the Company, at
Sepracor Inc.
111 Locke Drive
Marlborough, Massachusetts 01752
Attention: Robert F. Scumaci
45
<PAGE> 51
Senior Vice President Finance and Administration
Fax No.: 508-357-7494
If to the Bank, at
Fleet National Bank
75 State Street
Boston, Massachusetts 02109
Attention: Kimberly A. Martone
Vice President
Fax No.: 617-346-1633
or at any other address specified by such party in writing.
9.2. EXPENSES. The Company will pay on demand all expenses of the Bank in
connection with the preparation, waiver or amendment of this Agreement, the
Note, or other documents executed in connection therewith, or the
administration, default or collection of the Revolving Loans or other
Obligations, or collection of amounts due with respect to Alternative Currency
Commitments or the Foreign Exchange Facility, or in connection with the Bank's
exercise, preservation or enforcement of any of its rights, remedies or options
thereunder, including, without limitation, reasonable fees and disbursements of
outside legal counsel or accounting, consulting, brokerage or other similar
professional fees or expenses, and any fees or expenses associated with any
travel or other costs relating to any appraisals or examinations conducted in
connection with the Obligations or any Collateral therefor, and the amount of
all such expenses shall, until paid, bear interest at the rate applicable to
principal hereunder (including any default rate).
9.3. SET-OFF. Regardless of the adequacy of any Collateral or other means
of obtaining repayment of the Obligations any deposits, balances or other sums
credited by or due from the head office of the Bank or any of its branch offices
to the Company may, at any time and from time to time after the occurrence of an
Event of Default hereunder, without notice to the Company or compliance with any
other condition precedent now or hereafter imposed by statute, rule of law, or
otherwise (all of which are hereby expressly waived) be set off, appropriated,
and applied by the Bank against any and all Obligations of the Company to the
Bank or any of its affiliates in such manner as the head office of the Bank or
any of its branch offices in their sole discretion may determine, and the
Company hereby grants the Bank a continuing security interest in such deposits,
balances or other sums for the payment and performance of all such obligations.
9.4. TERM OF AGREEMENT. This Agreement shall continue in force and effect
so long as the Bank has any commitment to make Revolving Loans hereunder or any
Revolving Loan or any Obligation hereunder shall be
46
<PAGE> 52
outstanding.
9.5. NO WAIVERS. No failure or delay by the Bank in exercising any right,
power or privilege hereunder or under the Note or under any other documents or
agreements executed in connection herewith shall operate as a waiver thereof;
nor shall any single or partial exercise thereof preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. The
rights and remedies herein and in the Note provided are cumulative and not
exclusive of any rights or remedies otherwise provided by agreement or law.
9.6. GOVERNING LAW; JURISDICTION. This Agreement and the Note shall be
deemed to be contracts made under seal and shall be construed in accordance with
and governed by the laws of Massachusetts (without giving effect to any
conflicts of laws provisions contained therein). The Company, to the extent that
it may lawfully do so, hereby consents to the jurisdiction of the courts of the
Commonwealth of Massachusetts and the United States District Court for the
District of Massachusetts, as well as to the jurisdiction of all courts to which
an appeal may be taken from such courts, for the purpose of any suit, action or
other proceeding arising out of any of its obligations hereunder or with respect
to the transactions contemplated hereby, and expressly waives any and all
objections it may have as to venue in any such courts. The Company further
agrees that a summons and complaint commencing an action or proceeding in any of
such courts shall be properly served and shall confer personal jurisdiction if
served personally or by certified mail to it at its address provided in Section
9.1 of this Agreement or as otherwise provided under the laws of the
Commonwealth of Massachusetts.
9.7. AMENDMENTS. Neither this Agreement nor the Note nor any provision of
this Agreement or thereof may be amended, waived, discharged or terminated
except by a written instrument signed by the Bank and, in the case of
amendments, by the Company.
9.8. BINDING EFFECT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS. (a) This
Agreement shall be binding upon and inure to the benefit of the Company and the
Bank and their respective successors and assigns; PROVIDED that the Company may
not assign or transfer its rights or obligations hereunder.
(b) Assignments by the Bank. From and after the date hereof, the Bank may
at any time assign all, or a proportionate part of all, of its rights, interests
and duties with respect to the Revolving Commitment Amount and the Note (1) to
any one or more of its Affiliates without the consent or approval of the Company
or (2) to one or more banks or other financial institutions with the consent of
the Company which consent shall not be unreasonably withheld (each assignee
under clauses (1) and (2), an "Assignee"), in each case on such terms, as
between the Bank and each of its Assignees, as the Bank may think fit, and such
47
<PAGE> 53
Assignee shall assume such rights, interests and duties pursuant to an
instrument executed by such Assignee and the Bank, and for this purpose the Bank
may make available to each of its potential Assignees such information relating
to the Company, this Agreement and the transactions contemplated hereby as the
Bank may think necessary or desirable, which information shall be held by each
potential Assignee strictly in confidence. Upon execution and delivery of such
an instrument and payment by such Assignee to the Bank of an amount equal to the
purchase price agreed between the Bank and such Assignee, such Assignee shall be
a Bank party to this Agreement and shall have all the rights, interests and
duties of a Bank with a Revolving Commitment Amount and Revolving Loan as set
forth in such instrument of assumption, and the Bank shall be released from its
obligations hereunder to a corresponding extent, and no further consent or
action by any party shall be required. Upon the consummation of any assignment
pursuant to this paragraph (i), the Bank and the Company shall make appropriate
arrangements so that, if required, a new Note is issued to the Assignee.
(c) PARTICIPATIONS BY THE BANK. From and after the date hereof, the Bank
shall be at liberty to offer the participations in the Revolving Commitment
Amount and the Note to one or more banks or other financial institutions on such
terms as the Bank may think fit, and for this purpose the Bank may make
available to each of its potential participants such information relating to the
Company, this Agreement and the transactions contemplated hereby as the Bank may
think necessary or desirable, which information shall be held by each potential
participant strictly in confidence; PROVIDED, that the Bank shall not offer any
participations to foreign banks or financial institutions without the prior
written consent of the Company; PROVIDED FURTHER, that the Bank shall retain the
sole right to consent to amendments to, or waivers of, the provisions of this
Agreement and the Note and the sole right and responsibility to enforce the
obligations of the Company hereunder and under the Note; PROVIDED FURTHER, that
the Bank may agree with each of its participants that the Bank will not agree,
without the consent of the participant, to any amendment or waiver of any
provision of this Agreement which would increase or otherwise change such
Revolving Commitment Amount or reduce the principal of or rate of interest on
the Revolving Loans subject to such participation, or postpone the date fixed
for any payment of principal or of interest on any Revolving Loans.
9.9. AMENDMENT AND TERMINATION OF PRIOR LOAN AGREEMENT. Upon the execution
and delivery of this Agreement, (i) Section 1.1 of the Prior Loan Agreement
shall be amended to change the "Revolving Credit Termination Date to "December
31, 1996," and (ii) the Prior Loan Agreement shall be terminated and of no
further force and effect except for the obligation of the Company to pay any and
all of its obligations incurred thereunder or in respect thereof (including the
payment of the entire unpaid amount of principal of, if any, and accrued
interest on the Prior Loans and the payment in full of all fees and expenses
provided for in the Prior Loan Agreement) and except for the continuation of the
Bank's security
48
<PAGE> 54
interest in the Collateral as provided herein and in the other Loan Documents
which security interest is hereby acknowledged and confirmed.
9.10. CURRENCY CONVERSION. If, for the purpose of obtaining or enforcing
judgment in any court or for any other purpose hereunder it is necessary to
convert an amount due hereunder in the currency in which it is due (the
"ORIGINAL CURRENCY") into another currency (the "SECOND CURRENCY") the rate of
exchange applied shall be that at which, in accordance with normal banking
procedures, the Bank could purchase, in the United States money market or the
United States foreign exchange market (the "MONEY MARKETS"), as the case may be,
the Original Currency with the Second Currency on the Business Day on which
judgment is given or the amount is due. The Company agrees that its obligations
in respect of any amounts due from it to the Bank, in the Original Currency
hereunder shall, notwithstanding any judgment expressed or payment made in the
Second Currency, be discharged only to the extent that on the Business Day
following receipt of any sums so paid or adjudged to be due hereunder in the
Second Currency, the Bank may, in accordance with normal banking procedure
purchase, in the appropriate Money Market, the Original Currency with the amount
of the Second Currency so paid or so adjudged to be due; and if the amount of
the Original Currency so purchased is less than the amount originally due in the
Original Currency, the Company agrees as a separate obligation, and
notwithstanding any such payment or judgment to indemnify the Bank.
9.11. COUNTERPARTS. This Agreement may be signed in any number of
counterparts with the same effect as if the signatures hereto and thereto were
upon the same instrument.
9.12. PARTIAL INVALIDITY. The invalidity or unenforceability of any one or
more phrases, clauses or sections of this Agreement shall not affect the
validity or enforceability of the remaining portions of it.
9.13. CAPTIONS. The captions and headings of the various sections and
subsections of this Agreement are provided for convenience only and shall not be
construed to modify the meaning of such sections or subsections.
9.14. WAIVER OF JURY TRIAL. THE BANK AND THE COMPANY AGREE THAT NEITHER OF
THEM NOR ANY ASSIGNEE OR SUCCESSOR SHALL (A) SEEK A JURY TRIAL IN ANY LAWSUIT,
PROCEEDING, COUNTERCLAIM OR ANY OTHER ACTION BASED UPON, OR ARISING OUT OF, THIS
AGREEMENT, ANY RELATED INSTRUMENTS, ANY COLLATERAL OR THE DEALINGS OR THE
RELATIONSHIP BETWEEN OR AMONG ANY OF THEM, OR (B) SEEK TO CONSOLIDATE ANY SUCH
ACTION WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN
WAIVED. THE PROVISIONS OF THIS PARAGRAPH HAVE BEEN FULLY DISCUSSED BY THE BANK
AND THE COMPANY, AND THESE PROVISIONS SHALL BE SUBJECT TO NO EXCEPTIONS. NEITHER
THE BANK NOR THE COMPANY HAS
49
<PAGE> 55
AGREED WITH OR REPRESENTED TO THE OTHER THAT THE PROVISIONS OF THIS PARAGRAPH
WILL NOT BE FULLY ENFORCED IN ALL INSTANCES.
9.15. ENTIRE AGREEMENT. This Agreement, the Note and the documents and
agreements executed in connection herewith constitute the final agreement of the
parties hereto and supersede any prior agreement or understanding, written or
oral, with respect to the matters contained herein and therein.
50
<PAGE> 56
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized officers as of the day and year first above written.
SEPRACOR INC.
By: /s/ Robert F. Scumaci
-------------------------------
Name: Robert F. Scumaci
Title: Senior Vice President Finance
and Administration
SEPRACOR SECURITIES CORPORATION
By: /s/ Robert F. Scumaci
--------------------------------
Name: Robert F. Scumaci
Title: Treasurer
FLEET NATIONAL BANK
By: /s/ Kimberly A. Martone
---------------------------------
Name: Kimberly A. Martone
Title: Vice President
51
<PAGE> 57
EXHIBIT A
FORM OF
SEPRACOR INC.
SEPRACOR SECURITIES CORPORATION
AMENDED AND RESTATED PROMISSORY NOTE
December 31, 1996
$10,000,000 Boston, Massachusetts
For value received, the undersigned hereby jointly and severally promise to
pay to FLEET NATIONAL BANK (the "BANK"), or order, at the head office of the
Bank at 75 State Street, Boston, Massachusetts 02109, the principal amount of
TEN MILLION DOLLARS ($10,000,000) or such lesser amount as shall equal the
principal amount outstanding hereunder on April 30, 1999 or such earlier date as
provided in the Agreement (as defined below) in lawful money of the United
States of America and in immediately available funds, and to pay interest on the
unpaid principal balance hereof from time to time outstanding, at said office
and in like money and funds, for the period commencing on the date hereof until
paid in full, at the rates per annum and on the dates provided in the Agreement.
Upon the occurrence and during the continuance of an Event of Default,
interest on the unpaid principal amount hereof and (to the extent permitted by
law) on unpaid interest shall thereafter be payable on demand at a rate per
annum equal to two percent (2%) above the interest rate otherwise in effect with
respect to such Revolving Loans. Upon the cure of an Event of Default and the
payment of interest at the default rate through the date of such cure, the
interest rate shall revert to that provided for in the Agreement.
If the entire amount of any required principal and/or interest is not paid
in full within ten (10) days after the same is due, the undersigned shall pay to
the Bank a late fee equal to five percent (5%) of the required payment;
PROVIDED, that such late fee shall be reduced to three percent (3%) of any
required principal and interest payment that is not paid within fifteen (15)
days of the date it is due if this Note is secured by a mortgage on an
owner-occupied residence, 1-4 units. Nothing in the preceding sentence shall
affect the Bank's rights to exercise any of its rights and remedies provided in
the Agreement (as defined below) if an Event of Default (as defined in the
Agreement) has occurred.
This Note is issued pursuant to, and entitled to the benefits of, and is
subject to, the provisions of a certain Amended and Restated Revolving Credit
and Security Agreement dated as of December 31, 1996, by and between the
undersigned and the Bank (herein, as the same may from time to time be amended
or extended, referred to as the "AGREEMENT"), but neither this reference to the
Agreement nor any provision thereof shall affect or impair the absolute and
<PAGE> 58
unconditional obligation of the undersigned makers of this Note to pay the
principal of and interest on this Note as herein provided.
As provided in the Agreement, this Note is secured by certain assets of the
undersigned.
In case an Event of Default (as defined in the Agreement) shall occur, the
aggregate unpaid principal of and accrued interest on this Note shall become or
may be declared to be due and payable in the manner and with the effect provided
in the Agreement.
The undersigned may at its option prepay all or any part of the principal
of this Note before maturity upon the terms provided in the Agreement, and this
Note is subject to mandatory prepayment in certain circumstances, which
repayment shall in certain cases require the payment of a premium and in certain
cases not require the payment of a premium.
The undersigned makers hereby waive presentment, demand, notice of
dishonor, protest and all other demands and notices in connection with the
delivery, acceptance, performance and enforcement of this Note.
This instrument shall have the effect of an instrument executed under seal
and shall be governed by and construed in accordance with the laws of the
Commonwealth of Massachusetts (without giving effect to any conflicts of laws
provisions contained therein).
SEPRACOR INC.
By:
--------------------------------------
Name: Robert F. Scumaci
Title: Senior Vice President Finance and
Administration
SEPRACOR SECURITIES CORPORATION
By:
--------------------------------------
Name: Robert F. Scumaci
Title:
<PAGE> 59
SCHEDULE I TO PROMISSORY NOTE
AMOUNT OF INTEREST AMOUNT NOTATION
DATE REVOLVING RATE PAID MADE BY
LOAN
<PAGE> 60
EXHIBIT B
COMPLIANCE CERTIFICATE
----------------------
Fleet National Bank
75 State Street
Boston, Massachusetts 02109
Attention: Kimberly A. Martone
Vice President
Ladies and Gentlemen:
As required by Section 5.1(c) of the Amended and Restated Revolving Credit
and Security Agreement dated as of December 31, 1996 (the "CREDIT AGREEMENT") by
and among Sepracor Inc. and Sepracor Securities Corporation (collectively, the
"COMPANY") and Fleet National Bank (the "BANK"), a review of the activities of
the Company for the fiscal year and/or fiscal quarter ending ___________, 19___
(the "FISCAL PERIOD") has been made under my supervision to determine whether
the Company has performed and/or maintained all of its respective obligations
under the Credit Agreement. Based upon such review, I hereby certify to you, as
an Authorized Officer of the Company, that the Company has performed and
maintained all such obligations under the Credit Agreement, the Note and the
Loan Documents for the Fiscal Period and, to the best of my knowledge, no event
has occurred that constitutes a Default or an Event of Default as defined in the
Credit Agreement. Other capitalized terms used herein without definition have
the same meanings as in the Credit Agreement.
As required by Section [5.1(a)][5.1(b)] of the Credit Agreement financial
statements of the Company (the "FINANCIAL STATEMENTS") for the Fiscal Period and
other information required by such sections accompany this certificate. The
Financial Statements present fairly the financial position of the Company as of
the date thereof and the statements of operation of the Company for the Fiscal
Period covered thereby.
I further certify to you, as an Authorized Officer of the Company, that the
figures set forth below accurately represent amounts required to be calculated
under the various provisions or covenants of the Credit Agreement indicated,
each as of the last day of the Fiscal Period unless otherwise indicated.
Dated: , 199
--------- -- -- ------------------------------
Title:
<PAGE> 61
I. Section 5.9 - Minimum Tangible Capital Base
-------------------------------------------
(1) Stockholders' equity $
------------
(2) Subordinated Indebtedness $
------------
(3) Goodwill $
------------
(4) Intangible items $
------------
(5) Reserves not already deducted from assets $
------------
(6) Write-ups from revaluations $
------------
(7) Equity in Subsidiaries or joint ventures $
------------
(8) Actual Tangible Capital Base $
(1 + 2) - (sum of 3 through 7) ------------
Required Minimum Tangible Capital Base: $50,000,000
II. Section 5.10 - Minimum Cash or Equivalents
------------------------------------------
A. Qualified Investments held in the U.S.
--------------------------------------
(9) Obligations of the United
States of America held in the U.S. $
------------
(10) Certificates of deposit, other
deposit instruments, bank accounts
held in the U.S. $
------------
(11) Commercial Paper held in the U.S.
(see definition
of Qualified Investments) $
------------
(12) Mutual/closed end funds that invest
only in investments set forth
in clauses (9) through (11) $
------------
(13) Repurchase agreements secured by
any one or more of the
foregoing held in the U.S. $
------------
<PAGE> 62
(14) Qualified Investments: $
(sum of 9 through 13) ------------
B. Net Outstanding Amount of Base Accounts
---------------------------------------
(15) Base Accounts $
------------
(16) Ineligible as of ________________1
(i) over 60 days from invoice date $
------------
(ii) Accounts outside of US $
------------
(iii) Accounts due from Affiliates $
------------
(iv) Prepayments $
------------
(v) Uninvoiced Accounts $
------------
(vi) Joint venture accounts $
------------
(17) Ineligible Accounts $
(sum of 16(i through v)) ------------
(18) Contra Account offsets $
------------
(19) Net Outstanding Amount of Base Accounts $
(15 - 17 - 18) ------------
C. Cash Equivalent Amount
----------------------
(20) Unencumbered Cash held in the United States $
------------
(21) Qualified Investments (from (14)) $
------------
(22) Net Outstanding Amount of Base Accounts $
(from (19)) ------------
(23) Actual Cash Equivalent Amount $
(20 + 21 + 22) ------------
Required Minimum Cash Equivalent Amount $40,000,000
- ------------------------
1 Ineligible calculated monthly
<PAGE> 63
III. Section 5.11 - Minimum Liquidity Ratio
--------------------------------------
A. Total Senior Liabilities
------------------------
(24) Total Indebtedness $
------------
(25) Subordinated Indebtedness $
------------
(26) Total Senior Liabilities $
(24 - 25) ------------
B. Liquidity Ratio
---------------
(27) Cash Equivalent Amount
(from (23) above) $
------------
(28) Total Senior Liabilities $
------------
(29) Actual Liquidity Ratio %
(27/28) ------------
Required Minimum Liquidity Ratio: 150%
IV. Section 5.12 - Maximum Leverage
-------------------------------
A. Total Senior Liabilities
------------------------
(30) Total Senior Liabilities $
(same as line 28) ------------
(31) Tangible Capital Base $
(same as line 8) ------------
(32) Actual Maximum Leverage %
(24 - 25) ------------
Permitted Maximum Leverage: 100%
Dated: , 199
--------- -- -- -------------------------
Title:
<PAGE> 64
SCHEDULE 4.10
MATERIAL AGREEMENTS
[To be furnished by the Company]
------------------------------------
SCHEDULE 4.11
MATERIAL LICENSES
[To be furnished by the Company]
------------------------------------
SCHEDULE 4.12
LITIGATION
[To be furnished by the Company]
------------------------------------
SCHEDULE 4.15
EXISTING INVESTMENTS
[To be furnished by the Company]
------------------------------------
SCHEDULE 4.16
SUBSIDIARIES
[To be furnished by the Company]
------------------------------------
SCHEDULE 6.1
EXISTING INDEBTEDNESS
[To be furnished by the Company]
<PAGE> 65
SCHEDULE 6.2
EXISTING GUARANTIES
[To be furnished by the Company]
------------------------------------
SCHEDULE 6.4
EXISTING ENCUMBRANCES
[To be furnished by the Company]
<PAGE> 1
Exhibit 10.25
-------------
CONFIRMATION OF AND AMENDMENT TO
INTELLECTUAL PROPERTY SECURITY AGREEMENT
THIS AGREEMENT, dated as of the ___ day of February 1997, by and between
SEPRACOR INC., a Delaware corporation having its principal place of business at
111 Locke Drive, Marlborough, Massachusetts 01752 ("Pledgor"), in favor of FLEET
NATIONAL BANK, formerly known as Fleet National Bank of Connecticut, successor
by merger to Fleet Bank of Massachusetts, N.A., having an office at 75 State
Street, Boston, Massachusetts 02109 (the "Bank").
WHEREAS, the Bank has made certain loans (the "Original Loans") to the
Pledgor pursuant to the terms of a Revolving Credit and Security Agreement dated
as of December 28, 1994 (the "Original Credit Agreement");
WHEREAS, as collateral security for the Original Loans, the Pledgor entered
into an Intellectual Property Security Agreement with the Bank dated as of
December 28, 1994 (as amended, the "Security Agreement"), which Security
Agreement was filed with the United States Patent and Trademark Office on March
2, 1995 in Reel 7363, Frame 0065 with respect to patents and on March 2, 1995 in
Reel 1304, Frame 0362 with respect to trademarks;
WHEREAS, the Pledgor has requested that the Bank amend certain provisions
of the Original Credit Agreement pursuant to the terms of a certain Amended and
Restated Revolving Credit and Security Agreement dated of even date herewith
(the Original Credit Agreement as so amended and as may be further amended,
restated, increased or modified from time to time is herein collectively
referred to as the "Credit Agreement");
WHEREAS, the Pledgor acknowledges that it has been benefitted directly and
indirectly by the Original Loans and will continue to be benefitted directly and
indirectly by the Loans (as defined in the Credit Agreement) made pursuant to
the Credit Agreement; and
WHEREAS, the Bank is willing to modify the terms of the Original Credit
Agreement and to make the Loans provided for in the Credit Agreement upon the
condition, among others, that the Pledgor enter into this Agreement to secure
all of the Obligations (as defined in the Credit Agreement) of the Pledgor to
the Bank under the Credit Agreement.
NOW, THEREFORE, for and in consideration of the premises and the Credit
Agreement and the Loans made by the Bank to the Pledgor and other good and
valuable consideration, the receipt of which is hereby acknowledged, and
intending to be legally bound hereby, the parties hereto covenant and agree as
follows:
<PAGE> 2
1. CONFIRMATION. The Pledgor hereby agrees that the Security Agreement and
the grant of the security interest thereunder are hereby expressly ratified,
confirmed and, to the extent necessary, amended so that the term "Credit
Agreement" shall mean the Amended and Restated Revolving Credit and Security
Agreement between the Pledgor and the Bank dated as of December 31, 1996, as the
same may be amended, restated, replaced, superseded or modified from time to
time. SCHEDULES A, B, C, D, E AND F to the Security Agreement are hereby amended
to include the additional items listed on the schedules attached hereto. Except
as expressly amended hereby, the Security Agreement shall remain in full force
and effect.
2. NO DEFAULT; REPRESENTATIONS AND WARRANTIES, ETC. The Pledgor hereby
represents and warrants to the Bank that: (a) the representations and warranties
of the Pledgor contained in the Security Agreement are true on and as of the
date hereof as if made on such date (except to the extent that such
representations and warranties expressly relate to an earlier date; (b) the
Pledgor is in compliance in all material respects with all of the terms and
provisions set forth in the Security Agreement on their part to be observed or
performed thereunder; (c) no Default or Event of Default (as such terms are
defined in the Credit Agreement) has occurred or is continuing; (d) the Pledgor
has all necessary corporate power and have taken all corporate action necessary
to make the Security Agreement, as supplemented and amended hereby, the valid
and enforceable obligation it purports to be; and (e) neither the execution nor
delivery of this Agreement or the Security Agreement, as supplemented and
amended hereby, or the consummation of any transaction contemplated hereby, nor
the fulfillment of the terms hereof, has constituted or resulted in or will
constitute or result in a breach of the provisions of the charter or by-laws of
the Pledgor, or any other agreement to which the Pledgor is a party or by which
the Pledgor is bound or any presently existing applicable law, judgment, decree
or governmental order, rule or regulation applicable to the Pledgor.
3. GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with and governed by the laws of the Commonwealth of Massachusetts
(without regard to its conflicts of laws provisions).
4. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the different parties on different counterparts, each of
which when so executed and delivered shall be an original, but all of which
shall together constitute one in the same instrument.
5. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
assigns.
2
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
SEPRACOR INC.
By:/s/ Robert F. Scumaci
--------------------------------------
Name: Robert F. Scumaci
Title: Senior Vice President Finance
and Administration
FLEET NATIONAL BANK
By:/s/ Kimberly A. Martone
--------------------------------------
Name: Kimberly A. Martone
Title: Vice President
<PAGE> 1
Exhibit 10.26
-------------
GUARANTY AGREEMENT
------------------
THIS AGREEMENT, dated as of the 31st day of December, 1996, by SEPRACOR
INC., a Delaware corporation (the "Guarantor"), to FLEET NATIONAL BANK (the
"Secured Party").
W I T N E S S E T H
WHEREAS, Versicor, Inc., a Delaware corporation (the "Company"), and the
Secured Party have entered into a Revolving Credit, Term Loan and Security
Agreement dated as of the date hereof (as amended from time to time, the "Credit
Agreement") pursuant to which the Secured Party has agreed, subject to the terms
and conditions set forth therein, to make loans to the Company (collectively,
the "Loans"), such Loans to be evidenced by the Company's Revolving Note and the
Company's Term Note, each payable to the order of the Secured Party (the
"Notes"); and
WHEREAS, the Guarantor owns a majority of the outstanding capital stock of
the Company and the making of the Loans will therefore be beneficial to the
Guarantor; and
WHEREAS, the obligation of the Secured Party to make the Loans is subject
to the condition, among others, that the Guarantor shall execute and deliver
this Guaranty Agreement;
NOW, THEREFORE, in consideration of the willingness of the Secured Party to
make the Loans to the Company, and for other good and valuable consideration,
receipt of which is hereby acknowledged by the Guarantor, the Guarantor hereby
agrees as follows:
1. GUARANTEED OBLIGATIONS. The Guarantor does hereby irrevocably and
unconditionally guarantee the due and punctual payment and performance by the
Company of the following obligations to the Secured Party (individually, a
"Guaranteed Obligation" and collectively the "Guaranteed Obligations"):
(a) Principal of and premium, if any, and interest on the Notes;
(b) Any and all other obligations of the Company to the Secured Party
under the Credit Agreement or under any agreement or instrument relating
thereto, all as amended from time to time; and
(c) Any and all other indebtedness or obligations of the Company to
the Secured Party, whether direct or indirect, absolute or contingent, due or to
become due or now existing or hereafter arising.
1
<PAGE> 2
2. DEMAND BY SECURED PARTY. Upon failure by the Company punctually to pay
or perform any Guaranteed Obligation when due, after the expiration of any
applicable grace period, the Secured Party may make demand upon the Guarantor
for the payment or performance of such Guaranteed Obligation and the Guarantor
binds and obliges itself to make such payment or performance forthwith upon such
demand.
3. WAIVER OF DEMANDS, NOTICES, DILIGENCE, ETC. The Guarantor hereby assents
to all of the terms and conditions of the Guaranteed Obligations and waives: (a)
demand for the payment of the principal of any Guaranteed Obligation or of any
claim for interest or any part of any thereof (other than the demand provided
for in Section 2 hereof); (b) notice of the occurrence of a default or an event
of default under any Guaranteed Obligation; (c) protest of the nonpayment of the
principal of any Guaranteed Obligation or of any claim for interest or any part
thereof; (d) notice of presentment, demand and protest; (e) notice of acceptance
of any guaranty herein provided for or of the terms and provisions thereof or
hereof by the Secured Party; (f) notice of any indulgences or extensions granted
to the Company or any successor to the Company or any person or party which
shall have assumed the obligations of the Company; (g) any requirement of
diligence or promptness on the part of the Secured Party in the enforcement of
any of its rights under the provisions of any Guaranteed Obligation or this
Guaranty Agreement; (h) any enforcement of any Guaranteed Obligation; (i) any
right which the Guarantor might have to require the Secured Party to proceed
against any other guarantor of the Guaranteed Obligations or to realize on any
collateral security therefor; and (j) any and all notices of every kind and
description which may be required to be given by any statute or rule of law in
any jurisdiction. The waivers set forth in this Section 3 shall be effective
notwithstanding the fact that the Company ceases to exist by reason of its
liquidation, merger, consolidation or otherwise.
4. OBLIGATIONS OF GUARANTOR UNCONDITIONAL. The obligations of the Guarantor
under this Guaranty Agreement shall be unconditional, irrespective of the
validity, regularity or enforceability of any Guaranteed Obligation, and shall
not be affected by any action taken under any Guaranteed Obligation in the
exercise of any right or remedy therein conferred, or by any failure or omission
on the part of the Secured Party to enforce any right given thereunder or
hereunder or any remedy conferred thereby or hereby, or by any waiver of any
term, covenant, agreement or condition of any Guaranteed Obligation or this
Guaranty Agreement, or by any release of any security or any other guaranty at
any time existing for the benefit of any Guaranteed Obligation, or by the merger
or consolidation of the Company, or by sale, lease or transfer by the Company to
any person of any or all of its properties, or by any action of the Secured
Party granting indulgence or extension to, or waiving or acquiescing in any
default by, the Company or any successor to the Company or any person or party
which shall have assumed its obligations, or by reason of any disability or
other defense of the Company or any successor to the Company, or by any
modification, alteration, or by any circumstance whatsoever (with or without
notice to or knowledge of the Guarantor) which may or might in any manner or to
any extent vary the risk of the Guarantor
2
<PAGE> 3
hereunder, it being the purpose and intent of the Guarantor that the obligations
of the Guarantor hereunder shall be absolute and unconditional under any and all
circumstances and shall not be discharged except by payment or performance as
herein provided, and then only to the extent of such payment or performance.
5. SUBORDINATION OF CLAIMS OF GUARANTOR. Any claims against the Company to
which the Guarantor may be or become entitled (including, without limitation,
claims by subrogation or otherwise by reason of any payment or performance by
the Guarantor in satisfaction and discharge, in whole or in part, of its
obligations under this Guaranty Agreement) shall be and hereby are made subject
and subordinate to the prior payment or performance in full of the Guaranteed
Obligations.
6. REINSTATEMENT. This Agreement shall continue to be effective, or be
reinstated, as the case may be, if at any time any amount received by the
Secured Party in respect of the Guaranteed Obligations is rescinded or must
otherwise be restored or returned by the Secured Party upon the insolvency,
bankruptcy, dissolution, liquidation or reorganization of the Company or the
Guarantor or upon the appointment of an intervenor or conservator of, or trustee
or similar official for, the Company or the Guarantor or any substantial part of
any of their respective properties, or otherwise, all as though said payments
had not been made.
7. NOTICES. Except as otherwise provided herein, all notices to the
Guarantor or the Secured Party shall be in writing and shall be deemed to have
been sufficiently given or served for all purposes hereof if personally
delivered or mailed by first class mail, postage prepaid, as follows:
(a) if to the Guarantor:
Sepracor Inc.
111 Locke Drive
Marlborough, Massachusetts 01752
Attention: Robert F. Scumaci
Senior Vice President
with a copy to:
John D. Sigel, Esquire
Hale & Dorr
60 State Street
Boston, Massachusetts 02109
3
<PAGE> 4
(b) if to the Secured Party:
Fleet National Bank
75 State Street
Boston, Massachusetts 02106
Attention: Kimberly A. Martone
Vice President
with a copy to:
George Ticknor, Esquire
Palmer & Dodge
One Beacon Street
Boston, Massachusetts 02108
or at such other address as the party to whom such notice or demand is directed
may have designated in writing to the other party hereto. A notice shall be
deemed to have been given upon the earlier to occur of (i) three (3) days after
the date on which it is deposited in the U.S. mails or (ii) receipt by the party
to whom such notice is directed.
8. MISCELLANEOUS. This Guaranty Agreement shall inure to the benefit of and
be binding upon the Secured Party and the Guarantor and their respective
successors and assigns, and the term "Secured Party" shall be deemed to include
any other holder or holders of any of the Guaranteed Obligations. In case any
provision in this Guaranty Agreement shall be invalid, illegal or unenforceable,
the validity, legality and enforceability of the remaining provisions shall not
in any way be affected or impaired thereby. This Guaranty Agreement may be
executed in any number of counterparts and by the different parties hereto on
separate counterparts, each of which shall be an original, but all of which
together shall constitute one instrument. The Guarantor agrees, as principal
obligor and not as guarantor, to pay to the Secured Party forthwith upon demand
in funds immediately available to the Secured Party, all reasonable costs and
expenses (including court costs and reasonable attorneys' fees and
disbursements) incurred or expended by the Secured Party in connection with the
enforcement of this Guaranty Agreement.
9. GOVERNING LAW; JURISDICTION; WAIVER OF JURY TRIAL. This Guaranty
Agreement, including the validity hereof and the rights and obligations of the
parties hereunder, shall be construed in accordance with and governed by the
laws of the Commonwealth of Massachusetts. The Guarantor, to the extent that it
may lawfully do so, hereby consents to the jurisdiction of the courts of the
Commonwealth of Massachusetts and the United States District Court for the
District of Massachusetts, as well as to the jurisdiction of all courts to which
an appeal may be taken from such courts, for the purpose of any suit, action or
other proceeding arising out of any of its
4
<PAGE> 5
obligations hereunder or with respect to the transactions contemplated hereby,
and expressly waives any and all objections it may have as to venue in any such
courts. The Guarantor further agrees that a summons and complaint commencing an
action or proceeding in any of such courts shall be properly served and shall
confer personal jurisdiction if served personally or by certified mail to it at
its address provided in Section 7 of this Guaranty Agreement or as otherwise
provided under the laws of the Commonwealth of Massachusetts. The Guarantor
irrevocably waives all right to a trial by jury in any suit, action or other
proceeding instituted by or against it in respect of its obligations hereunder
or the transactions contemplated hereby.
IN WITNESS WHEREOF, the parties have executed this Guaranty Agreement as a
sealed instrument as of the date first above written.
SEPRACOR INC.
By /s/ Robert F. Scumaci
----------------------------------
Name: Robert F. Scumaci
Title: Senior Vice President
Finance and Administration
The foregoing Guaranty
Agreement is hereby
accepted:
FLEET NATIONAL BANK
By /s/ Kimberly A. Martone
----------------------------------
Name: Kimberly A. Martone
Title: Vice President
5
<PAGE> 1
Exhibit 10.27
-------------
DEPOSIT PLEDGE AGREEMENT
------------------------
This DEPOSIT PLEDGE AGREEMENT (this "AGREEMENT") dated as of December 31,
1996 is by and between SEPRACOR INC., a Delaware corporation having its chief
executive office at 111 Locke Drive, Marlborough, Massachusetts 01752 (the
"PLEDGOR") and FLEET NATIONAL BANK (the "PLEDGEE") having its office at 75 State
Street, Boston, Massachusetts 02109.
WHEREAS, the Pledgee has agreed, pursuant to the terms and conditions of
that certain Revolving Credit, Term Loan and Security Agreement dated as of even
date herewith (the "CREDIT AGREEMENT") by and between Versicor, Inc.
("VERSICOR") and the Pledgee, to make terms loans (the "TERM LOANS") to Versicor
for the purchase of equipment.
WHEREAS, the obligation of the Bank to make the Term Loans is subject to
the conditions, among others, that the Pledgor shall execute and deliver this
Agreement and grant the security interest hereinafter described;
NOW, THEREFORE, in consideration of the willingness of the Pledgee to enter
into the Credit Agreement and to agree, subject to the terms and conditions set
forth therein, to make the Term Loans to Versicor pursuant thereto, and for
other good and valuable consideration, receipt of which is hereby acknowledged,
it is hereby agreed, as follows:
1. The Pledgor hereby pledges, assigns and transfers to the Pledgee and grants
the Pledgee a security interest each of the Pledgor's accounts (the "PLEDGED
ACCOUNTS") maintained with Pledgee and all sums due to the Pledgor from the
Pledgee thereunder and sums deposited therein now or in the future and any
interest paid thereon.
2. The Pledgee will have no obligation to honor any request by the Pledgor to
withdraw funds from the Pledged Accounts unless the balance of the funds
remaining in the Pledged Accounts after such withdrawal are not less than the
unpaid principal amount of the Term Loans together with accrued interest and
premium, if any, on account of the Term Loans.
3. The Pledgee may, in its sole discretion and at any time or times after the
occurrence of an Event of Default, cause the amounts held in the Pledged
Accounts to be transferred into its own name or the name or names, and the
Pledgor hereby constitutes and appoints the Pledgee, its employees, agents,
successors and assigns to be the attorney-in-fact of the Pledgor to effect any
such transfer.
1
<PAGE> 2
4. The Pledgee may, in its sole discretion and at any time or times after an
Event of Default under the Credit Agreement, collect, receive and hold all sums,
including interest payments, under the Pledged Accounts and apply the same
against the Obligations.
5. The Pledgor represents and warrants to the Pledgee as follows:
5.1 The Pledgor has all requisite capacity to enter into this Agreement, to
pledge and assign the Pledged Accounts and to carry out the transactions
contemplated by this Agreement;
5.2 The Pledgor is the sole legal and beneficial owner of the Pledged
Accounts; and
5.3 This Agreement shall create a valid assignment of and first lien upon
and perfected security interest in the Pledged Accounts and the proceeds
thereof, subject to no prior pledge, assignment or security interest, or to any
agreement purporting to grant to any third party a pledge, assignment or
security interest .
6. All moneys collected from the Pledged Accounts shall be applied as provided
in the Credit Agreement.
7. The Pledgor will not assign or pledge or otherwise dispose of, grant any
option with respect to, or mortgage, pledge (except pursuant to this Agreement)
or otherwise encumber the Pledged Accounts or any interest therein or consent to
or approve any such pledge, assignment or security interest.
8. The Pledgee shall not accept or honor any additional assignment, pledge or
lien on the Pledged Accounts.
9. The Pledgor at its expense will execute, acknowledge and deliver all such
instruments and take all such action as the Pledgee from time to time may
request in order to further effectuate the purposes of this Agreement and to
carry out the terms hereof.
10. The Pledgee shall not be deemed to have waived any of its rights upon or
under the Obligations or this Pledge unless such waiver be in writing and signed
by the Pledgee. No delay or omission on the part of the Pledgee in exercising
any right under this Agreement shall operate as a waiver of such right or any
other right. A waiver on any one occasion shall not be construed as a bar to or
waiver of any right on any future occasion. All rights and remedies of the
Pledgee on the Obligations or the Pledged Accounts, whether evidenced hereby or
by any other instrument or papers, shall be cumulative and may be exercised
separately or concurrently.
2
<PAGE> 3
11. All capitalized terms not otherwise defined herein shall have the meaning
given them in the Credit Agreement.
12. This Agreement shall inure to the benefit of and shall be binding upon the
parties hereto and their respective successors and assigns whether or not an
express assignment of rights hereunder is made.
13. All representations, warranties, covenants and agreements contained in this
Agreement shall survive the execution and delivery of the Agreements and shall
continue until payment in full of all Obligations.
14. If any provision of this Agreement shall be held invalid or unenforceable by
any court of competent jurisdiction, that holding shall not invalidate or render
unenforceable any other provision hereof.
15. This Agreement may be amended, modified and supplemented only by written
agreement of the parties hereto.
16. This Agreement may be executed in several counterparts, each of which shall
be an original and all of which shall constitute one and the same instrument.
17. All notices, certificates or other communications hereunder shall be given
as provided in the Credit Agreement.
18. This Agreement shall be governed by, and construed in accordance with, the
laws of the Commonwealth of Massachusetts without regard to principles of
conflicts of laws.
3
<PAGE> 4
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and sealed by their duly authorized officers or representatives, all as
of the date first above written.
SEPRACOR INC.
By: /s/ Robert F. Scumaci
----------------------------------
Name: Robert F. Scumaci
Title: Senior Vice President
Finance and Administration
FLEET NATIONAL BANK
By:/s/ Kimberly A. Martone
----------------------------------
Name: Kimberly A. Martone
Title: Vice President
4
<PAGE> 1
Exhibit 10.28
-------------
SEPRACOR INC.
SEPRACOR SECURITIES CORPORATION
AMENDED AND RESTATED PROMISSORY NOTE
December 31, 1996
$10,000,000 Boston, Massachusetts
For value received, the undersigned hereby jointly and severally promise to
pay to FLEET NATIONAL BANK (the "BANK"), or order, at the head office of the
Bank at 75 State Street, Boston, Massachusetts 02109, the principal amount of
TEN MILLION DOLLARS ($10,000,000) or such lesser amount as shall equal the
principal amount outstanding hereunder on April 30, 1999 or such earlier date as
provided in the Agreement (as defined below) in lawful money of the United
States of America and in immediately available funds, and to pay interest on the
unpaid principal balance hereof from time to time outstanding, at said office
and in like money and funds, for the period commencing on the date hereof until
paid in full, at the rates per annum and on the dates provided in the Agreement.
Upon the occurrence and during the continuance of an Event of Default,
interest on the unpaid principal amount hereof and (to the extent permitted by
law) on unpaid interest shall thereafter be payable on demand at a rate per
annum equal to two percent (2%) above the interest rate otherwise in effect with
respect to such Revolving Loans. Upon the cure of an Event of Default and the
payment of interest at the default rate through the date of such cure, the
interest rate shall revert to that provided for in the Agreement.
If the entire amount of any required principal and/or interest is not paid
in full within ten (10) days after the same is due, the undersigned shall pay to
the Bank a late fee equal to five percent (5%) of the required payment;
PROVIDED, that such late fee shall be reduced to three percent (3%) of any
required principal and interest payment that is not paid within fifteen (15)
days of the date it is due if this Note is secured by a mortgage on an
owner-occupied residence, 1-4 units. Nothing in the preceding sentence shall
affect the Bank's rights to exercise any of its rights and remedies provided in
the Agreement (as defined below) if an Event of Default (as defined in the
Agreement) has occurred.
This Note is issued pursuant to, and entitled to the benefits of, and is
subject to, the provisions of a certain Amended and Restated Revolving Credit
and Security Agreement dated as of December 31, 1996, by and between the
undersigned and the Bank (herein, as the same may from time to time be amended
or extended, referred to as the "AGREEMENT"), but neither this reference to the
Agreement nor any provision
<PAGE> 2
thereof shall affect or impair the absolute and unconditional obligation of the
undersigned makers of this Note to pay the principal of and interest on this
Note as herein provided.
As provided in the Agreement, this Note is secured by certain assets of the
undersigned.
In case an Event of Default (as defined in the Agreement) shall occur, the
aggregate unpaid principal of and accrued interest on this Note shall become or
may be declared to be due and payable in the manner and with the effect provided
in the Agreement.
The undersigned may at its option prepay all or any part of the principal
of this Note before maturity upon the terms provided in the Agreement, and this
Note is subject to mandatory prepayment in certain circumstances, which
repayment shall in certain cases require the payment of a premium and in certain
cases not require the payment of a premium.
The undersigned makers hereby waive presentment, demand, notice of
dishonor, protest and all other demands and notices in connection with the
delivery, acceptance, performance and enforcement of this Note.
This instrument shall have the effect of an instrument executed under seal
and shall be governed by and construed in accordance with the laws of the
Commonwealth of Massachusetts (without giving effect to any conflicts of laws
provisions contained therein).
SEPRACOR INC.
By: /s/ Robert F. Scumaci
------------------------------------------
Name: Robert F. Scumaci
Title: Senior Vice President Finance and
Administration
SEPRACOR SECURITIES CORPORATION
By:/s/ Robert F. Scumaci
------------------------------------------
Name: Robert F. Scumaci
Title: Treasurer
<PAGE> 3
SCHEDULE I TO PROMISSORY NOTE
AMOUNT OF INTEREST AMOUNT NOTATION
DATE REVOLVING RATE PAID MADE BY
LOAN
<PAGE> 1
Exhibit 10.29
-------------
GUARANTY AGREEMENT
------------------
THIS AGREEMENT, dated as of the 31st day of December, 1996, by SEPRACOR
INC., a Massachusetts corporation (the "Guarantor"), to FLEET NATIONAL BANK (the
"Secured Party").
W I T N E S S E T H
WHEREAS, BioSepra Inc., a Delaware corporation (the "Company"), and the
Secured Party have entered into a Revolving Credit and Security Agreement dated
as of the date hereof (as amended from time to time, the "Credit Agreement")
pursuant to which the Secured Party has agreed, subject to the terms and
conditions set forth therein, to make revolving loans to the Company
(collectively, the "Revolving Loans"), such Revolving Loans to be evidenced by
the Company's Promissory Note payable to the order of the Secured Party (the
"Note"); and
WHEREAS, the Guarantor owns a majority of the outstanding capital stock of
the Company and the making of the Revolving Loans will therefore be beneficial
to the Guarantor; and
WHEREAS, the obligation of the Secured Party to make the Revolving Loans is
subject to the condition, among others, that the Guarantor shall execute and
deliver this Guaranty Agreement;
NOW, THEREFORE, in consideration of the willingness of the Secured Party to
make the Revolving Loans to the Company, and for other good and valuable
consideration, receipt of which is hereby acknowledged by the Guarantor, the
Guarantor hereby agrees as follows:
1. GUARANTEED OBLIGATIONS. The Guarantor does hereby irrevocably and
unconditionally guarantee the due and punctual payment and performance by the
Company of the following obligations to the Secured Party (individually, a
"Guaranteed Obligation" and collectively the "Guaranteed Obligations"):
(a) Principal of and premium, if any, and interest on the Note;
(b) Any and all other obligations of the Company to the Secured Party
under the Credit Agreement or under any agreement or instrument relating
thereto, all as amended from time to time; and
1
<PAGE> 2
(c) Any and all other indebtedness or obligations of the Company to
the Secured Party, whether direct or indirect, absolute or contingent, due or to
become due or now existing or hereafter arising.
2. DEMAND BY SECURED PARTY. Upon failure by the Company punctually to pay
or perform any Guaranteed Obligation when due, after the expiration of any
applicable grace period, the Secured Party may make demand upon the Guarantor
for the payment or performance of such Guaranteed Obligation and the Guarantor
binds and obliges itself to make such payment or performance forthwith upon such
demand.
3. WAIVER OF DEMANDS, NOTICES, DILIGENCE, ETC. The Guarantor hereby assents
to all of the terms and conditions of the Guaranteed Obligations and waives: (a)
demand for the payment of the principal of any Guaranteed Obligation or of any
claim for interest or any part of any thereof (other than the demand provided
for in Section hereof); (b) notice of the occurrence of a default or an event of
default under any Guaranteed Obligation; (c) protest of the nonpayment of the
principal of any Guaranteed Obligation or of any claim for interest or any part
thereof; (d) notice of presentment, demand and protest; (e) notice of acceptance
of any guaranty herein provided for or of the terms and provisions thereof or
hereof by the Secured Party; (f) notice of any indulgences or extensions granted
to the Company or any successor to the Company or any person or party which
shall have assumed the obligations of the Company; (g) any requirement of
diligence or promptness on the part of the Secured Party in the enforcement of
any of its rights under the provisions of any Guaranteed Obligation or this
Guaranty Agreement; (h) any enforcement of any Guaranteed Obligation; (i) any
right which the Guarantor might have to require the Secured Party to proceed
against any other guarantor of the Guaranteed Obligations or to realize on any
collateral security therefor; and (j) any and all notices of every kind and
description which may be required to be given by any statute or rule of law in
any jurisdiction. The waivers set forth in this Section shall be effective
notwithstanding the fact that the Company ceases to exist by reason of its
liquidation, merger, consolidation or otherwise.
4. OBLIGATIONS OF GUARANTOR UNCONDITIONAL. The obligations of the Guarantor
under this Guaranty Agreement shall be unconditional, irrespective of the
validity, regularity or enforceability of any Guaranteed Obligation, and shall
not be affected by any action taken under any Guaranteed Obligation in the
exercise of any right or remedy therein conferred, or by any failure or omission
on the part of the Secured Party to enforce any right given thereunder or
hereunder or any remedy conferred thereby or hereby, or by any waiver of any
term, covenant, agreement or condition of any Guaranteed Obligation or this
Guaranty Agreement, or by any release of any security or any other guaranty at
any time existing for the benefit of any Guaranteed Obligation, or by the merger
or consolidation of the Company, or by sale, lease or transfer by the Company to
any person of any or all of its properties, or
2
<PAGE> 3
by any action of the Secured Party granting indulgence or extension to, or
waiving or acquiescing in any default by, the Company or any successor to the
Company or any person or party which shall have assumed its obligations, or by
reason of any disability or other defense of the Company or any successor to the
Company, or by any modification, alteration, or by any circumstance whatsoever
(with or without notice to or knowledge of the Guarantor) which may or might in
any manner or to any extent vary the risk of the Guarantor hereunder, it being
the purpose and intent of the Guarantor that the obligations of the Guarantor
hereunder shall be absolute and unconditional under any and all circumstances
and shall not be discharged except by payment or performance as herein provided,
and then only to the extent of such payment or performance.
5. SUBORDINATION OF CLAIMS OF GUARANTOR. Any claims against the Company to
which the Guarantor may be or become entitled (including, without limitation,
claims by subrogation or otherwise by reason of any payment or performance by
the Guarantor in satisfaction and discharge, in whole or in part, of its
obligations under this Guaranty Agreement) shall be and hereby are made subject
and subordinate to the prior payment or performance in full of the Guaranteed
Obligations.
6. REINSTATEMENT. This Agreement shall continue to be effective, or be
reinstated, as the case may be, if at any time any amount received by the
Secured Party in respect of the Guaranteed Obligations is rescinded or must
otherwise be restored or returned by the Secured Party upon the insolvency,
bankruptcy, dissolution, liquidation or reorganization of the Company or the
Guarantor or upon the appointment of an intervenor or conservator of, or trustee
or similar official for, the Company or the Guarantor or any substantial part of
any of their respective properties, or otherwise, all as though said payments
had not been made.
7. NOTICES. Except as otherwise provided herein, all notices to the
Guarantor or the Secured Party shall be in writing and shall be deemed to have
been sufficiently given or served for all purposes hereof if personally
delivered or mailed by first class mail, postage prepaid, as follows:
(a) if to the Guarantor:
Sepracor Inc.
111 Locke Drive
Marlborough, Massachusetts 01752
Attention: Robert F. Scumaci
Senior Vice President
3
<PAGE> 4
with a copy to:
John D. Sigel, Esquire
Hale & Dorr
60 State Street
Boston, Massachusetts 02109
(b) if to the Secured Party:
Fleet National Bank
75 State Street
Boston, Massachusetts 02106
Attention: Kimberly A. Martone
Vice President
with a copy to:
George Ticknor, Esquire
Palmer & Dodge
One Beacon Street
Boston, Massachusetts 02108
or at such other address as the party to whom such notice or demand is directed
may have designated in writing to the other party hereto. A notice shall be
deemed to have been given upon the earlier to occur of (i) three (3) days after
the date on which it is deposited in the U.S. mails or (ii) receipt by the party
to whom such notice is directed.
8. MISCELLANEOUS. This Guaranty Agreement shall inure to the benefit of and
be binding upon the Secured Party and the Guarantor and their respective
successors and assigns, and the term "Secured Party" shall be deemed to include
any other holder or holders of any of the Guaranteed Obligations. In case any
provision in this Guaranty Agreement shall be invalid, illegal or unenforceable,
the validity, legality and enforceability of the remaining provisions shall not
in any way be affected or impaired thereby. This Guaranty Agreement may be
executed in any number of counterparts and by the different parties hereto on
separate counterparts, each of which shall be an original, but all of which
together shall constitute one instrument. The Guarantor agrees, as principal
obligor and not as guarantor, to pay to the Secured Party forthwith upon demand
in funds immediately available to the Secured Party, all reasonable costs and
expenses (including court costs and reasonable attorneys' fees and
disbursements) incurred or expended by the Secured Party in connection with the
enforcement of this Guaranty Agreement.
4
<PAGE> 5
9. GOVERNING LAW; JURISDICTION; WAIVER OF JURY TRIAL. This Guaranty
Agreement, including the validity hereof and the rights and obligations of the
parties hereunder, shall be construed in accordance with and governed by the
laws of the Commonwealth of Massachusetts. The Guarantor, to the extent that it
may lawfully do so, hereby consents to the jurisdiction of the courts of the
Commonwealth of Massachusetts and the United States District Court for the
District of Massachusetts, as well as to the jurisdiction of all courts to which
an appeal may be taken from such courts, for the purpose of any suit, action or
other proceeding arising out of any of its obligations hereunder or with respect
to the transactions contemplated hereby, and expressly waives any and all
objections it may have as to venue in any such courts. The Guarantor further
agrees that a summons and complaint commencing an action or proceeding in any of
such courts shall be properly served and shall confer personal jurisdiction if
served personally or by certified mail to it at its address provided in Section
of this Guaranty Agreement or as otherwise provided under the laws of the
Commonwealth of Massachusetts. The Guarantor irrevocably waives all right to a
trial by jury in any suit, action or other proceeding instituted by or against
it in respect of its obligations hereunder or the transactions contemplated
hereby.
IN WITNESS WHEREOF, the parties have executed this Guaranty Agreement as a
sealed instrument as of the date first above written.
SEPRACOR INC.
By /s/ Robert F. Scumaci
-------------------------------
Name: Robert F. Scumaci
Title: Senior Vice President Finance
and Administration
The foregoing Guaranty
Agreement is hereby
accepted:
FLEET NATIONAL BANK
By /s/ Kimberly A. Martone
-------------------------------
Name: Kimberly A. Martone
Title: Vice President
5
<PAGE> 1
Exhibit 13
[LOGO: SEPRACOR]
FEXOFENADINE
LEVALBUTEROL
NORASTEMIZOLE
R.R-FORMOTEROL
S-OXYBUTYNIN
DELIVERING
R-KETOPROFEN
A FOCUSED
S-FLUOXETINE
PIPELINE
2R. 4S-ITRACONAZOLE
OF
S-DOXAZOSIN
PRODUCTS
R-FLUOXETINE
R-ONDANSETRON
NORCISAPRIDE
R-KETOROLAC
DESCARBOETHOXYLORATADINE
1996 ANNUAL REPORT
<PAGE> 2
LETTER TO OUR SHAREHOLDERS:
Nineteen ninety-six was an important year in Sepracor's history. During the
year, external events aligned advantageously with the company's strategy: to
improve existing drugs. Now, as a result of progress with our ICE(TM)
Pharmaceutical programs and certain regulatory actions and policy initiatives,
Sepracor is recognized as a well positioned, specialty pharmaceutical company
moving rapidly toward commercializing a full pipeline of safer and purer drugs
with blockbuster potential.
THE OPPORTUNITY TO IMPROVE EXISTING DRUGS, THE CORNERSTONE OF SEPRACOR'S ICE
STRATEGY, BECAME A REALITY IN 1996. A highlight of the year was the July FDA
approval of Hoechst Marion Roussel's (HMR) Allegra[TM] (fexofenadine), the
active metabolite of Seldane(R). Allegra is a nonsedating antihistamine that
provides the same therapeutic benefits of Seldane without the risk of certain
cardiovascular side effects associated with the parent drug. Sepracor licensed
its U.S. patent rights to fexofenadine (Allegra) to HMR in 1993 and has the
right to receive royalties on U.S. sales when another HMR patent covering
Allegra expires. This differentiated product shows that a Sepracor-patented
Improved Chemical Entity (ICE) -- which HMR developed and introduced to the U.S.
market in less than three years -- can become a marketed drug in substantially
less time than a New Chemical Entity (NCE).
In preparing Allegra's New Drug Application (NDA), HMR took advantage of an
abbreviated strategy that was deemed sufficient for approval. The company
incorporated by reference toxicology data generated for the NDA
submission of the original drug, terfenadine (Seldane). This strategy, which
Sepracor intends to use in its development programs, may shorten the time and
reduce the cost of an ICE development program, compared with that of a NCE.
A second significant event -- unanticipated and highly positive for
Sepracor -- occurred in January of 1997, when the FDA announced its intention
to withdraw Seldane from the market now that Allegra, a direct and safer
alternative, is available.
WE BELIEVE THAT THIS REGULATORY INITIATIVE REPRESENTS SOUND PUBLIC POLICY,
IN THAT IT PROTECTS PATIENTS FROM UNNECESSARY RISKS.
Sepracor is dedicated to developing purified drugs that offer meaningful
improvements in patient outcome.
The strength of our ICE pharmaceutical program is based on a "subtraction"
strategy. By removing one or more isomers, or focusing on the first-pass
metabolite, of the parent drug, we seek to eliminate unnecessary toxicity and to
improve the therapeutic index of a drug. Our goal, through purer medicine, is to
improve the medical, economic, and social impact of the drug for patients and
their caregivers.
Sepracor holds unique and leading positions in the fields of chiral
chemistry and single-isomer drugs. With our deep proprietary product pipeline,
and our focus on diseases affecting very large population segments, we
will continue to shape a preeminent position in healthcare. However, we are not
alone in our chemical strategy; others have entered the market in fields not
covered by Sepracor's patent portfolio. Recent launches of single-isomer
versions of approved racemic drugs, such as AHP/Interneuron's obesity drug,
Redux(TM), and J & J/ Daiichi's anti-infective, Levaquin(TM) also validate our
ICE program.
RECENT PRODUCT LAUNCHES, MEASURABLE CLINICAL PROGRESS AND POSITIVE
FEEDBACK FROM PATIENTS, PARENTS AND DOCTORS CONFIRM OUR APPROACH.
In 1996 we advanced clinical development programs for key asthma, allergy
and urology drug candidates. We also initiated and continued several chemistry,
discovery and preclinical research programs, supporting our product expanding
pipeline.
PIPELINE UPDATE
ASTHMA In preparing to commercialize our lead drug candidate, levalbuterol,
((R)-albuterol), a purified version of the world's leading bronchodilator,
racemic albuterol, we have made significant progress in clinical development and
in group discussions involving the medical and patient communities. In 1996 we
conducted a pivotal 362-patient Phase III trial, which was designed to show an
improved therapeutic index of levalbuterol as compared with racemic albuterol.
1
<PAGE> 3
In March 1997 we announced that this large trial demonstrated that subjects
treated with levalbuterol versus those treated with racemic albuterol had a
greater improvement in lung function, as measured by forced expiratory volume
(FEV1). Additionally, at doses showing equivalent efficacy to that of marketed
racemic albuterol -- doses down to one-fourth the traditional levels --
levalbuterol subjects demonstrated significantly reduced beta-mediated side
effects, such as pulse rate changes. A lack of deterioration in lung function in
subjects treated with levalbuterol suggests that the (S)-isomer, known to have
no beneficial effect, may actually have played a role in decreasing lung
function, an effect previously observed in other studies of beta-agonists.
Significantly, a lowered dose of racemic albuterol -- one-half of the marketed
dose -- failed to provide an optimal therapeutic response in this study, also
suggesting that the (S)-isomer may adversely affect the benefits of racemic
albuterol.
THIS PIVOTAL STUDY SUPPORTS OUR THESIS THAT BY ELIMINATING
PHARMACOLOGICALLY DETRIMENTAL COMPONENTS, WE CAN IMPROVE THE SAFETY AND EFFICACY
PROFILE OF A GIVEN RACEMIC DRUG. FURTHERMORE, AN ENHANCED THERAPEUTIC INDEX
WOULD EXPAND THE TREATMENT CHOICES AVAILABLE TO PHYSICIANS, PATIENTS AND HEALTH
CARE PROVIDERS.
We also plan to develop levalbuterol for children, a population which
comprises half of the $480 million nebulized inhalation solution market. In
November 1996, we began a pediatric trial, designed to determine the appropriate
dose of levalbuterol for children under 12, an age group for whom neither
racemic albuterol inhalation solution, nor other similar products, is indicated.
Feedback from pediatricians and parents, who have expressed a need for
pediatric-dosing information, has contributed significantly to our efforts to
find the appropriate dose for children.
In late March 1997, we completed the pediatric trial, which demonstrated
that subjects on levalbuterol at the highest dose tested, experienced improved
lung function as measured by FEV[1] over subjects on all doses of racemic
albuterol tested. The study also showed that levalbuterol, at doses offering
equivalent efficacy to the standard racemic dose, demonstrated in subjects an
approximate 50 percent reduction in beta-mediated side-effects such as pulse
change and nervousness. Similar reductions of beta-mediated side-effects were
not observed in subjects on the lower dose of racemic albuterol tested in this
study.
The results from the pediatric study will be incorporated into the
levalbuterol inhalation solution NDA. We plan to submit our NDA to the FDA in
June of this year, targeting the second half of 1998 for product launch. We look
forward to providing this improved therapy to the asthma community in a complete
family of dosage forms, including metered dose and dry powder inhalers, as well
as tablet and syrup.
Our complementary asthma therapy, (R,R)-formoterol, a long-acting,
rapid-onset bronchodilator, is approaching clinical development. We believe
that this ICE pharmaceutical could be a standout, uniquely positioned as an
ideal therapy for all asthma patients.
ALLERGY Norastemizole, an active metabolite of the nonsedating antihistamine,
astemizole, marketed as Hismanal(R), holds great promise for
Sepracor. We believe it could become the best of the new class of
third-generation, nonsedating antihistamines. So far we have demonstrated that
the metabolite has a quick onset of action, is potent and lasts up to 24 hours,
suggesting its suitability for true, once-a-day dosing. Also, norastemizole has
not exhibited the potential for adverse cardiac events that Hismanal (which has
a warning label similar to Seldane) exhibits in high doses or in the presence of
certain other drugs.
BECAUSE OF ITS "BEST OF CLASS" POTENTIAL, NORASTEMIZOLE IS ON AN
ACCELERATED DEVELOPMENT SCHEDULE. We plan to begin a Phase II seasonal allergic
rhinitis (SAR) study in the spring and to commence one of two planned Phase III
trials by year-end. Assuming no setbacks with this aggressive plan, Sepracor
could be in a position to file an NDA on Norastemizole in late 1998.
UROLOGY Current drug therapies for urinary incontinence, one of the fastest
growing disease areas, are inadequate. We believe that the limited success of
the
2
<PAGE> 4
leading drug racemic oxybutynin (marketed as Ditropan(R)) and others, is due
to severe anticholinergic side effects, specifically dry mouth, nausea and
cardiac palpitations. To date, we have demonstrated that (S)-oxybutynin, at
doses as high as 30 times that of Ditropan, lacked anticholinergic
side-effects. We are completing Phase I studies and plan to begin a Phase II
trial to evaluate the efficacy of (S)-oxybutynin. We expect to be in a position
to file an NDA for this therapy in 1999.
BUILDING A SPECIALTY SALES FORCE
As Sepracor transitions from a technology-based to a market-driven company, we
are establishing our sales and marketing capability. As a first step, we plan to
create a 50-person specialty sales force to promote the inhalation solution of
levalbuterol to high-prescribing specialists in hospitals and home-care
settings. To reach the larger universe of general practitioners with our family
of differentiated respiratory products, we will form promotional partnerships
with large pharmaceutical companies. This approach enables us to maximize the
revenue and profit potential of our focused product pipeline.
DISCOVERY Sepracor's ICE pharmaceutical program should support the company's
growth strategy well into the 21st century. However, preparing for the future,
we are applying new ideas in synthetic chemistry, and automation to the
fast-growing field of combinatorial chemistry. Through this emerging science,
coupled with in-licensed biological expertise and genomics capability, we will
generate leads that will serve as platforms for new NCE's. Our plan is to use
select drug platforms to augment Sepracor's pipeline, and to license non-core
theraputic discoveries to corporate partners.
FINANCIALS Sepracor's balance sheet should support our objectives over the next
few years. At December 31, 1996, we had $104 million in consolidated cash and
marketable securities. On March 31, 1997 we received approximately $30 million
for the sale of our shares of ChiRex. Furthermore, we have an estimated $50
million in combined market value in our remaining public subsidiaries and
affiliates. While we must constantly manage resources to priorities, we are
well-positioned to advance the development and commercialization programs of
select, differentiated products.
Our efforts to bring ICEs to market have been rewarding. We have come a
long distance from a proprietary, chiral chemistry technology platform to a
development-stage, and now market-driven, pharmaceutical business. And we have
established a rapid pace of clinical and market activities, that will
continue to progress.
SEPRACOR'S MISSION IS CLEAR: WE STRIVE TO SIGNIFICANTLY IMPROVE THE
THERAPEUTIC PROFILE OF THE WORLD'S LEADING DRUGS. WE HAVE AN ADVANCED, ROBUST
PIPELINE AS OUR FOUNDATION.
This annual report is an opportunity for you to become better acquainted
with our product portfolio and our markets, as well as with some of the Sepracor
team members who will help us achieve our goals.
THE BEST WAY TO PREDICT THE FUTURE IS TO CREATE IT.
We have a winning business strategy based on an innovative approach to drug
development and a market hungry for safer and more effective drugs. But without
the leadership, vision and collective spirit to achieve our mission, and without
the support from our shareholders, employees, clinicians, patients, advisors,
and friends, we would not be as strongly positioned as we are today. I thank
each of you for your continued enthusiasm and support and look forward to
sharing with you our exciting progress.
Sincerely,
Timothy J. Barberich
President and Chief Executive Officer
3
<PAGE> 5
SEPRACOR'S ICE(TM) STRATEGY
CAPTION: Chiral Drug
CHIRAL MOLECULES EXIST IN MIRROR IMAGE FORMS CALLED OPTICAL ISOMERS. OFTEN ONLY
ONE OPTICAL ISOMER OF THE PAIR IN A CHIRAL DRUG IS RESPONSIBLE FOR THE DRUG'S
EFFICACY. THE OTHER MAY BE INERT OR MAY CAUSE UNDESIRABLE SIDE EFFECTS.
MANY ESTABLISHED DRUGS ON THE MARKET TODAY ARE RACEMIC MIXTURES WITH EQUAL
AMOUNTS OF TWO ISOMERS, AN (R)-ISOMER AND AN (S)-ISOMER. THE FDA'S 1992
PUBLISHED STEREOISOMER POLICY GUIDELINES HAS ENCOURAGED THE DEVELOPMENT OF
OPTICALLY PURE DRUGS BY SUGGESTING THAT DRUG MAKERS SUBMIT ANALYSES ON THE
PHARMACOLOGICAL ACTIVITIES OF EACH ISOMER OF A NEW RACEMIC DRUG CANDIDATE.
Sepracor is a specialty pharmaceutical company with a unique strategy for
drug development. The company is focused on commercializing ICE(TM)
Pharmaceuticals ("Improved Chemical Entities"), differentiated, proprietary,
single-isomer or active-metabolite versions of best-selling drugs.
DRUG DEVELOPMENT STRATEGY
Sepracor applies its chiral synthesis, pharmacology and medicinal chemistry
expertise to its ICE candidates. The company selects for development racemic
drugs or prodrugs that can be significantly improved in terms of clinical
effectiveness and side-effect profile and can potentially generate annual sales
of several hundred million dollars.
Sepracor's drug development technologies enable the switch of a racemic
drug to a single-isomer drug, or of a prodrug to an active-metabolite form,
resulting in purer drugs with improved safety and efficacy profiles.
Patients and their families, medical providers and insurers, all stand to
benefit from purer drugs that are safer and more effective than the original
parent drug.
The company's ICE pharmaceutical program, through extended patent
protection, also offers a unique product life-cycle management strategy which
greatly benefits patients and originator companies. In sum, Sepracor's single-
isomer or active-metabolite versions provide clear differentiation and patent
protection for a substantial number of years.
TOWARD A FULLY INTEGRATED PHARMACEUTICAL COMPANY
Inspired by the significant progress achieved in its clinical trials and the
commercial potential of its ICE Pharmaceuticals, Sepracor is rapidly becoming
a fully integrated specialty pharmaceutical company. Sepracor plans to
enhance its operations that range from drug discovery and development to
commercialization, by building its own specialty marketing and sales force.
While the company is preparing to file its first New Drug Application (NDA)
with the U.S. Food and Drug Administration (FDA) and establishing its first
sales force, Sepracor continues to leverage its medicinal and combinatorial
chemistry expertise, pharmacology and clinical development skills for the
advancement of a next wave of clinical candidates.
FOOTNOTES
ISOMER: One of two or more chemical substances that have the same molecular
formula but a different arrangement of atoms in the molecules. Often only one
isomer of the pair fits into the physical structure of a drug's target receptor,
just as only a right hand fits into a right-handed glove.
RACEMATE: A 1:1 mixture of optical isomers. In a racemic mixture, the individual
isomers are generally referred to as the (S)-isomer and the R-isomer.
PRODRUG: A prodrug is an inactive or partially active drug that is biochemically
modified in the body to become an active drug or an active metabolite.
ACTIVE METABOLITE: The drug "by-product" (or, what the drug biochemically
changes into) that is directly responsible for a therapeutic effect.
4
<PAGE> 6
<TABLE>
SELECT ICE(TM) PHARMACEUTICALS
<CAPTION>
INDICATION OR SEPRACOR PARENT DRUG 1996 CURRENT
THERAPEUTIC PRODUCT TRADE NAME WORLDWIDE SALES POTENTIAL BENEFITS PATENT DEVELOPMENT
CATEGORY CANDIDATE (MARKETER) ($ MILLIONS) OF NEW DRUG STATUS STATUS
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
RESPIRATORY Levalbuterol Ventolin(R)/Proventil(R) $1,518 Improved safety and Issued Phase III
DISEASES (Glaxo-Wellcome/ efficacy Complete
Schering-Plough)
and generics
(R,R) - formoterol Foradil(R)/Atock(TM) $ 91 Rapid onset, longer Pending Preclinical
(Novartis/Yamanouchi) duration
Fexofenadine Seldane(RM) $ 600 Reduced cardiovascular Issued Launched
(Allegra(TM)) (Hoechst Marion side effects
Roussel)
Norastemizole Hismanal(R) $ 192 Improved potency, rapid
(J & J) onset, longer duration,
reduced cardiovascular Pending Phase I/II
side effects
DCL Claritin(R) $1,150 Improved potency Issued Preclinical
(Schering-Plough)
- ------------------------------------------------------------------------------------------------------------------------------------
UROLOGICAL (S) - oxybutynin Ditropan(R) $ 145 Reduced side effects Issued Phase I/II
DISORDERS (Hoechst Marion including: dry mouth,
Roussel) and generics dizziness, nausea and
palpitations
(S) - doxazosin Cardura(R) $ 518 Reduced orthostatic Issued Preclinical
(Pfizer) hypotension; improved
potency
- ------------------------------------------------------------------------------------------------------------------------------------
PAIN (R) - ketoprofen Orudis(R)/Actron(TM) $ 797 Reduced GI side effects; Issued Phase II
MANAGEMENT (AHP/Bayer) improved potency
(R) - ketorolac Toradol(R) $ 46 Reduced GI side effects; Issued Preclinical
(Roche) improved potency
(S) - fluoxetine Prozac(R) NM New indication: Issued Phase I/II
(Lilly) migraine prophylaxis
(R) - fluoxetine Prozac(R) $2,264 Increase in flexiblity in Pending Preclinical
(Lilly) treating depression
- ------------------------------------------------------------------------------------------------------------------------------------
GASTROINTESTINAL Norcisapride Propulsid(R) $1,012 Reduced cardiovascular Pending Preclinical
DISORDERS (J & J) side effects
(R) - ondansetron Zofran(R) $ 575 Reduced cardiovascular Issued Preclinical
(Glaxo-Wellcome) side effects; improved
efficacy
- ------------------------------------------------------------------------------------------------------------------------------------
ANTIFUNGALS (2R,4S-) Sporanox(R) $ 595 Reduced cardiovascular Issued Preclinical
- itraconazole (J & J) side effects
(R) - lomefloxacin Lomebact(R)/Maxaquin(R) $ 84 Improved antimicrobial Issued Preclinical
(Searle) activity; decreased
photosensitivity
NM -- not meaningful
</TABLE>
5
<PAGE> 7
ACTIVE LIFESTYLES AND ALLERGY
CAPTION: FORTY MILLION AMERICANS SUFFER FROM SEASONAL ALLERGIES AND OFTEN THE
DEBILITATING EFFECTS OF RUNNY NOSES, WATERY EYES AND ITCHY THROATS. WORLDWIDE
PRESCRIPTION SALES OF NONSEDATING ANTIHISTAMINES TO TREAT ALLERGY EXCEED $3
BILLION.
6
<PAGE> 8
Sepracor, with its proprietary active-metabolite versions of Seldane(R) and
Hismanal(R), is building a portfolio of potent and safe third-generation
antihistamines for allergy treatment.
ALLEGRA(TM) IMPROVED SELDANE WITHOUT CARDIOTOXICITY
Hoechst Marion Roussel's (HMR) Seldane, with almost $1 billion in sales at its
peak, was the leading nonsedating antihistamine before the FDA mandated that
the drug's labeling include a "black-box" warning of adverse cardiovascular
side effects. Since then, Seldane's sales have declined.
In July 1996, HMR launched Allegra (fexofenadine), the active
metabolite of Seldane (terfenadine), as a next-generation nonsedating
antihistamine. This therapy lacks the potential for the dangerous drug-drug
interactions that led to the black-box warning on Seldane.
Sepracor licensed its U.S. patent rights to fexofenadine to HMR in 1993 and
is entitled to royalties on U.S. sales when another HMR patent covering Allegra
expires. Sepracor has retained its foreign patent rights to fexofenadine. HMR
stands to benefit from Sepracor's U.S. patent, which gives an additional 11
years of exclusivity -- until 2012.
SELDANE TO BE REMOVED FROM THE MARKET?
Now that Allegra -- a drug with all the benefits of Seldane but without its
cardiac side effects -- is available, the FDA is questioning whether Seldane
should remain on the market. In January of 1997, the FDA announced its intention
to withdraw Seldane. The agency stated, "...now that there is an alternative
that is identical to the molecule that provides the therapeutic benefits of
terfenadine, ...terfenadine's benefits do not outweigh its risks." [The Federal
Register 1/14/97, Vol. 62, No. 9]
Subsequently, the French drug agency AFM withdrew the marketing approval of
HMR's Teldane (terfenadine) for a year. The European Medicines Evaluation
Agency is also examining this same product.
Sepracor believes that when future drugs offering the identical therapeutic
effect without life-threatening or unpleasant side effects are introduced to the
general public, the market will demand the purer, safer drug over the inferior
parent compound.
NORASTEMIZOLE "BEST IN CLASS" POTENTIAL
Hismanal, another nonsedating antihistamine, carries a similar black-box
warning label to Seldane. Sepracor is developing an active metabolite of
Hismanal, norastemizole, as a safer, more effective version of the parent drug.
Through preclinical and Phase I/II studies, Sepracor has demonstrated that
norastemizole has the potential to be the most potent drug in the class of
third-generation nonsedating antihistamines that includes Claritin and Allegra.
Norastemizole has shown long duration and rapid onset of action leading to
true once-a-day formulations. Sepracor's clinical studies are continuing with
Phase II and Phase III trials planned for 1997's spring and fall allergy
seasons.
CLARITIN METABOLITE MAY IMPROVE EFFICACY
Sepracor holds a patent, expiring in 2014, on the use of
decarboethoxyloratadine (DCL), an active metabolite of Schering-Plough's
Claritin (loratadine), for the treatment of allergic rhinitis.
Schering-Plough's composition of matter patent on loratadine expires in 2002.
As with Allegra, the DCL development plan could be completed in an abbreviated
time frame.
CAPTION: DONALD J. KELLERMAN, PHARM.D., VICE PRESIDENT CLINICAL RESEARCH
(FORMERLY WITH GLAXO-WELLCOME) REVIEWS PHASE II CLINICAL TRIAL PROTOCOLS FOR
NORASTEMIZOLE WITH DEAN A. HANDLEY, Ph.D., DIRECTOR OF SCIENTIFIC AFFAIRS
(FORMERLY WITH SANDOZ) AND SIDNEY S. DEGRAW, SENIOR DIRECTOR, CLINICAL
OPERATIONS (FORMERLY WITH BRISTOL-MYERS SQUIBB).
7
<PAGE> 9
BREATHING EASILY WITH ASTHMA
CAPTION: ASTHMA AFFLICTS 14-15 MILLION PEOPLE IN THE U.S. NEARLY 20 PERCENT OF
ALL CHILDREN ARE ASTHMATICS. WHILE MANY DISEASES HAVE DIMINISHED THROUGH
MEDICAL ADVANCES, THE INCIDENCE AND MORBIDITY ASSOCIATED WITH ASTHMA, HAVE
INCREASED. WORLDWIDE SALES FOR PRESCRIPTION ASTHMA DRUGS EXCEED $5 BILLION
ANNUALLY. HALF IS SPENT ON BRONCHODILATORS, WITH MARKET LEADING, RACEMIC
ALBUTEROL ACCOUNTING FOR $1.4 BILLION IN ANNUAL SALES.
8
<PAGE> 10
Asthmatics suffer from chronic, episodic, reactive narrowing of the airways.
Attacks can range from slight breathing difficulties to life-threatening
respiratory failure. Bronchodilators, such as Glaxo-Wellcome's Ventolin(R) and
Schering-Plough's Proventil(R), give rapid, symptomatic relief to asthmatics.
The active ingredient in these drugs is racemic albuterol, the most widely-used
bronchodilator on the market today. Last year almost 40 million prescriptions
were written for racemic albuterol in the U.S. alone.
LEVALBUTEROL...ADVANCING ASTHMA THERAPY THROUGH PURER MEDICINE
Sepracor is aggressively developing its proprietary single-isomer levalbuterol
(formerly (R)-albuterol) as a purer, safer and more effective asthma therapy.
Levalbuterol's potential advantages over racemic albuterol are: (1) equal or
superior bronchodilation; (2) longer duration of action leading to better
disease management and compliance; and, (3) reduced beta-mediated side effects
such as palpitations, tremor and hyperactivity.
CLINICAL TRIALS DEMONSTRATE SAFETY AND EFFICACY ADVANTAGES
In the first quarter of 1997, Sepracor completed its multi-site, pivotal Phase
III trial of levalbuterol in inhalation solution delivered by nebulizer. This
five-way, parallel-group, placebo-controlled study involved 362 patients at 32
clinics around the U.S. The company also completed a pediatric study to
establish appropriate doses for the largely unattended children's market.
Designed to differentiate levalbuterol from the racemic mixture in safety
and efficacy, Sepracor's Phase II trials did indicate, and its pivotal Phase III
trial has confirmed that in subjects tested, levalbuterol showed comparable or
superior efficacy to racemic albuterol, but exhibited substantially fewer
cardiovascular side effects.
Sepracor plans to file an NDA for levalbuterol inhalation solution
delivered by nebulizer by June 30, 1997. Because each formulation of any drug
requires its own clinical studies and regulatory approval, Sepracor is pursuing
separate NDAs for levalbuterol in syrup formulations, controlled-release
tablets, metered-dose inhalers and dry-powdered inhalers. Levalbuterol holds the
promise for Sepracor to significantly penetrate the $2.8 billion worldwide
asthma broncho dilator market by offering meaningful benefits to the asthma
community.
(R,R) - FORMOTEROL...SUPERIOR LONG-ACTING BRONCHODILATOR
Sepracor is developing (R,R)-formoterol as a purer, long-acting bronchodilator
with an improved safety profile. This single-isomer ICE Pharmaceutical could
offer the twin benefits of rapid onset of action and long duration (more than 12
hours) of therapy. Such attributes would allow for strong competition with the
market-leading, long-acting broncho dilator, salmeterol (Serevent(R)) which is
burdened by a 15-to-30 minute delay in onset of action. Sepracor will begin
(R,R)-formoterol clinical trials in 1997.
FOOTNOTE
CLINICAL TRIALS: The series of steps during the investigational use of a drug in
humans. Phase I tests the drug for safety; Phase II tests the drug for efficacy
and safety in a relatively small sample of patients; and, Phase III tests the
drug for efficacy in a larger sample of patients.
CAPTION: PAULIANA C. HALL, VICE PRESIDENT, REGULATORY AFFAIRS (FORMERLY WITH
ASTRA) REVIEWS DOCUMENTS FOR SEPRACOR'S LEVALBUTEROL NDA SUBMISSION WITH PAUL
D. RUBIN, M.D., SENIOR VICE PRESIDENT OF DRUG DEVELOPMENT (FORMERLY WITH
GLAXO-WELLCOME) AND ROGER P. BAKALE, Ph.D, DIRECTOR, CHEMICAL PROCESSING
DEVELOPMENT (FORMERLY WITH BRISTOL-MYERS SQUIBB).
9
<PAGE> 11
GAINING CONTROL IN UROLOGY
CAPTION: IN THE U.S. MORE THAN 13 MILLION ADULTS, MOST OF THEM MIDDLE-AGED AND
OLDER WOMEN, SUFFER FROM URINARY INCONTINENCE. URINARY INCONTINENCE PLAGUES
10 - 35 PERCENT OF ADULTS AT AN ESTIMATED COST OF MORE THAN $15 BILLION. DRUG
TREATMENT CURRENTLY AVAILABLE IS LIMITED BY SIDE EFFECTS. MOST PATIENTS ARE
LEFT TO DEAL WITH THEIR CONDITION WITH DIAPERS, AN ESTIMATED $2 BILLION MARKET.
10
<PAGE> 12
Racemic oxybutynin, marketed as Ditropan(R) by Hoechst Marion Roussel and
generically by other companies, is the leading pharmaceutical therapy of urinary
incontinence. However, its unpleasant side effects -- dry mouth, blurred vision,
nausea, constipation, restlessness and cardiovascular palpitations --
significantly limit its use and dosage among the target population.
(S)-OXYBUTYNIN...IMPROVED TREATMENT FOR URINARY INCONTINENCE
In July of 1996, Sepracor received a U.S. patent for the use of S-oxybutynin for
the treatment of urinary incontinence. Sepracor believes that its proprietary
single-isomer formulation may be efficacious in treating urinary incontinence,
but lacks the unpleasant side effects that have limited the racemic drug's
sales. In a European clinical trial, Sepracor demonstrated that (S)-oxybutynin
is extremely well-tolerated at high doses, and importantly, lacks
anticholinergic side effects.
In late 1996, Sepracor began a multidose U.S. Phase I/II clinical study of
(S)-oxybutynin for the treatment of urinary incontinence. This and subsequent
trials are intended to show that the S-isomer offers the desired efficacy of
Ditropan while exhibiting fewer unpleasant side effects.
As the U.S. population continues to age, and as lifestyle preferences shift
increasingly toward higher levels of physical and social activity, the potential
market for a drug to successfully treat urinary incontinence is enormous.
Although a prevalent medical condition, urinary incontinence is overlooked and
underserved. The prevailing use of adult diapers and the rise of nursing home
admittance due to bladder instability suggests that effective drug treatment
could serve such inadequately met needs.
(S)-DOXAZOSIN...IMPROVED TREATMENT FOR ENLARGED PROSTATE
In benign prostatic hyperplasia (BPH), the prostate gland enlarges
sufficiently to compress the urethra and cause urinary obstruction. Almost
half of all men over the age of 55 and 75 percent of all men over age 80
suffer from symptoms of BPH.
Sepracor is developing (S)-doxazosin, the single-isomer version of racemic
doxazosin, marketed by Pfizer as Cardura(R). Sepracor's version would provide a
treatment for BPH without the racemic drug's major detrimental side effect of
orthostatic hypotension, or feeling faint upon standing. Currently, dosages of
racemic doxazosin must be adjusted individually in small increments. Dosing
starts at sub-therapeutic levels and increases to a therapeutic level that
reduces fainting or lightheadedness. The titration procedure is lengthy and
expensive.
Sepracor's (S)-doxazosin is in preclinical studies. Through clinical
trials, the company intends to show that the S-isomer of doxazosin is potent,
does not cause orthostatic hypotension, and is more effective than the racemic
parent.
In April 1996, Sepracor received a U.S. patent covering the use of
(S)-doxazosin for the treatment of benign prostatic hyperplasia. Drug sales to
treat this disorder are expected to exceed $2 billion worldwide by the end of
the decade.
STEPHEN A. WALD, VICE PRESIDENT, CHEMICAL R & D (FORMERLY WITH ABBOTT)
DISCUSSES DOSING SCHEDULES FOR THE UPCOMING PHASE II CLINICAL TRIAL OF
(S)-OXYBUTYNIN WITH THOMAS E. ROLLINS, VICE PRESIDENT, DEVELOPMENT OPERATIONS
(FORMERLY WITH MERCK) AND WILLIAM E. YELLE, DIRECTOR, BUSINESS DEVELOPMENT
(FORMERLY WITH PFIZER).
<PAGE> 13
MAKING ADVANCES IN PAIN MANAGEMENT
CAPTION: APPROXIMATELY 30 PERCENT OF PATIENTS TAKING NONSTEROIDAL
ANTI-INFLAMMATORY DRUGS (NSAIDS) FOR PAIN AND INFLAMMATION WILL EXPERIENCE
GASTRIC IRRITATION. FIVE PERCENT OF THOSE USERS SUFFER FROM THE SERIOUS SIDE
EFFECTS OF GASTROINTESTINAL BLEEDING, PERFORATION AND ULCERATION.
12
<PAGE> 14
Nonsteroidal anti-inflammatory drugs (NSAIDs) relieve pain, reduce fevers and
decrease inflammation. U.S. sales of prescription NSAIDs are $4 billion, half of
which are prescribed for arthritis. This market is expected to increase as baby
boomers age and continue to lead active lifestyles.
Gastrointestinal (GI) and irritation is a very common complaint with
the chronic use of racemic NSAIDs. This side effect, at minimum, is
uncomfortable and can lead to discontinuation of therapy. At least five percent
of patients have serious gastrointestinal morbidity. Sepracor has identified
three ICE pharmaceutical candidates for pain management with reduced GI effects:
R-KETOPROFEN...A POTENTIALLY SAFER NSAID
Sepracor holds a U.S. patent for the use of (R)-ketoprofen as a potent pain
reliever and anti-inflammatory drug with reduced gastrointestinal side effects.
Racemic ketoprofen is marketed by American Home Products as Orudis (R) and by
Bayer as Actron(R).
Two completed Phase II trials, comparing (R)-ketoprofen to racemic
ketoprofen, acetaminophen and placebo, show (R)-ketoprofen to be ten times as
potent as acetaminophen (Tylenol (R)) with essentially no gastrointestinal
irritation or liver toxicity. These studies indicate that (R)-ketoprofen has
the potential to be a safer and more effective, prescription NSAID for chronic
pain.
(R)-KETOROLAC...A CANDIDATE FOR POTENT PAIN RELIEF WITHOUT GI IRRITATION
Sepracor also believes (R)-ketorolac, a single-isomer version of racemic
ketorolac (Roche's pain killer, Toradol(R)), could be a drug candidate for
effective relief with reduced GI effects. The company expects this single-isomer
formulation is comparable to (R)-ketoprofen in terms of potency, and reduced GI
irritation.
(S)-FLUOXETINE...MIGRAINE PROPHYLACTIC
Sepracor's patented (S)-fluoxetine is being developed for the new indication of
migraine prophylaxis. (S)-fluoxetine is a single-isomer version of racemic
fluoxetine, marketed by Lilly as the antidepressant Prozac(R). Approximately 23
million Americans suffer from migraine pain and the current prophylactic therapy
is inadequate.
In Phase II trials, Sepracor demonstrated a statistically significant
decrease in the frequency of migraine attacks for those patients who received
(S)-fluoxetine, relative to patients receiving placebo. Despite the fact that
millions of Americans suffer from migraine head-aches, Sepracor believes that
this is a relatively undertreated condition and thus a large market opportunity
for (S)-fluoxetine.
ADDITIONAL SEPRACOR ICE PHARMACEUTICALS CURRENTLY IN PRECLINICAL DEVELOPMENT
INCLUDE:
(R)-fluoxetine (single-isomer version of Lilly's racemic Prozac) with an optimal
duration of action that can increase treatment flexibility for depression;
Norcisapride (active-metabolite of Johnson & Johnson's racemic Propulsid(R)) as
a treatment for GI disturbances;
(R)-ondansetron (single-isomer version of Glaxo-Wellcome's racemic Zofran(R)) as
an antiemetic without the cardiac side effects of the parent therapeutic; and
(2R,4S)-itraconazole (single-isomer version of Johnson & Johnson's racemic
Sporanox(R)) as an improved antimicrobial without drug-drug interactions and
liver toxicity.
CAPTION: Douglas E. Reedich, Ph.D., J.D., Chief Patent Counsel (formerly with
3M) discusses the pain management program with Christopher H. Senanayake,
Ph.D., Director of Chemistry, (formerly with Merck) and Thomas P. Jerussi,
Ph.D., Director of Pharmacology, (formerly with Ohmeda (PPD), Inc).
13
<PAGE> 15
FORWARD AND BACKWARD INTEGRATION
FORWARD INTEGRATION: SALES & MARKETING
The centerpiece of Sepracor's commercialization strategy is its aggressive plan
to directly sell ICE Pharmaceuticals in markets where a specialty sales force
can make significant penetration.
In preparing for the launch of nebulized levalbuterol and other clearly
differentiated asthma and allergy products beginning in 1998, Sepracor is
building a specialty respiratory field sales force which initially will focus on
the most prestigious prescribing pulmonologists, allergists, pediatricians and
home health care providers. The sales force will increase in size and scope as
other levalbuterol formulations and Sepracor ICE Pharmaceuticals are approved
for sale.
Sepracor plans to co-promote its ICEs with leading pharmaceutical marketing
partners when the company's own sales force is neither well situated nor large
enough to achieve maximum market penetration. Co-promoted products are expected
to be those heavily prescribed by general and family practitioners. Sepracor's
inhaler formulations of levalbuterol and the company's third-generation
antihistamines are good examples.
BACKWARD INTEGRATION: DRUG DISCOVERY
The depth of Sepracor's current and future ICE pharmaceutical pipeline is
expected to fuel the company's growth for the forseeable future. However,
long-term growth will require additional Sepracor drug candidates for clinical
development and commercialization.
CAPTION: DAVID S. BARLOW, PRESIDENT, PHARMACEUTICALS (FORMERLY WITH PFIZER)
DISCUSSES RESULTS OF SEPRACOR-SPONSORED, PHYSICIAN FOCUS GROUPS WITH FREDERICK
H.GRAFF, VICE PRESIDENT SALES, PHARMACEUTICALS (FORMERLY WITH RHONE-POULENC
RORER).
14
<PAGE> 16
Fortunately, drug discovery is under-going a revolutionary increase in
productivity and part of Sepracor's strategy is to keep its scientists at the
forefront of this exciting trend. Specifically, the marriage of combinatorial
chemistry and high throughput screening technology -- both of which rely on
advanced automation and miniaturization systems -- is dramatically shortening
the time it takes to discover lead compounds and develop drug candidates.
Combinatorial chemistry techniques are used to produce focused libraries of
compounds for screening. Characterized "hits" are further optimized by an
efficient evolutionary process and can become "lead" compounds warranting
further development. The ability of combinatorial methodologies to synthesize
thousands of compounds and evaluate them rapidly provides the power of this
technology to shorten the process of drug discovery.
Sepracor expects these drug discovery activities to augment its robust
product pipeline in the future.
Today Sepracor has a total of six ICE Pharmaceuticals in human clinical
trials and six in preclinical studies. One Sepracor-patented ICE Pharmaceutical
was developed and is now being marketed by HMR (fexofenadine). Sepracor plans
four additional NDA filings (levalbuterol, norastemizole, (R,R)-formoterol and
(S)-oxybutynin) in the next six to thirty-six months.
CAPTION: JAMES R. HAUSKE, Ph.D., SENIOR VICE PRESIDENT, DISCOVERY CHEMISTRY
(FORMERLY WITH PFIZER) DESCRIBING COMBINATORIAL LIBRARY SYNTHESIS PATHWAYS WITH
ROBERT F. SCUMACI, SENIOR VICE PRESIDENT, FINANCE & ADMINISTRATION (FORMERLY
WITH ARES-SERONO).
15
<PAGE> 17
SEPRACOR INC. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended December 31, (in thousands, except per share data) 1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues:
Product sales $ 13,784 $14,271 $12,382 $ 9,862 $12,904
Collaborative research and development 25 1,036 303 2,209 3,560
License fees and royalties 1,232 900 5,425 1,359 1,087
- -----------------------------------------------------------------------------------------------------------------------------
Total revenues 15,041 16,207 18,110 13,430 17,551
- -----------------------------------------------------------------------------------------------------------------------------
Costs and expenses:
Cost of products sold 6,784 10,410 6,919 6,786 7,062
Research and development 35,828 21,707 17,723 13,301 10,345
Purchase of in-process research and development (1) 3,500
Selling, general, administrative and patent costs 16,312 20,411 16,212 12,494 11,198
Restructuring charges (2) 4,144 2,015
- -----------------------------------------------------------------------------------------------------------------------------
Total costs and expenses 58,924 56,672 44,354 34,596 28,605
- -----------------------------------------------------------------------------------------------------------------------------
Loss from operations (43,883) (40,465) (26,244) (21,166) (11,054)
- -----------------------------------------------------------------------------------------------------------------------------
Other income (expense):
Equity in investee losses (3) (17,539) (808)
Interest income 6,713 3,228 1,390 1,096 1,501
Interest expense (6,140) (2,077) (832) (751) (833)
Other (4) (107) (1,171) (213) (86) (112)
- -----------------------------------------------------------------------------------------------------------------------------
Net loss before minority interests (60,956) (41,293) (25,899) (20,907) (10,498)
Minority interests in subsidiaries 846 7,881 5,556
- -----------------------------------------------------------------------------------------------------------------------------
Net loss $(60,110) $(33,412) $(20,343) $(20,907) $(10,498)
=============================================================================================================================
Net loss applicable to common shares (5) $(60,710) $(33,412) $(20,343) $(20,907) $(10,498)
=============================================================================================================================
Net loss per common share $ (2.25) $ (1.54) $ (1.09) $ (1.16) $ (0.59)
Weighted average number of common
shares outstanding 27,032 21,637 18,644 18,038 17,658
BALANCE SHEET DATA (IN THOUSANDS):
Cash and marketable securities $103,650 $143,250 $27,590 $20,677 $29,581
Total assets 146,689 202,713 73,419 46,681 59,361
Long-term debt 85,267 85,818 5,929 5,676 5,636
Stockholders' equity 30,392 89,227 30,485 33,152 44,089
<FN>
(1) Represents charge related to the purchase of in-process research and
development in connection with an acquisition. See Footnote
T-Notes to Consolidated Financial Statements.
(2) Represents a restructuring and impairment charge taken by BioSepra in June
1995. See Footnote H-Notes to Consolidated Financial Statements.
(3) 1996 figures reflect a net loss for ChiRex and HemaSure that includes
one-time charges taken in connection with ChiRex's initial public offering
and related transaction and HemaSure's loss from discontinued operations,
respectively. See Footnote D-Notes to Consolidated Financial Statements.
(4) Includes a write-off of approximately $800,000 relating to certain deferred
finance charges taken in September, 1995.
(5) Includes $600,000 in preferred stock dividends. See Footnote B-Notes to
Consolidated Financial Statements.
</FN>
</TABLE>
16
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
OF FINANCIAL CONDITION AND 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, Versicor and Sepracor Canada Limited.
In June 1996, NEP was merged into Sepracor Inc.
In September 1995, HemaSure Inc. ("HemaSure") completed the sale of 2,500,000
shares of its common stock, $.01 par value per share, pursuant to an
underwritten public offering. As a result of the sale, the Company's ownership
of the outstanding shares of common stock of HemaSure was reduced from
approximately 55% to approximately 37%. Effective September 27, 1995, the
Company no longer consolidates HemaSure's financial statements and accounts for
the Company's investment in HemaSure using the equity method. The sale resulted
in a gain of approximately $15,235,000 which was recorded as an increase to
Sepracor's additional paid in capital.
In March 1996, ChiRex Inc. ("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 6,675,000 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 $2,518,000 as its share of ChiRex's losses for the year
ended December 31, 1996.
In March 1996, Sepracor loaned 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 was 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, BioSepra borrowed the
additional $2,000,000. 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.
RESULTS OF OPERATIONS
REVENUE Product sales were $13,784,000 in 1996, $14,271,000 in 1995 and
$12,382,000 in 1994. Product sales are primarily attributable to BioSepra's
sales of bioprocessing media, supplies and equipment. The increase in product
sales from 1994 to 1995 was the result of increased sales of BioSepra's
ProSystrademark Workstation and large scale chromatography equipment. The
decrease in sales from 1995 to 1996 was primarily the result of only
consolidating the results of SepraChem Inc. through March 11, 1996 partially
offset by increased sales at BioSepra. The Company believes that sales of
BioSepra's HyperDtrademark 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").
BioSepra's future success will depend, in part, on its ability to generate
increased sales of its HyperD media products and ProSys Workstations.
Collaborative research and development revenues for 1996, 1995 and 1994, were
$25,000, $1,036,000 and $303,000, respectively. The increase in research revenue
from 1994 to 1995 and the decrease from 1995 to 1996 was primarily related to
revenue recorded in 1995 from Bayer Corporation (formerly Sterling Winthrop
which was acquired by SmithKline Beecham in late 1994) in connection with
completion of Phase I clinical trials on the single isomer of a non-steroidal
anti-inflammatory drug ("NSAID") as an analgesic for worldwide over-the-counter
markets. This achievement resulted in revenue of $650,000 for completion of this
benchmark. This contract was subsequently terminated by Bayer.
License fees and royalties were $1,232,000, $900,000 and $5,425,000, in 1996,
1995 and 1994, respectively. The increase in license fees and royalties from
1995 to 1996 primarily related to revenue recognized at BioSepra under the
Beckman contract. The decrease in license fees and royalties from 1994 to 1995
primarily related to amounts earned in 1994 that did not recur in 1995,
including $3,750,000 from Hoechst Marion Roussel Inc. (formerly Marion Merrell
Dow, Inc. ("MMD")) and $1,000,000 from SmithKline Beecham ("SKB"). The MMD
revenue was earned upon issuance to Sepracor of a U.S. patent on the use of
terfenadine carboxylate as an antihistamine. The revenue from SKB was an
anniversary payment as part of the NSAID contract described above. Under the MMD
Agreement, Sepracor is entitled to receive up to $3,750,000 of additional
payments, subject to additional milestones, and future royalties on U.S. sales
of product, if any, under the patent license agreement commencing upon the
expiration of an HMRI patent covering Allegra. Amounts related to Tanabe's
licensing and use of Sepracor's technology in the manufacture of the chiral
intermediate diltiazem included in royalties and license fees in 1996, 1995 and
1994 are $333,000, $675,000 and $675,000, respectively. Beginning in March 1996,
Sepracor now splits the royalty revenue from Tanabe on a 50/50 basis with
ChiRex.
COSTS AND EXPENSES Cost of products sold as a percentage of product sales was
49% in 1996, 73% in 1995 and 56% in 1994. The higher cost of product sales in
1995 was the result of sales of products of Biopass S.A.("Biopass"),a
wholly-owned subsidiary of Biospera, which was sold in July 1995. To a lesser
extent, cost of products sold as a percentage of product sales decreased in
1996 as compared to 1995 as a result of reduced overall manufacturing costs at
BioSepra due to the cost-reduction program implemented in June 1995.
Research and development expenses were $35,828,000, $21,707,000 and
$17,723,000, in 1996, 1995 and 1994, respec-
17
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
tively. The increase in 1996 from 1995 was primarily due to higher spending on
preclinical and clinical trials in Sepracor's pharmaceutical programs.
Sepracor's research and development spending in 1996 focused primarily on its
four lead compounds: (1) Levalbuterol-Phase III clinical trials, (2)
Norastemizole-Phase I/II clinical trials, (3) S-oxybutynin-Phase I clinical
trials, and (4) R, R-formoterol-pre clinical trials. In 1995, research and
development spending increased from 1994 primarily due to spending on Sepracor's
preclinical and clinical trials in its pharmaceutical program and increased
spending in product development of HemaSure's Steripathtrademark Blood Pathogen
Inactivation System.
Selling, general and administrative expenses and legal expense related to
patents were $16,312,000, $20,411,000 and $16,212,000, in 1996, 1995 and 1994,
respectively. The decrease in 1996 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. The increase
in 1995 was primarily due to the hiring of certain management personnel at
Sepracor and BioSepra, increased legal expenses related to the lawsuits filed by
and against PerSeptive, and increased marketing expenses for HemaSure's
LeukoNettrademark Pre-Storage Leukoreduction Filtration System.
In June 1995, BioSepra announced a major cost-reduction program that involved
the consolidation of its facilities and a significant reduction in the number of
employees. The purpose of the program was to enable BioSepra to focus on the
process development and process segments of the biopharmaceutical market. In
connection with this program in July 1995, BioSepra completed the sale of
Biopass. As part of the cost-reduction program, BioSepra
recorded restructuring and impairment charges totaling $4,144,000 in the second
quarter of 1995. Of this amount $1,180,000 represents severance and benefits
related to the reduction in workforce in the U.S. and France and $2,964,000
relates to impairment of intangibles and loss on assets to net realizable value.
BioSepra has completed its reduction in workforce related to this cost-reduction
program resulting in the termination of 55 employees consisting of research and
development, administrative, production and marketing/sales personnel. BioSepra
paid $140,000 and $1,025,000 of the costs relating to the employee reduction as
of December 31, 1996 and 1995, respectively, and expects the remaining severance
and medical payments to be completed in 1997.
In July 1995, BioSepra sold Biopass while retaining the chromatography column
technology that it assumed when it acquired Biopass. The results of Biopass
operations through July 19, 1995 have been included in the consolidated results
of operations for the year ended December 31, 1995. The loss of $2,964,000, on
the sale of Biopass, was recorded in restructuring and impairment costs in the
results of operations in 1995. In 1996, BioSepra wrote-off the remaining
unamortized portion of certain purchased technology of approximately $741,000.
Equity in loss of investees was $17,539,000 and $808,000 for 1996 and 1995.
There were no similar amounts in 1994. 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 $11,076,000 (Sepracor's portion of this
one-time write-off was $3,544,000) from ChiRex's initial public offering and
resulting transactions. Included in HemaSure's results were $24,748,000 relating
to the operations and discontinuation of HemaSure's blood plasma business
(Sepracor's portion of this was $9,157,000). Interest income was $6,713,000,
$3,228,000 and $1,390,000, in 1996, 1995 and 1994, respectively. The increases
were primarily due to larger amounts of cash balances available for investment.
Interest expense was $6,140,000, $2,077,000 and $832,000, in 1996, 1995 and
1994, respectively. The increases in interest expense were due to the
$80,880,000 subordinated convertible debenture offering completed in November
and December of 1995. Net other expense was $107,000, $1,171,000 and $213,000,
in 1996, 1995 and 1994, respectively. The increase in 1995 was primarily due to
the write-off of approximately $800,000 of certain deferred financing costs by
Sepracor related to SepraChem. Net other expense also reflects gains and losses
from foreign exchange transactions.
Minority interests in subsidiaries resulted in a reduction of consolidated net
loss of $846,000, $7,881,000 and $5,556,000 in 1996, 1995 and 1994. The decrease
in 1996 from 1995 results from smaller losses at BioSepra and from HemaSure no
longer being consolidated into the results of operations of Sepracor. The
increase in 1995 from 1994 relates to larger losses at BioSepra and HemaSure.
LEGAL
Sepracor and BioSepra are defendants in three lawsuits brought by PerSeptive
BioSystems, Inc., a competitor of BioSepra, 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 POROSRegistration Mark media, and the
internal structures of POROS and HyperD media, including statements made in
BioSepra's prospectus dated March 24, 1994, constitute false advertising.
PerSeptive also asserts that an additional perfusion chromatography patent has
been allowed, and that another patent related to perfusion chromatography has
been issued. The new perfusion chromatography patent contains claims similar to
the other patents that Sepracor and BioSepra are alleged to have infringed.
BioSepra has received an opinion of its patent counsel 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
18
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
products do not infringe any valid claims of the three United States patents
held by PerSeptive relating to "perfusion chromatography." PerSeptive has not
formally claimed that the present HyperD products infringe the fourth perfusion
patent. 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's 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 "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 which was completed in August 1996. The District
Court has not rendered a decision based on the August hearing.
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.
There can be no assurance that Sepracor and BioSepra 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 and BioSepra's future business and operations. BioSepra has entered
into a joint development and distribution agreement with Beckman Instruments,
Inc. ("Beckman"). BioSepra is required to repay to Beckman all or part of
certain payments if BioSepra 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.
HemaSure is a defendant in two lawsuits brought by Pall Corporation ("Pall"). In
complaints filed in February 1996 and November 1996, Pall alleged that the
HemaSure's manufacture, use and/or sale of the LeukoNet product infringes upon
three patents held by Pall.
On October 14, 1996, in connection with the first action concerning U.S. Patent
No. 5,451,321, HemaSure filed a motion for summary judgment of noninfringement.
Pall filed a cross motion for summary judgment of infringement at the same time.
The parties are awaiting the Court's decision.
With respect to the second action concerning U.S. Patent Nos. 4,340,479 ("the
'479 patent") and 4,952,572 ("the '572 patent"), HemaSure has answered the
complaint stating that it does not infringe any claim of the assorted patents.
Further, HemaSure has counterclaimed for declaratory judgment of invalidity,
noninfringement and unforceability of the '572 patent, and a declaratory
judgment of noninfringement of the '479 patent, as a result of a license.
HemaSure believes, based on advice of its patent counsel, that a properly
informed court should conclude that the manufacture, use and/or sale by HemaSure
or its customers of the present LeukoNet product does not infringe any valid
enforceable claim of the three asserted Pall patents. However, there can be no
assurance that
19
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
HemaSure will prevail in the pending litigations, and an adverse outcome in a
patent infringement action would have a material adverse effect on HemaSure's
future business and operations.
OTHER
The Financial Accounting Standards Board issued Statement No. 128 ("SFAS 128"),
"Earnings per Share", which modifies the way in which earnings per share ("EPS")
is calculated and disclosed. Currently, Sepracor discloses primary EPS. Upon
adoption of this standard for the fiscal period ending December 31, 1997,
Sepracor will disclose basic EPS. Basic EPS excludes dilution and is computed
by dividing income available to common shareholders by the weighted-average
number of common shares outstanding for the period. The adoption of SFAS 128
will not change the way EPS is presently calculated by Sepracor.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents plus marketable securities of Sepracor and its
subsidiaries, including BioSepra, totaled $103,650,000 at December 31, 1996,
compared to $143,250,000 at December 31, 1995. Cash and cash equivalents plus
marketable securities of Sepracor, excluding BioSepra, at December 31, 1996 were
$98,981,000.
The net cash used in operating activities for the year ended December 31, 1996
was $30,111,000. The net cash used in operating activities includes the net loss
of $60,110,000 and the minority interests in subsidiary portion of the net loss
of $846,000. This was offset by non-cash charges of $22,206,000. The Company's
account receivable balance at December 31, 1996 decreased by $2,069,000 from the
December 31, 1995 balance primarily due to the timing of collection of license
fees receivable by Sepracor in 1996. The other current asset balance increased
by $796,000 primarily due to increases in prepaid insurance and other
receivables. The accounts payable and accrued expense balances increased a total
of $7,291,000 from the December 31, 1995 balances primarily due to increases in
research and development accruals at Sepracor.
In October 1995 Versicor entered into a Convertible Subordinated Note Agreement
(the "Note") with Sepracor. Under this Note, Sepracor agrees to loan to Versicor
until October 2, 1998, such sums as Versicor may from time to time request but
may not exceed $4,700,000. The Note shall accrue and bear interest at the Prime
Rate plus 1/2% (8.75% at December 31, 1996), not to exceed 9.5%. The Note is
convertible, at the option of Sepracor, into Versicor Series B Convertible
Preferred Stock by dividing the amount outstanding, including principle and
interest, by $0.7833. The amount outstanding under the Note was $5,066,000 and
$1,142,000, at December 31, 1996 and 1995, respectively. Total interest expense
charged to Versicor under this agreement was $349,000 and $17,000 in 1996 and
1995.
In 1996, Versicor entered into a loan agreement with Sepracor. Under this
agreement Sepracor agrees to loan to Versicor, such amounts as Versicor from
time to time requests but which may not exceed, the aggregate principal amount
at any one time of $7,500,000. The loan accrues interest equal to the prime rate
minus 1/4% (8% at December 31, 1996). This rate is subject to change under
certain circumstances. The total amount outstanding under this loan agreement
was $2,705,000 at December 31, 1996. Total interest expense charged to Versicor
under this agreement was $68,000 in 1996.
In December 1996, Sepracor, BioSepra and Versicor entered into a revolving
credit agreement with a commercial bank that provides for borrowing of up to an
aggregate of $10,000,000. BioSepra and Versicor can borrow up to $3,000,000
each. All borrowings are collateralized by certain assets of the companies. The
credit agreement contains covenants relating to minimum tangible capital base,
minimum cash or cash equivalents, minimum liquidity ratio and maximum leverage
for Sepracor and BioSepra. Sepracor is a guarantor of all outstanding
borrowings. At December 31, 1996, there was no amount outstanding under this
agreement. The annual interest rate on such borrowings is at the lower of the
prime rate or LIBOR plus 1.75.
In December 1996, Versicor entered into a term loan agreement with a commercial
bank that provides for borrowing of up to $3,000,000 for the purpose of
financing capital equipment purchases. No individual term loan can be less than
$500,000 and shall be payable in sixteen equal quarterly installments commencing
on January 1, 1998 with the final payment of the balance on December 31, 2001 or
such earlier date that the balance shall have been reduced to zero. There were
no amounts outstanding under this term loan agreement at December 31, 1996. The
annual interest rate on such borrowings is at the bank's Fixed Quoted Rate plus
1/2% or the prime rate.
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 of capital equipment
in the U.S. All outstanding amounts are collateralized by the assets so financed
and BioSepra's portion is guaranteed by Sepracor. At December 31, 1996, Sepracor
and BioSepra had $565,000 outstanding under this credit facility.
At December 31, 1996, Sepracor guaranteed $1,025,000 of outstanding bank
borrowings of BioSepra S.A., BioSepra's wholly-owned French subsidiary.
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 December 31, 1996, $2,960,000 of such term debt had been received by
Sepracor Canada Limited. Sepracor Canada Limited also received a grant of
approximately $740,000.
A registration statement for the offering to the public of the
20
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
3,489,301 shares of ChiRex common stock held by Sepracor was declared effective
by the Securities and Exchange Commission on March 24, 1997. Sepracor expects to
receive net proceeds of approximately $31,125,000 after payment of the
underwriting discounts and commissions but before payment of the other expenses
associated with the offering. The offering is expected to close on March 31,
1997.
FACTORS AFFECTING FUTURE OPERATING RESULTS
Certain of the information contained in this Annual Report, including
information with respect to the safety, efficacy and potential benefits of the
Company's ICEtrademark Pharmaceuticals under development and the scope of patent
protection with respect to these products and information with respect to the
Company's other plans and strategy for its business, consists of forward-looking
statements. Important factors that could cause actual results to differ
materially from the forward-looking statements include the following:
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.
Since substantially all of Sepracor's ICE Pharmaceuticals are at the early
stages of development, there can be no assurance that these drugs will have
improved characteristics that provide greater benefits or fewer side effects
than the corresponding racemic drugs or that research efforts undertaken by
Sepracor will lead to the discovery of further drugs with such improved
characteristics. All of the drugs under development will require significant
additional research, development, preclinical and/or clinical testing,
regulatory approval and an additional commitment of resources prior to their
commercialization. There can be no assurance that the results of such clinical
trials will be consistent with the results obtained in preclinical studies or
that the results obtained in later phases of clinical trials will be consistent
with those obtained in earlier phases. There also can be no assurance that any
such products will be shown to be safe and efficacious. The ability to
commercialize successfully any ICE compound will depend, to a significant
degree, upon the ability to obtain and maintain use patents of sufficient scope
to prevent third parties from developing similar or competitive products.
Sepracor has limited experience in conducting human clinical trials and in
manufacturing pharmaceutical products and has no experience in marketing such
products.
Proprietary rights relating to the products of Sepracor 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.
Certain of the technology that may be used in the products of Sepracor is not
covered by any patent or patent application. There can be no assurance that any
pending patent applications relating to the products of Sepracor will result in
patents being issued or that any such patents will afford protection against
competitors with similar technology. There may be pending or issued third-party
patents relating to the products of Sepracor and Sepracor may need to acquire
licenses to, or to contest the validity of, any such patents. It is likely that
significant funds would be required to defend any claim that Sepracor infringes
a third-party patent, and any such claim could adversely affect sales of the
challenged product of Sepracor until the claim is resolved. There can be no
assurance that any license required under any such patent would be made
available.
Other factors that may affect the Company's future operating results include:
inherent risk of product liability claims which may result from the testing,
marketing and sale of human healthcare products, the Company's fluctuations in
quarterly operating results, the Company's ability to enter into collaborative
agreements with pharmaceutical companies to fund development and
commercialization of its products, obtaining on a timely basis regulatory
approvals for marketing and sale of its products, the scope and timing of
future royalties that Sepracor may receive from HMRI upon U.S. sales of its
Allegra products, the operation of its manufacturing facility and competing
successfully in the market.
Factors that may affect the future operating results of BioSepra include: the
outcome of the lawsuits brought by PerSeptive, the ability of BioSepra to obtain
additional financing, and the success of BioSepra's two product lines: HyperD
media, which was introduced in March 1993, and the ProSys Workstation, which
was introduced in late 1994. Sales of HyperD media and the ProSys Workstation
have been, and are expected to continue to be, affected adversely by the
pending litigation with PerSeptive described above.
Because of the foregoing factors, past financial results should not be relied
upon as an indication of future performance. 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 fluctuate from
period to period in the future.
21
<PAGE> 23
SUPPLEMENTAL STOCKHOLDER INFORMATION
PRICE RANGE OF COMMON STOCK
<TABLE>
The Common Stock of Sepracor Inc. has been traded on the Nasdaq Stock Market
under the symbol SEPR since September 20, 1991. Prior to September 20, 1991, the
Company's Common Stock was not publicly traded. On March 14, 1997, the closing
price of the Company's Common Stock as reported on the Nasdaq Stock Market was
$21.25 per share. The following table sets forth for the periods indicated the
high and low sales prices per share of the Common Stock as reported by the
Nasdaq Stock Market.
<CAPTION>
1996 High Low
- ------------------------------------------------------------------
<S> <C> <C> <C>
First Quarter 20 1/8 14
Second Quarter 16 1/4 11 1/8
Third Quarter 16 1/8 10 1/4
Fourth Quarter 17 1/8 13 3/4
1995 High Low
- ------------------------------------- ----------------- ------------
First Quarter 11 4
Second Quarter 13 7/8 9 3/8
Third Quarter 22 11 3/8
Fourth Quarter 22 7/8 13 5/8
</TABLE>
On March 14, 1997, Sepracor had approximately 503 stockholders of record.
DIVIDEND POLICY
Sepracor has never paid cash dividends on its Common Stock. The Company
currently intends to reinvest its earnings, if any, for use in the business and
does not expect to pay cash dividends in the foreseeable future.
TRANSFER AGENT AND REGISTRAR
Questions regarding accounts, address changes, stock transfer and lost
certificates should be directed to:
Boston EquiServe L.P.
Mail Stop 45-02-16
P.O. Box 1865
Boston, MA 02105
Phone: (617) 575-2000
FORM 10-K
A copy of the Company's annual report on Form 10-K is available, without charge,
upon written request to:
Executive Vice President, Chief Financial Officer
Sepracor Inc.
111 Locke Drive
Marlborough, MA 01752
22
<PAGE> 24
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF SEPRACOR INC.
We have audited the accompanying consolidated balance sheets of Sepracor Inc.
and subsidiaries as of December 31, 1996 and 1995, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1996. These financial statements
are the responsibility of Sepracor's management. Our responsibility is to
express an opinion on these financial statements based on our audits. We did not
audit the 1996 financial statements of BioSepra Inc., a majority-owned
subsidiary, whose statements reflect total assets and revenues constituting 16%
and 95%, respectively, of the related 1996 consolidated totals. Those statements
were audited by other auditors whose report has been furnished to us, and our
opinion insofar as it relates to the amounts included for BioSepra Inc., is
based solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audit and the 1996 report of the other auditors,
the consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Sepracor Inc. as of
December 31, 1996 and 1995 and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31, 1996
in conformity with generally accepted accounting principles.
Boston, Massachusetts
February 13, 1997,
except as to the information
in Note W for which the date is
March 24, 1997
23
<PAGE> 25
<TABLE>
SEPRACOR INC. CONSOLIDATED BALANCE SHEETS
<CAPTION>
December 31, (in thousands, except par value amounts) 1996 1995
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents (Note B) $ 83,344 $ 135,818
Cash in escrow (Note T) 1,614
Marketable securities (Note B) 20,306 7,432
Accounts receivable (Note E) 3,129 5,508
Inventories (Note F) 3,481 3,412
Other assets 1,588 524
- -------------------------------------------------------------------------------------------
Total current assets $ 111,848 $ 154,308
- -------------------------------------------------------------------------------------------
Property and equipment, net (Note G)
17,045 12,497
Investment in affiliates (Note D) 3,100 17,949
Excess of investment over net assets acquired, net (Note T) 9,254 10,633
Other assets (Note L) 5,442 7,326
- -------------------------------------------------------------------------------------------
Total assets $146,689 $202,713
===========================================================================================
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 4,300 $ 3,325
Accrued expenses (Note I) 12,174 5,900
Deferred revenue (Notes B and J) 3,646 3,500
Acquisition payable (Note T) 1,614
Notes payable and current portion
of capital lease obligation and
long-term debt (Notes K and M) 804 3,152
- -------------------------------------------------------------------------------------------
Total current liabilities 20,924 17,491
- -------------------------------------------------------------------------------------------
Long-term debt and capital lease obligation (Notes K and M) 4,387 4,938
Convertible subordinated debentures (Note L) 80,880 80,880
- -------------------------------------------------------------------------------------------
Total liabilities 106,191 103,309
- -------------------------------------------------------------------------------------------
Convertible redeemable preferred stock (Note O) 6,100 5,500
Minority interest (Note C) 4,006 4,677
Commitments and contingencies (Notes M and N)
Stockholders' equity (Notes C, D, L, O and P)
Common stock, $.10 par value, authorized 40,000 in 1996,
35,000 in 1995, issued and outstanding 27,271 in 1996
and 26,816 in 1995 2,727 2,682
Additional paid-in capital 214,399 212,814
Unearned compensation, net (234)
Accumulated deficit (186,905) (126,795)
Equity adjustments 405 526
- -------------------------------------------------------------------------------------------
Total stockholders' equity 30,392 89,227
- -------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 146,689 $ 202,713
===========================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
24
<PAGE> 26
<TABLE>
<CAPTION>
SEPRACOR INC. CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31, (in thousands, except per share amounts) 1996 1995 1994
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Product sales $ 13,784 $ 14,271 $ 12,382
Collaborative research and development (Note R) 25 1,036 303
License fees and royalties (Note R) 1,232 900 5,425
- --------------------------------------------------------------------------------------------------------
Total revenues 15,041 16,207 18,110
- --------------------------------------------------------------------------------------------------------
Costs and expenses:
Cost of products sold 6,784 10,410 6,919
Research and development 35,828 21,707 17,723
Purchase of in-process research and development (Note T) 3,500
Selling, general and administrative 15,245 19,037 15,460
Legal expense related to patents 1,067 1,374 752
Restructuring charge (Note H) 4,144
- --------------------------------------------------------------------------------------------------------
Total costs and expenses 58,924 56,672 44,354
- --------------------------------------------------------------------------------------------------------
Loss from operations (43,883) (40,465) (26,244)
- --------------------------------------------------------------------------------------------------------
Other income (expense):
Equity in investee losses (Note D) (17,539) (808)
Interest income 6,713 3,228 1,390
Interest expense (6,140) (2,077) (832)
Other income (expense) (107) (1,171) (213)
- --------------------------------------------------------------------------------------------------------
Net loss before minority interests (60,956) (41,293) (25,899)
Minority interests in subsidiaries (Note C) 846 7,881 5,556
- --------------------------------------------------------------------------------------------------------
Net loss $(60,110) $(33,412) $(20,343)
========================================================================================================
Net loss applicable to common shares (Note B) $(60,710) $(33,412) $(20,343)
========================================================================================================
Net loss per common share (Note B) $ (2.25) $ (1.54) $ (1.09)
Weighted average number of common
shares outstanding 27,032 21,637 18,644
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 27
<TABLE>
SEPRACOR INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<CAPTION>
Total
Additional Stock-
Year Ended December 31, Preferred Stock Common Stock Paid-In Unearned Accumulated Equity holders'
1996, 1995 and 1994 (in thousands) Shares Amount Shares Amount Capital Compensation Deficit Adjustments Equity
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 18,605 $1,860 $104,460 $ (73,040) $(128) $ 33,152
====================================================================================================================================
Issuance of common stock to
employees under stock plans 76 8 305 313
Issuance of preferred stock in
private placement 79 $79 4,921 5,000
Gain on issuance of
subsidiaries stock 12,362 12,362
Net loss (20,343) (20,343)
Foreign currency translation
adjustments 1 1
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 79 79 18,681 1,868 122,048 (93,383) (127) 30,485
====================================================================================================================================
Issuance of common stock to
employees under stock plans 430 43 1,141 1,184
Gain on issuance of subsidiary's
stock 15,235 15,235
Issuance of common stock in
public follow-on offering and
warrant exercises 5,620 562 68,110 68,672
Issuance of common stock for
acquisition 102 11 1,399 1,410
Issuance of common stock from
conversion of subordinated
convertible notes 1,189 119 5,381 5,500
Issuance of common stock from
conversion of preferred stock (79) $(79) 794 79
Accrued dividends from
preferred stock (500) (500)
Net loss (33,412) (33,412)
Foreign currency translation
adjustments 653 653
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 26,816 2,682 212,814 (126,795) 526 89,227
====================================================================================================================================
Issuance of common stock to
employees under stock plans 455 45 2,185 2,230
Accrued dividends from preferred
stock (600) (600)
Unearned compensation, net $(234) (234)
Net loss (60,110) (60,110)
Equity adjustments (121) (121)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 27,271 $2,727 $214,399 $(234) $(186,905) $ 405 $30,392
====================================================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
26
<PAGE> 28
<TABLE>
SEPRACOR INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Year Ended December 31, (in thousands) 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
<S> <C> <C> <C>
Net loss $(60,110) $(33,412) $(20,343)
Adjustments to reconcile net loss to net cash
used in operating activities:
Minority interests in subsidiaries (846) (7,881) (5,556)
Depreciation and amortization 4,400 2,785 3,323
Provision for doubtful accounts 142 286 61
Equity in investee losses 17,539 808
Loss on disposal of property and equipment 125 10 45
Restructuring charges 2,629
Purchase of in-process research and development 3,500
Changes in operating assets and liabilities,
net of effects of acquired business:
Accounts receivable 2,069 4,272 (7,109)
Inventories (72) 1,727 (260)
Other current assets (796) (313) (64)
Accounts payable 1,115 (3,315) 2,421
Accrued expenses 6,176 1,424 2,731
Deferred revenue 147 2,757 (299)
- ------------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (30,111) (28,223) (21,550)
- ------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases of marketable securities (93,328) (24,584) (821)
Sales and maturities of marketable securities 80,454 19,350 14,410
Additions to property and equipment (10,121) (3,184) (7,433)
Cash paid for purchase of Biopass S.A., net of cash acquired (3,306)
Cash in escrow (1,483)
Proceeds from sale of equipment 147 34
Investment in subsidiary (6,639)
Increase (decrease) in other assets 1,560 (1,203) (1,059)
- ------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by investing activities (21,288) (16,226) 308
- ------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net proceeds from issuance of stock 2,047 74,904 5,313
Net proceeds from issuance of subsidiaries' stock 32,924
Net proceeds from sale of convertible subordinated debentures 78,268
Borrowings under long-term debt 3,778 994
Repayments of long-term debt (826) (439) (247)
(Repayments) borrowings under line of credit agreements (2,299) (1,701) 3,073
- -------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities (1,078) 154,810 42,057
- -------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash equivalents 3 60 6
- -------------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (52,474) 110,421 20,821
Cash and cash equivalents at beginning of year 135,818 25,397 4,576
- -------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $83,344 $135,818 $ 25,397
- -------------------------------------------------------------------------------------------------------------------------
Supplemental schedule of cash flow information:
Cash paid during the year for interest $ 6,337 $ 1,666 $ 796
Capital lease obligations incurred $ 61 $ 915 $ 462
=========================================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
27
<PAGE> 29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A - NATURE OF THE BUSINESS
Sepracor Inc. was incorporated in 1984 to research, develop and commercialize
products for the synthesis, separation and purification of pharmaceutical and
biopharmaceutical compounds. Specifically, Sepracor is developing improved
versions of best-selling drugs called ICEtrademark Pharmaceuticals (Improved
Chemical Entities). Sepracor is focusing on advancing its pharmaceutical
programs and strengthening its patent positions for these ICE pharmaceuticals.
Sepracor's 100% owned subsidiary, Sepracor Canada Ltd., supplies clinical
material to Sepracor through its manufacturing facility in Windsor, Nova Scotia
which commenced operations in February 1995. Sepracor's majority-owned
subsidiary Versicor Inc., has initiated a program in combinatorial chemistry.
This emerging field involves the creation of diverse, chemical libraries,
consisting of three-dimensional, space filling chiral molecules. Sepracor's 64%
owned subsidiary, BioSepra Inc., with operations in France and the U.S., is
committed to supplying high-quality, reliable bioprocessing media and equipment
to the biotechnology industry. Sepracor's 37% owned subsidiary, HemaSure Inc.,
is dedicated to making blood safer through blood filtration devices and viral
inactivation technology. Sepracor's 32% owned subsidiary, ChiRex Inc.,
manufactures and markets fine chemicals.
Sepracor and its subsidiaries are subject to risks common to companies in the
industry including, but not limited to, development by Sepracor or its
competitors of new technological innovations, dependence on key personnel,
protection of proprietary technology and compliance with government regulations.
B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION: Consolidated financial statements include the
accounts of Sepracor and all of its wholly and majority-owned subsidiaries. All
material intercompany transactions have been eliminated. Investments in
affiliated companies which are 50% owned or less are accounted for using the
equity method.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS: The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the following:
(1) the reported amounts of assets and liabilities, (2) the disclosure of
contingent assets and liabilities at the dates of the financial statements and
(3) the reported amounts of the revenues and expenses during the reporting
periods. Actual results could differ from those estimates.
RECLASSIFICATION OF AMOUNTS: Certain prior year amounts have been reclassified
to be consistent with the current year presentation.
TRANSLATION OF FOREIGN CURRENCIES: The assets and liabilities of Sepracor's
international subsidiaries are translated into U.S. dollars (the functional
currency) using current exchange rates. Statement of operations amounts are
translated at average exchange rates prevailing during the period. The resulting
translation adjustment is recorded in the cumulative translation adjustment
account in stockholders' equity. Foreign exchange transaction gains and losses
are included in other income (expense).
CASH AND CASH EQUIVALENTS: Sepracor considers all highly liquid debt instruments
purchased with an initial maturity of three months or less to be cash
equivalents. As of December 31, 1996 and 1995, cash equivalents primarily
consist of $4,511,000 and $8,974,000 in repurchase agreements, $70,215,000 and
$108,581,000 in high quality corporate and government commercial paper and
$8,403,000 and $17,769,000 in money market instruments which invests primarily
in U.S. Treasury securities, respectively.
CONCENTRATION OF CREDIT RISK: Financial instruments that potentially subject
Sepracor to concentrations of credit risk primarily consist of cash and cash
equivalents. Sepracor places its cash, temporary cash investments and marketable
securities with high credit quality financial institutions.
MARKETABLE SECURITIES: Sepracor accounts for investments in marketable
securities using the provisions of Statement of Financial Accounting
Standards No. 115 "Accounting for Certain Investments in Debt and Equity
Securities." Sepracor has classified all of its marketable securities as
"available for sale."
Marketable securities include government securities and corporate commercial
paper, maturing in less than a year, which can be readily purchased or sold
using established markets. Marketable securities are stated at fair value. Net
realized gains and losses on security transactions are determined on the
specific identification cost basis. The market value of Sepracor's marketable
securities at December 31, 1996 and 1995, was not materially different from
cost.
<TABLE>
Marketable securities consist of the following at December 31, (in thousands):
<CAPTION>
1996 1995
<S> <C> <C>
Government Security $ 5,000
Corporate commercial paper 15,306 $7,432
- -------------------------------------------------------
$20,306 $7,432
- -------------------------------------------------------
</TABLE>
The gross realized gains on the sale of marketable securities were $0, $0 and
$19,000 for the years ended December 31, 1996, 1995 and 1994, respectively.
28
<PAGE> 30
INVENTORIES: Inventories are stated at the lower of cost (first-in, first-out)
or market.
PROPERTY AND EQUIPMENT: Property and equipment are stated at cost. Costs of
major additions and betterments are capitalized; maintenance and repairs which
do not improve or extend the life of the respective assets are charged to
operations. On disposal, the related cost and accumulated depreciation or
amortization are removed from the accounts and any resulting gain or loss is
included in the results of operations. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets. All
laboratory, manufacturing and office equipment have estimated useful lives of
three to ten years. The building has an estimated useful life of thirty years.
Leasehold improvements are amortized over the shorter of the estimated useful
lives of the improvements or the remaining term of the lease.
SOFTWARE CAPITALIZATION: Sepracor capitalizes computer software costs in
accordance with the provision of Statement of Financial Accounting Standards No.
86 "Capitalization of Computer Software Costs." The costs are amortized over the
expected number of units to be sold.
INTANGIBLE ASSETS: The excess of investment over net assets acquired is
amortized using the straight-line method over 20 years. Accumulated
amortization was $3,510,000 and $2,872,000 at December 31, 1996 and 1995,
respectively. The Company evaluates the possible impairment of goodwill at each
reporting period based on the undiscounted projected cash flows of the related
unit. Sepracor capitalizes all significant costs associated with the successful
filing of a patent application. Patent costs are being amortized over their
estimated useful lives, not to exceed 17 years. Deferred finance costs relating
to expenses incurred to complete the convertible subordinated debenture
offering are being amortized over seven years.
The Company adopted Statement of Financial Accounting Standards No. 121
"Accounting for the Impairment of Long Lived Assets to be Disposed Of" ("SFAS
121") in 1995. SFAS 121 requires that long-lived assets be reviewed for
impairment by comparing the fair value of the assets with their carrying amount.
Any write-downs are to be treated as permanent reductions in the carrying amount
of the assets. Accordingly, the Company evaluates the possible impairment of
goodwill and other assets at each reporting period based on the undiscounted
projected cash flows of the related asset.
REVENUE RECOGNITION: Revenues from product sales are recognized when goods are
shipped or installation is complete. Revenues for contracted services and
research and development contracts are recorded based on effort incurred or
milestones achieved in accordance with the terms of the contract. Deferred
revenue represents progress payments received from customers pursuant to
contract revenues not yet recorded. For construction contracts for bioprocessing
equipment, a downpayment of up to one-third of the approximate value of
equipment contracts is required prior to beginning work on the contract.
INCOME TAXES: The Company follows the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). SFAS
109 requires recognition of deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax liabilities and
assets are determined based on the difference between the financial statement
and tax bases of assets and liabilities using enacted tax rates in effect for
the year in which the differences are expected to reverse.
NET LOSS PER SHARE: The net loss per common share is computed based upon the
weighted average number of common shares outstanding. Common equivalent shares
are not included in the per share calculations where the effect of their
inclusion would be antidilutive. Included in the 1996 net loss applicable to
common shares is $600,000 of dividends relating to Series B Redeemable
Exchangeable Preferred Stock (See Note O).
OTHER: The Financial Accounting Standards Board issued Statement No. 128 ("SFAS
128"), "Earnings per Share", which modifies the way in which earnings per share
("EPS") is calculated and disclosed. Currently, Sepracor discloses primary EPS.
Upon adoption of this standard for the fiscal period ending December 31, 1997,
Sepracor will disclose basic EPS. Basic EPS excludes dilution and is computed by
dividing income available to common shareholders by the weighted-average number
of common shares outstanding for the period. The adoption of SFAS 128 will not
change the way EPS is presently calculated by Sepracor.
C - SEPRACOR SUBSIDIARIES
In December 1993, Sepracor formed two wholly-owned subsidiaries, BioSepra Inc.
("BioSepra") and HemaSure Inc. ("HemaSure"). Prior to that date, their
businesses were conducted as divisions of Sepracor. Effective as of January 1,
1994, in exchange for 4,000,000 shares of common stock, Sepracor transferred to
BioSepra its chromatography business, including all of the outstanding shares of
Sepracor S.A., a French company.
29
<PAGE> 31
Also effective January 1, 1994, in exchange for 3,000,000 shares of common
stock, Sepracor transferred to HemaSure its technology relating to the
manufacture, use and sale of its membrane filter products and medical devices
for the separation and purification of blood, blood products and blood
components.
In addition, beginning four years after the closing of the initial public
offerings of BioSepra and HemaSure, Sepracor will be entitled to certain rights
with respect to registration under the Securities Act of its shares of BioSepra
common stock and its shares of HemaSure common stock. These rights provide that
Sepracor may require each of BioSepra and HemaSure, on two occasions, to
register shares having an aggregate offering price of at least $5,000,000 each,
subject to certain conditions and limitations.
In March 1994, BioSepra completed its initial public offering of 3,000,000
shares of common stock at $7.00 per share, resulting in net proceeds to BioSepra
of approximately $17,924,000. In April 1994 HemaSure completed its initial
public offering of 2,175,000 shares of common stock at $7.00 per share,
resulting in net proceeds to HemaSure of approximately $13,100,000. In June
1994, HemaSure sold an additional 326,250 shares of its common stock pursuant to
exercise of the underwriter's over-allotment option resulting in net proceeds of
$1,900,000. One-time gains resulting from the sale of minority interests in
subsidiaries, $4,300,000 for BioSepra and $8,000,000 for HemaSure, were
accounted for as equity transactions by Sepracor in the first and second quarter
of 1994, respectively.
In November 1994, SepraChem Inc. was established as a wholly-owned subsidiary of
Sepracor. In January 1995, in exchange for 7,999,999 common shares, Sepracor
transferred to SepraChem the pharmaceutical fine chemical manufacturing
business.
In May 1995, Versicor was formed as a subsidiary of Sepracor. In October 1995,
Versicor sold 485,000 shares of common stock to certain shareholders, 1,600,000
shares of common stock to Sepracor and 400,000 shares of Series A Convertible
Preferred Stock (the "Preferred Stock") to Sepracor. The Preferred Stock is
convertible, at the option of Sepracor, into common stock on a one-for-one
basis.
In October 1995, Versicor entered into a Convertible Subordinated Note Agreement
(the "Note") with Sepracor. Under this Note, Sepracor agrees to loan to Versicor
until October 2, 1998, such sums as Versicor may from time to time request but
may not exceed $4,700,000. The Note shall accrue and bear interest at the Prime
Rate plus 1/2% (8.75% at December 31, 1996), not to exceed 9.5%. The Note is
convertible, at the option of Sepracor, into Versicor Series B Convertible
Preferred Stock by dividing the amount outstanding, including principle and
interest, by $0.7833. The amount outstanding under the Note was $5,066,000 and
$1,142,000, at December 31, 1996 and 1995, respectively. Total interest expense
charged to Versicor under this agreement was $349,000 and $17,000 in 1996 and
1995.
In 1996, Versicor entered into a loan agreement with Sepracor. Under this
agreement Sepracor agrees to loan to Versicor, such amounts as Versicor from
time to time requests but which may not exceed the aggregate principal amount at
any one time of $7,500,000. The loan accrues interest equal to the prime rate
minus 1/4% (8% at December 31, 1996). This rate is subject to change under
certain circumstances. The total amount outstanding under this loan agreement
was $2,705,000 at December 31, 1996. Total interest expense charged to Versicor
under this agreement was $68,000 in 1996.
In January 1996, BioSepra signed a Promissory Note for $350,000, or so much of
such sum as shall have been advanced by Sepracor for leasehold improvements in
its new office space. This amount is payable over sixty installments and does
not bear interest. As of December 31, 1996, BioSepra had received $350,000 under
the Promissory Note.
In March 1996, Sepracor loaned 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 was 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 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.
D - SEPRACOR AFFILIATES
In September 1995, HemaSure completed the sale of 2,500,000 shares of its common
stock, pursuant to an underwritten public offering. As a result of the sale,
Sepracor's ownership of the outstanding shares of common stock of HemaSure was
reduced from approximately 55% to approximately 37%. Effective September 27,
1995, Sepracor no longer consolidates HemaSure's financial statements and
accounts for the investment in HemaSure using the equity method. The sale
resulted in a gain of approximately $15,235,000 which was recorded as an
increase to additional paid-in capital. Since the sale, Sepracor recorded
$15,021,000 and $808,000 of equity in investee
30
<PAGE> 32
losses in 1996 and 1995, respectively. HemaSure's loss in 1996 included
$24,748,000 (Sepracor's portion of this was $9,157,000) relating to its
operating loss and a one-time loss on disposal of its discontinued blood
plasma business.
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
6,675,000 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 $2,518,000 as its share of ChiRex's losses for the year
ended December 31, 1996. Included in ChiRex's results were one-time write-offs
of $11,076,000 (Sepracor's portion of this was $3,544,000) from ChiRex's
initial public offering and resulting transactions (See Note W).
E - ACCOUNTS RECEIVABLE
Sepracor's trade receivables primarily represent amounts due to BioSepra from
companies and research institutions in the United States, Europe and Japan
engaged in the research, development, or production of pharmaceutical and
biopharmaceutical products. BioSepra performs ongoing credit evaluations of its
customers and generally does not require collateral. The allowance for doubtful
accounts was $233,000 and $132,000 at December 31, 1996 and 1995, respectively.
F - INVENTORIES
<TABLE>
<CAPTION>
Inventories consist of the following at December 31 (in thousands):
1996 1995
- --------------------------------------------------------
<S> <C> <C>
Raw materials $1,155 $1,104
Work in progress 310 279
Finished goods 2,016 2,029
- --------------------------------------------------------
$3,481 $3,412
========================================================
</TABLE>
G - PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
Property and equipment consists of the following at
December 31 (in thousands):
1996 1995
- -------------------------------------------------------------------------
<S> <C> <C>
Land $ 74 $ 74
Building 1,932 1,932
Laboratory and manufacturing 11,233 10,908
equipment
Office equipment 4,844 3,246
Leasehold improvements 5,493 3,279
- -------------------------------------------------------------------------
23,576 19,439
Accumulated depreciation
and amortization (6,724) (7,058)
- -------------------------------------------------------------------------
16,852 12,381
Construction in progress 193 116
- -------------------------------------------------------------------------
$17,045 $12,497
=========================================================================
</TABLE>
Depreciation expense was $2,189,000, $1,477,000 and $1,525,000, for the years
ended December 31, 1996, 1995 and 1994, respectively.
H - RESTRUCTURING CHARGES
In June 1995, BioSepra announced a major cost-reduction program that involved
the consolidation of its facilities and a significant reduction in the number of
employees. The purpose of the program was to enable BioSepra to focus on the
process development and process segments of the biopharmaceutical market. In
connection with this program, in July 1995, BioSepra completed the sale of
Biopass S.A. ("Biopass"), one of BioSepra's French subsidiaries (See Note T). As
part of the cost-reduction program, BioSepra recorded restructuring and
impairment charges totaling $4,144,000 in the second quarter of 1995. Of this
amount, $1,180,000 represents severance and medical benefits related to the
reduction in workforce in the U.S. and France and $2,964,000 relates to
impairment of intangibles and loss on assets to net realizable value. BioSepra
has completed its reduction in workforce related to this cost-reduction program
resulting in the termination of 55 employees consisting of research and
development, administrative, production and marketing/sales personnel. BioSepra
paid $140,000 and $1,025,000 of the costs relating to the employee reductions as
of December 31, 1996 and 1995, respectively, and expects the remaining severance
and medical payments to be completed in 1997.
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<PAGE> 33
I - ACCRUED EXPENSES
Included in accrued expenses is $5,828,000 and $1,590,000 of accrued research
and development expenses as of December 31, 1996 and 1995, respectively.
J - DEFERRED REVENUE
In March 1995, Sepracor and BioSepra, entered into separate agreements with
Beckman Instruments, Inc. ("Beckman"). Beckman entered into a joint distribution
and development agreement with BioSepra, and Beckman purchased certain preferred
stock of Sepracor. The distribution agreement, was extended in July 1996,
allowing Beckman to market on a worldwide exclusive basis for a period of three
years certain HyperD chromatographic columns and provides for the development
(in accordance with certain milestones) and manufacture by BioSepra of
chromatographic systems for Beckman. Under the agreement, Beckman made payments
of $1,400,000 and $3,500,000 in 1996 and 1995, respectively. BioSepra may be
required to return to Beckman part of such payments made by Beckman under the
agreement if BioSepra fails to meet such 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. BioSepra recognized $900,000 and $400,000 of revenue under the
agreement in 1996 and 1995, respectively and recorded $3,600,000 and
$3,500,000, as deferred revenue as of December 31, 1996 and 1995, respectively.
K - NOTES PAYABLE TO BANK AND LONG-TERM DEBT
<TABLE>
Notes Payable and long-term debt consist of the following at December 31 (in
thousands):
<CAPTION>
1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Revolving Credit Agreement at prime plus
3/4% (9% and 9.25% at December 31,
1996 and 1995) $ 2,000
8.77% French Franc loan payable in
quarterly installments through 2000 $ 1,012 1,377
Variable rate, 4.95% - 9.6%, French Franc
Line of Credit 13 324
French Franc loans at 8.05% and 8.75%,
payable in varying amounts 7 67
Loan from Nova Scotia Business Development
Corporation ("NSBDC") bearing
interest at 9.25% until May 31, 2000
and thereafter at 9.5%, repayable in
120 consecutive monthly payments of $21
principal plus interest commencing
on June 1, 1995 with
a final payment of $20 2,183 2,440
Loan from Atlantic Canada Opportunities
Agency, non-interest bearing, repayable
in 60 equal installments commencing
March 15, 1998 370 370
Government grant from Nova Scotia
Department of Economic Development 992 740
Capital Lease Obligations (see Note M) 614 772
- --------------------------------------------------------------------------------
5,191 8,090
Less current portion (804) (3,152)
- --------------------------------------------------------------------------------
Total $ 4,387 $ 4,938
================================================================================
</TABLE>
At December 31, 1996, BioSepra's wholly-owned French subsidiary ("BioSepra
S.A.") had an available credit facility aggregating $385,000 from one commercial
bank, of which $13,000 and $324,000 was outstanding at December 31, 1996 and
1995, respectively. The amount available under this credit facility, which is
payable on demand, is guaranteed by Sepracor. Sepracor also guarantees a certain
French Franc loan held by BioSepra S.A. The amount outstanding under this loan
was $1,012,000 and $1,377,000 at December 31, 1996 and 1995, respectively.
32
<PAGE> 34
In December 1994, Sepracor, HemaSure and BioSepra entered into a revolving
credit agreement with a commercial bank that provides for borrowings of up to
$2,000,000 per company, a total of $5,000,000 aggregate. All amounts are
collateralized by certain assets of the companies. The agreement contains
certain covenants which include minimum tangible capital base, minimum cash or
cash equivalents and a minimum liquidity ratio for each company. The revolving
credit agreement expired in July 1996. Sepracor guaranteed amounts outstanding
at each of its subsidiaries. At December 31, 1995, BioSepra had $2,000,000
outstanding under this agreement.
In December 1996, Sepracor, BioSepra and Versicor entered into a revolving
credit agreement with a commercial bank that provides for borrowings of up to an
aggregate of $10,000,000. BioSepra and Versicor can borrow up to a maximum of
$3,000,000 each. All borrowings are collateralized by certain assets of the
companies. The credit agreement contains covenants relating to minimum tangible
capital base, minimum cash or cash equivalents, minimum liquidity ratio and
maximum leverage for Sepracor and BioSepra. Sepracor is a guarantor of all
outstanding borrowings. At December 31, 1996, there was no amount outstanding
under this agreement. The annual interest rate on such borrowings is the lower
of the prime or LIBOR plus 1.75%.
In December 1996, Versicor entered into a term loan agreement with a commercial
bank that provides for borrowings of up to $3,000,000 for the purpose of
financing capital equipment purchases. No term loan can be less than $500,000
and shall be payable in sixteen equal quarterly installments commencing on
January 1, 1998 with the final payment of the balance on December 31, 2001 or
such earlier date that the balance shall have been reduced to zero. There were
no amounts outstanding under this term loan agreement at December 31, 1996. The
annual interest rate on such borrowings is the lower of the bank's Fixed Quoted
Rate plus 1/2% or the prime rate.
Sepracor guarantees the loan from NSBDC. The government grant received by
Sepracor Canada Limited may be repayable if Sepracor Canada Limited fails to
meet certain conditions of the agreement. The government assistance is recorded
as debt and is amortized on the same basis as the depreciation of the related
capital assets.
Minimum annual principal repayment of long-term debt, excluding capital leases,
in each of the next five years are as follows: 1997-$649,000, 1998-$690,000,
1999-$703,000, 2000-$558,000, 2001-$332,000.
L - CONVERTIBLE SUBORDINATED DEBENTURES
In November 1995, Sepracor issued $75,000,000 of Convertible Subordinated
Debentures (the "Debentures"). The Debentures bear interest at 7% payable
semi-annually, commencing on June 1, 1996, and are due on December 1, 2002. The
Debentures are convertible into shares of Common Stock of the Company at $19.68
per share. In December 1995, Sepracor issued $5,880,000 of debentures when the
underwriters exercised a portion of the overallotment option. The market value
of the Debentures exceeds cost at December 31, 1996.
As part of the sale of the Debentures, Sepracor incurred approximately
$2,788,000 of offering costs. These costs are classified in other assets and
will be amortized over the life of the debentures, which is seven years.
M - COMMITMENTS
In November 1994, Sepracor, HemaSure and BioSepra entered into an equipment
leasing arrangement that provides for a total of $2,000,000 for the purpose of
financing the purchase of capital equipment in the United States. All
outstanding amounts are collateralized by the assets so financed and BioSepra's
portion is guaranteed by Sepracor. BioSepra had $235,000 outstanding under this
agreement at December 31, 1996.
Future minimum lease payments under all noncancelable leases in effect at
December 31, 1996, are as follows (in thousands):
Operating Capital
Year Leases Leases
- ---------------------------------------------------------------------
1997 $ 946 $ 308
1998 1,480 297
1999 1,535 119
2000 1,572
2001 1,607
Thereafter 11,502
- ---------------------------------------------------------------------
Total minimum lease payments $18,642 $ 724
Less amount representing interest (110)
- ---------------------------------------------------------------------
Present value of minimum
lease payments $614
=====================================================================
Future minimum lease payments under operating leases relate to Sepracor's and
Versicor's principal office, laboratory and production facilities. The lease
terms provide options to extend the leases. The leases require Sepracor to pay
its allocated share of taxes and operating costs in addition to the annual base
rent payments. Rental expense under these and other leases amounted to
$1,240,000, $1,003,000 and $1,495,000, for the years ended December 31, 1996,
1995 and 1994, respectively.
33
<PAGE> 35
N - LITIGATION
Sepracor and BioSepra are defendants in three lawsuits brought by PerSeptive
BioSystems, Inc. ("PerSeptive"), a competitor of BioSepra, 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 HyperDtrademark 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
POROSRegistration Mark media, and the internal structures of POROS and HyperD
media, including statements made in BioSepra's prospectus dated March 24, 1994,
constitute false advertising. PerSeptive also asserts that an additional
perfusion chromatography patent has been allowed, and that another patent
related to perfusion chromatography has been issued. The new perfusion
chromatography patent contains claims similar to the other patents that Sepracor
and BioSepra are alleged to have infringed.
BioSepra has received an opinion from its patent counsel 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." PerSeptive has not formally claimed that the present
HyperD products infringe the fourth perfusion patent. 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 "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 which was completed in August 1996.
The District Court has not rendered a decision based on the August hearing.
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.
There can be no assurance Sepracor and BioSepra 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 and BioSepra's future business and operations. BioSepra has entered
into a joint development and distribution agreement with Beckman Instruments,
Inc. ("Beckman"). BioSepra is required to repay to Beckman all or part of
certain payments if BioSepra terminates Beckman's right to use and sell HyperD
media because a court finds HyperD media infringes any third party patents.
34
<PAGE> 36
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.
HemaSure is a defendant in two lawsuits brought by Pall Corporation ("Pall"). In
complaints filed in Fenraury 1996 and November 1996, Pall alleged that the
HemaSure's manufacture, use and/or sale of the LeukoNet product infringes upon
three patents held by Pall.
On October 14, 1996, in connection with the first action concerning U.S. Patent
No. 5,451,321, HemaSure filed a motion for summary judgment of noninfringement.
Pall filed a cross motion for summary judgment of infringement at the same time.
The parties are awaiting the Court's decision.
With respect to the second action concerning U.S. Patent Nos. 4,340,479 ("the
'479 patent") and 4,952,572 ("the '572 patent"). HemaSure has answered the
complaint stating that it does not infringe any claim of the assorted patents.
Further, HemaSure has counterclaimed for declaratory judgment of invalidity,
noninfringement and unforceability of the '572 patent, and a declaratory
judgment of noninfringement of the '479 patent, as a result of license.
HemaSure believes, based on advice of its patent counsel, that a properly
informed court should conclude that the manufacture, use and/or sale by HemaSure
or its customers of the present LeukoNet product does not infringe any valid
enforceable claim of the three asserted Pall patents. However, there can be no
assurance that HemaSure will prevail in the pending litigations, and an adverse
outcome in a patent infringement action would have a material adverse efect on
HemaSure's future business and operations.
0 - STOCKHOLDERS' EQUITY
In September 1994, Sepracor issued 79,365 shares of Series A Convertible
Preferred Stock resulting in net proceeds of approximately $5,000,000. The
preferred stock was convertible into Sepracor's common stock at $6.30 per share
of common stock. In addition, in connection with this offering, Sepracor issued
warrants to purchase shares of Sepracor's common stock. In October 1995, all
outstanding shares of Series A Convertible Preferred Stock were converted into
793,650 shares of Sepracor's Common Stock.
In March 1995, Beckman acquired 312,500 shares of Sepracor's Series B Redeemable
Exchangeable Preferred Stock for $5,000,000. This issue is exchangeable into a
portion of Sepracor's holdings of BioSepra common stock, representing
approximately 4% of BioSepra's shares outstanding, in return for certain
rights granted to Beckman under a change of control of BioSepra and is
redeemable after the year 2000 based upon certain other events. The holders of
Series B Redeemable Exchangeable Preferred Stock are entitled to receive, when
and if declared by the Board of Directors, an annual cash dividend of $1.92 per
share. Such dividends shall accrue daily and are cumulative from date of
issuance. The dividends are payable at the mandatory redemption date of February
2000. As of December 31, 1996, Sepracor had accrued $1,100,000 of dividends
payable.
In August 1995, Sepracor received approximately $62,337,000 of net proceeds from
the sale of 4,600,000 shares in a follow-on public offering of its Common Stock.
In May 1996, the stockholders of Sepracor approved an amendment to Sepracor's
Restated Certificate of Incorporation increasing from 35,000,000 to 40,000,000
the number of authorized shares of Common Stock.
In 1996, Sepracor issued stock options from the 1991 Restated Stock Option Plan
to certain consultants. As a result, $248,000 was recorded as unearned
compensation. The related amortization recorded in 1996 was $14,000.
P - STOCK PLANS AND WARRANTS
STOCK PLANS: The Company has two stock-based compensation plans, which are
described below. In October 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standard No. 123 ("SFAS 123"),
"Accounting for Stock-Based Compensation." SFAS 123 is effective for periods
beginning after December 15, 1995. SFAS 123 requires that companies either
recognize compensation expense for grants of stock, stock options, and other
equity instruments to employees based on fair value, or provide pro forma
disclosure of net income and earnings per share in the notes to the financial
statements. The Company adopted the disclosure provisions of SFAS 123 in 1996
and has applied APB Opinion 25 and related interpretations in accounting for its
plans. Had compensation cost for the Company's stock-based compensation plans
been determined based on the fair value at the grant dates as calculated in
accor-
35
<PAGE> 37
dance with SFAS 123, the Company's net loss and loss per share for the years
ended December 31, 1996 and 1995 would have increased to the pro forma amounts
indicated below:
<TABLE>
1996 1995
<CAPTION>
Net Loss Net Loss
(In thousands) Loss Per Share Loss Per Share
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
As reported $(60,710) $(2.25) $(33,412) $(1.54)
Pro forma $(63,398) $(2.35) $(35,191) $(1.63)
</TABLE>
The fair value of each stock option is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions: an expected life of 7 years, expected volatility of 60%, and a
risk-free interest rate range of 5.4% to 7.6%.
The 1985 Stock Option Plan (the "Plan") permits Sepracor to grant shares of
common stock under incentive stock options ("ISOs") and nonstatutory stock
options ("NSOs"). The Plan provides for the granting of ISOs to officers and key
employees of Sepracor and NSOs to officers, key employees, consultants and
directors of Sepracor. ISOs and NSOs granted under the Plan have a maximum term
of ten years from the date of grant, have an exercise price not less than the
fair value of the stock on the date of grant and vest over five years.
In 1991, the Board adopted the 1991 Restated Stock Option Plan which amended and
restated the 1985 Stock Option Plan. In May 1996, the shareholders approved an
amendment to the Plan increasing the number of shares of common stock which may
be granted to 5,000,000.
In January 1995, Sepracor adopted a Stock Option Exchange Program. Upon employee
consent, the program provided for the grant to each employee a new stock option
in exchange for the cancellation of the old stock option. The new stock option,
granted at fair market value at date of issuance, is exercisable for a number of
shares of common stock equal to the number of shares covered by the old stock
option.
In 1991, Sepracor adopted the 1991 Directors' Stock Option Plan (the "Directors'
Plan"). The Directors' Plan provides for the granting of NSOs to directors of
Sepracor who are not officers or employees of Sepracor. The options granted
under the Directors' Plan have a maximum term of ten years from date of grant,
have an exercise price of not less than the fair market value of the stock on
the date of grant and vest over five years. In May 1996, the shareholders
approved an amendment to the Plan increasing the number of shares of common
stock which may be granted to 275,000 shares.
<TABLE>
The following tables summarize information about stock options outstanding at
December 31, 1996 (In thousands, except per share amounts):
<CAPTION>
Options Outstanding Options Exercisable
Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Price Per Share Outstanding Life Price Exerciseable Price
- --------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C>
$ 1.00 - 1.50 5 1.27 $ 1.34 5 $ 1.34
2.00 - 3.00 184 3.54 2.44 184 2.44
3.50 - 5.25 477 7.43 4.96 189 4.83
5.50 - 8.50 963 7.52 6.22 410 6.35
8.75 - 12.62 495 8.34 10.97 113 9.45
14.12 - 17.12 1,127 9.04 14.86 156 14.60
- --------------------------------------------------------------------------------
$ 1.00 - 17.12 3,251 7.93 $ 9.54 1,057 $ 6.92
================================================================================
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
Average Average Average
Price Price Price
Per Per Per
Number Share Number Share Number Share
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at 3,197 $ 7.74 2,460 $ 5.47 2,032 $5.62
January 1
Granted 651 13.77 1,743 10.19 902 5.50
Exercised (431) 3.88 (340) 3.00 (32) 3.97
Cancelled (168) 6.30 (666) 8.16 (442) 6.38
- --------------------------------------------------------------------------------
Balance at
December 31 3,249 $ 9.54 3,197 $ 7.74 2,460 $5.47
================================================================================
Options
exercisable at
December 31 1,057 941 1,052
Weighted
average fair
value of options
granted during
the year $ 9.54 $6.99
</TABLE>
There was 646,000 options available for future grant as of December 31, 1996.
In 1996 the shareholders approved the 1996 Employee Stock Purchase Plan, which
succeeded the 1994 Employee Stock Purchase Plan. Under the 1996 plan, an
aggregate of 120,000 shares of common stock may be purchased by employees at
85% of market value on the first or last day of each six month
36
<PAGE> 38
offering period, whichever is lower, through accumulation of payroll deductions
ranging from 1% to 10% of compensation as defined, subject to certain
limitations. Options were exercised to purchase 23,977, 39,820 and 44,450 shares
for a total of $296,016, $229,506 and $183,084 during the years ended December
31, 1996, 1995 and 1994, respectively. At December 31, 1996, 96,023 shares of
authorized but unissued common stock were reserved for future issuance under the
plan.
STOCK WARRANTS: In 1991, Sepracor issued warrants to purchase 200,000 shares of
common stock at $10.00 per share, all of which were exercised in 1995. The
warrants were exercised in a cashless transaction in August 1995 with the
issuance of 48,340 shares of common stock. In connection with a subordinated
debt agreement, Sepracor issued warrants to purchase 30,140 shares of common
stock at a price of $1.00 per share. Warrants to purchase 24,306 shares are
outstanding at December 31, 1996. The warrants may be exercised at any time
until 2001 and are callable by Sepracor and redeemable at certain times or
events.
In 1994, in connection with the issuance of the Series A Convertible Preferred
Stock, Sepracor issued warrants to purchase 1,021,650 shares of Sepracor common
stock at prices of between $6.30 and $12.00 per share. The warrants expire on
September 30, 2004, subject to accelerated expiration in certain events. In July
1995, Sepracor received approximately $6,335,000 from the exercise of these
warrants to purchase 971,650 shares of common stock with exercise prices of
$6.30 and $7.50 per share. At December 31, 1996, warrants to purchase 50,000
shares remain outstanding, of which 22,000 are exercisable at $12.00 per share
and the remaining are exercisable at $6.30 per share.
Q - INCOME TAXES
Deferred tax assets and liabilities are recognized for the estimated future tax
consequences attributable to tax benefit carryforwards and to differences
between the financial statement amounts of assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates.
A valuation reserve is established if it is more likely than not that all or a
portion of the deferred tax asset will not be realized. Accordingly, a valuation
reserve has been established for the full amount of the deferred tax asset.
Sepracor's statutory and effective tax rates were 34% and 0%, respectively, for
1996, 1995 and 1994. The effective tax rate was 0% due to a net operating losses
and nonrecognition of any deferred tax asset. At December 31, 1996, Sepracor had
Federal and State tax net operating loss carryforwards ("NOL") of approximately
$106,000,000 and $80,000,000, which will expire through 2011 and 2001,
respectively. Based upon the Internal Revenue Code and changes in company
ownership, utilization of the NOL will be subject to an annual limitation.
Sepracor also had a NOL from its operation in France of approximately
$14,000,000. Approximately $10,000,000 of this NOL will expire in 2000; the
remainder may be carried forward indefinitely. Sepracor also had a NOL from its
operation in Canada of approximately $5,100,000 which may be carried forward
indefinitely. At December 31, 1996, Sepracor had Federal and State research and
experimentation credit carry-forwards of approximately $2,611,000 and
$1,898,000, respectively, which will expire in the year 2011. Sepracor also had
Canadian research and experimentation credits of $779,000 which will expire
through 2006.
<TABLE>
The components of Sepracor's net deferred taxes were as follows at December 31
(in thousands):
<CAPTION>
1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Assets
NOL Carryforwards $ 50,596 $ 50,051
Reserves 306 758
Tax Credit Carryforward 5,287 3,693
Patent 389 339
Accrued Expenses 3,735 538
Research and development
capitalization 9,217
Equity in loss of investees 7,981
Other 2,657 490
- --------------------------------------------------------------------------------
Liabilities
Basis difference of subsidiaries (12,005) (12,005)
Property and Equipment (237) (178)
Valuation allowance (67,926) (43,686)
- --------------------------------------------------------------------------------
Net deferred taxes $ - $ -
================================================================================
</TABLE>
R - AGREEMENTS
In June 1993, Sepracor licensed to Marion Merrell Dow Inc., ("MMD") (now Hoechst
Marion Roussel Inc.) its U.S. patent application covering the use of terfenadine
carboxylate, a metabolite of terfenadine ("Seldane"), to be developed by MMD.
Under this agreement, Sepracor recorded $3,750,000 as license fee revenue in
1994 for the issuance of a patent covering the use of terfenadine carboxylate.
The agreement calls for future license fees of up to $3,750,000 subject to
certain other milestones and royalties on future U.S. sales of product. Upon
issuance of the patent, Sepracor recorded $975,000 in sub-license expense
payable to a third party as of December 31, 1994.
37
<PAGE> 39
In 1992, Sepracor licensed to Sterling Healthcare, Inc. Sepracor's use-patent
application and related technology for the single isomer of a non-steroidal
anti-inflammatory drug, as an analgesic for worldwide over-the-counter markets.
Under the terms of the agreement, Sepracor received research and development
funding and license fees. In 1994, Sepracor recognized $1,000,000 in license fee
revenue related to this agreement. In 1995, Sepracor recognized $650,000 related
to achievement of a specific benchmark in the agreement. In December 1995, this
agreement was terminated with no remaining obligations outstanding.
S - EMPLOYEES' SAVINGS PLAN
Sepracor has a 401 (K) savings plan for all domestic employees. Under the
provisions of the plan, employees may voluntarily contribute up to 20% of their
compensation up to the statutory limit. In addition, Sepracor can make a
matching contribution at its discretion. Sepracor matched 50% of the first
$2,000 contributed by employees up to $1,000 maximum per employee. This match
amounted to $49,000 in 1996. There was no Company match in 1995 and 1994.
T - BIOPASS
In September 1994, BioSepra completed the acquisition of Biopass, a French
company that manufactures and distributes down-stream production-scale protein
purification and chromatography systems. The purchase price was $5,024,000
($3,000,000 paid immediately in cash and $1,500,000 to be paid in either
BioSepra common stock or cash in April 1996 at BioSepra's option, plus $524,000
of acquisition costs incurred). BioSepra placed $1,500,000 of cash in escrow for
the final installment which was paid in April 1996. The acquisition was
accounted for under the purchase method of accounting. Total assets of
$2,802,000 were acquired and approximately $3,747,000 of liabilities were
assumed by BioSepra in the acquisition.
BioSepra recorded a non-recurring charge of $3,500,000 identified as "in process
research and development" representing that portion of the purchase price paid
for Biopass' ongoing research and development projects which have not yet
resulted in commercially viable products. The remaining excess purchase price of
$2,469,000 was recorded as "excess of investments over net assets acquired"; the
unamortized balance at June 30, 1995 was written off as part of the sale of
Biopass.
If the acquisition had taken place at the beginning of the year ended December
31, 1994, giving effect to adjustments for increased amortization and
elimination of intercompany activity, the proforma revenues, net loss and net
loss per share would have been $19,022,000, $(20,772,000) and $(1.11) for the
year ended December 31, 1994.
In July 1995, BioSepra sold Biopass for $1,300,000, payable in quarterly
installments of $100,000 from September 30, 1995 through June 30, 1996 and
$150,000 beginning on September 30, 1996 through December 31, 1997. The full
value of the sale price has been reserved pending the buyer's payment and will
be recognized as payments are received. In 1995, one payment of $100,000 was
received. As part of the sale agreement BioSepra retained the chromatography
column technology that it assumed when it acquired Biopass. In 1996, BioSepra
wrote-off the remaining unamortized portion of this purchased technology of
approximately $741,000. The sales contract also provided for a renewable royalty
free technology license in which the buyer may develop, manufacture and sell
products incorporating the technology retained by BioSepra. During the period
the buyer is required to make installment payments, BioSepra is the exclusive
seller of chromatography columns and accessories and had committed to at least
$1,000,000 in orders per year, provided minimum gross margins are met. In
January 1996, the commitment to purchase chromatography columns and accessories
was terminated by the Company due to the inability of the purchaser to meet
certain commitments.
The results of Biopass operations through July 1995 have been included in the
consolidated results. The revenues, loss from operations and net loss for
Biopass for this period are $1,878,000, $(1,208,000) and $(44,000),
respectively. The loss of $2,964,000, on the disposal, was recorded as
Restructuring and Impairment costs in the statement of operations (see Note H).
This loss equals the net liabilities transferred in the sale; the net
liabilities are excluded from the Company's consolidated balance sheet for 1995.
U - SUMMARIZED FINANCIAL INFORMATION
<TABLE>
The following is the summarized financial information for HemaSure Inc. and
ChiRex Inc.:
<CAPTION>
1996 1995
(In thousands) ChiRex HemaSure HemaSure
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Current assets $ 40,853 $ 18,263 $48,829
Non-current assets 89,953 2,297 1,383
Current liabilities 25,405 3,419 1,924
Non-current liabilities 15,333 9,212 286
Net sales 74,615 779 834
Gross profit (loss) 18,107 (3,006) (239)
Net (loss) $ (8,309) $(40,598) $(7,450)
</TABLE>
At December 31, 1996, the closing price of ChiRex's and HemaSure's common stock
was $12 and $6.25 per share, respectively.
38
<PAGE> 40
V - SEGMENT INFORMATION
<TABLE>
Sepracor, through BioSepra, develops, manufactures and markets processes and
products for the synthesis, separation and purification of pharmaceutical and
biopharmaceutical compounds. Sepracor operates exclusively in the separations
business, which Sepracor considers to be one business segment. Financial
information by geographic area is as follows for the periods indicated:
<CAPTION>
(In thousands) 1996 1995 1994
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues
United States:
Unaffiliated customers $ 11,651 $ 8,883 $ 11,507
Transfer to other
geographic areas 3,050 1,195 567
- -------------------------------------------------------------------------
Total 14,701 10,078 12,074
- -------------------------------------------------------------------------
Europe:
Unaffiliated customers 6,187 7,324 6,603
Transfer to other
geographic areas 2,999 1,703 3,355
- -------------------------------------------------------------------------
Total 9,186 9,027 9,958
- -------------------------------------------------------------------------
Eliminations and adjustments (8,846) (2,898) (3,922)
- -------------------------------------------------------------------------
Total revenues $ 15,041 $ 16,207 $ 18,110
=========================================================================
Operating Income (loss)
United States $(45,638) $ (33,865) $(22,522)
Europe 1,752 (6,049) (3,684)
Eliminations and adjustments 3 (551) (38)
- -------------------------------------------------------------------------
Total operating income (loss) $(43,883) $ (40,465) $(26,244)
- -------------------------------------------------------------------------
Total Assets
United States $165,871 $ 292,236 $ 94,619
Europe 6,343 6,713 14,233
Canada 7,088 7,744 6,208
Eliminations and adjustments (32,613) (103,980) (41,641)
- -------------------------------------------------------------------------
Total Assets $146,689 $ 202,713 $ 73,419
=========================================================================
</TABLE>
Of the $11,651,000, $8,883,000 and $11,507,000, U.S. sales to unaffiliated
customers for the years ended December 31, 1996, 1995 and 1994, respectively,
$630,000, $1,822,000 and $1,128,000, respectively, were export sales to the Far
East.
<TABLE>
Revenues from significant customers are as follows:
<CAPTION>
Year Ended December 31: 1996 1995 1994
- ------------------------------------------------------------------------
<S> <C> <C> <C>
A. 24% -- --
B. -- -- --
C. -- -- 21%
D. 12% -- 13%
</TABLE>
W - Subsequent Event
A registration statement for the offering to the public of the 3,489,301 shares
of ChiRex common stock held by Sepracor was declared effective by the Securities
and Exchange Commission on March 24, 1997. Sepracor expects to receive net
proceeds of approximately $31,125,000 after payment of the underwriting
discounts and commissions but before payment of the other expenses associated
with the offering. The offering is expected to close on March 31, 1997.
39
<PAGE> 41
ANNUAL MEETING
The Annual Meeting of Shareholders will be held at 9:00 a.m. on May 14, 1997 at
the offices of Hale and Dorr, Sixty State Street, Boston, MA.
COMMON STOCK
The Common Stock of Sepracor Inc. is traded on the Nasdaq Stock Market under
the symbol SEPR.
GENERAL COUNSEL
Hale and Dorr, Boston, MA
PATENT COUNSEL
Pennie & Edmonds, New York, NY
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand LLP, Boston, MA
CORPORATE HEADQUARTERS
Sepracor Inc.
111 Locke Drive
Marlborough, MA 01752
Telephone: (508) 481-6700
Facsimile: (508) 357-7499
Sepracor and ICE are trademarks of Sepracor Inc. HemaSure, LeukoNet, and
SteriPath are trademarks of HemaSure Inc., BioSepra, BioSys are trademarks, and
Hyper D and ProSys are registered trademarks of BioSepra Inc., Ventolin, Zofran
and Serevent are registered trademarks of Glaxo Group Limited. Proventil and
Claritin are registered trademarks of Schering Corporation. Foradil is a
registered trademark of Ciba-Geigy Corporation. Atock is a trademark of
Yamanouchi, Inc. Hismanal is a registered trademark of Janssen Pharmaceutica
N.V. Seldane is a registered trademark of Merrell Dow Pharmaceuticals, Inc.
Ditropan is a registered trademark of Marion Merrell Dow. Allegra is a trademark
of Merrell Pharmaceuticals. Cardura is a registered trademark of Pfizer Inc.
Orudis is a registered trademark of Rhone-Poulenc Rorer, S.A. Actron is a
trademark of Bayer Corporation. Prozac is a registered trademark of Eli Lilly
and Company. Propulsid, Tylenol and Sporanox are registered trademarks of
Johnson & Johnson. Maxaquin is a registered trademark of G. D. Searle & Co.
Toradol is a registered trademark of Syntex USA. Redux is a trademark of
American Cyanamid Company. Levaquin is a trademark of Daiichi Pharmaceutical
Company LTD. POROS is a registered trademark of PerSeptive BioSystems, Inc.
40
<PAGE> 42
- ------------------------------------- OFFICERS
Timothy J. Barberich
President and Chief Executive Officer
David S. Barlow
Executive Vice President and
President, Pharmaceuticals
David P. Southwell
PHOTO OF BARLOW, SOUTHWELL Executive Vice President and
AND BARBERICH Chief Financial Officer
James R. Hauske, Ph.D
Senior Vice President, Discovery
Douglas E. Reedich, Ph.D.
Chief Patent Counsel
Paul D. Rubin, M.D.
Senior Vice President,
Drug Development
Robert F. Scumaci
Senior Vice President,
Finance & Administration,
- ------------------------------------ and Treasurer
Standing left to right: David S. Barlow
and David P. Southwell. Stephen A. Wald
Seated: Timothy J. Barberich Vice President, Chemical R&D
DIRECTORS
James G. Andress
Former Chairman, Beecham Pharmaceuticals,
Former President and COO, Sterling Drug Inc.
Timothy J. Barberich
President and Chief Executive Officer,
Sepracor Inc.
Digby W. Barrios
Former President and CEO,
Boehringer Ingelheim Corporation
Robert J. Cresci
Managing Director,
Pecks Management Partners Ltd.
Robert F. Johnston
Managing Director,
Johnston Associates
Keith Mansford, Ph.D.
Former Chairman,
R&D, SmithKline Beecham plc
James F. Mrazek
Former Vice President and General Manager,
Healthcare Division of Johnson & Johnson
Products Inc.
Alan A. Steigrod
Former Executive Vice President,
Glaxo Holdings plc
<PAGE> 1
Exhibit 21
List of Subsidiaries
--------------------
Name Jurisdiction of Incorporation
- ---- -----------------------------
BioSepra Inc. (64% owned subsidiary of
Sepracor) Delaware
ChiRex Inc. (32% owned subsidiary of
Sepracor) Delaware
HemaSure Inc. (37% owned subsidiary of
Sepracor) Delaware
Sepracor Canada Holdings, Inc. Delaware
Sepracor Canada Limited (100% owned subsidiary
of Sepracor Canada Holdings, Inc.) Canada
Sepracor Securities Corporation (100% owned
subsidiary of Sepracor) Massachusetts
Versicor Inc. (81.1% owned subsidiary of
Sepracor) Delaware
<PAGE> 1
Exhibit 23.1
------------
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We consent to the incorporation by reference in the registration statements of
Sepracor, Inc. on Form S-8 (File Nos. 333-05221, 33-44808, 333-05217, 33-43460,
33-48428, 33-94774, 333-05219) of our reports dated February 13, 1997, except
as to the information contained in Note W, for which the date is March 24,
1997, on our audits of the consolidated financial statements and the financial
statement schedule of Sepracor, Inc. as of December 31, 1996 and 1995, and to
each of the three years in the period ended December 31, 1996, which reports are
included or incorporated by reference in this Annual report on Form 10-K.
/s/ Coopers & Lybrand LLP
Boston, Massachusetts
March 28, 1997
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated January 29, 1997 on the financial statements of BioSepra Inc. as of and
for the year ended December 31, 1996, included in this Form 10-K.
/s/ Arthur Andersen LLP
Boston, Massachusetts
March 25, 1997
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
EXHIBIT 27
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JAN-01-1996
<CASH> 83,344,000
<SECURITIES> 20,306,000
<RECEIVABLES> 3,129,000
<ALLOWANCES> 0
<INVENTORY> 3,481,000
<CURRENT-ASSETS> 111,848,000
<PP&E> 23,769,000
<DEPRECIATION> 6,724,000
<TOTAL-ASSETS> 146,689,000
<CURRENT-LIABILITIES> 20,924,000
<BONDS> 80,880,000
6,100,000
0
<COMMON> 2,727,000
<OTHER-SE> 27,665,000
<TOTAL-LIABILITY-AND-EQUITY> 146,689,000
<SALES> 13,784,000
<TOTAL-REVENUES> 15,041,000
<CGS> 6,784,000
<TOTAL-COSTS> 52,140,000
<OTHER-EXPENSES> 17,646,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,140,000
<INCOME-PRETAX> (60,710,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (60,710,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (60,710,000)
<EPS-PRIMARY> (2.25)
<EPS-DILUTED> 0
</TABLE>
<PAGE> 1
Exhibit 99
----------
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of BioSepra Inc. and subsidiaries:
We have audited the accompanying consolidated balance sheet of BioSepra Inc. (a
Delaware corporation) and subsidiaries as of December 31, 1996, and the related
consolidated statement of operations, shareholders' equity and cash flows for
the year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of BioSepra Inc. and subsidiaries
as of December 31, 1996, and the results of their operations and their cash
flows for the year then ended in conformity with generally accepted accounting
principles.
/s/ Arthur Andersen LLP
Boston, Massachusetts
January 29, 1997
