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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT
TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission file number 0-19410
Sepracor Inc.
(Exact Name of Registrant as Specified in its Charter)
Delaware 22-2536587
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
111 Locke Drive, Marlborough, Massachusetts 01752
(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:
Common Stock, $.10 par value
(Title of class)
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Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate 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
registrant was approximately $1,108,820,000, based on the last reported sale
price of the Common Stock on the Nasdaq consolidated transaction reporting
system on March 13, 1998.
Number of shares outstanding of the registrant's class of Common Stock as of
March 13, 1998: 27,851,045 shares.
DOCUMENTS INCORPORATED BY REFERENCE
1997 Annual Report to Stockholders - Part II
Proxy Statement for the 1998 Annual Meeting of Stockholders - Part III
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PART I
ITEM 1. BUSINESS.
THE COMPANY
Sepracor Inc. ("Sepracor" or the "Company") is a specialty
pharmaceutical company focused on the cost-effective development of safer, purer
and more effective drugs that are improved versions of widely-prescribed
pharmaceutical compounds. Typically, these Improved Chemical Entities
("ICE(TM)s") are patented, single-isomer or active-metabolite forms of the
parent compound. Sepracor was incorporated in Delaware in 1984.
In its ICE development program, Sepracor identifies existing,
widely-prescribed drugs that might be replaced by improved single-isomer or
active-metabolite forms of such drugs. Sepracor then seeks to develop ICEs that
offer one or more benefits over the parent drugs, such as reduced side effects,
improved therapeutic efficacy, effectiveness for new indications or improved
dosage forms.
The Company believes that it may be able to develop its ICEs in less
time, at lower cost and at reduced risk than is the case with typical drug
development. Because the Company's strategy focuses on improving existing,
widely-prescribed drugs, the Company believes it can reduce: (i) discovery
efforts for its ICEs; (ii) the cost and duration of clinical trials if Sepracor
can rely on preclinical and clinical trial data used in the course of obtaining
regulatory approval for the parent drug; (iii) the risk that regulatory approval
will not be obtained because the parent drug has already been approved; and (iv)
certain of the marketing risks due to an existing market for the parent drug.
The Company has filed, and expects to continue to file, applications for
patents directed to potential benefits of ICEs over the parent drugs. These
patent applications typically cover the use of the single-isomer or
active-metabolite forms of a parent compound for specific therapeutic benefits.
Sepracor's strategy for commercializing its ICEs is to seek licensing or
co-promotion collaborations with major pharmaceutical companies and, for
selected prescription products, to develop a sales force to facilitate the
independent marketing of ICEs. When licensing or seeking to co-promote its
products, the Company typically seeks partners which have composition-of-matter
patent positions for the licensed drug or which have marketing and distribution
strength in the market served by the drug. Most of the ICEs for which the
Company has obtained use patents or filed patent applications are covered by
composition-of-matter or other patents or patent applications typically held by
third party drug companies. The ICEs may not be commercialized until the
expiration of the relevant third party composition-of-matter or other patents
(unless a license is obtained thereunder or the patent expires or is determined
to be invalid, unenforceable or not infringed by a court of proper
jurisdiction). See "Patents and Proprietary Information."
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ICE DEVELOPMENT PROGRAM
Sepracor has licensed or is developing the following ICEs intended to
treat a broad range of indications:
RESPIRATORY
Norastemizole, an active metabolite of Hismanal(R). Hismanal, marketed
by Johnson & Johnson, carries a "black box" label warning of the potential for
serious cardiac side effects and adverse drug-drug interactions. Hismanal must
also be administered for up to a week before reaching full efficacy. Sepracor's
Phase I and Phase II clinical trials indicate that norastemizole is potentially
a safe and potent non-sedating antihistamine with rapid onset and long duration
of action, making once-a-day dosing possible. Sepracor is currently conducting
Phase III clinical trials with norastemizole. The Company has a method-of-use
patent application pending covering norastemizole. On February 4, 1998, Sepracor
and Janssen Pharmaceutica N.V, a wholly owned subsidiary of Johnson & Johnson
("Janssen"), entered into an agreement with respect to the joint development and
co-promotion of norastemizole. Janssen has a composition of matter patent
expiring in 1999 and a patent claiming anti-allergic use and pharmaceutical
formulations expiring in 2006.
Descarboethoxyloratadine (DCL), an active metabolite of Claritin(R).
Claritin is marketed by Schering Corporation. Sepracor's preclinical studies
have shown that DCL may be more potent than other commercially available
antihistamines. Sepracor's patent portfolio for DCL includes a U.S. patent
covering the use of DCL as a non-sedating antihistamine that expires in 2014 and
U.S. patent applications pending covering pharmaceutical formulations and
additional uses.
In December 1997, Sepracor and Schering-Plough Ltd. ("Schering-Plough")
entered into a licensing agreement giving Schering-Plough exclusive worldwide
rights to Sepracor's patents covering DCL. Schering-Plough has indicated it
intends to develop and market DCL worldwide. Sepracor received $5 million as an
upfront license fee and is entitled to royalty payments upon the initial sale of
the product, at a rate increasing over time and upon the achievement of
specified sales volume and other milestones.
Fexofenadine, an active metabolite of Seldane(R). Seldane, marketed by
Hoechst Marion Roussel, Inc. ("HMRI"), was the leading non-sedating
antihistamine until the U.S. Food and Drug Administration (the "FDA") mandated
that Seldane carry a "black box" label warning of its potential cardiovascular
side effects and adverse drug-drug interactions. HMRI introduced Allegra(R) in
October 1996 as a second-generation non-sedating antihistamine without the side
effects of Seldane. In January 1998, HMRI announced its intention to withdraw
Seldane from the market due to the availability of the Allegra product line.
Under Sepracor's license to HMRI, Sepracor
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will be entitled to royalties upon the expected expiration in 2001 of the HMRI
composition-of-matter patent covering fexofenadine. However, in July 1997, the
U.S. Patent and Trademark Office ("PTO") declared an interference between
Sepracor and HMRI regarding a patent application and an issued U.S. patent of
Sepracor for the use of fexofenadine for the treatment of allergic rhinitis, and
a certain patent application of HMRI, which may result in the Company not
receiving royalties from HMRI on sales of Allegra. See "Factors Affecting Future
Operating Results."
Levalbuterol (R-albuterol), a single-isomer form of Ventolin(R) and
Proventil(R). Albuterol is marketed by GlaxoWellcome plc ("Glaxo-Wellcome"),
Schering Corporation and others. In July 1997, two years after initiating
clinical trials, Sepracor submitted a new drug application ("NDA") to the FDA
for the nebulized form of levalbuterol. The FDA formally accepted the Company's
NDA filing in early September 1997. Subject to FDA approval, the Company plans
to introduce levalbuterol in late 1998.
In addition to formulating a nebulizer solution, Sepracor is developing
levalbuterol for use in several delivery systems, including syrup, tablet, a
dry-powder inhaler and metered-dose inhalers using both chlorofluorocarbon and
hydrofluoroalkane based propellants. Sepracor has two issued U.S. patents for
the use of levalbuterol for the treatment of asthma that expire in 2011 and
2013, respectively.
(R,R)-formoterol, a single-isomer form of Foradil(R) and Atock(R).
Foradil is marketed in Canada and Europe by Novartis and Atock is marketed in
Japan by Yamanouchi Pharmaceuticals. Sepracor is developing (R,R)-formoterol as
a bronchodilator intended to offer benefits over existing drugs, including rapid
onset and long duration of action. If successfully developed, (R,R)-formoterol
would compete against Foradil and Atock, and against GlaxoWellcome's
Serevent(R). Sepracor's Phase I and Phase II clinical trials indicate that
(R,R)-formoterol has the potential to be a once-a-day long acting
bronchodilator. Sepracor has a U.S. patent application pending for the use of
(R,R)-formoterol.
UROLOGY/GASTROENTEROLOGY
(S)-oxybutynin, a single-isomer form of Ditropan(R). Ditropan, marketed
by HMRI for the treatment of urinary incontinence, is the leading pharmaceutical
treatment for urinary incontinence in adults. Urinary incontinence affects
approximately 10 million women and 3 million men in the U.S. Current treatment
for urinary incontinence consists primarily of diapers, pads, disposable briefs,
shields, guards, mechanical devices, and surgical intervention. Pharmaceutical
products capture only about 5% of this market. Sepracor believes that drug
therapy represents such a small segment of the incontinence treatment market
largely because pharmaceutical treatments, including racemic oxybutynin, can
cause undesirable anticholinergic side effects, such
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as dry mouth, nausea, restlessness, and heart palpitations. The Company's
clinical trials to date have demonstrated the potential for a significant
reduction of such anticholinergic side-effects. Sepracor's (S)-oxybutynin is
currently in Phase II clinical trials which are expected to be completed in
1998. Sepracor has an issued U.S. patent for (S)-oxybutynin for the method of
treating urinary incontinence that expires in 2015 and several U.S. patent
applications pending covering pharmaceutical formulations of (S)-oxybutynin.
(S)-doxazosin, a single-isomer form of Cardura(R). Cardura, marketed by
Pfizer Inc. ("Pfizer"), is used primarily to treat benign prostatic hyperplasia,
or enlargement of the prostate, a significantly undertreated condition that is
estimated to affect a majority of males over the age of 55. A side effect of
doxazosin is orthostatic hypotension, the lowering of blood pressure that can
cause severe dizziness or fainting. As a result of this effect, initial doses of
the drug are generally administered in a doctor's office over several visits.
Sepracor's preclinical studies indicate that S-doxazosin exhibits potential for
a significant reduction in orthostatic hypotension and is more potent than the
parent drug. Sepracor is preparing an investigational new drug application
("IND") in order to commence Phase I human clinical trials. Sepracor has an
issued U.S. patent for the use of (S)-doxazosin to treat benign prostatic
hyperplasia that expires in 2013.
Norcisapride, a metabolite of Propulsid(R). Propulsid, marketed by
Johnson & Johnson for treatment of gastroesophageal reflux disease, carries a
"black box" label warning of the potential for fatal cardiac toxicity. In
preclinical studies, norcisapride has been found by Sepracor to have the
potential to be a potent anti-emetic without the risk of cardiac toxicity. The
Company has a patent application pending with respect to norcisapride.
(S)-lansoprazole, a single-isomer form of Prevacid(R). Prevacid,
marketed in the U.S. by TAP Pharmaceuticals, is a protein pump inhibitor drug
used to treat diseases associated with excess gastric acid secretions. Based on
preclinical studies, Sepracor believes that (S)-lansoprazole may offer more
consistent dosing and efficacy, as compared to Prevacid. The Company has a
patent application pending with respect to (S)-lansoprazole.
PSYCHIATRY/NEUROLOGY
(R)-fluoxetine, a single-isomer form of Prozac(R). Prozac is marketed by
Eli Lilly and Company ("Eli Lilly"). Prozac cannot be easily co-administered
with, or switched to, other psychoactive medications due to the slow elimination
from the body (approximately 30 days) of both Prozac and an active metabolite of
Prozac, and the adverse drug-drug interaction profile. Sepracor believes that
the (R)-isomer alone is equally potent as an antidepressant, more rapidly
cleared, and is metabolized to an inactive isomer, resulting in faster
elimination from the body, similar to Paxil(R) and Zoloft(R), two
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competitors that have comparable therapeutic benefit with this more rapid
metabolism. This benefit may also increase the suitability of Prozac for
treatment of the elderly, as well as other patient groups that have difficulty
metabolizing certain drugs. Sepracor has an issued U.S. patent for
(R)-fluoxetine for the treatment of depression that expires in 2015.
(S)-fluoxetine, the other single-isomer form of Prozac. Sepracor is also
developing the (S)-isomer of fluoxetine, currently in Phase II clinical trials
as a treatment to prevent migraine. Migraine affects approximately 23 million
people in the U.S. Sumatriptan, marketed as Imitrex(R) by GlaxoWellcome, is
approved for acute but not prophylactic treatment of migraine and is the leading
antimigraine drug on the market. In Phase II trials, Sepracor demonstrated a
statistically significant decrease in the frequency of migraine attacks for
patients receiving (S)-fluoxetine. Sepracor has an issued U.S. patent for
(S)-fluoxetine for the prevention of migraine that expires in 2013.
(S)-zopiclone, a single-isomer form of Imovane(R). Imovane, marketed by
Rhone-Poulenc Rorer Inc. ("Rhone-Poulenc"), is a non-benzodiazepine,
short-acting hypnotic/sedative approved for marketing in Europe for the
treatment of sleep disorders. The Company's preclinical studies to date have
demonstrated that (S)-zopiclone has the potential for a significant reduction
in anticholinergic side effects, in particular dry mouth, when compared to
Imovane. The Company has a patent application pending with respect to
(S)-zopiclone.
(R)-bupropion, a single-isomer form of Zyban(R). Zyban, marketed by
GlaxoWellcome for smoking cessation, is the only FDA approved product for
smoking cessation that is non-addictive. However, Zyban has been shown to induce
seizures in certain patients, including those with no prior history of seizure
disorder. The Company has initiated an exploratory program to determine whether
(R)-bupropion has the potential for an improved side-effect profile, including
less incidence of seizures, dry mouth, shaking and insomnia. The Company has a
patent application pending with respect to (R)-bupropion.
(S)-sibutramine, a single-isomer form of Meridia(R). Meridia is marketed
by Knoll Pharmaceutical Co., a division of BASF AG, for the treatment of
obesity. The Company has initiated an exploratory program to determine whether
(S)-sibutramine may have reduced anticholinergic side effects, in particular
reduced dry mouth and constipation, as compared to Meridia. The Company has a
patent application pending with respect to (S)-sibutramine.
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OTHER INDICATIONS
The Company is also developing the following compounds, which are in
clinical or preclinical trials: (2R,4S)-itraconazole, marketed in racemic form
by Johnson & Johnson as Sporanox(R), as an antifungal agent; and (R)ondansetron,
marketed in racemic form by GlaxoWellcome as Zofran(R), for the treatment of
emesis.
DRUG DISCOVERY
Sepracor has undertaken a long-term new drug discovery program directed
at discovering novel molecules and mechanisms for treatment of infectious
disease, inflammation and pain. In connection with this program, Sepracor, using
its combinatorial chemistry expertise, has independently developed an extensive
library of new compounds which are screened against biological receptors both by
Sepracor and by its biotechnology partners.
SUBSIDIARIES
In 1994, Sepracor established and independently financed two
subsidiaries, BioSepra Inc. ("BioSepra") and HemaSure Inc. ("HemaSure"), through
initial public offerings of their common stock. The establishment of these and
other subsidiaries has allowed 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
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. 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.
Overview. 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
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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).
Products. BioSepra has developed chromatographic media products to
enable biopharmaceutical companies to increase the productivity of their
purification processes. The media products are based on both its recently
developed HyperD(TM) media and established technologies.
HyperD Media. In March 1993, BioSepra introduced its advanced
HyperDiffusion(TM) Chromatography media, called 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. BioSepra believes that HyperD media can, in many applications,
significantly increase productivity. BioSepra believes that the unique structure
of BioSepra's HyperD chromatography media can enable companies to produce
monoclonal antibody-based drugs faster and at higher purity and yield than they
could using other products currently on the market. HyperD media is currently
being used by several major pharmaceutical companies in production of
biopharmaceuticals.
In 1997, BioSepra further developed its market position with respect to
antibody purification by gaining access to several families of ligands. BioSepra
entered into a long-term supply agreement for recombinant protein-A, a key
ligand for antibody purification. BioSepra also obtained a worldwide exclusive
license for chromotography to a family of peptide mimetics of protein-A and
licensed hydrophobic charge induction ("HCI") technology for the purification of
antibodies. HCI purification does not require large amounts of salt, which is
used in older hyrodphillic products and has been traditionally associated with
high cost, disposal issues and additional purification steps.
In March 1995, BioSepra entered into a strategic marketing alliance with
Beckman Instruments, Inc. ("Beckman") appointing Beckman as its exclusive
distributor worldwide (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.
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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 still 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.
BioSepra's established media products offer different capabilities for
purifying specific target molecules based on molecular charge, molecular size,
degree of hydrophobicity and binding affinity.
Other Products. BioSepra sells several chemical products used in
biopharmaceutical research. BioSepra offers its proprietary UpScale(TM) Process
columns designed for larger scale applications with volume capacities ranging
from one to 130 liters of media.
In addition, BioSepra is developing new purification devices for use by
genomics and proteomics companies. These products under development may also be
used by large pharmaceutical companies in their drug discovery programs.
BioSepra recorded the first sale of a beta-stage version of this product under
development in the fourth quarter of 1997.
BioSepra expects that sales of its historical line of chromatography
bioprocessing products will not increase in 1998 and that the future success of
its business will depend on market acceptance of BioSepra's more recent
products, such as HyperD, in the faster growing markets of the biopharmaceutical
industry such as monoclonal antibodies. However, there can be no assurance that
BioSepra's more recent products will be developed successfully or achieve market
acceptance.
Recent Developments. In December 1997, BioSepra implemented a cost-reduction
program that involved the write down of intangible assets to their net
realizable value, the discontinuance of its instrument product line and a
reduction in the number of employees. The purpose of the program was to enable
BioSepra to focus on the process segments of the biopharmaceutical and genomics
market. As part of the cost-reduction program, BioSepra recorded restructuring
and impairment charges totaling $4,179,000 in the fourth quarter of 1997. There
can be no assurances that this cost-reduction program will not result in loss of
customers or temporary sales or production disruptions, any of which could have
a materially adverse effect on BioSepra's business, financial condition or
results of operations.
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HEMASURE
HemaSure, a 37% owned affiliate of the Company, is applying its
proprietary filtration technology to develop products to increase the safety of
donated blood and to improve certain blood collection and transfusion
procedures.
SEPRACHEM
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 Limited, 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, 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 owned
approximately 32% of ChiRex. In March 1997, Sepracor sold all of its shares of
ChiRex common stock in an underwritten public offering. Sepracor received net
proceeds in the offering of approximately $31,125,000 after payment of the
underwriting discounts and commissions but before payment of the other expenses
associated with the offering. As a result of this transaction, Sepracor
recognized a gain of $30,069,000 which was recorded as other income.
VERSICOR
Versicor Inc. ("Versicor") was formed as a majority-owned subsidiary of
the Company in May 1995 to develop novel drug candidates principally for the
treatment of infectious diseases. In December 1997, Versicor announced the
completion of a private equity financing for approximately $22,000,000.
Following this financing, Sepracor retains approximately a 22% equity ownership
in Versicor. Sepracor converted $9,530,000 of convertible subordinated notes of
Versicor into 12,166,667 shares of Versicor Series B Preferred Stock (1,095,000
shares on a common equivalent basis after giving effect to a 9-for-1 reverse
common stock split declared December 1997). Sepracor recognized a gain of
approximately $5,688,000 on the transaction, which was recorded as an increase
to additional paid-in capital.
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RESEARCH AND DEVELOPMENT
SEPRACOR. The Company's total research and development expenses were
$21,707,000, $35,828,000 and $43,055,000 for 1995, 1996 and 1997, respectively.
Collaborative research and development revenues totaled $1,036,000, $25,000 and
$58,000 in 1995, 1996 and 1997, respectively.
BIOSEPRA. BioSepra's research and development group consists of 15
persons. BioSepra's research and development efforts are primarily dedicated to
the development of chromatographic products to speed up and optimize process
design and development and reduce production time and cost for biopharmaceutical
drug development and manufacture with a specific focus on monoclonal antibodies
and the genomics and gene therapy markets. During 1995, 1996 and 1997, BioSepra
spent $2,761,000, $2,399,000 and $1,859,000, respectively, on research and
development.
MARKETING AND SALES
SEPRACOR. The Company's marketing strategy includes arrangements with
corporate marketing partners, outlicensing product rights in exchange for
royalties and marketing through its direct sales force. The Company believes
that corporate partnering arrangements allow the Company to market its ICEs more
quickly and, simultaneously, utilize the partner's marketing expertise. The
Company currently has collaborative agreements with Schering-Plough, HMRI and
Janssen. In each of these collaborative agreements, the Company is dependent
upon the efforts of its collaboration partner and there is no assurance that
such efforts will be successful.
The Company intends to build a direct sales force consisting of
representatives and technical specialists. The sales representatives will
demonstrate the use of the Company's products while educating physicians as to
the clinical benefits of the ICEs. The technical specialists will act as a
resource to provide physicians with relevant information regarding the Company's
products.
Building a direct sales force will require substantial efforts and
significant management and financial resources. The Company's business and
future operating results will depend in significant part upon its ability to
attract and retain skilled sales and marketing personnel. Competition for such
personnel is intense, and there can be no assurance that the Company will be
successful in attracting or retaining such personnel. There can be no assurance
that the Company will be able to build such a marketing staff or sales force,
that establishing such a marketing staff or sales force will be cost-effective
or that the Company's sales and marketing efforts will be successful.
In 1997, sales to two BioSepra customers and HMRI consisted of 33%, 10%
and 12%, respectively, of the Company's total revenues.
BIOSEPRA. In 1997, BioSepra marketed its products to the
biopharmaceutical industrial market through direct sales efforts in the United
States and some parts of
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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
development personnel in BioSepra's research and development department.
Pursuant to BioSepra's agreement with Beckman, Beckman distributes worldwide
certain HyperD media products.
MANUFACTURING
SEPRACOR. The Company conducts the formulation of its drug compounds
primarily at its laboratories in Marlborough, Massachusetts. The Company also
currently owns and operates a current Good Manufacturing Practices ("cGMP")
compliant 26,000 square foot fine chemical manufacturing facility in Windsor,
Nova Scotia, which the Company believes has sufficient capacity to support the
production of its drugs in quantities required for its clinical trials. As
Sepracor's drugs become approved for sale, the Company will need to either
manufacture such drugs itself or license the manufacturing and marketing rights
to third parties. While the Company believes that it has the capability to scale
up its manufacturing process to support the production in commercial quantities
of certain of the drugs which it intends to directly market and sell, the
production of a substantial portion of those drugs must be contracted out to
third party manufacturers. Prior to December 31, 2001, the Company is obligated
to purchase from ChiRex all of its commercial requirements (other than
commercial quantities of its drugs which Sepracor is capable of producing at its
Nova Scotia manufacturing plan) of those drugs which it intends to directly
market and sell, subject to certain pricing, supply and quality control
conditions.
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.
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COMPETITION
SEPRACOR. Sepracor's principal competitors are generic drug companies
that seek to market the racemic mixture following expiration of the innovator's
composition-of-matter patent and also pharmaceutical companies which develop new
patented therapies to treat the disease indications that Sepracor is targeting.
The Company expects that these competitors will seek to compete against
Sepracor's differentiated products with lower pricing, which could adversely
affect the prices charged by Sepracor. In addition, any ICE developed by the
Company is likely to encounter competition from the original brand-name parent
drug, potentially in a generic form, following expiration of the innovator's
composition-of-matter patent. Many competitors and potential competitors have
substantially greater resources, manufacturing and marketing capabilities,
research and development staff and production facilities than Sepracor and its
subsidiaries.
In its ICE 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.
BIOSEPRA. BioSepra encounters intense competition in the sale of its
current products and expects to encounter intense competition in the sale of
its future products. BioSepra's principal competitors are Amersham-Pharmacia-
BioTech, Bio-Rad and PerSeptive Biosystems, Inc. ("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.
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<PAGE> 15
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 U.S. includes (i) preclinical laboratory tests with toxicity
and, often, carcinogenicity testing, (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 for its intended indication, (iv) submission
to the FDA of an NDA and (v) FDA approval of the NDA prior to any commercial
sale or shipment of the drug. In the past, the Company has attempted to shorten
the regulatory approval process of its ICEs by relying on preclinical and
clinical toxicology data already on file with the FDA with respect to the parent
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 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 test further 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.
Furthermore, there can be no assurance that the FDA will accept the Company's
evidence that a particular product meets the Company's claims of superiority.
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 the required portions of its U.S. facility 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.
Environmental legislation provides for restrictions and prohibitions on releases
or emissions of various substances produced in, and waste by-products from,
Sepracor's operations.
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<PAGE> 16
The FDA also imposes requirements relating to the marketing of drug
products after approval, including requirements relating to the promotion of
drug products to buyers and to the reporting to the FDA of adverse drug
experiences known to companies holding approved applications. Failure of the
Company to adhere to these requirements could lead to regulatory action by the
FDA. Information reported to the FDA in compliance with these requirements could
cause the FDA to withdraw drug approval or to require modification of labeling
(e.g., to add warnings or contraindications). The FDA has the statutory
authority to seek judicial remedies and sanctions and to take administrative
corrective action for violation of these and other FDA requirements and
standards.
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 cGMP. Also, BioSepra files with the
FDA Drug Master Files that facilitate the use by pharmaceutical companies of
BioSepra's media for both clinical trial production and commercial production.
Historically, in the production of a biopharmaceutical, any material
change by a manufacturer of process or equipment generally necessitates
additional FDA review and approval. Manufacturers were therefore typically
reluctant to change production methods for existing products. For this reason,
BioSepra has in the past encountered 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.
While this difficulty remains an issue for various categories of
biopharmaceuticals, new guidelines issued in 1996 by the FDA give
biopharmaceutical companies greater flexibility to make changes in the
production processes for certain classes of drugs, including monoclonal
antibody-based drugs, and to continue optimization of their production processes
subsequent to drug approval. In the past, a drug manufacturing process was
"locked in" during clinical trials, prior to product approval. Companies were
reluctant to make any process changes because the FDA would have required new
clinical studies. Now, companies affected by these new guidelines need only
demonstrate a product's biological equivalence to adopt process changes without
new clinical trials.
PATENTS AND PROPRIETARY TECHNOLOGY
SEPRACOR. Sepracor (including its affiliates and subsidiaries) has filed
patent applications in the U.S. relating to chiral synthesis and separations,
membrane affinity
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<PAGE> 17
separations, methods of protein purification and single-isomer compounds As of
December 31, 1997, approximately 72 U.S. patents have been issued to the Company
and approximately 83 patent applications are pending in the PTO. Sepracor has
filed many patent applications in selected countries other than the U.S. In
addition, the Company has licensed from third parties 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 U.S.
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.
Many of the ICEs for which the Company has obtained method-of-use
patents or filed patent applications may be subject to composition-of-matter or
other patents held by third parties. For example, each of the following ICEs is
claimed by third party U.S. patents or patent applications as indicated:
(S)-doxazosin, third party patent claiming the drug substance doxazosin and
pharmaceutical formulations that expires in 2000; fexofenadine, third party
patent claiming the drug substance fexofenadine that expires in 1999 and a third
party patent claiming substantially pure fexofenadine expiring in 2013;
(R)-fluoxetine, third party patents claiming the drug substance fluoxetine and
methods of use that expire in 2001 and 2003, respectively; (S)-fluoxetine, third
party patents claiming the drug substance fluoxetine and methods of use that
expire in 2001 and 2003, respectively; (S)-lansoprazole, third party patents
claiming the drug substance lansoprazole, pharmaceutical formulations and
methods of use that expire in 2009, 2008 and 2005, respectively; norcisapride,
third party patent claiming the drug substance norcisapride that expires in
2009; (S)-sibutramine, third party patent claiming the drug substance
sibutramine and methods of treating depression that expires in 2002;
(S)-zopiclone, third party patent application claiming the drug substance
(S)-zopiclone as a hypnotic agent; (2R,4S)-itraconazole, third party patent
claiming the drug substance itraconazole expiring in 1998; (R)-ondansetron,
third party patent claiming the drug substance ondansetron and methods of use to
treat emesis expiring 2005 and 2006, respectively; and (--)-cetirizine, third
party patent claiming the drug substance cetirizine, expiring in 2007. The third
party patents claiming fexofenadine and sibutramine may be subject to patent
term extension and there are foreign equivalents to a number of the U.S. patents
identified above, the scope and expiration of which vary from country to
country. Even if a patent is issued to the Company for the use of a
single-isomer or active-metabolite form of a racemic mixture which is currently
claimed by one or more third party patents, products based on any such patent
issued to the Company may not be sold until the expiration of all such third
party patents (unless a license is obtained to such third party patents or such
third party patents expire or are determined to be invalid, unenforceable, or
not infringed by a court of proper jurisdiction). In addition, there may be
pending additional third party patent applications covering the Company's ICEs
which, if issued, may preclude the sale of an ICE.
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 and also
excluding the field of HemaSure, as described below). BioSepra holds several
patents and pending patent applications, including a U.S. 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, 1998, Sepracor and its wholly-owned subsidiaries employed
149 persons, of whom 80 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 55 persons.
FACTORS AFFECTING FUTURE OPERATING RESULTS
Certain of the information contained in this Annual Report on Form 10-K,
including information with respect to the safety, efficacy and potential
benefits of the Company's ICEs under development and the scope of patent
protection with respect to these products and information with respect to the
other plans and strategy for the Company's business and the business of the
subsidiaries and certain affiliates of the Company, consists of forward-looking
statements. Important factors that could cause actual results to differ
materially from the forward-looking statements include the following:
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<PAGE> 18
Since substantially all of Sepracor's ICEs 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 parent drugs or that research efforts undertaken by Sepracor will
lead to the discovery of future 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 successful development and
commercialization. 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. Sepracor has filed patent applications covering compositions
containing, and methods of using, single isomer or active-metabolite forms of
various compounds for specific applications. The ability to commercialize
successfully any ICE 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. Most of the ICEs for which
Sepracor has obtained use patents or filed applications therefor are claimed by
composition of matter or other patents or patent applications held by third
parties. In each such case, unless subject to an existing license agreement, the
ICE may not be commercialized until the expiration of corresponding third party
composition-of-matter or other patents. 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 product 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. Certain of the technology that may be used in the products of
Sepracor is not covered by any patent or patent application. In the absence of
patent protection, the business of Sepracor may be adversely affected by
competitors who independently develop substantially equivalent technology.
In July 1997, the PTO informed Sepracor that it had declared an
interference between Sepracor's previously issued use patent on fexofenadine to
treat allergic rhinitis and another similar patent application of Sepracor, and
the use patent application of HMRI on the anti-histaminic effects of
fexofenadine on hepatically impaired patients. The primary objective of a patent
interference, which can only be declared by the PTO, is to determine which party
was the first to invent any overlapping subject matter claimed by more than one
party. In the course of an
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<PAGE> 19
interference, the parties typically present evidence relating to their invention
of the overlapping subject matter. The PTO then reviews the evidence to
determine which party has the earliest legally sufficient date of invention,
and, therefore, is entitled to a patent claiming the overlapping subject matter.
If Sepracor prevails in the interference, Sepracor will retain all of its claims
in its issued patent. If, however, Sepracor loses the interference, HMRI will be
issued a U.S. patent containing its claims involved in the interference and may
not be obligated to pay Sepracor milestone or royalty payments pursuant to the
terms of the license agreement whereby Sepracor licensed its U.S. patent rights
covering fexofenadine to HMRI in 1993. Sepracor and HMRI have agreed to resolve
the interference by arbitration. Selection of the arbitrator and initiation of
the arbitration proceeding is expected to occur in the first half of 1998. While
it is possible that the arbitrator's decision may be rendered during 1998, there
can be no assurance that the arbitrator's decision will be rendered at that
time. Once rendered, the arbitrator's decision must be submitted to the PTO for
final approval. The interference is in its early stages and the Company is
unable to predict its outcome.
The marketing and sale of pharmaceutical products developed by Sepracor
or its development partners will require FDA approvals as well as similar
approvals in foreign countries. To obtain such approvals, the safety and
efficacy of such products must be demonstrated through clinical trials. 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 or that regulator approval for any such
products will be obtained on a timely basis, if at all. The clinical trial and
regulatory approval process can take a number of years and require the
expenditure of substantial resources. With respect to certain of the Company's
ICEs, the Company has been able to shorten the regulatory approval process of
its ICEs by relying on preclinical and clinical toxicology data already on file
with the FDA with respect to the parent drug. Although Sepracor has to date been
successful in employing this strategy in connection with the approval process of
certain of its proposed products, there can be no assurance that the FDA will
permit the Company to utilize this strategy in the future. Accordingly, the
Company may be required to expend significant resources to complete such
preclinical and clinical studies for its other ICEs, thereby significantly
delaying the regulatory approval process. The failure of the Company to obtain
regulatory approval on a timely basis and unanticipated significant expenditures
on preclinical and clinical studies could adversely affect the financial
condition of the Company. While the Company expects FDA approval of its NDA for
the nebulized form of levelbuterol in late 1998, there can be no assurance that
the FDA will approve such NDA by such date, if at all.
The Company currently has very limited sales and marketing experience.
If the Company is successful in developing and obtaining regulatory approval for
its
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<PAGE> 20
products under development, it expects to license certain products to large
pharmaceutical companies and market and sell certain other products through its
direct specialty sales forces or through other arrangements, including
co-promotion arrangements. In anticipation of expected FDA approval of the
nebulized form of levalbuterol later this year, the Company is beginning to
establish a direct sales force to market the inhalation solution of
levalbuterol. Further, as the Company begins to enter into co-promotion
arrangements or market and sell additional products directly, the Company will
need to significantly expand its sales force. The ability of the Company to
realize significant revenues from its direct marketing and sales activities is
dependent on its ability to attract and retain qualified sales personnel in the
pharmaceutical industry. There can be no assurance, however, that the Company
will be able to attract and retain such qualified sales personnel, that it will
successfully expand its marketing and direct sales force in the future on a
timely basis, that the cost of establishing such marketing or sales force will
not exceed any product revenues, that its sales and marketing efforts will be
successful, or that the need to comply with FDA limits on drug product
marketing, including limits on claims of comparative safety or efficacy, will
not inhibit the effectiveness of such marketing. In addition, the Company will
need to enter into co-promotion arrangements with third parties where its own
direct sales force is neither well situated nor large enough to achieve maximum
penetration in the market. There can be no assurance that the Company will be
successful in entering into any such arrangements or that the terms of any such
arrangements will be favorable to the Company.
Sepracor's ability to commercialize certain drugs that it develops is
likely to depend in significant part on its ability to enter into collaborative
agreements with pharmaceutical companies to fund all or part of the costs to
complete the development of such drugs and to manufacture and/or market such
drugs. To date, the Company has entered into three such collaborative
agreements. The Company has licensed its U.S. patent rights to Allegra
(fexofenadine) to HMRI and is entitled to receive royalties on all U.S. sales of
Allegra when the patent on the parent drug expires. The Company, however, is
currently party to an interference involving Allegra which, if decided adversely
to the Company, could result in the loss of all or substantially all of the
royalties to which the Company is entitled under the license agreement on future
sales of Allegra. See "Legal Proccedings." The Company has also licensed its
worldwide patent rights in DCL to Schering-Plough, pursuant to which the
Company is entitled to receive royalties from Schering-Plough upon the initial
sale of the product. The Company has entered into an agreement with Janssen
with respect to the joint development and co-promotion of norastemizole. In each
of these collaborative arrangements and, to the extent the Company enters into
additional collaborative arrangements, the Company is dependent upon the efforts
of the collaboration partners and there can be no assurance that such efforts
will be successful. If any collaborators were to breach or terminate their
agreements with the Company or fail to perform their obligations thereunder in
a timely manner, the development and
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<PAGE> 21
commercialization of the products could be delayed or terminated. Any such delay
or termination could have a material, adverse effect on the Company's financial
condition and results of operation. Sepracor's failure or inability to perform
certain of its obligations under a collaborative agreement could result in a
reduction or loss of the benefits to which Sepracor is otherwise entitled under
such agreement. There can be no assurance that Sepracor will be able to enter
into any such agreements for ICE's in the future or that such collaborative
agreements, if any, will be entered into on terms favorable to the Company.
The Company currently operates a cGMP compliant manufacturing plant
which the Company believes has sufficient capacity to support the production of
its drugs in quantities required for its clinical trials. While the Company
believes it has the capability to scale up its manufacturing processes and
manufacture sufficient quantities of certain of the products which may be
approved for sale, without additional expansion, the Company will not have the
capability to manufacture in sufficient quantities all of the products which may
be approved for sale. Accordingly, the Company may be required to expend
additional resources to expand its current facility, construct an additional
facility or contract the production of these drugs to third party manufacturers.
There can be no assurance that the Company will have the resources to expand its
existing or develop additional facilities or contract with manufacturers to
produce its products in commercial quantities or that any contract with third
party manufacturers will be on favorable terms to the Company. There can be no
assurance that the Company will succeed in scaling up its manufacturing
processes or maintaining cGMP compliance. Failure in either respect can lead to
refusal by the FDA to approve marketing applications. Failure to maintain cGMP
compliance may also be the basis for action by the FDA to withdraw approvals
that have been granted and for other regulatory action.
The testing, marketing and sale of human health care products entails an
inherent risk of product liability and there can be no assurance that product
liability claims will not be asserted against Sepracor. Sepracor and its
subsidiaries maintain limited product liability insurance coverage for both the
clinical trials and commercialization of its products. There can be no assurance
that Sepracor will be able to obtain further product liability insurance on
acceptable terms, if at all, or that any current insurance subsequently obtained
will provide adequate coverage against all potential claims.
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 financing,
collaborative or other arrangements with corporate partners or from other
sources, may not be available when needed on terms acceptable to the Company.
Insufficient funds could require the Company to delay, scale back or eliminate
certain of its
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<PAGE> 22
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 2000, 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 Sepracor Canada Limited, and other factors.
The Company is evaluating the potential impact of the year 2000 on the
processing of data-sensitive information by the Company's computerized
information systems. The year 2000 problem is the result of computer programs
being written using two digits (rather than four) to define the applicable year.
Any of the Company's programs that have time-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000, which could result
in miscalculation or system failures. Based on preliminary information, costs of
addressing potential programs are not currently expected to have a material
adverse impact on the Company's financial position, results of operations or
cash flows in the future periods. However, if the Company, its customers or
vendors are unable to resolve such processing issues in a timely manner, it
could result in a material financial risk. Accordingly, the Company plans to
devote the necessary resources to resolve all significant year 2000 issues in a
timely manner.
Other factors that may affect the Company's future operating results
include the Company's fluctuations in quarterly operating results, its ability
to meet its debt service requirements and to compete successfully in the market.
Factors that may affect the future operating results of Sepracor include
the ability of BioSepra to obtain additional financing, the dependence on
BioSepra sales of HyperD media, which was introduced in 1993, and BioSepra's
ability to sell its products to customers at the early stage of their product
development cycles.
Factors that may affect the future operating results of Sepracor include
the ability of HemaSure to develop commercially viable products and HemaSure's
limited number of customers.
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
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<PAGE> 23
and it expects that its results of operations may fluctuate from period to
period in the future.
ITEM 2. PROPERTIES.
Sepracor's facilities, including those used by BioSepra, are located in
Marlborough, Massachusetts, Windsor, Nova Scotia and Villeneuve-la-Garenne,
France. In Massachusetts, the Company leases a total of 101,292 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 68,815 square feet. In France, BioSepra leases
approximately 28,500 square feet of space under a contract that can be
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.
In July 1997, the PTO informed Sepracor that it had declared an
interference between Sepracor's previously issued method-of-use patent on
fexofenadine to treat allergic rhinitis and another similar patent application
of Sepracor, and HMRI's method-of-use patent application on the anti-histaminic
effects of fexofenadine on hepatically impaired patents. The primary objective
of a patent interference, which can only be declared by the PTO, is to determine
the first to invent any overlapping subject matter claimed by more than one
party. In the course of an interference, the parties typically present evidence
relating to their inventive activities as to the overlapping subject matter. The
PTO then reviews the evidence to determine which party has the earliest legally
sufficient inventive date, and, therefore, is entitled to a patent claiming the
overlapping subject matter.
If Sepracor prevails in the interference, Sepracor will retain all of
its claims in its issued patent. If, however, Sepracor loses the interference,
HMRI will be issued a U.S. patent containing its claims involved in the
interference and may not be obligated to pay Sepracor milestone or royalty
payments pursuant to the terms of the license agreement whereby Sepracor
licensed its U.S. patent rights covering fexofenadine to HMRI in 1993.
In December 1997, the Company and its subsidiary, BioSepra, settled
their long standing patent lawsuit with PerSeptive, a competitor of the Company.
Under the
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<PAGE> 24
terms of the settlement, PerSeptive received an unspecified amount and the
Company obtained a limited, non-exclusive license under PerSeptive's Perfusion
Chromatography(R) patents to make, use and sell its HyperD(R) product line free
of claims of infringements by PerSeptive.
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. 5,431,321 (the "321 patent") HemaSure
filed for summary judgment of noninfringement. Pall filed a cross motion for
summary judgment of infringement at the same time. In October 1997 the U.S.
District Court for the Eastern District of New York granted in part Pall's
summary judgment motion relating to the 321 patent. The court has not yet ruled
on the validity of Pall's 321 patent claims, which HemaSure has asserted are
invalid and unenforceable. The court will need to review and determine the
validity of this patent prior to any further action. No date has been set for
these proceedings.
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 unenforceability 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 o 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, 1997.
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<PAGE> 25
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the names, ages and positions of the
current executive officers of the Company.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- ---------
<S> <C> <C>
Timothy J. Barberich 50 President, Chief Executive Officer and Director
David S. Barlow 41 Executive Vice President; President,
Pharmaceuticals
David P. Southwell 37 Executive Vice President; Chief Financial Officer
and Secretary
James R. Hauske, Ph.D. 44 Senior Vice President, Discovery
Paul D. Rubin, M.D. 44 Senior Vice President, Drug Development
Robert F. Scumaci 38 Senior Vice President, Finance and
Administration and Treasurer
Douglas Reedich, Ph.D. 40 Chief Patent Counsel
</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 and is a director of HemaSure and
Versicor.
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, from 1988 to 1991. Prior to that time, he was
associated with Pfizer 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
-23-
<PAGE> 26
until July 1994, Mr. Southwell was associated with Lehman Brothers Inc., a
securities firm, in various positions with the investment banking division, most
recently in the position of Vice President. Mr. Southwell is a director of
BioSepra.
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. Dr. Rubin is a director of Endorex Corp.
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.
Dr. Reedich has served as Chief Patent Counsel of the Company since June
1995. From October 1987 to June 1995, he was employed by 3M Company ("3M"), most
recently as patent counsel for 3M's Pharmaceuticals Division. Prior to joining
3M, Dr. Reedich was employed as a chemist by Eli Lilly.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Incorporated by reference from the Company's 1997 Annual Report to
Stockholders (the "1997 Annual Report") under the headings "Supplemental
Stockholder Information -- Price Range of Common Stock" and "Supplemental
Stockholder Information -- Dividend Policy."
-24-
<PAGE> 27
The Company did not issue or sell any equity securities during the
quarter ended December 31, 1997 that were not registered under the Securities
Act of 1933, as amended.
ITEM 6. SELECTED FINANCIAL DATA.
Incorporated by reference from the 1997 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 1997 Annual Report under the heading
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
Not applicable.
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 1997 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 1998 Annual Meeting of Stockholders. Such information will be
contained in the sections of such proxy statement captioned "Stock Ownership of
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
-25-
<PAGE> 28
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.
(a) The following documents are included or incorporated by reference
from the 1997 Annual Report.
1. The following financial statements (and related notes) of the Company
are incorporated by reference from the 1997 Annual Report:
Page*
Report of Independent Accountants 25*
Consolidated Balance Sheets at December 31, 1997 and 1996 26*
Consolidated Statements of Operations for the Years Ended
December 31, 1997, 1996 and 1995 27*
Consolidated Statements of Stockholders' Equity for the Years
Ended December 31, 1997, 1996 and 1995 28*
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995 29*
Notes to the Consolidated Financial Statements 30*
-----------
* Refers to page number of the 1997 Annual Report. The financial
statements (and related notes) are incorporated by reference from the
1997 Annual Report.
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:
Report of Independent Accountants on Financial
Statement Schedule S-1
Report of Independent Accountants on Financial
Statement Schedule S-2
Schedule II -- Valuation and Qualifying Accounts S-3
-26-
<PAGE> 29
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.
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) The following current report on Form 8-K was filed by the Company
during the last quarter of the year ended December 31, 1997.
Current Report on Form 8-K filed with the Securities and Exchange
Commission on December 15, 1997, as amended by Current Report on Form
8-K filed with the Securities and Exchange Commission December 18, 1997,
relating to the signing of a licensing agreement with Schering-Plough
Corporation.
The following trademarks are mentioned in this Annual Report on Form
10-K:
Sepracor and ICE are trademarks of Sepracor. BioSepra, HyperD,
HyperDiffusion and UpScale Process are trademarks of BioSepra. HemaSure and
LeukoNet are trademarks of HemaSure. This Annual Report on Form 10-K also
contains trademarks of other companies.
-27-
<PAGE> 30
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 30, 1998
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.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/Timothy J. Barberich President, Chief Executive Officer March 30, 1998
- --------------------------
Timothy J. Barberich and Director (Principal Executive
Officer)
/s/David P. Southwell Executive Vice President and March 30, 1998
- --------------------------
David P. Southwell Chief Financial Officer
(Principal Financial Officer)
/s/Robert F. Scumaci Senior Vice President, Finance March 30, 1998
- ---------------------------
Robert F. Scumaci and Administration
(Principal Accounting Officer)
/s/James G. Andress Director March 30, 1998
- --------------------------
James G. Andress
/s/Digby W. Barrios Director March 30, 1998
- --------------------------
Digby W. Barrios
</TABLE>
<PAGE> 31
<TABLE>
<S> <C> <C>
/s/Robert J. Cresci Director March 30, 1998
- --------------------------
Robert J. Cresci
/s/Robert F. Johnston Director March 30, 1998
- --------------------------
Robert F. Johnston
/s/Keith Mansford Director March 30, 1998
- --------------------------
Keith Mansford
/s/James F. Mrazek Director March 30, 1998
- --------------------------
James F. Mrazek
/s/Alan A. Steigrod Director March 30, 1998
- --------------------------
Alan A. Steigrod
</TABLE>
<PAGE> 32
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 25 of the 1997 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(a)2 of this Form 10-K.
In our opinion, based on our audit and the 1997 report of the other auditors,
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 L.L.P.
Boston, Massachusetts
February 19, 1998, except as to the
information in Note W for which the
date is March 26, 1998
S-1
<PAGE> 33
[ARTHUR ANDERSEN LLP LETTERHEAD]
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 27, 1998. 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 management 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 27, 1998 (except
for the matter discussed
in Note Q as to which
the date is March 26, 1998)
S-2
<PAGE> 34
SEPRACOR INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
- ---------------------------------------------------------------------------------------------------------------------
Balance at Additions
beginning Charged to Charged to Balance at
Description of period and expenses other accounts(1) Deductions(2) end of period
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1997
Accounts Receivable Reserves $233,010 $150,000 $ -- $(14,000) $369,010
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
</TABLE>
(1) These amounts relate to changes in the translation rate of BioSepra'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. in 1996.
S-3
<PAGE> 35
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Page
- ----------- ----------- ----
<S> <C> <C>
3.1(7) -- Restated Certificate of Incorporation of the
Registrant, as amended.
3.2(1) -- Amended and Restated By-Laws of the Registrant.
4.1(1) -- Specimen Certificate for shares of Common Stock, $.10
par value, of the Registrant.
4.2(2) -- Form of 7% Convertible Subordinated Debenture
due 2002.
4.3 -- Form of 6 1/4% Convertible Subordinated
Debenture due 2005.
4.4 -- Global 6 1/4% Convertible Subordinated Debenture
payable to Cede & Co. due 2005.
10.1(1) -- Second Amended and Restated Registration Rights
Agreement dated as of June 28, 1991, by and among the
Registrant and the persons listed on Schedule I thereto.
(*)10.2(8) -- The Registrant's 1991 Restated Stock Option Plan,
as amended and restated.
(*)10.3(8) -- The Registrant'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 Registrant (the
"Marlboro Lease").
(*)10.5(8) -- The Registrant's 1996 Employee Stock Purchase
Plan, as amended and restated.
10.6(3)+ -- License Agreement dated June 1, 1993, between the
Registrant and Marion Merrill Dow ("MMD").
</TABLE>
<PAGE> 36
<TABLE>
<CAPTION>
Exhibit No. Description Page
- ----------- ----------- ----
<S> <C> <C>
10.7(3) -- Stock Purchase Agreement dated June 1, 1993,
between the Registrant and MMD.
10.8(4) -- Technology Transfer and License Agreement dated as of
January 1, 1994, between the Registrant and BioSepra
Inc.
10.9(4) -- Technology Transfer and License Agreement dated as of
January 1, 1994, between the Registrant and HemaSure
Inc.
10.10(2) -- Technology Transfer and License Agreement, effective
January 1, 1995, between the Registrant and SepraChem
Inc.
10.11(5) -- Series A Convertible Preferred Stock Purchase
Agreement, dated September 30, 1994, by and among the
Registrant 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 Registrant and David Southwell.
(*)10.14(8) -- Letter Agreement, dated February 23, 1996,
between the Registrant and Paul D. Rubin.
(*)10.15(8) -- Letter Agreement, dated February 23, 1995,
between the Registrant and Robert F. Scumaci.
(*)10.16(8) -- Consulting Agreement between the Registrant and
Mr. Steigrod, dated September 1, 1996.
(*)10.17 -- Consulting Agreement Amendment, dated as
of January 1, 1997, between the Registrant and
Alan A. Steigrod.
</TABLE>
<PAGE> 37
<TABLE>
<CAPTION>
Exhibit No. Description Page
- ----------- ----------- ----
<S> <C> <C>
10.18 -- Promissory Note from David Barlow to the Registrant,
dated July 1, 1997 to December 31, 1997, and Letter
Extension from the Registrant dated December 18, 1997.
10.19(8) -- Promissory Note from Paul D. Rubin to the Registrant,
dated May 23, 1997.
10.20 -- Promissory Note from Paul D. Rubin to the Registrant,
dated January 22, 1998.
10.21(6) -- Series B Preferred Stock Purchase Agreement dated
March 14, 1995, between the Registrant and Beckman
Instruments, Inc.
10.22 -- First Amendment to Marlboro Lease, dated February 1,
1997, and Second Amendment to Marlboro Lease, dated July
1, 1997.
10.23(6) -- Intellectual Property Security Agreement by and
between Fleet Bank of Massachusetts, N.A. and
the Registrant, dated December 28, 1994.
10.24(8) -- Amended and Restated Revolving Credit and Security
Agreement among Fleet National Bank, the Registrant and
Sepracor Securities Corporation, dated December 31,
1996.
10.25(8) -- Confirmation of and Amendment to Intellectual
Property Security Agreement between Fleet
National Bank and the Registrant, dated February 1997.
10.26(8) -- Deposit Pledge Agreement, dated December 31, 1996,
between the Registrant and Fleet National Bank.
10.27(8) -- Amended and Restated Promissory Note, dated
December 31, 1996, between the Registrant,
Sepracor Securities Corporation and Fleet
National Bank.
</TABLE>
<PAGE> 38
<TABLE>
<CAPTION>
Exhibit No. Description Page
- ----------- ----------- ----
<S> <C> <C>
10.28(8) -- Guaranty Agreement, dated December 31, 1996,
between the Registrant and Fleet National Bank
for BioSepra Inc.
10.29(2) -- Fiscal Agency Agreement, dated as of November
1, 1995, between the Registrant and Chemical Bank, as
Fiscal Agent.
10.30+ -- License Agreement, dated January 30, 1998, by and
between the Registrant and Janssen Pharmaceutica N.V.
10.31+ -- Agreement, dated as of December 5, 1997, by and
between the Registrant and Schering-Plough Ltd.
10.32 -- Put Agreement, dated as of December 30, 1997, between
the Registrant and Fleet National Bank.
10.33 -- Purchase Agreement, dated February 5, 1998,
between the Registrant, Morgan Stanley & Co.
Incorporated, Lehman Brothers Inc., Smith Barney
Inc. and Vector Securities International, Inc.
10.34 -- Indenture, dated as of February 10, 1998, between the
Registrant and Chase Manhattan Bank, as trustee,
relating to the 6 1/4% Convertible Subordinated
Debentures due 2005.
10.35 -- Registration Rights Agreement, dated as of
February 5, 1998, by and among the Registrant,
Morgan Stanley & Co. Incorporated, Lehman
Brothers Inc., Smith Barney Inc. and Vector
Securities International, Inc.
(*)10.36 -- The Registrant's 1997 Stock Option Plan.
(*)10.37 -- Consulting Agreement between the Registrant and
Digby W. Barrios, dated October 1, 1995.
</TABLE>
<PAGE> 39
<TABLE>
<CAPTION>
Exhibit No. Description Page
- ----------- ----------- ----
<S> <C> <C>
13 -- 1997 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.
</TABLE>
- ----------
(*) Management contract or compensatory plan or arrangement filed as an
exhibit to this Form pursuant to Item 14(c) of Form 10-K.
(1) Incorporated herein by reference from the Registrant's Registration
Statement on Form S-1 (File No. 33-41653).
(2) Incorporated by reference from the Registrant's Annual Report on Form
10-K for the year ended December 31, 1995.
(3) Incorporated by reference from the Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1993.
(4) Incorporated by reference from the Registrant's Annual Report on Form
10-K for the year ended December 31, 1993.
(5) Incorporated by reference from the Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1994.
(6) Incorporated by reference from the Registrant's Annual Report on Form
10-K for the year ended December 31, 1994.
(7) Incorporated by reference from the Registrant's Registration Statement
on Form S-8, filed on June 5, 1996, relating to the 1991 Director Stock
Option Plan.
(8) Incorporated by reference from the Registrant's Annual Report on Form
10-K for the year ended December 31, 1996.
+ Confidential treatment as to certain portions.
<PAGE> 1
Exhibit 4.3
DEBENTURE
THE DEBENTURE EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS,
AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR
FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING
SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A
"QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES
ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE
501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) ("INSTITUTIONAL ACCREDITED
INVESTOR"); (2) AGREES THAT IT WILL NOT, PRIOR TO EXPIRATION OF THE HOLDING
PERIOD APPLICABLE TO SALES OF THE SECURITY EVIDENCED HEREBY UNDER RULE 144(K)
UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION), RESELL OR OTHERWISE
TRANSFER THE DEBENTURE EVIDENCED HEREBY OR THE COMMON STOCK ISSUABLE UPON
CONVERSION OF SUCH DEBENTURE EXCEPT (A) TO SEPRACOR INC. OR ANY SUBSIDIARY
THEREOF, (B) INSIDE THE UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN
COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES
TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES
TO THE CHASE MANHATTAN BANK, AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE),
A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO
THE RESTRICTIONS ON TRANSFER OF THE DEBENTURE EVIDENCED HEREBY (THE FORM OF
WHICH LETTER CAN BE OBTAINED FROM SUCH TRUSTEE OR A SUCCESSOR TRUSTEE, AS
APPLICABLE), (D) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904 UNDER THE
SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE
144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (F) PURSUANT TO A REGISTRATION
STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT (AND WHICH
CONTINUES TO BE EFFECTIVE AT THE TIME OF SUCH TRANSFER); (3) PRIOR TO SUCH
TRANSFER (OTHER THAN A TRANSFER PURSUANT TO CLAUSE 2(F) ABOVE), IT WILL FURNISH
THE CHASE MANHATTAN BANK, AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE),
SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS IT MAY REASONABLY
REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION
FROM OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND (4) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THE
DEBENTURE EVIDENCED HEREBY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT
OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THE DEBENTURE EVIDENCED
HEREBY PRIOR TO THE EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF THE
DEBENTURE EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT (OR ANY
SUCCESSOR PROVISION), THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE
REVERSE HEREOF RELATING TO THE
<PAGE> 2
MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO THE CHASE MANHATTAN BANK,
AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE). IF THE PROPOSED TRANSFEREE
IS AN INSTITUTIONAL ACCREDITED INVESTOR OR A PURCHASER WHO IS NOT A U.S. PERSON,
THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE FIRST NATIONAL BANK OF
CHICAGO, AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE), SUCH
CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS SUCH TRUSTEE MAY
REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT. THIS LEGEND WILL BE REMOVED UPON THE EARLIER
OF THE TRANSFER OF THE DEBENTURE EVIDENCED HEREBY PURSUANT TO CLAUSE 2(F) ABOVE
OR UPON ANY TRANSFER OF THE DEBENTURES EVIDENCED HEREBY UNDER RULE 144(K) UNDER
THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION). AS USED HEREIN, THE TERMS
"UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION
S UNDER THE SECURITIES ACT.
<PAGE> 3
SEPRACOR INC.
6 1/4% CONVERTIBLE SUBORDINATED DEBENTURE DUE 2005
NO: P-[NEXT NUMBER] CUSIP: 817 315 AD6
SEPRACOR INC., a corporation duly organized and validly existing under
the laws of the State of Delaware (herein called the "Company"), which term
includes any successor corporation under the Indenture referred to on the
reverse hereof, for value received hereby promises to pay to [NEW DEBENTURE
HOLDER] or registered assigns, the principal sum of [AMOUNT SPELLED OUT ($AMOUNT
IN NUMERALS)] on February 15, 2005, at the office or agency of the Company
maintained for that purpose in accordance with the terms of the Indenture, or,
at the option of the holder of this Debenture, at the Corporate Trust Office, in
such coin or currency of the United States of America as at the time of payment
shall be legal tender for the payment of public and private debts, and to pay
interest, semi-annually on February 15 and August 15, of each year, commencing
August 15, 1998, on said principal sum at said office or agency, in like coin or
currency, at the rate per annum of 6 1/4% from February 10, 1998 and thereafter
to maturity from the February 15 or August 15, as the case may be, next
preceding the date of this Debenture to which interest has been paid or duly
provided for, unless the date hereof is a date to which interest has been paid
or duly provided for, in which case from the date of this Debenture, or unless
no interest has been paid or duly provided for on the Debentures, in which case
from February 10, 1998, until payment of said principal sum has been made or
duly provided for. Notwithstanding the foregoing, if the date hereof is after
any January 31 or July 31, as the case may be, and before the following February
15 or August 15, this Debenture shall bear interest from such February 15 or
August 15; provided, however, that if the Company shall default in the payment
of interest due on such February 15 or August 15, then this Debenture shall bear
interest from the next preceding February 15 or August 15, to which interest has
been paid or duly provided for or, if no interest has been paid or duly provided
for on such Debenture, from February 10, 1998. The interest payable on the
Debenture pursuant to the Indenture on any February 15 or August 15 will be paid
to the person entitled thereto as it appears in the Debenture register at the
close of business on the record date, which shall be the January 31 or July 31
(whether or not a Business Day) next preceding such February 15 or August 15, as
provided in the Indenture; provided that any such interest not punctually paid
or duly provided for shall be payable as provided in the Indenture. Interest
may, at the option of the Company, be paid either (i) by check mailed to the
registered address of such person (provided that the holder of Debentures with
an aggregate principal amount in excess of $2,000,000 shall, at the written
election of such holder, be paid by wire transfer in immediately available
funds) or (ii) by transfer to an account maintained by such person located in
the United States.
Reference is made to the further provisions of this Debenture set forth
on the reverse hereof, including, without limitation, provisions subordinating
the payment of principal of and premium, if any, and interest on the Debentures
to the prior payment in full of all Senior Obligations, as defined in the
Indenture, and provisions giving the holder of this Debenture the right to
convert this Debenture into Common Stock of the Company on the terms and subject
to the limitations referred to on the reverse hereof and as more fully specified
in the Indenture. Such
<PAGE> 4
further provisions shall for all purposes have the same effect as though fully
set forth at this place.
This Debenture shall be deemed to be a contract made under the laws of
the State of New York, and for all purposes shall be construed in accordance
with and governed by the laws of said State.
This Debenture shall not be valid or become obligatory for any purpose
until the certificate of authentication hereon shall have been manually signed
by the Trustee or a duly authorized authenticating agent under the Indenture.
IN WITNESS WHEREOF, the Company has caused this Debenture to be duly
executed under its corporate seal to be affixed or imported hereon.
SEPRACOR INC.
BY:
-------------------------------------
Name:
Title:
Attest:
-----------------------------------
Name:
Title:
Dated: February 10, 1998
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Debentures described in the within-named Indenture.
THE CHASE MANHATTAN BANK, as Trustee
By:
-------------------------------------
Authorized Signatory
By:
-------------------------------------
As Authenticating Agent
(if different from Trustee)
-2-
<PAGE> 5
SEPRACOR INC.
6 1/4% CONVERTIBLE SUBORDINATED DEBENTURE DUE 2005
This Debenture is one of a duly authorized issue of Debentures of the
Company, designated as its 6 1/4% Convertible Subordinated Debentures due 2005
(herein called the "Debentures"), limited to the aggregate principal amount of
$189,475,000 all issued or to be issued under and pursuant to an Indenture dated
as of February 10, 1998 (herein called the "Indenture"), between the Company and
The Chase Manhattan Bank as trustee (herein called the "Trustee"), to which
Indenture and all indentures supplemental thereto reference is hereby made for a
description of the rights, limitations of rights, obligations, duties and
immunities thereunder of the Trustee, the Company and the holders of the
Debentures.
In case an Event of Default, as defined in the Indenture, shall have
occurred and be continuing, the principal of, premium, if any, and accrued
interest (including Liquidated Damages, if any) on all Debentures may be
declared, and upon said declaration shall become, due and payable, in the
manner, with the effect and subject to the conditions provided in the Indenture:
The Indenture contains provisions permitting the Company and the
Trustee, with the consent of the holders of not less than a majority in
aggregate principal amount of the Debentures at the time outstanding, evidenced
as in the Indenture provided, to execute supplemental indentures adding any
provisions to or changing in any manner or eliminating any of the provisions of
the Indenture or of any supplemental indenture or modifying in any manner the
rights of the holders of the Debentures; provided, however, that no such
supplemental indenture shall (i) extend the fixed maturity of any Debenture, or
reduce the rate or extend the time of payment of interest thereon, or reduce the
principal amount thereof or premium, if any, thereon, or reduce any amount
payable on redemption thereof, or impair the right of any Debentureholder to
institute suit for the payment thereof, or make the principal thereof or
interest or premium, if any, thereon payable in any coin or currency other than
that provided in the Debenture, or modify the provisions of the Indenture with
respect to the subordination of the Debentures in a manner adverse to the
Debentureholders in any material respect, or change the obligation of the
Company to make redemption of any Debenture upon the happening of a Fundamental
Change in a manner adverse to the holder of the Debentures, or impair the right
to convert the Debentures into Common Stock subject to the terms set forth in
the Indenture, including Section 15.6 thereof, without the consent of the holder
of each Debenture so affected or (ii) reduce the aforesaid percentage of
Debentures, the holders of which are required to consent to any such
supplemental indenture, without the consent of the holders of all Debentures
then outstanding. It is also provided in the Indenture that, prior to any
declaration accelerating the maturity of the Debentures, the holders of a
majority in aggregate principal amount of the Debentures at the time outstanding
may on behalf of the holders of all of the Debentures waive any past default or
Event of Default under the Indenture and its consequences except a default in
the payment of interest (including Liquidated Damages, if any) or any premium on
or the
<PAGE> 6
principal of any of the Debentures, a default in the payment of redemption price
pursuant to Article III or a failure by the Company to convert any Debentures
into Common Stock of the Company. Any such consent or waiver by the holder of
this Debenture (unless revoked as provided in the Indenture) shall be conclusive
and binding upon such holder and upon all future holders and owners of this
Debenture and any Debentures which may be issued in exchange or substitute
hereof, irrespective of whether or not any notation thereof is made upon this
Debenture or such other Debentures.
The indebtedness evidenced by the Debentures is, to the extent and in
the manner provided in the Indenture, expressly subordinate and subject in right
of payment to the prior payment in full of all Senior Obligations of the
Company, as defined in the Indenture, whether outstanding at the date of the
Indenture or thereafter incurred, and this Debenture is issued subject to the
provisions of the Indenture with respect to such subordination. Each holder of
this Debenture, by accepting the same, agrees to and shall be bound by such
provisions and authorizes the Trustee on its behalf to take such action as may
be necessary or appropriate to effectuate the subordination so provided and
appoints the Trustee his attorney-in-fact for such purpose.
No reference herein to the Indenture and no provision of this Debenture
or of the Indenture shall alter or impair the obligation of the Company, which
is absolute and unconditional, to pay the principal of and any premium and
interest (including Liquidated Damages, if any) on this Debenture at the place,
at the respective times, at the rate and in the coin or currency herein
prescribed.
Interest on the Debentures shall be computed on the basis of a year of
twelve 30-day months.
The Debentures are issuable in registered form without coupons in
denominations of $1,000 and any integral multiple of $1,000. At the office or
agency of the Company referred to on the face hereof, and in the manner and
subject to the limitations provided in the Indenture, without payment of any
service charge but with payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection with any registration or
exchange of Debentures, Debentures may be exchanged for a like aggregate
principal amount of Debentures of other authorized denominations.
The Debentures will not be redeemable at the option of the Company
prior to February 18, 2001. At any time on or after February 18, 2001, and prior
to maturity, the Debentures may be redeemed at the option of the Company as a
whole, or from time to time in part, upon mailing a notice of such redemption
not less than thirty (30) days before the date fixed for redemption to the
holders of Debentures at their last registered addresses, all as provided in the
Indenture, at the following optional redemption prices (expressed as percentages
of the principal amount), together in each case with accrued interest (including
Liquidated Damages, if any) to, but excluding, the date fixed for redemption:
-2-
<PAGE> 7
If redeemed during the period beginning February 18, 2001 and ending on
February 14, 2002, at a redemption price of 103.571%, and if redeemed during the
12-month period beginning February 15:
<TABLE>
<CAPTION>
Year Redemption Price
<S> <C>
2002 102.679%
2003 101.786%
2004 100.893%
</TABLE>
and 100% at February 15, 2005; provided that if the date fixed for redemption is
on February 15 or August 15, then the interest payable on such date shall be
paid to the holder of record on the next preceding January 31 or July 31,
respectively.
The Debentures are not subject to redemption through the operation of
any sinking fund.
If a Fundamental Change (as defined in the Indenture) occurs at any
time prior to February 15, 2005, the Debentures will be redeemable on the 30th
day after notice thereof at the option of the holder at a redemption price equal
to 100% of the principal amount of the Debenture (or portion thereof) redeemed,
together with accrued interest to the date of redemption; provided that if such
Repurchase Date is February 15 or August 15, then the interest payable on such
date shall be paid to the holder of record of the Debenture on the next
preceding July 31 or August 31, respectively. The Company shall mail to all
holders of record of the Debentures a notice of the occurrence of a Fundamental
Change and of the redemption right arising as a result thereof on or before the
10th day after the occurrence of such Fundamental Change. For a Debenture to be
so repaid at the option of the holder, the Company must receive at the office or
agency of the Company maintained for that purpose in accordance with the terms
of the Indenture, such Debenture with the form entitled "Option to Elect
Repayment Upon a Fundamental Change" on the reverse thereof duly completed,
together with such Debentures duly endorsed for transfer, on or before the 30th
day after the date of such notice (or if such 30th day is not a Business Day,
the next succeeding Business Day).
Subject to the provisions of the Indenture, the holder hereof has the
right, at its option, at any time after ninety (90) days following the latest
date of original issuance thereof through the close of business on February 15,
2005, or, as to all or any portion hereof called for redemption, prior to the
close of business on the Business Day immediately preceding the date fixed for
redemption (unless the Company shall default in payment due upon redemption
thereof), to convert the principal hereof or any portion of such principal which
is $1,000 or an integral multiple thereof into that number of shares of the
Company's Common Stock, as said shares shall be constituted at the date of
conversion, obtained by dividing the principal amount of this Debenture or
portion thereof to be converted by the Conversion Price of $47.369 or such
Conversion Price as adjusted from time to time as provided in the Indenture,
upon surrender of this Debenture, together with a conversion notice as provided
in the Indenture, to the Company
-3-
<PAGE> 8
at the office or agency of the Company maintained for that purpose in accordance
with the terms of the Indenture, or at the option of such holder, the Corporate
Trust Office, and, unless the shares issuable on conversion are to be issued in
the same name as this Debenture, duly endorsed by, or accompanied by instruments
of transfer in form satisfactory to the Company duly executed by, the holder or
by his duly authorized attorney. No adjustment in respect of interest or
dividends will be made upon any conversion; provided, however, that if this
Debenture shall be surrendered for conversion during the period from (but
excluding) a record date for any interest payment date to (but excluding) such
interest payment date, this Debenture (unless it or the portion being converted
shall have been called for redemption during such period) must be accompanied by
an amount, in New York Clearing House funds or other funds acceptable to the
Company, equal to the interest payable on such interest payment date on the
principal amount being converted. No fractional shares will be issued upon any
conversion, but an adjustment in cash will be made, as provided in the
Indenture, in respect of any fraction of a share which would otherwise be
issuable upon the surrender of any Debenture or Debentures for conversion.
Any Debentures called for redemption, unless surrendered for conversion
on or before the close of business on the date fixed for redemption, may be
deemed to be purchased from the holder of such Debentures at an amount equal to
the applicable redemption price, together with accrued interest (including
Liquidated Damages, if any) to (but excluding) the date fixed for redemption, by
one or more investment bankers or other purchasers who may agree with the
Company to purchase such Debentures from the holders thereof and convert them
into Common Stock of the Company and to make payment for such Debentures as
aforesaid to the Trustee in trust for such holders.
Upon due presentment for registration of transfer of this Debenture at
the office or agency of the Company maintained for that purpose in accordance
with the terms of the Indenture, or at the option of the holder of this
Debenture, at the Corporate Trust Office, a new Debenture or Debentures of
authorized denominations for an equal aggregate principal amount will be issued
to the transferee in exchange thereof, subject to the limitations provided in
the Indenture, without charge except for any tax or other governmental charge
imposed in connection therewith.
The Company, the Trustee, any authenticating agent, any paying agent,
any conversion agent and any Debenture registrar may deem and treat the
registered holder hereof as the absolute owner of this Debenture (whether or not
this Debenture shall be overdue and notwithstanding any notation of ownership or
other writing hereon made by anyone other than the Company or any Debenture
registrar), for the purpose of receiving payment hereof, or on account hereof,
for the conversion hereof and for all other purposes, and neither the Company
nor the Trustee nor any other authenticating agent nor any paying agent nor any
other conversion agent nor any Debenture registrar shall be affected by any
notice to the contrary. All payments made to or upon the order of such
registered holder shall, to the extent of the sum or sums paid, satisfy and
discharge liability for monies payable on this Debenture.
-4-
<PAGE> 9
No recourse for the payment of the principal of or any premium or
interest on this Debenture, or for any claim based hereon or otherwise in
respect hereof, and no recourse under or upon any obligation, covenant or
agreement of the Company in the Indenture or any indenture supplemental thereto
or in any Debenture, or because of the creation of any indebtedness represented
thereby, shall be had against any incorporator, stockholder, employee, agent,
officer or director or subsidiary, as such, past, present or future, of the
Company or of any successor corporation, either directly or through the Company
or any successor corporation, whether by virtue of any constitution, statute or
rule of law or by the enforcement of any assessment or penalty or otherwise, all
such liability being, by the acceptance hereof and as part of the consideration
for the issue hereof, expressly waived and released.
Terms used in this Debenture and defined in the Indenture are used
herein as therein defined.
-5-
<PAGE> 10
ABBREVIATIONS
The following abbreviations, when used in the inscription of the face of this
Debenture, shall be construed as though they were written out in full according
to applicable laws or regulations:
<TABLE>
<S> <C> <C>
TEN COM- as tenants in common UNIF GIFT MIN ACT --
-------------------- Custodian
(Cust)
--------------------
(Minor)
TEN ENT- as tenants by the entireties
JT TEN- as joint tenants with right of under Uniform Gifts to Minors Act
survivorship and not as tenants in
common
---------------------
(State)
</TABLE>
ADDITIONAL ABBREVIATIONS MAY ALSO BE USED
THOUGH NOT IN THE ABOVE LIST.
-6-
<PAGE> 11
CONVERSION NOTICE
To: SEPRACOR INC.
The undersigned registered owner of this Debenture hereby irrevocably
exercises the option to convert this Debenture, or the portion hereof (which is
$1,000 or an integral multiple thereof) below designated, into shares of Common
Stock of Sepracor Inc. in accordance with the terms of the Indenture referred to
in this Debenture, and directs that the shares issuable and deliverable upon
such conversion, together with any check in payment for fractional shares and
any Debentures representing any unconverted principal amount hereof, be issued
and delivered to the registered holder hereof unless a different name has been
indicated below. If shares or any portion of this Debenture not converted are to
be issued in the name of a person other than the undersigned, the undersigned
will check the appropriate box below and pay all transfer taxes payable with
respect thereto. Any amount required to be paid to the undersigned on account of
interest accompanies this Debenture.
Dated:
--------------------------------- ----------------------------------
----------------------------------
Signature(s)
Signature(s) must be
guaranteed by a commercial
bank or trust company or a
member firm of a major
stock exchange if shares of
Common Stock are to be
issued, or Debentures to be
delivered, other than to
and in the name of the
registered holder.
----------------------------------
Signature Guarantee
-7-
<PAGE> 12
Fill in for registration of shares of Common Stock if to be issued, and
Debentures if to be delivered, other than to and in the name of the registered
holder:
____________________________________________
(Name)
____________________________________________
(Street Address)
____________________________________________
(City, State and Zip Code)
Please print name and address
Principal amount to be Converted
(if less than all): $____________
Social Security or Other Taxpayer
Identification Number:
-8-
<PAGE> 13
OPTION TO ELECT REPAYMENT
UPON A FUNDAMENTAL CHANGE
TO: SEPRACOR INC.
The undersigned registered owner of this Debenture hereby irrevocably
acknowledges receipt of a notice from Sepracor Inc. (the "Company") as to the
occurrence of a Fundamental Change with respect to the Company and requests and
instructs the Company to repay the entire principal amount of this Debenture, or
the portion thereof (which is $1,000 or an integral multiple thereof) below
designated, in accordance with the terms of the Indenture referred to in this
Debenture at the redemption price, together with accrued interest to, but
excluding, such date, to the registered holder hereof.
Dated:
------------------------------ ---------------------------------
---------------------------------
Signature(s)
NOTICE: The above
signatures of the holder(s)
hereof must correspond with
the name as written upon
the face of the Debenture
in every particular without
alteration or enlargement
or any change whatever.
Principal amount to be
Converted (if less than all):
$-------------
---------------------------------
Social Security or Other Taxpayer
Identification Number
-9-
<PAGE> 14
ASSIGNMENT
For value received ___________________________ hereby sell(s),
assign(s) and transfer(s) unto ___________________________ (Please insert social
security or other Taxpayer Identification Number of assignee) the within
Debenture, and hereby irrevocably constitutes and appoints
_________________________ attorney to transfer the said Debenture on the books
of the Company, with full power of substitution in the premises.
In connection with any transfer of the Debenture within the
period prior to the expiration of the holding period applicable to sales thereof
under Rule 144(k) under the Securities Act (or any successor provision) (other
than any transfer pursuant to a registration statement that has been declared
effective under the Securities Act), the undersigned confirms that such
Debenture is being transferred:
/ / To Sepracor Inc. or a subsidiary thereof, or
/ / Pursuant to and in compliance with Rule 144A under the Securities Act
of 1933, as amended; or
/ / To an Institutional Accredited Investor pursuant to and in compliance
with the Securities Act of 1933, as amended; or
/ / Pursuant to and in compliance with Regulation S under the Securities
Act of 1933, as amended; or
/ / Pursuant to and in compliance with Rule 144 under the Securities Act
of 1933, as amended;
and unless the box below is checked, the undersigned confirms that such
Debenture is not being transferred to an "affiliate" of the Company as defined
in Rule 144 under the Securities Act of 1933, as amended (an "Affiliate").
/ / The transferee is an Affiliate of the Company.
Dated:
-10-
<PAGE> 15
----------------------------------
Signature(s)
Signature(s) must be guaranteed by a
commercial bank or trust company or
a member firm of a major stock
exchange if shares of Common Stock
are to be issued, or Debentures to
be delivered, other than to or in
the name of the registered holder.
----------------------------------
Signature Guarantee
NOTICE: The signature on the conversion notice, the option to elect repayment
upon a Fundamental Change or the assignment must correspond with the name as
written upon the face of the Debenture in every particular without alteration or
enlargement or any change whatever.
-11-
<PAGE> 1
Exhibit 4.4
RULE 144A GLOBAL DEBENTURE
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) (THE
"DEPOSITARY," WHICH TERM INCLUDES ANY SUCCESSOR DEPOSITARY FOR THE CERTIFICATES)
TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT,
AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH
OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DEPOSITARY AND ANY
PAYMENT HEREON IS MADE TO CEDE & CO. (OR TO SUCH OTHER ENTITY AS IS REQUESTED BY
AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY), ANY TRANSFER, PLEDGE, OR OTHER
USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
THE DEBENTURE EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS,
AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR
FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING
SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A
"QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE l44A UNDER THE SECURITIES
ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE
501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) ("INSTITUTIONAL ACCREDITED
INVESTOR"); (2) AGREES THAT IT WILL NOT, PRIOR TO EXPIRATION OF THE HOLDING
PERIOD APPLICABLE TO SALES OF THE SECURITY EVIDENCED HEREBY UNDER RULE 144(K)
UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION), RESELL OR OTHERWISE
TRANSFER THE DEBENTURE EVIDENCED HEREBY OR THE COMMON STOCK ISSUABLE UPON
CONVERSION OF SUCH DEBENTURE EXCEPT (A) TO SEPRACOR INC. OR ANY SUBSIDIARY
THEREOF, (B) INSIDE THE UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN
COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES
TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES
TO THE CHASE MANHATTAN BANK, AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE),
A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO
THE RESTRICTIONS ON TRANSFER OF THE DEBENTURE EVIDENCED HEREBY (THE FORM OF
WHICH LETTER CAN BE OBTAINED FROM SUCH TRUSTEE OR A SUCCESSOR TRUSTEE, AS
APPLICABLE), (D) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904 UNDER THE
SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE
144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (F) PURSUANT TO A REGISTRATION
STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT (AND WHICH
CONTINUES TO BE EFFECTIVE AT THE TIME OF SUCH TRANSFER); (3) PRIOR TO SUCH
TRANSFER
<PAGE> 2
(OTHER THAN A TRANSFER PURSUANT TO CLAUSE 2(F) ABOVE), IT WILL FURNISH THE CHASE
MANHATTAN BANK, AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE), SUCH
CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS IT MAY REASONABLY REQUIRE
TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM OR IN
A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT AND (4) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THE DEBENTURE
EVIDENCED HEREBY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS
LEGEND. IN CONNECTION WITH ANY TRANSFER OF THE DEBENTURE EVIDENCED HEREBY PRIOR
TO THE EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF THE DEBENTURE
EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR
PROVISION), THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE
HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO
THE CHASE MANHATTAN BANK, AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE). IF
THE PROPOSED TRANSFEREE IS AN INSTITUTIONAL ACCREDITED INVESTOR OR A PURCHASER
WHO IS NOT A U.S. PERSON, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO
THE FIRST NATIONAL BANK OF CHICAGO, AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS
APPLICABLE), SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS SUCH
TRUSTEE MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE
PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THIS LEGEND WILL BE REMOVED
UPON THE EARLIER OF THE TRANSFER OF THE DEBENTURE EVIDENCED HEREBY PURSUANT TO
CLAUSE 2(F) ABOVE OR UPON ANY TRANSFER OF THE DEBENTURES EVIDENCED HEREBY UNDER
RULE 144(K) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION). AS USED
HEREIN, THE TERMS "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO
THEM BY REGULATION S UNDER THE SECURITIES ACT.
<PAGE> 3
SEPRACOR INC.
6% CONVERTIBLE SUBORDINATED DEBENTURE DUE 2005
NO: G-1 CUSIP: 817 315 AC8
SEPRACOR INC., a corporation duly organized and validly existing under
the laws of the State of Delaware (herein called the "Company"), which term
includes any successor corporation under the Indenture referred to on the
reverse hereof, for value received hereby promises to pay to CEDE & CO. or
registered assigns, the principal sum of ONE HUNDRED EIGHTY EIGHT MILLION ONE
HUNDRED EIGHTY THOUSAND DOLLARS ($188,180,000) on February 15, 2005, at the
office or agency of the Company maintained for that purpose in accordance with
the terms of the Indenture, or, at the option of the holder of this Debenture,
at the Corporate Trust Office, in such coin or currency of the United States of
America as at the time of payment shall be legal tender for the payment of
public and private debts, and to pay interest, semi-annually on February 15 and
August 15, of each year, commencing August 15, 1998, on said principal sum at
said office or agency, in like coin or currency, at the rate per annum of 6 1/4%
from February 10, 1998 and thereafter to maturity from the February 15 or August
15, as the case may be, next preceding the date of this Debenture to which
interest has been paid or duly provided for, unless the date hereof is a date to
which interest has been paid or duly provided for, in which case from the date
of this Debenture, or unless no interest has been paid or duly provided for on
the Debentures, in which case from February 10, 1998, until payment of said
principal sum has been made or duly provided for. Notwithstanding the foregoing,
if the date hereof is after any January 31 or July 31, as the case may be, and
before the following February 15 or August 15, this Debenture shall bear
interest from such February 15 or August 15; provided, however, that if the
Company shall default in the payment of interest due on such February 15 or
August 15, then this Debenture shall bear interest from the next preceding
February 15 or August 15, to which interest has been paid or duly provided for
or, if no interest has been paid or duly provided for on such Debenture, from
February 10, 1998. The interest payable on the Debenture pursuant to the
Indenture on any February 15 or August 15 will be paid to the person entitled
thereto as it appears in the Debenture register at the close of business on the
record date, which shall be the January 31 or July 31 (whether or not a Business
Day) next preceding such February 15 or August 15, as provided in the Indenture;
provided that any such interest not punctually paid or duly provided for shall
be payable as provided in the Indenture. Interest may, at the option of the
Company, be paid either (i) by check mailed to the registered address of such
person (provided that the holder of Debentures with an aggregate principal
amount in excess of $2,000,000 shall, at the written election of such holder, be
paid by wire transfer in immediately available funds) or (ii) by transfer to an
account maintained by such person located in the United States.
Reference is made to the further provisions of this Debenture set forth
on the reverse hereof, including, without limitation, provisions subordinating
the payment of principal of and premium, if any, and interest on the Debentures
to the prior payment in full of all Senior Obligations, as defined in the
Indenture, and provisions giving the holder of this Debenture the right to
convert this Debenture into Common Stock of the Company on the terms and subject
to the limitations referred to on the reverse hereof and as more fully specified
in the Indenture. Such
<PAGE> 4
further provisions shall for all purposes have the same effect as though fully
set forth at this place.
This Debenture shall be deemed to be a contract made under the laws of
the State of New York, and for all purposes shall be construed in accordance
with and governed by the laws of said State.
This Debenture shall not be valid or become obligatory for any purpose
until the certificate of authentication hereon shall have been manually signed
by the Trustee or a duly authorized authenticating agent under the Indenture.
IN WITNESS WHEREOF, the Company has caused this Debenture to be duly
executed under its corporate seal to be affixed or imported hereon.
SEPRACOR INC.
BY: /s/ Timothy J. Barberich
------------------------
Name: Timothy J. Barberich
Title: President and CEO
Attest: /s/ Robert F. Scumaci
---------------------
Name: Robert F. Scumaci
Title: Treasurer
Dated: February 10, 1998
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Debentures described in the within-named Indenture.
THE CHASE MANHATTAN BANK, as Trustee
By: /s/ Kathleen Perry
--------------------------------
Authorized Signatory
By:
-------------------------------
As Authenticating Agent
(if different from Trustee)
<PAGE> 5
SEPRACOR INC.
6 1/4% CONVERTIBLE SUBORDINATED DEBENTURE DUE 2005
This Debenture is one of a duly authorized issue of Debentures of the
Company, designated as its 6 1/4% Convertible Subordinated Debentures due 2005
(herein called the "Debentures"), limited to the aggregate principal amount of
$189,475,000 all issued or to be issued under and pursuant to an Indenture dated
as of February 10, 1998 (herein called the "Indenture"), between the Company and
The Chase Manhattan Bank as trustee (herein called the "Trustee"), to which
Indenture and all indentures supplemental thereto reference is hereby made for a
description of the rights, limitations of rights, obligations, duties and
immunities thereunder of the Trustee, the Company and the holders of the
Debentures.
In case an Event of Default, as defined in the Indenture, shall have
occurred and be continuing, the principal of, premium, if any, and accrued
interest (including Liquidated Damages, if any) on all Debentures may be
declared, and upon said declaration shall become, due and payable, in the
manner, with the effect and subject to the conditions provided in the Indenture:
The Indenture contains provisions permitting the Company and the
Trustee, with the consent of the holders of not less than a majority in
aggregate principal amount of the Debentures at the time outstanding, evidenced
as in the Indenture provided, to execute supplemental indentures adding any
provisions to or changing in any manner or eliminating any of the provisions of
the Indenture or of any supplemental indenture or modifying in any manner the
rights of the holders of the Debentures; provided, however, that no such
supplemental indenture shall (i) extend the fixed maturity of any Debenture, or
reduce the rate or extend the time of payment of interest thereon, or reduce the
principal amount thereof or premium, if any, thereon, or reduce any amount
payable on redemption thereof, or impair the right of any Debentureholder to
institute suit for the payment thereof, or make the principal thereof or
interest or premium, if any, thereon payable in any coin or currency other than
that provided in the Debenture, or modify the provisions of the Indenture with
respect to the subordination of the Debentures in a manner adverse to the
Debentureholders in any material respect, or change the obligation of the
Company to make redemption of any Debenture upon the happening of a Fundamental
Change in a manner adverse to the holder of the Debentures, or impair the right
to convert the Debentures into Common Stock subject to the terms set forth in
the Indenture, including Section 15.6 thereof, without the consent of the holder
of each Debenture so affected or (ii) reduce the aforesaid percentage of
Debentures, the holders of which are required to consent to any such
supplemental indenture, without the consent of the holders of all Debentures
then outstanding. It is also provided in the Indenture that, prior to any
declaration accelerating the maturity of the Debentures, the holders of a
majority in aggregate principal amount of the Debentures at the time outstanding
may on behalf of the holders of all of the Debentures waive any past default or
Event of Default under the Indenture and its consequences except a default in
the payment of interest (including Liquidated Damages, if any) or any premium on
or the principal of any of the Debentures, a default in the payment of
redemption price pursuant to
<PAGE> 6
Article III or a failure by the Company to convert any Debentures into Common
Stock of the Company. Any such consent or waiver by the holder of this Debenture
(unless revoked as provided in the Indenture) shall be conclusive and binding
upon such holder and upon all future holders and owners of this Debenture and
any Debentures which may be issued in exchange or substitute hereof,
irrespective of whether or not any notation thereof is made upon this Debenture
or such other Debentures.
The indebtedness evidenced by the Debentures is, to the extent and in
the manner provided in the Indenture, expressly subordinate and subject in right
of payment to the prior payment in full of all Senior Obligations of the
Company, as defined in the Indenture, whether outstanding at the date of the
Indenture or thereafter incurred, and this Debenture is issued subject to the
provisions of the Indenture with respect to such subordination. Each holder of
this Debenture, by accepting the same, agrees to and shall be bound by such
provisions and authorizes the Trustee on its behalf to take such action as may
be necessary or appropriate to effectuate the subordination so provided and
appoints the Trustee his attorney-in-fact for such purpose.
No reference herein to the Indenture and no provision of this Debenture
or of the Indenture shall alter or impair the obligation of the Company, which
is absolute and unconditional, to pay the principal of and any premium and
interest (including Liquidated Damages, if any) on this Debenture at the place,
at the respective times, at the rate and in the coin or currency herein
prescribed.
Interest on the Debentures shall be computed on the basis of a year of
twelve 30-day months.
The Debentures are issuable in registered form without coupons in
denominations of $1,000 and any integral multiple of $1,000. At the office or
agency of the Company referred to on the face hereof, and in the manner and
subject to the limitations provided in the Indenture, without payment of any
service charge but with payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection with any registration or
exchange of Debentures, Debentures may be exchanged for a like aggregate
principal amount of Debentures of other authorized denominations.
The Debentures will not be redeemable at the option of the Company
prior to February 18, 2001. At any time on or after February 18, 2001, and prior
to maturity, the Debentures may be redeemed at the option of the Company as a
whole, or from time to time in part, upon mailing a notice of such redemption
not less than thirty (30) days before the date fixed for redemption to the
holders of Debentures at their last registered addresses, all as provided in the
Indenture, at the following optional redemption prices (expressed as percentages
of the principal amount), together in each case with accrued interest (including
Liquidated Damages, if any) to, but excluding, the date fixed for redemption:
If redeemed during the period beginning February 18, 2001 and ending on
February 14, 2002, at a redemption price of 103.571%, and if redeemed during the
12-month period beginning February 15:
<PAGE> 7
<TABLE>
<CAPTION>
Year Redemption Price
<S> <C>
2002 102.679%
2003 101.786%
2004 100.893%
</TABLE>
and 100% at February 15, 2005; provided that if the date fixed for redemption is
on February 15 or August 15, then the interest payable on such date shall be
paid to the holder of record on the next preceding January 31 or July 31,
respectively.
The Debentures are not subject to redemption through the operation of
any sinking fund.
If a Fundamental Change (as defined in the Indenture) occurs at any
time prior to February 15, 2005, the Debentures will be redeemable on the 30th
day after notice thereof at the option of the holder at a redemption price equal
to 100% of the principal amount of the Debenture (or portion thereof) redeemed,
together with accrued interest to the date of redemption; provided that if such
Repurchase Date is February 15 or August 15, then the interest payable on such
date shall be paid to the holder of record of the Debenture on the next
preceding July 31 or August 31, respectively. The Company shall mail to all
holders of record of the Debentures a notice of the occurrence of a Fundamental
Change and of the redemption right arising as a result thereof on or before the
10th day after the occurrence of such Fundamental Change. For a Debenture to be
so repaid at the option of the holder, the Company must receive at the office or
agency of the Company maintained for that purpose in accordance with the terms
of the Indenture, such Debenture with the form entitled "Option to Elect
Repayment Upon a Fundamental Change" on the reverse thereof duly completed,
together with such Debentures duly endorsed for transfer, on or before the 30th
day after the date of such notice (or if such 30th day is not a Business Day,
the next succeeding Business Day).
Subject to the provisions of the Indenture, the holder hereof has the
right, at its option, at any time after ninety (90) days following the latest
date of original issuance thereof through the close of business on February 15,
2005, or, as to all or any portion hereof called for redemption, prior to the
close of business on the Business Day immediately preceding the date fixed for
redemption (unless the Company shall default in payment due upon redemption
thereof), to convert the principal hereof or any portion of such principal which
is $1,000 or an integral multiple thereof into that number of shares of the
Company's Common Stock, as said shares shall be constituted at the date of
conversion, obtained by dividing the principal amount of this Debenture or
portion thereof to be converted by the Conversion Price of $47.369 or such
Conversion Price as adjusted from time to time as provided in the Indenture,
upon surrender of this Debenture, together with a conversion notice as provided
in the Indenture, to the Company at the office or agency of the Company
maintained for that purpose in accordance with the terms of the Indenture, or at
the option of such holder, the Corporate Trust Office, and, unless the shares
issuable on conversion are to be issued in the same name as this Debenture, duly
endorsed by, or accompanied by instruments of transfer in form satisfactory to
the Company duly executed by, the holder or by his duly authorized attorney. No
adjustment in respect of interest or dividends will be made upon any conversion;
provided, however, that if this Debenture shall be
<PAGE> 8
surrendered for conversion during the period from (but excluding) a record date
for any interest payment date to (but excluding) such interest payment date,
this Debenture (unless it or the portion being converted shall have been called
for redemption during such period) must be accompanied by an amount, in New York
Clearing House funds or other funds acceptable to the Company, equal to the
interest payable on such interest payment date on the principal amount being
converted. No fractional shares will be issued upon any conversion, but an
adjustment in cash will be made, as provided in the Indenture, in respect of any
fraction of a share which would otherwise be issuable upon the surrender of any
Debenture or Debentures for conversion.
Any Debentures called for redemption, unless surrendered for conversion
on or before the close of business on the date fixed for redemption, may be
deemed to be purchased from the holder of such Debentures at an amount equal to
the applicable redemption price, together with accrued interest (including
Liquidated Damages, if any) to (but excluding) the date fixed for redemption, by
one or more investment bankers or other purchasers who may agree with the
Company to purchase such Debentures from the holders thereof and convert them
into Common Stock of the Company and to make payment for such Debentures as
aforesaid to the Trustee in trust for such holders.
Upon due presentment for registration of transfer of this Debenture at
the office or agency of the Company maintained for that purpose in accordance
with the terms of the Indenture, or at the option of the holder of this
Debenture, at the Corporate Trust Office, a new Debenture or Debentures of
authorized denominations for an equal aggregate principal amount will be issued
to the transferee in exchange thereof, subject to the limitations provided in
the Indenture, without charge except for any tax or other governmental charge
imposed in connection therewith.
The Company, the Trustee, any authenticating agent, any paying agent,
any conversion agent and any Debenture registrar may deem and treat the
registered holder hereof as the absolute owner of this Debenture (whether or not
this Debenture shall be overdue and notwithstanding any notation of ownership or
other writing hereon made by anyone other than the Company or any Debenture
registrar), for the purpose of receiving payment hereof, or on account hereof,
for the conversion hereof and for all other purposes, and neither the Company
nor the Trustee nor any other authenticating agent nor any paying agent nor any
other conversion agent nor any Debenture registrar shall be affected by any
notice to the contrary. All payments made to or upon the order of such
registered holder shall, to the extent of the sum or sums paid, satisfy and
discharge liability for monies payable on this Debenture.
No recourse for the payment of the principal of or any premium or
interest on this Debenture, or for any claim based hereon or otherwise in
respect hereof, and no recourse under or upon any obligation, covenant or
agreement of the Company in the Indenture or any indenture supplemental thereto
or in any Debenture, or because of the creation of any indebtedness represented
thereby, shall be had against any incorporator, stockholder, employee, agent,
officer or director or subsidiary, as such, past, present or future, of the
Company or of any successor corporation, either directly or through the Company
or any successor corporation, whether by virtue of any constitution, statute or
rule of law or by the enforcement of any assessment or
<PAGE> 9
penalty or otherwise, all such liability being, by the acceptance hereof and as
part of the consideration for the issue hereof, expressly waived and released.
Terms used in this Debenture and defined in the Indenture are used
herein as therein defined.
<PAGE> 10
ABBREVIATIONS
The following abbreviations, when used in the inscription of the face of this
Debenture, shall be construed as though they were written out in full according
to applicable laws or regulations:
<TABLE>
<S> <C> <C>
TEN COM- as tenants in common UNIF GIFT MIN ACT --
Custodian
---------------------
(Cust)
--------------------
(Minor)
TEN ENT- as tenants by the entireties
JT TEN- as joint tenants with right of under Uniform Gifts to Minors Act
survivorship and not as tenants in
common
--------------------
(State)
</TABLE>
ADDITIONAL ABBREVIATIONS MAY ALSO BE USED
THOUGH NOT IN THE ABOVE LIST.
<PAGE> 11
CONVERSION NOTICE
To: SEPRACOR INC.
The undersigned registered owner of this Debenture hereby irrevocably
exercises the option to convert this Debenture, or the portion hereof (which is
$1,000 or an integral multiple thereof) below designated, into shares of Common
Stock of Sepracor Inc. in accordance with the terms of the Indenture referred to
in this Debenture, and directs that the shares issuable and deliverable upon
such conversion, together with any check in payment for fractional shares and
any Debentures representing any unconverted principal amount hereof, be issued
and delivered to the registered holder hereof unless a different name has been
indicated below. If shares or any portion of this Debenture not converted are to
be issued in the name of a person other than the undersigned, the undersigned
will check the appropriate box below and pay all transfer taxes payable with
respect thereto. Any amount required to be paid to the undersigned on account of
interest accompanies this Debenture.
Dated:
---------------------------- ----------------------------------
----------------------------------
Signature(s)
Signature(s) must be
guaranteed by a commercial
bank or trust company or a
member firm of a major
stock exchange if shares of
Common Stock are to be
issued, or Debentures to be
delivered, other than to
and in the name of the
registered holder.
----------------------------------
Signature Guarantee
<PAGE> 12
Fill in for registration of shares of Common Stock if to be
issued, and Debentures if to be delivered, other than to and in the name of the
registered holder:
____________________________________________
(Name)
____________________________________________
(Street Address)
____________________________________________
(City, State and Zip Code)
Please print name and address
Principal amount to be Converted
(if less than all): $____________
Social Security or Other Taxpayer
Identification Number:
<PAGE> 13
OPTION TO ELECT REPAYMENT
UPON A FUNDAMENTAL CHANGE
TO: SEPRACOR INC.
The undersigned registered owner of this Debenture hereby irrevocably
acknowledges receipt of a notice from Sepracor Inc. (the "Company") as to the
occurrence of a Fundamental Change with respect to the Company and requests and
instructs the Company to repay the entire principal amount of this Debenture, or
the portion thereof (which is $1,000 or an integral multiple thereof) below
designated, in accordance with the terms of the Indenture referred to in this
Debenture at the redemption price, together with accrued interest to, but
excluding, such date, to the registered holder hereof.
Dated:
-------------------------------- -----------------------------------
-----------------------------------
Signature(s)
NOTICE: The above
signatures of the holder(s)
hereof must correspond with
the name as written upon
the face of the Debenture
in every particular without
alteration or enlargement
or any change whatever.
Principal amount to be Converted
(if less than all):
$-------------
------------------------------------
Social Security or Other Taxpayer
Identification Number
<PAGE> 14
ASSIGNMENT
For value received ___________________________ hereby sell(s),
assign(s) and transfer(s) unto ___________________________ (Please insert social
security or other Taxpayer Identification Number of assignee) the within
Debenture, and hereby irrevocably constitutes and appoints
_________________________ attorney to transfer the said Debenture on the books
of the Company, with full power of substitution in the premises.
In connection with any transfer of the Debenture within the period
prior to the expiration of the holding period applicable to sales thereof under
Rule 144(k) under the Securities Act (or any successor provision) (other than
any transfer pursuant to a registration statement that has been declared
effective under the Securities Act), the undersigned confirms that such
Debenture is being transferred:
/ / To Sepracor Inc. or a subsidiary thereof, or
/ / Pursuant to and in compliance with Rule 144A under the Securities Act
of 1933, as amended; or
/ / To an Institutional Accredited Investor pursuant to and in compliance
with the Securities Act of 1933, as amended; or
/ / Pursuant to and in compliance with Regulation S under the Securities
Act of 1933, as amended; or
/ / Pursuant to and in compliance with Rule 144 under the Securities Act
of 1933, as amended;
and unless the box below is checked, the undersigned confirms that such
Debenture is not being transferred to an "affiliate" of the Company as defined
in Rule 144 under the Securities Act of 1933, as amended (an "Affiliate").
/ / The transferee is an Affiliate of the Company.
Dated:
<PAGE> 15
-------------------------------------------
Signature(s)
Signature(s) must be guaranteed by a
commercial bank or trust company or a member
firm of a major stock exchange if shares of
Common Stock are to be issued, or Debentures
to be delivered, other than to or in the
name of the registered holder.
-------------------------------------------
Signature Guarantee
NOTICE: The signature on the conversion notice, the option to elect repayment
upon a Fundamental Change or the assignment must correspond with the name as
written upon the face of the Debenture in every particular without alteration or
enlargement or any change whatever.
<PAGE> 1
Exhibit 10.17
[Sepracor letterhead]
CONSULTING AGREEMENT AMENDMENT
This amendment, effective as of January 1, 1997 is between SEPRACOR Inc.
("SEPRACOR"), a Delaware Corporation having its principal office at 111 Locke
Drive, Ste. 2, Marlborough, MA 0152, and Alan Steigrod, 601 Lido Park Drive,
#7A, Newport Beach, CA 92663 ("CONSULTANT").
WHEREAS, SEPRACOR wishes to engage the continued services of CONSULTANT
in the area of company acquisitions, upper respiratory markets, and speciality
sales and marketing capabilities and organizations ("FIELD"); and
WHEREAS, CONSULTANT wishes to provide contract services to SEPRACOR:
THEREFORE, SEPRACOR and CONSULTANT agree that:
Existing, written Consulting Agreement between SEPRACOR and CONSULTANT, signed
on September 1, 1996, is hereby amended as follows:
1. The term of the Consulting Agreement shall be extended to run until December
31, 1997, unless sooner terminated in accordance with the provisions of Section
9 thereof. It may be further extended for additional periods of time as agreed
by the mutual written consent of SEPRACOR and CONSULTANT.
2. During the extended term, CONSULTANT's compensation will be at a rate of
$250.00 per hour, not to exceed $2000.00 per day, with a maximum of $42,000.00
during the extended term in consideration for consulting services provided on
behalf of SEPRACOR.
3. Subject to the above, all other terms of the Consulting Agreement shall
remain in full force and effect without any further additions or amendments.
SEPRACOR INC. ALAN A. STEIGROD
By: /s/ David S. Barlow By:/s/ Alan A. Steigrod
---------------------- ---------------------------
Name: David S. Barlow Name: Alan A. Steigrod
---------------------- -------------------------
Title: President, Pharmaceuticals Title: Consultant
---------------------- ------------------------
Date: Date:
---------------------- ------------------------
<PAGE> 1
Exhibit 10.18
SEPRACOR
December 18, 1997
Sepracor Inc.
Mr. Robert Scumaci
Sr. VP Finance & Administration
111 Locke Drive
Marlboro, MA 01752
Dear Bob:
This letter is confirming our conversation. Please extend David Barlow's loan
for one year to December 31, 1998. This extension should be principal and
interest, which at December 31, 1998 will amount to $265,164.11.
Sincerely,
/s/Timothy J. Barberich
Timothy J. Barberich
President & CEO
<PAGE> 2
SEPRACOR
PROMISSORY NOTE
July 1, 1997 to
$231,317 December 30, 1997
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 Thirty-One Thousand Three Hundred and Seventeen 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
<PAGE> 3
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., 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
------------------------ -------------------
Timothy J. Barberich David S. Barlow
President and CEO Executive Vice President & President of
Pharmaceuticals
/s/ Ann M. Barlow
-----------------
Ann M. Barlow
<PAGE> 1
Exhibit 10.20
SEPRACOR
PROMISSORY NOTE
$150,000 1/22/98
FOR VALUE RECEIVED, the undersigned PAUL D. RUBIN, M.D. with an address
of 37 Greystone Lane, Sudbury, MA 01776 (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:
ONE HUNDRED FIFTY THOUSAND DOLLARS
If not sooner paid, all outstanding principal shall be paid to the
Lender on the earlier of (a) date of termination from employment; (b) upon
exercise of 12,000 stock options at the end of the SEC blackout period; (c) June
30, 1998.
THIS NOTE IS INTEREST-FREE and may be prepaid, in whole or from time to
time in part, at anytime, without premium or penalty. ALL TAXES RELATIVE TO THIS
INTEREST-FREE LOAN ARE THE RESPONSIBILITY OF THE BORROWER.
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 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, 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 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
<PAGE> 2
and such amounts as are due are paid to the Lender.
THIS NOTE IS SECURED BY ALL OF THE BORROWERS STOCK OPTIONS IN SEPRACOR
INC. UPON TERMINATION OF BLACKOUT PERIOD, BORROWER IS REQUIRED TO SELL 12,000
STOCK OPTIONS AS REPAYMENT AGAINST LOAN. NO SALE, TRANSFER, OR ASSIGNMENT OF
SAID STOCK OPTIONS CAN BE MADE WITHOUT THE EXPRESS WRITTEN CONSENT OF THE SR.
VICE PRESIDENT, FINANCE & ADMINISTRATION, OR THE CEO OF SEPRACOR WHILE THIS LOAN
IS OUTSTANDING.
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 discharging its liability.
IN WITNESS WHEREOF, the Borrower has executed and delivered this Note, on the
day and year first above written.
/s/Robert F. Scumaci /s/Paul D. Rubin
-------------------- -------------------------------
Robert F. Scumaci Paul D. Rubin, M.D.
Sr. Vice President Sr. Vice President, Pharma. Dev.
Finance & Administration
<PAGE> 1
Exhibit 10.22
FIRST AMENDMENT TO LEASE
Reference is made to a lease dated as of December 12, 1995 between
Second Marlborough Development Trust as Landlord ("Landlord") and Sepracor, Inc.
as Tenant ("Tenant") pertaining to certain premises at 111 Locke Drive,
Marlboro, Massachusetts.
For valuable consideration paid, said Lease is hereby amended as
follows:
1. Paragraph 6 on Page 2 shall be deleted, and the following
substituted therefor:
"Rentable Square Feet Leased to Tenant: 66,900 square feet of
Exclusive Space, plus 4,070 square of Common Areas
(See Exhibit A)"
2. Paragraph 8 on Page 2 is hereby deleted and the following
substituted therefor:
"Base Rent: Years 1 through 5: $461,305.00
Years 6 through 10: $532,275.00"
3. Paragraph 11 on Page 3 is hereby deleted and the following
substituted therefore:
"Security Deposit: $38,442.08 during years 1 through 5,
$44,356.25 during years 6 through 10, and an Amount Equal to
One Month's Rent during Extension Periods"
4. Paragraph 14 on Page 3 is hereby deleted and the following
substituted therefore:
"Tenants Percentage Share of Real Property Taxes and Operating
Expenses: Fifty Four and 30/100 Percent (54.30%)"
5. Section I on page 6 is hereby amended so as to add after the
words "Exhibit A" in the third line, the following:
"and Leased Area C (2,030 square feet) on the plan attached
hereto as Exhibit A-1"
Said Section I shall also be amended by adding the following
final paragraph:
"Leased Area C is leased AS IS, Tenant hereby agreeing to
install at its sole expense a new demising wall encompassing
said Area C within Tenant's existing space, the foregoing to
be governed by Section V(c) of the Lease."
<PAGE> 2
6. The fifth paragraph in Section IV on pages 7 & 8 shall be
deleted and the following substituted therefor:
"Tenant shall also pay the following amounts as Additional
Rent during the period from July 1, 1997 through June 30,
1998, depending on what portion of the remaining space in the
Building, other than common areas (the "Remaining Space") has
been leased to others during said period: (a) the product of
3,425 and $6.50, or $22,262.50, shall be multiplied by a
fraction the numerator of which is the amount of Remaining
Space that has not been leased as aforesaid, and the
denominator of which is 56,305; (b) the resulting amount shall
be divided by 12; and (c) the then resulting amount shall be
paid as Additional Rent during each month during said period
that said space remains unleased aforesaid. For example, if
all of the Remaining Space remains unleased for 6 months from
July 1, 1997 through December 31, 1997, the Tenant shall pay
as Additional Rent the sum of $1,855.21 during each of said
months, computed as follows:
(i) $22,262.50 x 56,305 = $22,262.50
------
56,305
(ii) $22,262.50 (divided by) 12 = $1,855.21
(iii) $1,855.21 x 6 = $11,131.24
IN WITNESS WHEREOF, the parties hereto have set their respective hands
and seals as of this first day of February, 1997.
Witness: Landlord:
SECOND MARLBORO DEVELOPMENT TRUST
/s/ A.F. Spezzano /s/ Valerie A. Colbert, Trustee
----------------- -------------------------------
Valerie A. Colbert, Trustee as Aforesaid
and Not Individually
Witness: Tenant:
SEPRACOR, INC.
/s/ Denise R. Ayotte By: /s/ Robert Scumaci
-------------------- ------------------
Its Vice President of Finance and Admin.
------------------------------------
Hereunto duly authorized
<PAGE> 3
Reference is made to a lease dated as of December 12, 1995 as amended
February 1, 1997, between Second Marlborough Development Trust as Landlord
("Landlord") and Sepracor, Inc. as Tenant ("Tenant") pertaining to certain
premises at 111 Locke Drive, Marlboro, Massachusetts.
For valuable consideration paid, said Lease is hereby amended as
follows:
1. Paragraph 6 on Page 2 shall be deleted, and the following
substituted therefor:
"Rentable Square Feet Leased to Tenant: 66,955 square feet of
Exclusive Space, plus 4,190 square feet of Common Areas, for a
total of 71,145 square feet. (See Exhibit A-2)"
2. Paragraph 8 on page 2 is hereby deleted and the following
substituted therefor:
"Base Rent: Years 1 through 5: $462,442.50
Years 6 through 10: $533,587.50
3. Paragraph 11 on Page 3 is hereby deleted and the following
substituted therefor:
"Security Deposit: $38,536.88 during years 1 through 5,
$44,665.63 during years 6 through 10, and an Amount Equal to
One Month's Rent during Extension Periods"
4. Paragraph 14 on page 3 is hereby deleted and the following
substituted therefor:
"Tenants Percentage Share of Real Property Taxes and Operating
Expenses: Fifty Four and 435/100 Percent (54.435%)"
5. Paragraph (6) of the First Amendment to lease is hereby deleted.
IN WITNESS WHEREOF, the parties hereto have set their respective hands
and seals as of this first day of July, 1997.
Witness: Landlord:
SECOND MARLBORO DEVELOPMENT TRUST
/s/ A.F. Spezzano /s/ Valerie A. Colbert, Trustee
----------------- ------------------------------
Valerie A. Colbert, Trustee as Aforesaid
and Not Individually
Witness: Tenant:
SEPRACOR, INC.
/s/ Nathan A. Fuller By: /s/ Bryan Y. Iwata (8/22/97)
-------------------- ----------------------------
Its Director of Facilities
----------------------------
Hereunto duly authorized
<PAGE> 1
Exhibit 10.30
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
NORASTEMIZOLE COLLABORATION AND LICENSE AGREEMENT
THIS NORASTEMIZOLE COLLABORATION AND LICENSE AGREEMENT
is made and entered into as of the 30th day of January, 1998 by and between
SEPRACOR INC. ("Sepracor"), a Delaware corporation which has offices at 111
Locke Drive, Suite 2, Marlborough, Massachusetts, and JANSSEN PHARMACEUTICA
N.V., ("Janssen"), a Belgian company which has offices at Turnhoutseweg 30,
B-2340 Beerse, Belgium.
WHEREAS, Sepracor and Janssen (the "Parties") each possesses certain
intellectual and industrial property rights relating to norastemizole; and
WHEREAS, each Party is willing to grant, and the other Party desires
to acquire, a license to use such rights in accordance with the terms and
conditions hereinafter set forth.
WHEREAS, the Parties desire to engage in collaborative research and
development as generally described in the research and development plan attached
hereto;
NOW, THEREFORE, in consideration of the premises and mutual
promises, terms and conditions hereinafter set forth, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Parties do hereby agree as follows:
1. DEFINITIONS
As used herein, the following terms shall have the following definitions.
1.1 Affiliates. "Affiliates" of a Party hereto shall mean: (i)
companies the majority of whose voting shares are now or hereafter owned or
controlled directly or indirectly by such Party; (ii) companies which now or
hereafter own or control directly or indirectly a majority of the voting shares
of such Party; and (iii) companies a majority of whose voting shares are now or
hereafter owned or controlled directly or indirectly by any company mentioned in
(i) or (ii) of this definition. A company shall be considered an "Affiliate"
only for so long as such ownership or control exists. For the purposes of this
definition, partnerships or similar entities where a majority-in-interest of its
partners or owners are a Party hereto and/or Affiliates of such Party shall also
be deemed to be Affiliates of such Party. For the purpose hereof "majority"
shall mean fifty percent (50%) or more.
1.2 Business Day. "Business Day" shall mean a day on which banks are
open for business in both Marlborough, Massachusetts and Beerse, Belgium.
<PAGE> 2
1.3 Business Information. "Business Information" shall mean all
information relating to the business of a Party which is disclosed by that Party
to the other prior to the termination or expiration of this Agreement.
1.4 Compound. "Compound" shall mean the compound
1-[(4-fluorophenyl)methyl]-N-(4-piperidinyl)-1H-benzimidazol-2-amine, sometimes
called norastemizole, and any salts, crystal polymorphs, clathrates, and other
non-covalent derivatives thereof.
1.5 Confidential Information. "Confidential Information" shall mean
those parts of Business Information and those parts of the Technical
Information, whether written or oral, which are (i) not publicly known and (ii)
annotated as "confidential" or "proprietary" either at the time of disclosure
or, in the case of an oral disclosure, by a written instrument provided by a
Party within thirty (30) days of its oral disclosure of such Business or
Technical Information to the other Party (the "receiving Party"). "Confidential
Information" also includes any such Technical Information or Business
Information disclosed by either Party to the other Party in the course of or
pursuant to the research and development collaboration as described under
Article 4.
1.6 Cost of Goods Sold. "Cost of Goods Sold" shall mean the direct
and indirect costs, which are reasonable and necessary, incurred by either Party
in manufacturing or having manufactured including quality control an Rx Product
for sale in the United States, in accordance with generally accepted accounting
principles consistently applied and consistent with general industry practices,
but excluding amounts included in Marketing and Technology Costs.
1.7 Dollars. "Dollars" or "$" shall mean lawful money of the United
States in immediately available funds.
1.8 Effective Date. "Effective Date" shall mean the later of (a) the
date on which Sepracor executes this Agreement; (b) the date on which Janssen
executes this Agreement; and (c) if applicable, the next Business Day following
the expiration or earlier termination of any notice and waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended ("HSR Act").
1.9 FDA. "FDA" shall mean the United States Food and Drug
Administration.
1.10 Janssen Patent Rights. "Janssen Patent Rights" shall mean the
patents and patent applications listed on Exhibit 1.10(a) hereto, and all
continuations, divisions, extensions including supplementary protection
certificates, reissues, foreign equivalents or counterparts, and other filings
thereof.
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<PAGE> 3
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
1.11 Joint Marketing Committee. "Joint Marketing Committee" or "JMC"
means the committee established pursuant to Section 5.2 below.
1.12 Joint Research and Development Committee. "Joint Research and
Development Committee" or "JR&DC" means the committee established pursuant to
Section 4.2(a) below.
1.13 Licensed Technology. "Licensed Technology" shall mean the
Patent Rights and Technical Information.
1.14 Marketing and Technology Costs. "Marketing and Technology
Costs" shall mean
(a) (i) any and all costs and expenses directly attributable
to the selling, marketing, promotion, and administrative support, distribution,
carrying of inventory and receivables incurred by either Party (including
without limitation expenses incurred in connection with seminars, samples and
advertising) for the commercialization of the Rx Products in United States, (ii)
regulatory expenses incurred by either Party in connection with the
commercialization of the Rx Products in United States or the maintenance of NDAs
in United States, (iii) costs and expenses incurred in connection with Phase IV
studies undertaken in connection with selling, marketing, or promoting Rx
Product in the United States; and (iv) reasonable overhead allocated to the Rx
Products in United States; provided, however, that (A) the expenses described in
Sections 1.14(a)(i), (ii) and (iii) above shall all be determined in accordance
with generally accepted accounting principles consistently applied and
consistent with general industry practices, but shall all exclude amounts
included in Cost of Goods Sold; (B) the expenses described in Sections
1.14(a)(i), (ii) and (iii) above are directly related to the commercialization
of the Rx Products in United States, and are not incurred solely to promote the
name or goodwill of the Party which incurred such expenses; and (C) absent any
change of the Rx Products or change in usage of Rx Products in United States
(including without limitation indications, restrictions, combinations and dosage
forms) when compared to the capsule and tablet presentations of Rx Products and
the initial indications of perennial allergic rhinitis and seasonal allergic
rhinitis, the total expenses to be incurred under Section 1.14(a)(i) (ii) and
(iii) above shall not exceed (but shall not necessarily be equal to) a total of
[**]during the period between the date of this Agreement and the second
anniversary of the date of first sale of Rx Product in the United States. If
there is a change of the Rx Products or change in the usage of Rx Products in
the United States as indicated above, then any amount in excess of [**] during
the period between the date of this Agreement and the second anniversary of the
date of first sale of Rx Products in the United States must be expenses incurred
-3-
<PAGE> 4
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
solely for presentations of Rx Products other than tablet or capsule or uses of
Rx Products for indications other than perennial allergic rhinitis or seasonal
allergic rhinitis. Any expenses incurred by either or both Parties in excess of
such amounts shall not be included in Marketing and Technology Costs for the
purposes of this Agreement unless otherwise agreed to in writing by the Parties;
and
(b) royalties and other amounts to be paid as a result of good
faith settlements agreed to by Sepracor and Janssen and made pursuant to Section
10.2 hereof of claims of infringement of patents of third parties with respect
to the manufacture, use, or sale of Rx Products in United States.
1.15 Operating Income. "Operating Income" shall mean, for each
Payment Period, (a) the [**] of Rx Products sold in United States, [**] (b) with
respect to such Rx Products, the sum of : (i) [**] ; and (ii) [**] incurred by
both Parties.
1.16 Marketing Plan. "Marketing Plan" shall mean the marketing plan
established by Janssen and then reviewed prior to implementation and from time
to time during its execution by the JMC in accordance with Section 5.2 below.
1.17 NDA. "NDA" shall mean a New Drug Application for Product and
its equivalents outside the United States.
1.18 Janssen Net Invoice Price. "Janssen Net Invoice Price" shall
mean, on a country-by-country basis, the [**] of Janssen, its Affiliates or its
Permitted Sublicensees or assigns for a Product to third parties, ex works the
manufacturing facility for such Product, [**]: any [**] and similar such
charges. Janssen Net Invoice Price for a Product transferred free of charge or
for consideration other than cash (except for promotional purposes relating to
Product consistent with Janssen's normal business practices for pharmaceutical
products not licensed from a third party) shall, for the purposes of this
Agreement, be deemed to be equal to the current list price for such Product in
the relevant country during the Payment Period. Janssen Net Invoice Price for a
Product sold as part of a bundle shall, for the purposes of this Agreement, be
deemed to be equal to the current list price of such Product in the relevant
country during the Payment Period [**] of the bundle and the [**] for each and
every unit in the bundle.
1.19 OTC Product. "OTC Product" shall mean: (a) within the United
States, any and all over-the-counter pharmaceutical products comprising Compound
as an active ingredient; and (b) outside the United States, any and all products
comprising Compound as an active ingredient and of which the legal status is a
non-
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<PAGE> 5
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
prescription medicine; both in and outside the United States, including any
combination products including Compound as an active ingredient.
1.20 Patent Rights. "Patent Rights" shall mean the Janssen Patent
Rights and the Sepracor Patent Rights.
1.21 Payment Period. "Payment Period" shall mean each of the
calendar quarters as defined in the Johnson & Johnson universal calendar, as
specified in Exhibit 1.21 hereto as amended by Janssen each subsequent year.
1.22 Pre-Option Clinical Testing. "Pre-Option Clinical Testing"
means: [**] as further described in Exhibit 1.22, which contains, inter alia,
the above-referenced protocols.
1.23 Products. "Products" shall mean the OTC Products and the Rx
Products.
1.24 R&D. "R&D" shall mean all NDA track research , development
(including without limitation process development) and related activities
directed toward development of the Rx Product for the United States market to be
conducted by the Parties in accordance with the R&D Plan.
1.25 R&D Expenses. "R&D Expenses" shall mean the expenses incurred
by either Sepracor or Janssen or for their account which are incurred under the
R&D Plan (as defined hereafter) and the budget to be agreed between the Parties
for such R&D Plan and that are specifically attributable to the development of
Rx Products for the United States market. R&D Expenses do not include the
Pre-Option Clinical Testing or any other studies not in the R&D Plan agreed
between the parties to be conducted prior to exercising the option as defined in
Section 2.3(a).
1.26 R&D Plan. "R&D Plan" shall mean the plan for R&D attached as
Exhibit 1.26 hereto.
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<PAGE> 6
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
1.27 Revenue. "Revenue" shall mean the [**] charged by Janssen, a
Janssen Affiliate or Permitted Sublicensee, to independent third parties for Rx
Products in the United States during a particular Payment Period, after
deduction of the following items (all determined under generally accepted
accounting principles consistently applied and consistent with general industry
practices), provided and to the extent such items are incurred and do not exceed
reasonable and customary amounts in the market in which such sale occurred: [**]
Gross invoiced sales price for an Rx Product transferred for consideration other
than cash or free of charge (except for promotional purposes relating to Product
consistent with Janssen's normal business practices for pharmaceutical products
not licensed from a third party) shall, for the purposes of this Agreement, be
deemed to be equal to the current list price for such Rx Product in the United
States during the Payment Period. Gross invoiced sales price for an Rx Product
sold as part of a bundle shall, for the purposes of this Agreement, be deemed to
be equal to the current list price of such Rx Product in the United States
during the Payment Period [**] of the bundle and the [**] for each and every
unit in the bundle.
1.28 Rx Countries. "Rx Countries" shall mean all countries other
than the United States.
1.29 Rx Product. "Rx Product" shall mean any and all prescription
pharmaceutical products comprising Compound as an active ingredient, including
any combination products including Compound as an active ingredient.
1.30 Sepracor Net Invoice Price. "Sepracor Net Invoice Price" shall
mean, on a country-by-country basis, the [**] of Sepracor, its Affiliates or its
Permitted Sublicensees or assigns to third parties for an Rx Product, ex works
the manufacturing facility for such Rx Product,[**]: any [**] and similar such
charges. Sepracor Net Invoice Price for an Rx Product transferred free of charge
or for consideration other than cash (except for promotional purposes relating
to Product consistent with Sepracor's normal business practices for
pharmaceutical products not licensed from a third party) shall, for the purposes
of this Agreement, be deemed to be equal to the current list price for such Rx
Product in the relevant country during the Payment Period. Sepracor Net Invoice
Price for an Rx Product sold as part of a bundle shall, for the purposes of this
Agreement, be deemed to be equal the current list price of such Rx Product in
the relevant country during the Payment Period [**] of the bundle and [**] for
each and every unit in the bundle.
1.31 Sepracor Patent Rights. "Sepracor Patent Rights" shall mean the
patents and patent applications listed on Exhibit 1.31(a) hereto, and all
continuations,
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<PAGE> 7
divisions, extensions including supplementary protection certificates, reissues,
foreign equivalents or counterparts, and other filings thereof.
1.32 Technical Information. "Technical Information" of a Party shall
mean all technical and scientific know-how and information, pre-clinical and
clinical trial results, computer programs, knowledge, technology, means,
methods, processes, practices, formulas, techniques, procedures, technical
assistance, designs, drawings, apparatus, written and oral rectifications of
data, specifications, assembly procedures, schematics and other valuable
information of whatever nature, whether confidential or not, and whether
proprietary or not, which is now in (or hereafter, during the term of this
Agreement, comes into) the possession of such Party or Janssen Pharmaceutica
Inc., which it is allowed to disclose and which relates specifically to the
manufacture, sale, distribution, registration, use or testing of Compound and of
any Product.
1.33 Trademarks. "Trademarks" shall mean any and all trademarks,
service marks and other commercial symbols listed on Exhibit 1.33 attached
hereto or which Janssen may from time to time designate for inclusion in Exhibit
1.33.
1.34 United States. "United States" shall mean the United States of
America and it territories and possessions.
1.35 Valid Claim. "Valid Claim" means, with respect to a country, a
claim of any patent application or unexpired patent in such country which shall
not have been withdrawn, canceled or disclaimed, nor held invalid by a court of
competent jurisdiction in an unappealed or unappealable decision.
1.36 Permitted Sublicensee. "Permitted Sublicensee" shall mean the
holder of any sublicense granted pursuant to Section 2.6.
1.37 Field."Field" shall mean histamine-mediated disorders and
asthma.
2. GRANT OF RIGHTS AND LICENSES
Subject to all of the terms and conditions set forth in this Agreement:
2.1 Licensing of Rights, Relation to Options.
(a) Sepracor hereby grants to Janssen an exclusive worldwide
right and license in the Field during the term of this Agreement to develop,
make, have made, use, and sell the OTC Products under the Sepracor Patent Rights
and the Technical Information of Sepracor.
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<PAGE> 8
(b) Sepracor hereby grants to Janssen an exclusive worldwide
right and license in the Field during the term of this Agreement to develop,
make, have made, use and sell Compound solely for use in OTC Products under the
Sepracor Patent Rights and the Technical Information of Sepracor.
(c) Janssen hereby grants to Sepracor a sole worldwide right
and license in the Field during the term of this Agreement to make and have made
the Rx Products under the Janssen Patent Rights and Technical Information of
Janssen, and an exclusive right and license in the Field to develop, use and
sell the Rx Products under the Janssen Patent Rights and Technical Information
of Janssen in such country(ies) of Rx Countries, where and provided Janssen has
not exercised the option described in Section 2.2 below in such country(ies) and
with the clear understanding that Janssen always retains the exclusive rights in
the Field to develop, make, have made, use and sell OTC Products and Compound
solely for use in the OTC Products, as defined in Sections 2.1 (a) and (b).
(d) Janssen hereby grants to Sepracor a sole worldwide right
and license in the Field during the term of this Agreement to make and have made
the Compound solely for use in Rx Products under the Janssen Patent Rights and
the Technical Information of Janssen, and an exclusive right and license in the
Field to develop, use, and sell the Compound solely for use in Rx Products under
the Janssen Patent Rights and the Technical Information of Janssen in such
country(ies) of Rx Countries, where and provided Janssen has not exercised the
option described in Section 2.2 below in such country(ies) and with the clear
understanding that Janssen always retains the exclusive rights in the Field to
develop, make, have made, use and sell OTC Products and Compound solely for use
in OTC Products, as defined in Sections 2.1 (a) and (b).
(e) Janssen hereby grants to Sepracor: (i) a sole worldwide
right and license in the Field during the term of this Agreement to make and
have made the Rx Products under the Janssen Patent Rights and the Technical
Information of Janssen, and an exclusive right and license in the Field to use,
develop and sell the Rx Products under the Janssen Patent Rights and the
Technical Information of Janssen in the United States; and (ii) a sole worldwide
right and license in the Field during the term of the Agreement to make and have
made Compound solely for use in Rx Product under the Janssen Patent Rights and
the Technical Information of Janssen, and an exclusive right and license in the
Field to develop, use and sell Compound solely for use in Rx Product under the
Janssen Patent Rights and the Technical Information of Janssen in the United
States, subject to Janssen's not exercising the option as described in Section
2.3 below and with the clear understanding that Janssen always retains the
exclusive rights in the Field to develop, make, have made, use and sell OTC
Products and Compound solely for use in OTC Products, as defined in Sections
2.1(a) and (b).
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<PAGE> 9
(f) As to the rights and licenses to Technical Information of
Janssen granted in Sections 2.1(c), 2.1(d), and 2.1(e) concerning any NDA
relating to Compound, Products, or astemizole owned or controlled by Janssen or
any Affiliate thereof, these rights and licenses are limited to the right to
read and reference those portions of such NDAs which the Parties agree are
necessary in order to obtain expedited or timely approval from applicable
regulatory agencies to manufacture, use, sell, or distribute Compound or
Products and to respond to inquiries made by applicable regulatory agencies
regarding Compound or Products, but these licenses and rights are not limited by
this subsection (f) with respect to any other Technical Information of Janssen.
(g) In the event that Janssen exercises the option described
in Section 2.2(a), Sepracor grants to Janssen a sole worldwide right and license
in the Field during the term of this Agreement to make and have made the Rx
Products and Compound solely for use in Rx Products under Sepracor Patent Rights
and Technical Information of Sepracor, and an exclusive right and license in the
Field in and for each of the Rx Countries where Janssen exercises the option
during the term of this Agreement to develop, use and sell the Rx Products and
Compound solely for use in Rx Products under Sepracor Patent Rights and
Technical Information of Sepracor.
(h) In the event that Janssen exercises the option described
in Section 2.3(a), Sepracor grants to Janssen a sole worldwide right and license
in the Field during the term of this Agreement to make and have made the Rx
Products and Compounds solely for use in Rx Products under the Sepracor Patent
Rights and the Technical Information of Sepracor, and an exclusive right and
license in the Field (but for Sepracor, its Affiliates, or Permitted
Sublicensees subject to Section 2.3(a)) during the term of this Agreement to
develop, use and sell the Rx Products and Compound solely for use in Rx Products
under the Sepracor Patent Rights and the Technical Information of Sepracor in
the United States.
(i) In the event that Janssen exercises the option described
in Section 2.3(a), Janssen grants to Sepracor a sole worldwide right and license
in the Field during the term of this Agreement to make and have made Rx Products
and Compounds solely for use in Rx Products under the Janssen Patent Rights and
the Technical Information of Janssen, and an exclusive right and license in the
Field (but for Janssen, its Affiliates, or Permitted Sublicensees subject to
Section 2.3(a)) during the term of this Agreement to develop, use, and sell Rx
Products and Compounds solely for use in Rx Products under the Janssen Patent
Rights and the Technical Information of Janssen in the United States, and
further subject to Janssen's right pursuant to Section 5.3(h) to book all sales
of Rx Product in the United States.
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<PAGE> 10
(j) In the event that Janssen exercises the option described
in Section 2.3(a) and Sepracor exercises an option described in Section 2.3(d)
to convert profit-sharing and cost sharing to a royalty bearing license, then
Sepracor's grants to Janssen in Section 2.1(h) shall become fully exclusive,
even as to Sepracor and its Affiliates and Permitted Sublicensees, and Janssen's
grants to Sepracor in Section 2.1(i) shall be terminated, except when and only
to the extent Sepracor would still co-promote Rx Products in the United States,
subject to the provisions of Section 5.4.
(k) Subject to Section 2.1(f) as soon as practical after the
Effective Date, but in no event later than thirty (30) days after the Effective
Date, each Party shall provide to the other Party, at no additional cost to the
other Party, all of its Technical Information that is requested by the other
Party and on which both Parties agree is reasonable and necessary to effectuate
the purpose of this Agreement.
(l) For the purpose of Sections 2.1(c), (d), (e), and (i), the
term "sole" shall mean exclusive but for Janssen, its Affiliates and Permitted
Sublicensees, only to the extent however Janssen, its Affiliates and Permitted
Sublicensees will make or have made Compound and/or Product in accordance with
this Agreement.
For the purpose of Sections 2.1(g) and (h) the term "sole"
shall mean exclusive but for Sepracor, its Affiliates and Permitted
Sublicensees, only to the extent however Sepracor, its Affiliates and Permitted
Sublicensees will make or have made Compound and/or Product in accordance with
this Agreement.
2.2 Option with Respect to Rx Products Outside United States.
(a) Sepracor hereby grants Janssen an option to a sole
worldwide right and license in the Field during the term of this Agreement to
make and have made the Rx Products and Compound solely for use in Rx Products
under Sepracor Patent Rights and Technical Information of Sepracor and an
exclusive right and license in the Field in and for each of the Rx Countries
where Janssen exercises the option during the term of this Agreement to develop,
use and sell the Rx Products and Compound solely for use in Rx Products under
Sepracor Patent Rights and Technical Information of Sepracor. The option is
granted and exercisable on a country-by-country basis.
(b) The option described in Section 2.2(a) above may be
exercised by Janssen on a country by country basis at any time until the date
which is ninety (90) days after Janssen receives from Sepracor a report(s)
including the final analyzed data for the Pre-Option Clinical Testing (including
the underlying data and individual patient data) or such later date as may be
applicable pursuant to Section 6.2(a). If Janssen does not exercise such option
by such date, then such option shall be deemed to have lapsed for such
country(ies) for any and all purposes and the licenses grant to Sepracor in
Sections 2.1(c) and 2.1(d) shall become effective in all
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countries of Rx Countries where Janssen has not exercised the above mentioned
option and include the right to sublicense in such countries subject to the
provisions of Section 2.6. Until exercise or lapse of the option, Sepracor shall
not grant any rights or licenses in the Field to any third parties with respect
to the manufacture, development, use, or sale of the Rx Products and Compound
under the Sepracor Patent Rights or Technical Information of Sepracor in any Rx
Country(ies).
(c) If Janssen exercises the option described in Section
2.2(a) above in an Rx Country, and for Rx Countries other than the European
Union and Japan: (i) fails to exercise reasonable diligence to develop and
register Rx Products consistent with Janssen's standard practices for
development and registration of similar products in such Rx Country or similar
markets, or (ii) fails to launch Rx Product within nine (9) months of obtaining
marketing, price and reimbursement approval in such Rx Country, or (iii)
subsequently abandons promotion and sale of Rx Products in such Rx Country
during the first three (3) years starting from launch of such Rx Product in such
Rx Country, then rights and licenses granted to Janssen upon exercise of the
option described in Section 2.2(a) may be terminated by Sepracor in such Rx
Country and upon such termination Janssen grants Sepracor rights and licenses in
such Rx Country as set forth in Sections 2.1(c) and 2.1(d) and under the terms
and conditions of Article 7. Any marketing authorizations for Rx Product in such
Rx Country shall be assigned to Sepracor, and any trademarks used in connection
with Rx Product in such Rx Country shall be licensed to Sepracor on a royalty
free basis in such Rx Country under normal and customary terms to be negotiated
in good faith. For the purpose of this Section 2.2.(c) the term "abandon
promotion and sale" shall mean the active discontinuation of selling and
promotion activities to such an extent that such promotion and selling
activities would be significantly less than the promotion and selling activities
which would normally be spent by Janssen for similar products of Janssen in such
Rx Country or similar markets.
(d) For the purpose of Section 2.2(a) the term "sole" shall
mean exclusive but for Sepracor, its Affiliates and Permitted Sublicensees, to
the extent however Sepracor, its Affiliates and Permitted Sublicensees will make
or have made Compound or Product in accordance with this Agreement.
2.3 Option with Respect to Rx Products in the United States.
(a) Sepracor hereby grants to Janssen an option to a sole
worldwide right and license in the Field during the term of this Agreement to
make and have made Rx Products and Compound solely for use in Rx Products under
Sepracor Patent Rights and Technical Information of Sepracor, and an exclusive
right and license in the Field (but for Sepracor, its Affiliates and Permitted
Sublicensees) during the term of this Agreement to develop, use, and sell Rx
Products and Compound solely for use in Rx Products under Sepracor Patent Rights
and Technical
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
Information of Sepracor in the United States with the obligation on the Parties
however, upon exercise of the option, to enter into the collaborative research
and development program, including but not limited to those provisions described
in Article 4, to enter into the co- promotion agreement, including but not
limited to those provisions described in Section 5.3, and to enter into the
profit-sharing and cost sharing agreement, including but not limited to those
provisions described in Section 6.4 of this Agreement; provided, however that
the co-promotion agreement will be subject to the conditions, as specified in
Section 5.3 and that the profit-sharing and cost sharing provisions may be
converted by Sepracor into a royalty bearing license, as specified in Section
2.3(d). Nothing in any such subsequent agreement shall be inconsistent with the
terms of this Agreement.
(b) The option described in Section 2.3(a) above may be
exercised by Janssen at any time until the date which is forty-five (45) days
after Janssen receives from Sepracor a report(s) including the final analyzed
data for the Pre-Option Clinical Testing (including the underlying data and
individual patient data) or such later date as may be applicable pursuant to
Section 6.2(a). If Janssen does not exercise such option by such date, such
option shall be deemed to have lapsed for any and all purposes and the licenses
granted to Sepracor in Sections 2.1(e) shall become effective in the United
States and include the right to sublicense in the United States subject to the
provisions of Section 2.6. Until exercise or lapse of the option, Sepracor shall
not grant any rights or licenses in the Field to any third parties with respect
to the manufacture, development, use, or sale of Rx Products and Compound under
the Sepracor Patent Rights or Technical Information of Sepracor in the United
States.
(c) If Janssen exercises the option described in Section
2.3(a) above, then the Parties shall promote and market the Rx Products in the
United States in accordance with Article 5 below.
(d) Within (A) three (3) calendar months following the
exercise of the option by Janssen pursuant to Section 2.3(a) and (B) at the
latest six (6) months after an NDA is filed in the United States, Janssen will
submit to Sepracor its marketing, sales and marketing expense forecast for the
United States market. During the entire calendar month following the submission
of such forecast, Sepracor will each time have the option (hereinafter
respectively Option A and Option B) to convert the profit-sharing and cost
sharing as envisaged in Section 6.4 into a royalty bearing exclusive license in
the Field to Janssen for the United States market. In the event Sepracor
exercises the Option A to convert such profit-sharing and cost sharing following
the exercising of the option by Janssen pursuant to Section 2.3(a), Janssen
shall pay a royalty to Sepracor of [**] and [**] thereafter on the Janssen Net
Invoice
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
Price for each Rx Product sold by or on behalf of Janssen, its Affiliates or its
Permitted Sublicensees or assigns in the United States. In the event Sepracor
exercises the Option B to convert such profit-sharing and cost sharing, Janssen
shall pay to Sepracor, as a consideration for development efforts and payments
made by Sepracor, a royalty of [**] on the Janssen Net Invoice Price for each Rx
Product sold by or on behalf of Janssen, its Affiliates or its Permitted
Sublicensees or assigns in the United States. The principles of Sections 6.3(c)
to (g) 6.5, 6.6, 6.8, 6.9, 6.10 and 6.11 shall apply mutatis mutandis to the
royalty payments as meant under this Section 2.3(d). The exercise of the Option
A or B does not release Sepracor from its obligations to pay its share of the
R&D Expenses shared and to be shared by Janssen and Sepracor in accordance with
the provisions of Section 6.2, which expenses are incurred prior to the date on
which Sepracor exercises Option A or B.
(e) For the purpose of Section 2.3(a) the term "sole" shall
mean exclusive but for Sepracor, its Affiliates and Permitted Sublicensees, to
the extent however Sepracor, its Affiliates and Permitted Sublicensees will make
or have made Compound and Product in accordance with this Agreement.
2.4 Rights to Use Trademarks.
(a) If Janssen exercises the option described in Section
2.3(a) above, then Sepracor shall use the Trademarks for the United States for
Rx Products on a non-exclusive basis in connection with the sale, distribution,
marketing and promotion of the Rx Products in the United States. Sepracor shall
not pay Janssen any additional fee for such use. Except as provided in Section
5.3(i) below, Sepracor may not use any other trademarks, trade names, service
marks and commercial symbols in connection with the sale, distribution,
marketing and promotion of the Rx Products in the United States.
(b) If Janssen exercises the option described in Section
2.3(a), all right, title and interest in the Trademarks for the United States
for Rx Products shall be owned by Janssen. Sepracor shall not at any time take
or omit to take any reasonable action, or permit any action to be taken on its
behalf which shall in any way impair the rights of Janssen in the Trademarks.
(c) If Janssen exercises the option described in Section
2.2(a) for Rx Products in (an) Rx Country(ies) all right, title and interest in
the Trademarks for such Rx Country(ies) where the option has been exercised
shall be owned by Janssen. Sepracor shall not at any time take or omit to take
any reasonable action, or permit any act to be taken on its behalf, which shall
in any way impair the rights of Janssen in the Trademarks.
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<PAGE> 14
(d) If Janssen does not exercise the option for Rx Product as
described in Section 2.3(a) for the United States or Janssen does not exercise
the option described in Section 2.2 (a) in the European Union or in Japan,
Janssen has no obligation to select, file and defend a trademark for either the
United States or the European Union or Japan. In the foregoing cases it shall be
Sepracor's responsibility to select, file and defend a trademark where Janssen
has not exercised the option in either the United States, the European Union or
Japan. Sepracor shall take into due consideration Janssen's remarks in the final
choice of the trademark, and shall not select such a trademark without Janssen's
consent, which consent shall not unreasonably be withheld.
(e) All right, title and interest in the Trademark for OTC
Products shall be owned by Janssen. Sepracor shall not at any time take or omit
to take any reasonable action, or permit any act to be taken on its behalf,
which shall in any way impair the rights of Janssen in the Trademarks.
(f) Sepracor shall promptly and completely apprise Janssen of
any actual, threatened or suspected infringement of any Trademark and/or the use
of confusingly similar names and/or marks to the extent Sepracor has knowledge
of such, and shall cooperate, at Janssen's expense, in any and all actions which
Janssen may take in order to terminate such infringements and/or the use of
confusingly similar names and/or marks; provided, however, that Sepracor shall
not take any action to terminate such infringements and/or the use of
confusingly similar names and/or marks without Janssen's prior written consent
or pursuant to Janssen's prior written instructions. Except as provided in
Section 2.4(a) above, and 5.3(i) below, Sepracor has no rights in the
Trademarks, other trademarks or tradenames of Janssen, or of any goodwill
associated therewith, and Sepracor agrees that, except as expressly provided in
this Agreement, it shall not acquire any rights in respect thereof and that all
such rights and goodwill are, and shall remain, vested in Janssen.
2.5 Janssen GMP Policy and Quality Control. In order to comply with
Janssen's quality control standards, Sepracor shall as soon as and to the extent
Sepracor manufactures one or more steps of Compound and/or Products for sale
under a Trademark or tradename of Janssen or its Affiliates:
(a) maintain the quality of Products by adhering to applicable
GMP standards and to those specific quality control standards that may from time
to time be communicated to Sepracor by or on behalf of Janssen with respect to
Products (the current version of which is to be provided within ten (10) days of
the execution date of this Agreement and shall constitute Exhibit 2.5(a), and
with respect to which Janssen reserves the right to change from time to time
without Sepracor's consent); provided, however, that those specific Janssen
standards shall be no higher than the standards by which Janssen manufactures,
uses and sells such Products itself
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<PAGE> 15
(or through its licensees, Permitted Sublicensees (if any) and assigns); further
provided, however, that unless otherwise agreed to in writing by the Parties,
Sepracor shall have three (3) months from its receipt as defined in the notice
provisions of Section 13.6 of Janssen's quality control standards set forth in
Exhibit 2.5(a) to ensure compliance therewith, and should Janssen amend such
quality control standards Sepracor shall have three (3) months from its receipt
as defined in the notice provisions of Section 13.6 of any amendment to
institute any changes necessitated by any such amendment.
(b) use the Trademarks in compliance with all relevant laws
and regulations and in accordance with Janssen's instructions;
(c) submit samples of Products and appropriate documentation
therefor to Janssen, upon the request of Janssen, so as to enable Janssen to
inspect such samples and documentation and confirm that Sepracor is in
compliance with its obligations under this Section; and
(d) not modify any of the Trademarks in any way and not use
any of the Trademarks on any goods or services other than the Rx Products.
2.6 Right to Sublicense. Each Party shall have the right to
sublicense any of the rights and licenses granted hereunder with the other
Party's prior written consent (such consent not to be unreasonably withheld), so
long as the sublicensor remains responsible to the other Party under this
Agreement and each such sublicensee confirms in writing to the sublicensor that
it agrees to be bound by all of the terms and conditions contained in this
Agreement; provided, however, that Sepracor's consent shall not be required with
respect to sublicenses granted by Janssen in any of the Rx Countries where
Janssen has exercised the option of Section 2.2(a) with regard to Rx Product,
and with regard to OTC Products in all countries worldwide; further provided,
however, that Janssen's consent shall not be required if Janssen terminates this
Agreement pursuant to Section 12.3, or with respect to sublicenses granted by
Sepracor in the United States in the event that Janssen does not exercise the
option of Section 2.3(a). Neither Party shall have any other right to sublicense
such rights and licenses.
2.7 No Rights by Implication. No rights or licenses with respect to
Licensed Technology are granted or deemed granted hereunder or in connection
herewith, other than those rights or licenses expressly granted in this
Agreement.
2.8 HSR Act Filing.
(a) To the extent necessary, each of Sepracor and Janssen
shall file within fifteen (15) days after the date of this Agreement with the
Federal Trade Commission and the Antitrust Division of the U.S. Department of
Justice, any
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<PAGE> 16
notification and report form required of it in the reasonable opinion of both
Parties under the HSR Act with respect to the transactions contemplated hereby.
The parties shall cooperate with one another to the extent necessary in the
preparation of any notification and report form required to be filed under the
HSR Act. Each Party shall be responsible for its own costs, expenses, and filing
fees associated with any filing under the HSR Act. If any filings are required
under foreign equivalents to the HSR Act, the parties shall cooperate as set
forth above with respect to such filings.
(b) If Janssen does not exercise the option granted in Section
2.3(a), Sepracor exercises one of the options set forth in Section 2.3(d), or if
the co-promotion rights pursuant to Section 5.3 and profit-sharing and
cost-sharing envisaged in Section 6.4 are converted to a royalty bearing license
to Rx Product in the United States pursuant to any provision of this Agreement,
then the grants of exclusivity resulting therefrom shall become effective upon
the expiration or earlier termination of any applicable notice and waiting
period under the HSR Act.
3. SALES BY SEPRACOR TO JANSSEN
3.1 Offer and Acceptance; Pricing.
(a) If Janssen exercises the option of Section 2.2(a) or
Section 2.3(a), in those countries where and for such time as Janssen holds the
rights granted pursuant to such options, Janssen shall be free to determine
whether it will manufacture Rx Product and/or Compound for use in Rx Product
itself or have such manufactured by Sepracor or a third party; provided,
however, if Sepracor or its designee complies with Good Manufacturing Practices
and the quality control standards set forth in Exhibit 2.5(a) within the time
frame set forth in Section 2.5(a), but Janssen determines not to use Sepracor to
make or have made Rx Products for the United States market, such determination
shall not materially delay expected filing of the NDA for Rx Products in the
United States as set forth in the R&D Plan with Sepracor as the manufacturer;
further provided, however, that if Janssen cannot manufacture itself or cannot
elect a party other than Sepracor to make or have made Rx Product for the United
States market prior to NDA submission because such election would materially
delay filing of the NDA, or Janssen desires to change the manufacturer
subsequent to NDA submission, Janssen retains the right to manufacture itself or
to elect a party other than Sepracor to manufacture Rx Product for the United
States subsequent to NDA approval by (i) filing an application with the FDA
requesting a manufacturer change after Janssen's or its alternative
manufacturer's DMF (drug master file) is ready, and (ii) providing Sepracor with
not less than twelve (12) months notice of the expected change in manufacturer.
Janssen shall also be free to determine whether it will manufacture OTC Product
and/or Compound for use in OTC Product itself or have such manufactured by a
third party. Provided Janssen has elected Sepracor to be the manufacturer of
Compound
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and/or Product, and provided that Sepracor agrees to so manufacture, during the
term of this Agreement, Janssen shall provide to Sepracor, prior to each
calendar year, a non-binding forecast for such year and the immediately
succeeding calendar year of Janssen's anticipated quarterly purchases of the
Compound and/or Product from Sepracor for such years and indicating the likely
tender dates on which Compound and/or Product will have to be available in
Sepracor's manufacturing location pursuant to Section 3.2 (b) to be requested.
(b) For each proposed purchase of the Compound and/or Product
by Janssen from Sepracor, Janssen shall present the purchase order the condition
of which will be as agreed between the Parties to Sepracor (a "Purchase Order).
For each calendar quarter, Janssen shall present binding Purchase Orders for an
aggregate quantity of Compound and/or Product which is at least forty percent
(40%) of the quantity which Janssen forecasted for such calendar quarter in
accordance with Section 3.1(a) above. Janssen shall place each such Purchase
Order with Sepracor at least three(3) months before the requested tender date.
Each such Purchase Order shall identify the quantity ordered, the requested
tender date, and any export/import information required to enable Sepracor to
fill such Purchaser Order. Each such Purchase Order shall be deemed an offer to
purchase the Compound and/or Product. Unless Janssen is notified in writing to
the contrary within seven (7) Business Days after Sepracor receives a Purchase
Order, such Purchase Order shall be deemed accepted by Sepracor. In the event of
any discrepancy between any Purchase Order and this Agreement, the terms of this
Agreement shall govern.
(c) Sepracor agrees to undertake the necessary actions at its
own expense (including without limitation Good Manufacturing Practices
compliance and compliance with the quality control standards set forth in
Exhibit 2.5(a) within the time frame set forth in Section 2.5 (a)) to qualify
Sepracor or its designated Affiliate or supplier with the FDA and other
regulatory agencies as a supplier to Janssen with respect to the Compound and/or
Product. Janssen agrees to render Sepracor assistance by giving recommendations
with respect to such undertaking.
(d) If Janssen elects Sepracor (or a third party manufacturer
for Sepracor, as proposed by Sepracor and accepted by Janssen) for the
manufacturing of one or more manufacturing steps of Compound and/or Product, and
Sepracor agrees to so manufacture, then for the purchase of each quantity of
Compound and/or Product, Janssen shall pay Sepracor:
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
(i) with respect to the United States, for quantities of
Rx Product and Compound solely for use in Rx Product for clinical trials
including phase 4 studies and for samples, an amount [**] of Sepracor's cost in
manufacturing such quantity of such Compound and/or Product;
(ii) with respect to all countries other than the United
States, for quantities of Rx Product and Compound solely for use in Rx Product
for clinical trials including phase 4 studies and for samples, and with respect
to the United States for quantities for commercial sale of Rx Product and
Compound solely for use in such Rx Product for commercial sale, an amount [**]
of Sepracor's cost in manufacturing such quantity of the Compound and/or
Product;
(iii) for quantities of Rx Product for commercial sale
outside the United States and Compound solely for use in Rx Product outside the
United States, an amount [**] of Sepracor's cost in manufacturing such quantity
of the Compound and/or Product;
(iv) the above notwithstanding in no event shall Janssen
be required to pay an amount for a quantity of Compound for use in Rx Product
for commercial sale which [**] of the aggregate Janssen Net Invoice Price of
such Products incorporating such quantity of Compound, as notified by Janssen to
Sepracor for any given calendar year; provided, however, that Sepracor shall not
be required to supply Compound or Product for commercial sale [**] of Sepracor's
cost of manufacturing (the "price floor"). In the event that the price cap falls
below the price floor, the parties shall discuss alternative supply terms and/or
sources. Janssen is entitled, with a minimum prior written notice of twelve (12)
months, to terminate the manufacturing and supply of Compound and/or Products by
Sepracor at any time during the term of this Agreement;
(v) as regards subsections (i) to (iv) above, in no
event shall Sepracor's cost for any Compound or Product [**] of the prevailing
market price as defined by the average of three (3) arm's length qualified bids
from reliable GMP compliant suppliers for such Compound or Product, as will be
agreed by Janssen and Sepracor; and
(vi) any quantity of Product or Compound supplied by or
on behalf of Sepracor to Janssen shall be the subject of a separate quality and
supply agreement.
(e) Costs for the purposes of Section 3.1(d) are defined in
Exhibit 3.1(e) hereto.
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(f) Sepracor shall keep and maintain complete and accurate
records and books of account in sufficient detail and form so as to enable
verification of its manufacturing costs. Such records and books of account shall
be maintained for a period of no less than two (2) years following the calendar
year to which they pertain. Sepracor shall permit such records and books of
account to be examined by Janssen or Janssen's duly appointed agent(s) no more
than once each calendar year, to the extent necessary for Janssen to verify such
costs. Such examination shall be during normal business hours, upon thirty (30)
days' prior written notice to Sepracor, and at Janssen's expense unless the
examination should establish that Sepracor's claimed manufacturing costs for the
period examined were more than one hundred five percent (105%) of Sepracor's
actual manufacturing costs for such period, in which case Sepracor shall be
responsible for the reasonable expenses of such examination. Prompt adjustment
shall be made by the proper Party to compensate for any errors or omissions
disclosed by such examination. Information obtained during the course of such an
examination shall be kept confidential by Janssen and its agents, except to the
extent necessary to enforce Janssen's rights hereunder.
3.2 Tender.
(a) Unless Janssen or its Affiliates requests otherwise, all
quantities of the Compound and/or Product ordered by Janssen shall be packed for
shipment and storage in accordance with Janssen's' standard commercial
practices. It is Janssen's obligation to notify Sepracor of any special
packaging requirements (which shall be at Janssen's expense).
(b) Sepracor shall make such quantities of the Compound and/or
Product available to Janssen for pick-up at Sepracor's manufacturing location no
later than the requested tender date specified on the relevant Purchase Order
for such quantity.
(c) It shall be Janssen's responsibility to arrange and pay
for all transportation, insurance and other charges incurred after Sepracor's
tender. Upon agreement of the Parties, the Compound and/or Product may be
delivered to Sepracor's warehouse facility for storage. Janssen shall thereupon
pay such storage and handling fees as will be agreed between the Parties in
advance. Such fees shall be part of the cost formula described in Exhibit 3.1(e)
hereto.
(d) Sepracor shall be responsible for preparing invoices and
shipping documents for Janssen in respect of Compound and/or Product tendered
hereunder by Sepracor; provided, however, that Sepracor shall submit its invoice
to Janssen for a quantity of Compound and/or Product no earlier than the date on
which Sepracor makes available such quantity for pick up by Janssen or delivers
such
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
Products to Sepracor's warehouse facility for storage pursuant to the agreement
of the Parties.
(e) Risk of loss and damage to any quantity of Compound and/or
Product shall pass to Janssen upon the removal of such quantity from Sepracor's
manufacturing location.
3.3 Method of Payment for Compound and/or Product.
(a) All amounts due and payable with respect to a quantity of
Compound and/or Product tendered by Sepracor in accordance with Section 3.2 (b)
above shall be paid in full within [**] after Janssen's or Janssen's Affiliates'
receipt of an invoice with respect to such quantity. All such amounts shall be
paid in Dollars, by wire transfer, to such bank or account as Sepracor may from
time to time designate in writing.
(b) Whenever any amount hereunder is due on a day which is not
a Business Day, such amount shall be paid on the immediately succeeding Business
Day.
(c) Amounts hereunder shall be considered to be paid as of the
day on which they are received by Sepracor's bank.
(d) All amounts due and owing to Sepracor hereunder but not
paid by Janssen on the due date thereof shall bear interest at the rate of the
lesser of: (i) [**]; and (ii) the maximum lawful interest rate permitted under
applicable law. Such interest shall accrue on the balance of unpaid amounts from
time to time outstanding from the date on which portions of such amounts become
due and owing until payment thereof in full.
3.4 Limited Warranty.
(a) As to the Compound and/or Product purchased from Sepracor
by Janssen, Sepracor warrants that such Compound and/or Product conforms to the
specifications set forth in Exhibit 3.4(a) attached hereto and made a part
hereof and these have been manufactured in accordance with the applicable GMP
standards and standards set forth in Exhibit 2.5(a) and communicated by Janssen.
All warranty claims for non-conforming shipments, except for hidden defects,
must be made in writing to Sepracor within thirty (30) days after arrival of
Compound and/or Product at Janssen's or Janssen's Affiliates' warehouse. Except
for hidden defects, any warranty claims not made within such period shall be
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deemed waived and released. Warranty claims made by Janssen or Janssen's
Affiliates for hidden defects shall be made within thirty (30) days following
discovery of the hidden defect.
(b) THIS WARRANTY IS IN LIEU OF ANY OTHER WARRANTY, WHETHER
EXPRESS OR IMPLIED, WRITTEN OR ORAL (INCLUDING ANY WARRANTY OF MERCHANTABILITY,
FITNESS FOR A PARTICULAR PURPOSE OR NON-INFRINGEMENT).
(c) THIS WARRANTY EXTENDS TO JANSSEN AND JANSSEN'S AFFILIATES
ONLY AND SHALL NOT BE APPLICABLE TO ANY OTHER PERSON OR ENTITY INCLUDING,
WITHOUT LIMITATION, CUSTOMERS OR JANSSEN'S PERMITTED SUBLICENSEES AND ASSIGNS.
(d) Janssen, its Permitted Sublicenses and assigns shall not
bind or purport to bind Sepracor to any affirmation, representation or warranty
with respect to the Compound or to the Products to any third party.
3.5 Facility Inspections. Upon reasonable prior notice, Sepracor
shall permit Janssen, its designated agents or representatives or
representatives of any United States or other regulatory agency if so required,
to inspect, during normal business hours, any facility used by Sepracor or
proposed to be used by Sepracor or any subsidiary or third party supplier of
Sepracor for performing Sepracor's obligations under this Agreement, which
inspection may include, without limitation, manufacturing procedures, quality
assurance procedures and quality assurance records. In the event such inspection
would reveal non-compliance with any of the obligations of Sepracor or any of
the standards applicable, Sepracor, its Affiliates, or third party supplier of
Sepracor shall use reasonable efforts to remedy or have remedied at no expense
to Janssen these shortcomings without further delay in accordance with Janssen's
instructions. In the event that the shortcomings are not remedied within a
period of three (3) months, Janssen shall have the right to terminate the rights
granted in the Field to Sepracor by Janssen pursuant to this Agreement to
manufacture or have manufactured Compound or Products for Janssen pursuant to
this Agreement, with immediate effect.
3.6. Supply by Janssen to Sepracor. Should Janssen supply Compound
or Products for the co-promotion of Section 5.3 or to Sepracor pursuant to a
right or license granted under this Agreement, the terms of this Article 3 shall
apply mutatis mutandis to the supply arrangement, unless otherwise agreed to in
writing by the Parties.
4. RESEARCH AND DEVELOPMENT COLLABORATION
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<PAGE> 22
4.1 Collaborative Research and Development Program. If Janssen
exercises the option granted in Section 2.3(a) and for such time that Janssen
retains the rights and licenses granted pursuant thereto, the Parties agree that
they will conduct the R&D on a collaborative basis subject to Section 6.2 below.
The Parties have agreed to an initial R&D Plan (Exhibit 1.26), which, among
other things, contains scientific direction and R&D milestones.
4.2 Role of Joint Research and Development Committee.
Responsibilities of Parties
(a) The Parties shall establish a Joint Research and
Development Committee ("JR&DC") promptly after Janssen exercises the option
granted in Section 2.3(a). The JR&DC shall be comprised of an equal number of
representatives of each Party, with the exact size of the JR&DC to be agreed
upon by the Parties from time to time. The purpose of the JR&DC is to consult
about and review (i) the coordination of the R&D, (ii) the expedition of the
progress of work being done under the R&D Plan, (iii) specific R&D goals and
budgets, (iv) evaluation of the results of the R&D, and (v) appropriate
scientific direction for the collaboration including the development and
periodic modifying of the R&D Plan. Regardless of the number of representatives
from each Party, each Party shall present one consolidated view and have one
vote on any issue in dispute. Notwithstanding the above any matter reviewed in
the JR&DC shall be resolved by (a) final decision(s) taken unilaterally by
Janssen. The JR&DC shall have regular meetings at least semi-annually, with the
time and location of such to be agreed to by the Parties.
(b) In the event Janssen exercises the option granted in
Section 2.3(a) and for such time that Janssen retains the rights and licenses
granted pursuant thereto for the further development of Rx Products for the
United States market, Sepracor shall be responsible for the execution of the
R&D, including non-clinical Product development in accordance with the Janssen
pharmaceutical manufacturing technology transfer file, pre-filing communications
with the FDA, preparing and submission of the NDA, communication with the FDA
during the approval process and negotiation of the product labeling, all of
these under control and supervision of Janssen or designated Affiliate of
Janssen. After Janssen exercises the option granted in Section 2.3(a) and for
such time that Janssen retains the rights and licenses granted pursuant thereto,
Janssen shall have the right to be present during all prearranged communication
with the FDA, of which it shall receive sufficient prior notice to make the
necessary practical arrangements to be present or to participate. Sepracor shall
use reasonable efforts to allow Janssen to participate in any impromptu
communication with the FDA. In the event such participation is not reasonably
possible, Janssen shall receive a copy of the write-up of the communication with
the FDA. After Janssen exercises the option granted in Section 2.3(a) and for
such time that Janssen retains the rights and licenses granted pursuant thereto,
all product labeling has to be approved by Janssen before submission to the FDA,
and Janssen
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shall obtain a copy of all correspondence to and from the FDA prior to and after
NDA submission.
(c) Janssen retains primary responsibility for and shall bear
all costs and expenses related to: (i) development of Rx Product in any Rx
Countries where Janssen exercises the option of Section 2.2(a) and retains the
rights granted pursuant thereto; (ii) all development of OTC Product; and (iii)
all regulatory filings related to (i) and (ii).
(d) Sepracor has disclosed or will disclose promptly after
signing of this Agreement any and all information and data, including Technical
Information, in its possession with respect to all research and development work
done by or on behalf of Sepracor with respect to Compound and Product prior to
the Pre-Option Clinical Testing. During the Pre- Option Clinical Testing,
Sepracor shall provide Janssen with monthly reports summarizing the preliminary
data from the Pre-Option Clinical Testing. With respect to each study of the
Pre- Option Clinical Testing, upon closing of the database and receipt of
verified statistical analysis concerning the parameters set forth in Exhibit
4.2(d), Sepracor shall promptly provide Janssen with the underlying data and
statistical analysis concerning such parameters.
4.3 Sharing of Data.
(a) On an on-going basis during the term of this Agreement,
each Party shall share with the other Party:
(i) all animal and human data which it develops during
clinical studies, pre-clinical tests or otherwise with respect to astemizole,
the Compound and Products and which are deemed by both Parties to be required or
fit for NDA submission or similar submissions outside the United States; and
(ii) such other Technical Information in its possession
that both Parties deem necessary in order to obtain expedited or timely approval
of applicable government regulatory agencies to manufacture, sell and/or
distribute the Compound and/or Products or to respond to inquiries made by
applicable regulatory authorities regarding Compound or Products, including but
not limited to the NDA information referred to in Section 2.1(f) above.
(b) Each Party shall also keep the other Party informed
regarding the status of regulatory processes and procedures with respect to the
Compound and Product.
(c) During the term of this Agreement, the Parties shall
exchange quarterly written reports, including a meaningful summary of Product
development and registration progress under this Agreement.
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(d) Each Party may share information obtained under this
Section 4.3 with its Affiliates, Permitted Sublicensees and assigns.
(e) Data shall, when required or to the extent reasonably
possible if not required, be consistent with international standards of Good
Clinical Practice.
4.4 Sharing Modifications and/or Improvements of Products.
(a) If Janssen exercises the option granted in Section 2.3(a)
or if Janssen exercises the option granted in Section 2.2(a) in Japan or all of
the United Kingdom, Italy, France and Germany, each Party shall propose to the
JR&DC or to the other Party in the absence of a JR&DC each modification or
improvement in a Product which it has conceived and which it would like to
introduce, and no modification or improvement shall be introduced in the
Compound and/or Product without express prior approval of the other Party, such
approval not to be withheld except on the basis of reasonable medical grounds.
The other Party may use each approved such modification or improvement in Rx
Product and OTC Product, without paying any amounts to the developing Party
(other than the compensation which is payable in accordance with Article 6
below) in such countries where it has obtained rights pursuant to Article 2 on
Rx Product or OTC Product.
(b) For the purposes of this Section 4.4, a modification or an
improvement shall mean any invention, discovery, modification or improvement,
whether patented or not in the Field, which can be employed to improve the
manufacturing of or reduce the manufacturing costs of the Compound or Product,
improve or modify performance of the Compound or Product, or broaden the
applicability or range of uses of Compound or Product, including but without
limitation combination products including Compound as an active ingredient and
new formulations and dosage forms of Product. Any patents issuing to either
Party or Janssen Pharmaceutica Inc. on a modification or improvement shall be
deemed to be Sepracor Patent Rights or Janssen Patent Rights, as appropriate.
4.5 Ownership of NDAs.
(a) NDAs for OTC Products shall be owned by Janssen.
(b) If Janssen exercises its option described in Section
2.3(a) above, then approved NDAs in United States with respect to Rx Products
shall be owned by Janssen for so long as Janssen retains the rights granted
pursuant to such option. Furthermore,
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(i) the NDA prior to approval shall contain a reference
to Janssen DMF (drug master file); provided, however, if Sepracor or its
designee complies with Good Manufacturing Practices and the quality control
standards set forth in Exhibit 2.5(a) within the time frame set forth in Section
2.5(a), this requirement to reference such Janssen DMF shall not materially
delay expected filing of the NDA for Rx Product in the United States as set
forth in the R&D Plan with Sepracor as the manufacturer;
(ii) Sepracor agrees to transfer, immediately upon any
NDA approval, the NDAs to Janssen or Janssen's designated Affiliate in the
United States; and
(iii) Sepracor shall render all necessary assistance to
Janssen in this respect and shall after NDA transfer continue to render further
assistance to Janssen, as may be required by Janssen.
(c) If Janssen exercises its option described in Section
2.2(a) above, then NDAs in all countries where the option has been exercised
with respect to Rx Products shall be owned by Janssen for so long as Janssen
retains the rights granted pursuant to such option and the NDA shall contain a
reference to Janssen DMF (drug master file), unless otherwise agreed. As the
owner of such NDAs, Janssen shall maintain such NDAs, shall file all ADE reports
and other required reports and filings, and shall keep Sepracor informed with
respect to regulatory actions concerning its NDAs. In any of the countries where
Janssen has not exercised the option, and in those countries where Janssen had
exercised the option but has not retained the rights granted pursuant thereto,
Sepracor shall own and maintain the NDAs and the NDA shall contain a reference
to the Janssen and/or Sepracor DMF (drug master file), as will be agreed between
the parties, shall file all ADE reports and other required reports and filings,
and shall keep Janssen informed with respect to regulatory actions concerning
its NDAs.
(d) For such time as Janssen retains rights granted pursuant
to exercise of the option of Section 2.2(a) in any Rx Country or the rights
granted pursuant to exercise of the option of Section 2.3(a), Janssen shall be
responsible for centralized ADE reporting for such countries where Janssen has
exercised the option. In all other countries where Sepracor markets Rx Product,
Sepracor shall be responsible for any ADE reporting. Both Parties will
coordinate their efforts in this respect. Janssen shall be responsible for all
ADE reporting concerning OTC Products.
4.6 Reading and Reference Rights. Without prejudice to Section
2.1(f), each Party hereby grants the other Party the right to read and reference
complete NDAs (as well as any individual aspects thereof) owned or controlled by
the other Party with respect to Compound and/or the Products.
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4.7 Coordinating Manufacturing. The Parties shall mutually share
manufacturing process improvements regarding Compound and/or Product that each
may conceive. Each Party shall make available to the other Party all
documentation and information which it provides to its manufacturing source
concerning production of the Compound and Product. The Party receiving such
documentation and information may either contract to purchase quantities of the
Compound and Product from the other Party, the other Party's manufacturer, or
else establish its own manufacturing source.
4.8. If Janssen's rights in an Rx Country are terminated pursuant to
Section 2.2(c) or reduced pursuant to Section 6.7(b) after product launch in
said Rx Country and Janssen is manufacturing Rx Product or having Rx Product
manufactured by a third party, Janssen shall provide Sepracor with continued
supply of the Rx Product for such Rx Country for a period of eighteen (18)
months following termination of Janssen's rights in such Rx Country.
4.9 Regulatory Compliance Audits. If Janssen exercises its option
described in Section 2.3(a) and for so long as Janssen retains the rights
granted pursuant to such option, the following shall apply:
(a) Sepracor's Regulatory Affairs (RA) group shall be an
independent entity from the clinical organization at Sepracor. RA will conduct
regulatory compliance audits consistent with Sepracor's internal compliance
standards and provide Janssen with a copy of all reports written corresponding
to these audits.
(b) Janssen or other Johnson & Johnson personnel may join
Sepracor or conduct separate regulatory compliance audits at investigative sites
or Sepracor's facilities, at Janssen's discretion. Janssen will notify Sepracor
of its intent to perform such audits in advance. Sepracor shall have the right
to accompany Janssen or any other Johnson & Johnson personnel on such an audit.
There will be no remuneration to Sepracor by Janssen for Sepracor's personnel
time.
(c) In the event of any inspections of investigator sites or
CRO's facilities by regulatory authorities or government agencies, Sepracor will
provide sufficient resources and qualified personnel to monitor and report on
the progress of such inspections. Such assistance will include, but not be
limited to i) furnishing Janssen with as much advance notice as is reasonably
possible of the inspection; ii) assigning qualified Sepracor personnel on-site
for the duration of the inspection, if deemed necessary in Janssen's judgment;
iii) assembling, organizing and explaining data and information requested by
regulatory authorities during the inspection; iv) preparing reports requested by
the regulatory authority; v) keeping Janssen apprised of the conduct of the
inspection and providing a copy of the FDA
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Form 483, if issued; and vi) obtaining appropriate approval from authorized
Janssen personnel before taking any material action in response to the
inspection.
(d) Sepracor will provide Janssen with verbal daily updates on
the status of the inspection. At the conclusion of the inspection, Sepracor will
forward to Janssen a written report of the inspection and a copy of any reports
left by the regulatory authorities or government agencies as a result of the
inspection within a reasonable time subsequent to the inspection, not to exceed
two (2) business days.
5. MARKETING RESPONSIBILITIES; CO-PROMOTION
5.1 Janssen Marketing Responsibilities.
Diligently following the exercising of the options as
described in Section 2.2(a) above, Janssen undertakes to use reasonable efforts,
at its own expense, with respect to the Rx Products in such countries of the Rx
Countries for which the option has been exercised, in order to:
(i) conduct trials and apply for all governmental
approvals necessary to manufacture, sell, distribute, use and test such Products
in the European Union and Japan;
(ii) permit Sepracor to monitor Janssen's progress with
respect to its efforts pursuant to this Section 5.1; and
(iii) submit quarterly updates to Sepracor with respect
to such efforts. The Parties shall coordinate efforts in a planning meeting to
occur at least two (2) times per year, unless the Parties agree otherwise.
5.2 Role of Joint Marketing Committee. If Janssen exercises its
option described in Section 2.3(a) above, then the Parties shall establish a
U.S. Joint Marketing Committee ("JMC") promptly after the exercise of such
option. The JMC shall be comprised of an equal number of representatives of each
Party or Party's Affiliate, with the exact size of the JMC to be agreed upon by
the Parties from time to time. The JMC shall meet from time to time, at mutually
agreeable times and locations to review the following (i) the launch plan; (ii)
the annual and three year brand marketing plan (hereinafter collectively
referred to as "co-promotion plan") and (iii) the field force allocation
strategy, each of which shall be drawn up by Janssen, allowing Sepracor to give
input in the creation process of such plans. During the first two (2) years of
marketing following launch, the co-promotion plan shall include a preliminary
sales call forecast estimating the number of sales calls to be performed in each
Payment Period by the Parties, and thereafter shall be amended annually to
include a preliminary annual sales call forecast estimating the number of
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
sales calls to be made in each Payment Period of the upcoming year and
thereafter the preliminary sales call forecast for each Payment Period will be
finalized at the start of the preceding Payment Period. Any of such matter
reviewed by the JMC on which no consensus can be reached after review as
aforesaid shall be resolved by unilateral decision of Janssen or Janssen's
Affiliate. Any other matter not to be reviewed by the JMC relating to the
promotion and sale of Rx Product in the United States shall be Janssen's sole
decision at its own discretion, including but without limitation the time
allocation and allocation of Janssen's sales and marketing staff and Janssen's
field force to the marketing and selling of Rx Product in the United States
subject to the provisions of Section 5.3.
5.3 Co-Promotion. If Janssen exercises its option described in
Section 2.3(a) above, then:
(a) Provided that Sepracor: (i) shall have established an
adequately trained sales force of an adequate professional level, specialization
and training consistent with industry standards; and (ii) shall have available a
sufficient number of sales representatives to be in a position to give the
priorities to the promotion of Rx Product as established in the co-promotion
plan, each Party shall co-promote the Rx Products in United States by making
presentations to physicians and others, subject however to the conditions set
forth herebelow with regard to Sepracor's right to co-promote.
(b) No later than three (3) months following NDA submission,
Janssen shall provide Sepracor with the co-promotion plan. No later than three
(3) months following Sepracor's receipt of the co-promotion plan, Sepracor shall
present to Janssen or Janssen's designated Affiliate a hiring and training plan
for its sales representatives in view of the co-promotion activities envisaged
under this Agreement in accordance with the co-promotion plan. No later than
twelve (12) months after NDA filing, Sepracor shall have hired one hundred
percent (100%) of the required number of sales representatives (of which at
least seventy-five percent (75%) will have pharmaceutical sales experience) and
make them available for training jointly with the Janssen field force.
(c) The field force allocation, as mentioned in Section 5.2
shall take into account the following principles:
(i) for the first two (2) years following launch each
Party shall perform a minimum of [**] unless the co-promotion plan provides for
fewer calls in which case each Party shall perform pro rata fewer calls;
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
(ii) an approximate equal number of high volume
prescribers will be allocated to the Sepracor and the Janssen field forces in
locations selected to allow efficiency of each Party's field force to be
substantially equal, and overall an approximate [**] of the field force
activities is envisaged;
(iii) optimal effectiveness of the joint field force
activities will be a primary objective to be achieved.
(d) Both Sepracor and Janssen shall achieve the targets, as
mentioned in Section 5.3(c)(i), and Sepracor shall achieve the targets of
Sections 5.3(a) and (b). The sales representatives shall be hired on the
Parties' or their Affiliates' respective payrolls. Each Party agrees not to
actively recruit sales representatives currently in the employ of the other
Party.
(e) If during the first two (2) years of marketing following
the launch date the total number of calls envisaged in the co-promotion plan
[**], Sepracor shall be allowed during, but no longer than the first year of
marketing, to hire an external contract field force in order to achieve the
overall approximate [**] of field force activity. Such external field force
shall meet the same qualifications, experience and training requirements as the
requirements for the internal Sepracor sales force. At latest after such first
year, Sepracor shall hire such number of representatives on the payroll of
Sepracor or its Affiliates in order to achieve the overall approximate [**]
split of field force activity.
(f) In the event Sepracor is, for whatever reason, including
Force Majeure delay or default which persists for longer than six (6) months,
unable or unwilling to substantially comply with the obligations under this
Article 5, and in particular, but without limitation, with the approximate [**]
of the field force coverage of the market pursuant to Section 5.3(g) below,
Janssen shall have the right:
(i) if Sepracor is able and willing to cover at least
[**] of the total field force calls, as defined in the co-promotion plan, adapt
the profit-sharing and cost-sharing provisions of Section 6.4, both pro rata
with the shortage of field force coverage in each Payment Period on the side of
Sepracor; or
(ii) if Sepracor is unable or unwilling or fails to
cover at least [**] of the total field force calls, as defined in the
co-promotion plan, terminate the co-promotion activities as envisaged under this
Agreement, and simultaneously switch the profit-sharing and cost-sharing as
defined in Section 6.4 into a royalty bearing license. Such license shall be
subject to the same terms and conditions as in Sections 6.3(c) to (g), 6.5, 6.6,
6.8, 6.9, 6.10, and 6.11. In the foregoing case the royalty
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
on sales of Rx Products by Janssen in the United States shall be: (i)[**] and
thereafter [**] in case foregoing termination takes place prior to NDA
submission in the United States; or (ii)[**] in case termination takes place
after NDA submission in the United States.
(g) If a Party makes less than [**] of the sales call forecast
in the co-promotion plan or actual sales calls in a Payment Period, that Party
shall be deemed to have complied with the overall [**] of the field force
activity in that Payment Period; however, if in the following Payment Period
that Party provides less than [**] of the sales call forecast in the
co-promotion plan or actual sales calls for that Payment Period, then
(i) if Sepracor is the non-complying Party, the
provisions of Section 5.3(f) shall apply in that Payment Period and each
subsequent Payment Period, and
(ii) if Janssen is the non-complying Party, Janssen
shall at its option have the right to (a) continue the profit-sharing and
cost-sharing as defined in Section 6.4 irrespective of each Party's relative
share of the sales call forecast or actual sales calls, or (b) adapt the
profit-sharing and cost-sharing provisions of Section 6.4, both pro rata with
the shortage of field force coverage for that and each subsequent Payment Period
on the part of Janssen.
(h) All sales of the Rx Products in United States shall be
booked and invoiced by Janssen consistent with the pricing policy established by
Janssen and reviewed from time to time by the JMC pursuant to Section 5.2 above.
The Parties shall share profits from sales of Rx Products in United States in
accordance with Section 6.4 below.
(i) The Rx Products shall be sold in United States with the
Trademarks selected by Janssen and tradenames of both Parties displayed in equal
prominence in all packaging, advertising, promotional materials, seminars and
other promotional and marketing media, subject to applicable laws.
(j) The co-promotion activities pursuant to this Section 5.3
shall continue for the commercial life of the Product; provided, however, that
the Parties may mutually agree to terminate the co-promotion at any time.
The level of co-promotion shall be determined in the co-promotion plan. If
active sales promotion through the joint field force is decided to be continued
after the
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
second anniversary of Rx Product launch in the United States, then the
principles of Sections 5.3(c) (ii) and (iii) shall continue to apply to sales
force allocation.
5.4 If Sepracor exercises Option B described in Section 2.3(d) or
the co- promotion is terminated pursuant to Section 5.3(f)(ii) after NDA
submission, both Janssen and Sepracor may still agree that Sepracor will
participate in the promotion and selling efforts of Rx Product in the United
States by providing sales calls on a fee for service basis consistent with
current industry standards for rental sales force. Such promotion and selling
efforts will be agreed in a separate co-promotion agreement.
6. COMPENSATION PAYABLE TO SEPRACOR
6.1 Pre-Option Clinical Testing Expenses.
(a) For the rights and options granted hereunder, Janssen
shall pay Sepracor [**] of the expenses incurred by Sepracor in conducting and
analyzing the results of the Pre-Option Clinical Testing.
(b) Sepracor shall submit a statement to Janssen on a monthly
basis at the end of each month of the Johnson & Johnson universal calendar as to
the aforesaid expenses in Section 6.1(a) actually incurred by Sepracor, together
with an invoice for [**] of such expenses. Janssen shall pay such invoices
within thirty (30) days of the end of the calendar month during which the
invoice was issued to Janssen.
(c) These expenses are subject to the same record-keeping and
examination requirements as apply to Sepracor's manufacturing costs under
Section 3.1(f) above.
6.2 Funding for Research and Development Efforts.
(a) Subject to Janssen exercising the option pursuant to
Section 2.3(a), Janssen and Sepracor each agrees to pay [**] of the R&D Expenses
incurred in accordance with the R&D Plan, even for studies consented to by
Janssen and started by Sepracor before the option is exercised; provided,
however that Janssen's obligation to pay [**] of the expenses of such studies
shall only become effective upon exercising the option pursuant to Section
2.3(a) whereupon Janssen shall pay Sepracor [**] of the R&D Expenses incurred
prior to Janssen's exercise of the option for studies started before such
exercise. Moreover, Sepracor and Janssen shall each
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
carry [**] of expenses incurred in connection with any studies additional to the
Pre-Option Clinical Testing and other than covered by the R&D Plan agreed to by
the Parties and commenced prior to exercise or lapse of the option. In no event,
however, shall Janssen be required to pay any amount for repetition of all or
part of any study which was performed by Sepracor without Janssen's review and
consent prior to the date of this Agreement and which the FDA requires to be
repeated in whole or in part for submission of the NDA for Rx Product. If
Sepracor is required by the FDA to repeat such a study prior to the lapse or
exercise of Janssen's option under Section 2.3(a), the option period set forth
in Section 2.3(b) shall not start to run until such study is completed and the
results of the study have been made available to Janssen. If Sepracor is
required by the FDA to repeat such a study prior to the lapse or exercise of
Janssen's option under Section 2.2(a), the option period set forth in Section
2.2(b) shall not start to run until such study is completed and the results of
the study have been made available to Janssen.
The following shall apply:
(i) each Party shall maintain a separate general ledger
account for the purposes of recording all of the R&D Expenses which it incurs
during the term of this Agreement.
(ii) within thirty (30) days after the end of each
Payment Period, the Parties shall exchange information detailing the accounts
described in Section 6.2(a) above during the Payment Period. If one Party has
recorded more than the other in said Payment Period, that Party shall submit an
invoice to the other Party for [**] of the difference between the amounts
recorded by the respective Parties. The other Party shall pay the full amount of
each such invoice within thirty (30) days of the end of the calendar month
during which the invoice was issued.
(iii) R&D Expenses which are subject to reimbursement in
accordance with Section 6.2(a) above are subject to the same record-keeping and
examination requirements as apply to Sepracor's manufacturing costs under
Section 3.1(f) above.
(b) Janssen shall develop OTC Product, and Rx Products outside
United States, at its own cost and expense.
6.3 Royalties.
(a) Janssen agrees to pay Sepracor, for the rights granted to
Janssen with respect to OTC Products pursuant to Section 2.1 above, a royalty
for each and every OTC Product sold by or on behalf of Janssen or its
Affiliates,
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
Permitted Sublicensees or assigns (excluding returns). Such royalty for each OTC
Product shall be [**] of the Janssen Net Invoice Price for each such OTC
Product.
(b) If Janssen exercises its option described in Section
2.2(a) above, then Janssen agrees to pay Sepracor, for the rights granted to
Janssen with respect to Rx Products outside United States pursuant to Section
2.1 above, a royalty for each and every Rx Product sold by or on behalf of
Janssen or its Affiliates, Permitted Sublicensees or assigns outside United
States (excluding returns). Such royalty for each Rx Product shall be [**] of
the Janssen Net Invoice Price for each such Rx Product for sales made prior to
[**] , and [**] of the Janssen Net Invoice Price for each such Rx Product for
sales made thereafter.
(c) RESERVED.
(d) Once a royalty becomes payable on a Product in accordance
with this Section 6.3, no other royalty shall ever become payable on such
Product, regardless of whether and how such Product may subsequently be sold.
For the purposes of this Section 6.3, a sale shall be deemed to occur when
Janssen, its Affiliates or its Permitted Sublicensees or assigns sends an
invoice to an independent third party with respect to such sale.
(e) Janssen shall not be required to pay any royalty with
respect to any Compound or Product sold to Sepracor or any of its Affiliates,
Permitted Sublicensees or assigns of Sepracor.
(f) Each royalty for Rx Product described in Section 6.3(b)
shall be deemed to be payable for sales in a country until the later of the
following dates:
(i) if the Rx Product is covered by a Valid Claim of a
patent or patent application of the Sepracor Patent Rights as listed in Exhibit
1.31(a) hereto in that country, until the date upon which such patents or patent
applications expire, are abandoned, or are declared no longer valid in any such
country;
(ii) the date which is ten (10) years after the first
commercial sale of such Rx Product by Janssen or its Permitted Sublicensees or
assigns in such country of sale;
(iii) with respect to (i) and (ii) above, thereafter the
license of the Licensed Technology shall be considered fully paid up and no
royalties shall be payable to Sepracor for sales of such Rx Product in such
country of sale; and
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
(iv) with respect to (i) and (ii) above, the royalty
shall be reduced by [**] in such country(ies) if and when a third party
introduces a generic version of Rx Product in such country(ies).
(g) If Janssen pays a royalty on a Product pursuant to this
Section 6.3 which has been or is subsequently returned to Janssen, its
Affiliates or its Permitted Sublicensees or assigns or if Janssen pays such a
royalty on a Product, the sale of which is subsequently cancelled, and any money
paid to Janssen is returned to the buyer, the royalty so paid shall be deemed a
credit against royalties payable by Janssen for subsequent Payment Periods. If
no royalties amounts are payable for a subsequent Payment Period pursuant to
this Section 6.3, then the remaining balance of such credits shall be refunded
to Janssen within thirty (30) days after Sepracor's receipt of Janssen's report
for such Payment Period prepared pursuant to Section 6.5 below.
(h) Each royalty for OTC Product described in Section 6.3(a)
shall be deemed to be payable for sales in a country until the later of the
following dates:
(i) if the OTC Product is covered by a Valid Claim of a
patent or patent application of the Sepracor Patent Rights as listed in Exhibit
1.31(a) hereto in that country, until the date upon which such patents or patent
applications expire, are abandoned, or are declared no longer valid in any such
country;
(ii) the date which is ten (10) years after the first
commercial sale of such OTC Product by Janssen, its Affiliates or Permitted
Sublicensees or assigns in such country of sale;
(iii) with respect to (i) and (ii) above, thereafter
such royalties shall be reduced by [**]; provided, however, that if a third
party introduces an OTC Product in such country then no further royalties shall
be payable on sales of OTC Products in such country after the later of such date
and the date of introduction of the third party OTC Product in such country.
6.4 Profit-Sharing and Cost Sharing for Co-Promotion of Rx Products
in United States.
(a) Subject to Janssen exercising the option pursuant to
Section 2.3(a), Janssen and Sepracor each agree to pay [**] of the Marketing and
Technology Costs and Costs of Goods Sold. Therefore, for each Payment Period,
Janssen shall pay an amount to Sepracor so that Sepracor will receive [**] of
the Operating Income
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
for such Payment Period; provided, however, that to the extent Operating Income
is less than [**] for such Payment Period, Sepracor shall pay an amount to
Janssen which is equal to [**] of the amount by which Operating Income for such
Payment Period is less than [**].
(b) Sales of Rx Products in United States shall be deemed to
occur when they are invoiced, or if not invoiced, when delivered to a third
party.
(c) RESERVED.
6.5 Contents of Janssen's Reports. Janssen shall deliver to Sepracor
within thirty (30) days after the end of each Payment Period, beginning with the
first Payment Period, a written report describing, for the applicable Payment
Period:
(a) the number and full description of each Product sold by or
on behalf of Janssen, its Affiliates and its Permitted Sublicensees and assigns
during such Payment Period;
(b) with respect to Rx Products sold outside the United States
and OTC Products, no matter where they are sold:
(i) the Net Sales for Product, being Janssen Net
Invoice Prices multiplied by the volume of
Products sold;
(ii) the total royalty due on such payments under
Section 6.3 above; and
(c) if Janssen exercises its option described in Section 2.3
(a) above, then with respect to Rx Products sold in United States:
(i) the Operating Income for such Payment Period; and
(ii) [**] share of Operating Income, or [**] of the
amount by which Operating Income is less than
[**], as the case may be.
6.6 Payments Accompany Janssen's Reports. Each report for a Payment
Period required in Section 6.5 above shall be accompanied by full payment to
Sepracor of the royalties and other amounts payable under Sections 6.3 and 6.4
above.
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
6.7 Minimum Royalty.
(a) If Janssen exercises the option described in Section
2.2(a) above, minimum royalty requirements for the three (3) full calendar years
starting after two (2) full calendar years have elapsed following first
commercial launch of Rx Product in each of Japan, the United Kingdom, Germany,
Italy, and France, independently, shall be calculated based on [**] of a
non-binding forecast for each such country to be submitted by Janssen to
Sepracor for the immediately succeeding calendar year. The minimum royalty for
each such country shall be [**] of the non-binding forecasted volume for such
country multiplied by the average Janssen Net Invoice Price for Rx Products in
the relevant country multiplied by the royalty rate in Section 6.3(b). If
Sepracor exercises one of the options set forth in Section 2.3(d), or if the
co-promotion rights pursuant to Section 5.3 and profit-sharing and cost-sharing
envisaged in Section 6.4 are converted to a royalty bearing license to Rx
Product in the United States pursuant to any provision of this Agreement,
minimum royalty requirements for the three (3) full calendar years starting
after two (2) full calendar years have elapsed following first commercial launch
of Rx Product in the United States shall be calculated based on [**] of a
non-binding forecast for the United States to be submitted by Janssen to
Sepracor for the immediately succeeding calendar year. The minimum royalty for
the United States shall be [**] of the non-binding forecasted volume for the
United States multiplied by the average Janssen Net Invoice Price for Rx
Products in the United States multiplied by the royalty rate in Section 2.3(d),
Section 5.3(f), Section 6.12 or Section 13.1, as appropriate.
(b) Janssen's [**] of Section 6.7(a) above shall constitute a
basis for Sepracor to [**] granted to Janssen with respect to Rx Products
pursuant to exercise of the option of Section 2.2(a) or Section 2.3(a), as
appropriate, to non-exclusive rights in each of Japan, the United Kingdom,
Germany, Italy, France and the United States, independently, as the case may be;
provided, however, that before and in lieu of such decision by Sepracor, Janssen
may [**] the minimum royalty requirement and the royalty payments actually due
for any calendar year within thirty (30) days after having received notification
from Sepracor that [**] and, failing this, Sepracor shall then have the right,
among other things, to grant additional licenses in the Field with respect to
the Rx Products and (both for itself and its Affiliates) to make, have made, use
and sell the Rx Products in such country.
(c) Minimum royalty requirements for Sepracor for the three
(3) full calendar years starting after two (2) full calendar years have elapsed
following first commercial launch of Rx Product for each of the countries of the
Rx Countries for which Janssen has not exercised the option pursuant to Section
2.2(a) shall be calculated based on [**] of the non-binding forecast submitted
by Sepracor to Janssen
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
for the immediately succeeding calendar year. The minimum royalty shall be [**]
of the non-binding forecasted volume for a relevant Rx Country multiplied by the
average Sepracor Net Invoice Price for Rx Product for the relevant Rx Country
multiplied by the royalty rate of Section 7.1(a). If Janssen fails to exercise
the option pursuant to Section 2.3(a), minimum royalty requirements for the
three (3) full calendar years starting after two (2) full calendar years have
elapsed following first commercial launch of Rx Product in the United States
shall be calculated based on [**] of a non-binding forecast for the United
States submitted by Sepracor to Janssen for the immediately succeeding calendar
year. The minimum royalty shall be [**] of the non-binding forecasted volume for
the United States multiplied by the average Sepracor Net Invoice Price for Rx
Product in the United States multiplied by the royalty rate of Section 7.1(a).
(d) Sepracor's [**] in Section 6.7(c) above shall constitute a
basis for Janssen to [**] granted to Sepracor hereunder with respect to Rx
Products to non-exclusive rights in any such country where the minimum
requirements were not reached; provided, however, that before and in lieu of
such decision by Janssen, Sepracor may [**] between the minimum royalty
requirement and the royalty payments actually due for any calendar year within
thirty (30) days after having received notification from Janssen that the [**]
and failing this, Janssen shall then have the right, among other things, to
grant additional licenses in the Field with respect to the Rx Products and (both
for itself and its Affiliates) to make, have made, use and sell the Rx Products
in such country.
6.8 Payment of Compensation to Sepracor.
(a) All payments under Sections 6.1, 6.2, 6.3, 6.4 and 6.7
above shall be made by wire transfer, to Fleet Bank of Massachusetts, 75 State
Street, Boston, Massachusetts 02109 (ABA #011000138) to Account No. 9372882375
or such other bank or account as Sepracor may from time to time designate in
writing. All such payments shall be made in Dollars.
(b) Whenever any payment hereunder shall be stated to be due
on a day which is not a Business Day, such payment shall be made on the
immediately succeeding Business Day.
(c) Payments hereunder shall be considered to be made as of
the day on which they are received in Sepracor's designated bank or account.
(d) If the Net Invoice Price of any Product or any part of
Revenue for a Payment Period is stated in a currency other than Dollars, then,
for the
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
purpose of determining the amount of royalties payable pursuant to Section 6.3
above and Sepracor's share of Operating Income which is payable pursuant to
Section 6.4 above, such Net Invoice Price or part of Revenue, as the case may
be, shall be converted into Dollars using an average exchange rate between those
two currencies during the Payment Period for which such royalties or share of
Operating Income become due pursuant to Section 6.6 above, wherein such
calculated average exchange rate is calculated as the average of the exchange
rates most recently quoted in the Wall Street Journal in New York on or before
each of the last days for (i) each month according to the Johnson & Johnson
universal calendar in the Payment Period, and (ii) the last month according to
the Johnson and Johnson universal calendar in the immediately preceding Payment
Period.. If no such exchange rates have been quoted in the Wall Street Journal
in New York at any time during the twelve (12) month period preceding the date
on which such royalties or share of Operating Income become due, then such Net
Invoice Price or part of Revenue shall be converted to Dollars at the average
exchange rate used by BankBoston during the Payment Period.
(e) All payments due to Sepracor hereunder but not paid by
Janssen on the due date thereof shall bear interest (in Dollars) at the rate
which is the lesser of: (i) [**] and (ii) the maximum lawful interest rate
permitted under applicable law. Such interest shall accrue on the balance of
unpaid amounts from time to time outstanding from the date on which portions of
such amounts become due and owing until payment thereof in full.
6.9 Books and Records; Audits.
(a) Janssen shall keep and maintain, and shall cause its
Permitted Sublicensees and assigns to keep and maintain, complete and accurate
records and books of account (including without limitation customer call reports
and other information required to confirm the accuracy of Janssen's methodology
for allocating the time of its sales staff between selling the Rx Product in the
United States and such staff's other responsibilities) in sufficient detail and
form so as to enable amounts payable under Sections 6.3 and 6.4 above to be
determined. Such records and books of account shall be maintained for a period
of no less than two (2) years following the calendar year to which they pertain.
Janssen shall permit such records and books of account to be examined by
Sepracor or Sepracor's duly appointed agent(s) no more than once each calendar
year, to the extent necessary for Sepracor to verify such amounts. Such
examination shall be during normal business hours, upon twenty (20) days' prior
written notice to Janssen, and at Sepracor's expense unless the examination
should establish that Janssen's payment of such royalties (and payment of
Sepracor's share of Operating Income, in the case of Section 6.5 above) for the
period examined were less than ninety-five percent (95%) of the
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royalties and share which should have been paid, in which case Janssen shall be
responsible for the reasonable expenses of such examination. Audits related to
Products sold as part of a bundle shall be conducted by an independent
accounting firm which shall disclose to Sepracor only whether the calculated
invoice price for such Products is consistent with the terms of this Agreement
and Janssen's normal business practices for pharmaceutical products not licensed
from a third party and the specific details concerning any discrepancies.
(b) If Janssen exercises its option described in Section 2.3
above, then Sepracor shall keep and maintain complete and accurate records and
books of account (including without limitation customer call reports and other
information required to confirm the accuracy of Sepracor's methodology for
allocating the time of its sales staff between selling the Rx Product in the
United Stated and such staff's other responsibilities) in sufficient detail and
form so as to enable the amounts of Marketing and Technology Costs incurred by
Sepracor with respect to Rx Products sold in United States to be determined.
Such records and books of account shall be maintained for a period of no less
than two (2) years following the calendar year to which they pertain. Sepracor
shall permit such records and books of account to be examined by Janssen or
Janssen's duly appointed agent(s) no more than once each calendar year, to the
extent necessary for Janssen to verify such amounts. Such examination shall be
during normal business hours, upon twenty (20) days' prior written notice to
Sepracor, and at Janssen's expense unless the examination should establish that
Sepracor's claims with respect to such Marketing and Technology Costs for the
period examined were more than one hundred five percent (105%) of the Marketing
and Technology Costs which were actually incurred for such period, in which case
Sepracor shall be responsible for the reasonable expenses of such examination.
(c) Prompt adjustment shall be made by the proper Party to
compensate for any errors or omissions disclosed by such examinations.
Information obtained during the course of such an examination shall be kept
confidential by the examining Party and its agents, except to the extent
necessary to enforce the examining Party's rights hereunder.
6.10 Reports and Invoices Conclusively Correct. All reports,
invoices and payments not disputed as to correctness by the receiving Party
within three (3) years after receipt thereof shall thereafter conclusively be
deemed correct for all purposes.
6.11 Issuance of Patents. Notwithstanding anything contained in this
Agreement to the contrary, in the event a patent is issued prior to expiration
or termination of this Agreement with respect to any part of the Technical
Information of Sepracor, such patent shall be deemed to be Sepracor Patent
Rights and the
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
royalties and other amounts payable hereunder shall not be increased on those
Products which embody or rely on such patent.
6.12 In the event Sepracor is, for whatever reason, including Force
Majeure delay or default which persists for longer than one (1) month, unable or
unwilling to comply with its obligation to fund its share of R&D Expenses or
Marketing and Technology Costs, Janssen has the option to either (A) terminate
the co-promotion activities and cost-sharing as envisaged under this Agreement
and to simultaneously switch the profit-sharing and cost sharing as defined in
Section 6.4 into a royalty bearing exclusive license in the Field to Janssen or
(B) terminate the co-promotion activities and cost-sharing as envisaged under
this Agreement and to maintain the profit-sharing as defined in Section 6.4 as
described hereunder. Such license (if Janssen chooses Option A) shall be subject
to the same terms and conditions as in Sections 6.3(c) to (g), 6.5, 6.6, 6.8,
6.9, 6.10 and 6.11. In the foregoing case the royalty on sales of Rx Products by
Janssen in the United States shall be (i) either [**] and thereafter [**] in
case foregoing termination takes place prior to NDA submission in the United
States or (ii)[**] in case the foregoing termination takes place after NDA
submission in the United States. If Janssen chooses Option B, i.e., to maintain
the profit-sharing, all amounts of R&D Expenses and/or Marketing and Technology
Costs which are or have become due (to be increased with interest in accordance
with Section 7.4(e)) from Sepracor at the time Janssen selects Option B in
accordance with this Agreement and which have been assumed by Janssen following
Janssen's choice of Option B hereunder shall be deducted from any amounts due to
Sepracor pursuant to Section 6.4 hereof.
7. COMPENSATION PAYABLE TO JANSSEN
7.1 Royalties Paid to Janssen.
(a) If Janssen does not exercise its option described in
Section 2.2 above, or if Janssen does exercise such option but has not retained
the rights granted pursuant thereto, Sepracor agrees to pay Janssen, for the
rights granted to Sepracor with respect to Rx Products pursuant to Sections
2.1(c) and (d) above, a royalty for each and every Rx Product sold by or on
behalf of Sepracor, its Affiliates or its Permitted Sublicensees or assigns
outside the United States (excluding returns). If Janssen does not exercise its
option described in Section 2.3 above, Sepracor agrees to pay Janssen, for the
rights granted to Sepracor with respect to Rx Products pursuant to Sections
2.1(e) above, a royalty for each and every Rx Product sold by or on behalf of
Sepracor, its Affiliates or its Permitted Sublicensees or assigns in the
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
United States (excluding returns). Such royalties for each Rx Product shall be
equal to [**] of the Sepracor Net Invoice Price for each such Rx Product.
(b) RESERVED.
(c) Once a royalty becomes payable on an Rx Product in
accordance with this Section 7.1, no other royalty shall ever become payable on
such Rx Product, regardless of whether and how such Rx Product may subsequently
be sold. For the purposes of this Section 7.1, a sale shall be deemed to occur
when Sepracor, its Affiliates or its Permitted Sublicensees or assigns send an
invoice to an independent third party with respect to such sale.
(d) Sepracor shall not be required to pay any royalty with
respect to any Rx Product sold to Janssen or any of its Affiliates.
(e) Each royalty described in this Section 7.1 shall be deemed
to be payable for sales in a country until the later of the following dates:
(i) if the Rx Product is covered by a Valid Claim of a
patent or patent application of the Janssen Patent Rights as listed in Exhibit
1.10(a) hereto in that country, until the date upon which such patents or patent
applications expire, are abandoned, or are declared no longer valid in any such
country;
(ii) the date which is ten (10) years after the first
commercial sale of such Rx Product by Sepracor, its Affiliates or its Permitted
Sublicensees or assigns in such country of sale;
(iii) with respect to (i) and (ii) above, thereafter the
license of the Licensed Technology shall be considered fully paid up and no
royalties shall be payable to Janssen for sales of such Rx Product in such
country of sale.
(iv) with respect to (i) and (ii) above, the royalty
shall be reduced by [**] in such country(ies) if and when a third party
introduces a generic version of Rx Product in such country(ies).
(f) If Sepracor pays a royalty on an Rx Product pursuant to
this Section 7.1 which has been or is subsequently returned to Sepracor, its
Affiliates or its Permitted Sublicensees or assigns or if Sepracor pays such a
royalty on a Product, the sale of which is subsequently cancelled, and any money
paid to Sepracor is returned to the buyer, the royalty so paid shall be deemed a
credit against royalties payable by Sepracor for subsequent Payment Periods. If
no royalties amounts are
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payable for a subsequent Payment Period pursuant to this Section 7.1, then the
remaining balance of such credits shall be refunded to Sepracor within thirty
(30) days after Janssen's receipt of Sepracor's report for such Payment Period
prepared pursuant to Section 7.2 below.
7.2 Contents of Sepracor's Reports. Sepracor shall deliver to
Janssen within thirty (30) days after the end of each Payment Period, beginning
with the Payment Period during which Janssen's option under Section 2.2 or 2.3
above lapses or Janssen otherwise waives its right to exercise either such
option, a written report describing, for the applicable Payment Period:
(a) if Janssen does not exercise its option described in
Section 2.2 above, the number and full description of each Rx Product sold by or
on behalf of Sepracor, its Affiliates and its Permitted Sublicensees and assigns
outside the United States during such Payment Period;
(b) if Janssen does not exercise its option described in
Section 2.3 above, the number and full description of each Rx Product sold by or
on behalf of Sepracor, its Affiliates and its Permitted Sublicensees and assigns
in the United States during such Payment Period;
(c) with respect to Rx Products reported pursuant to Sections
7.2(a) and/or (b) above:
(i) the Net Sales for Product being Sepracor Net
Invoice Price multiplied by the volume of Rx
Product sold;
(ii) the total royalty due on such payments under
Section 7.1 above.
7.3 Payments Accompany Sepracor's Reports. Each report for a Payment
Period required in Section 7.2 above shall be accompanied by full payment to
Janssen of the royalties payable under Section 7.1 above.
7.4 Payment of Compensation to Janssen.
(a) All payments under Section 7.1 above shall be made by wire
transfer, to Generale Bank, Leuven, Belgium (Wire #:__________) to Account No.
230- 0528530-94 or such other bank or account as Janssen may from time to time
designate in writing. All such payments shall be made in Dollars.
(b) Whenever any payment hereunder shall be stated to be due
on a day which is not a Business Day, such payment shall be made on the
immediately succeeding Business Day.
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
(c) Payments hereunder shall be considered to be made as of
the day on which they are received in Janssen's designated bank or account.
(d) If the Sepracor Net Invoice Price of any Rx Product is
stated in a currency other than Dollars, then, for the purpose of determining
the amount of royalties payable pursuant to Section 7.1 above, such Sepracor Net
Invoice Price shall be converted into Dollars using a calculated average
exchange rate between those two currencies during the Payment Period for which
such royalties become due pursuant to Section 7.3 above, wherein such calculated
average exchange rate is calculated as the average of the exchange rates most
recently quoted in the Wall Street Journal in New York on or before each of the
last days for (i) each month according to the Johnson & Johnson universal
calendar in the Payment Period, and (ii) the last month according to the Johnson
& Johnson universal calendar in the immediately preceding Payment Period. If no
such exchange rate has been quoted in the Wall Street Journal in New York at any
time during the twelve (12) month period preceding the date on which such
royalties become due, then such Net Invoice Price or part of Revenue shall be
converted to Dollars at the average exchange rate used by BankBoston during the
Payment Period.
(e) All payments due to Janssen hereunder but not paid by
Sepracor on the due date thereof shall bear interest (in Dollars) at the rate
which is the lesser of: (i) [**] and (ii) the maximum lawful interest rate
permitted under applicable law. Such interest shall accrue on the balance of
unpaid amounts from time to time outstanding from the date on which portions of
such amounts become due and owing until payment thereof in full.
7.5 Sepracor Books and Records; Audits.
(a) Sepracor shall keep and maintain, and shall cause its
Affiliates, Permitted Sublicensees and assigns to keep and maintain, complete
and accurate records and books of account in sufficient detail and form so as to
enable amounts payable under Section 7.1 above to be determined. Such records
and books of account shall be maintained for a period of no less than two (2)
years following the calendar year to which they pertain. Sepracor shall permit
such records and books of account to be examined by Janssen or Janssen's duly
appointed agent(s) no more than once each calendar year, to the extent necessary
for Janssen to verify such amounts. Such examination shall be during normal
business hours, upon twenty (20) days' prior written notice to Sepracor, and at
Janssen's expense unless the examination should establish that Sepracor's
payment of such royalties for the period examined were less than ninety-five
percent (95%) of the royalties which should have
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been paid, in which case Sepracor shall be responsible for the reasonable
expenses of such examination. Audits related to Products sold as part of a
bundle shall be conducted by an independent accounting firm which shall disclose
to Janssen only whether the calculated invoice price for such Products is
consistent with the terms of this Agreement and Sepracor's normal business
practices for pharmaceutical products not licensed from a third party and the
specific details concerning any discrepancies.
(b) Prompt adjustment shall be made by the proper Party to
compensate for any errors or omissions disclosed by such examinations.
Information obtained during the course of such an examination shall be kept
confidential by Janssen and its agents, except to the extent necessary to
enforce Janssen's rights hereunder.
7.6 Sepracor Reports and Invoices Conclusively Correct. All reports,
invoices and payments not disputed as to correctness by Janssen within three (3)
years after receipt thereof shall thereafter conclusively be deemed correct for
all purposes.
7.7 Issuance of Patents. Notwithstanding anything contained in this
Agreement to the contrary, in the event a patent is issued prior to expiration
or termination of this Agreement with respect to any part of the Technical
Information of Janssen, such patent shall be deemed to be Janssen Patent Rights
and the royalties and other amounts payable hereunder shall not be increased on
those Products which embody or rely on such patent.
8. INTELLECTUAL PROPERTY RIGHTS AND REGULATORY APPROVALS
8.1 Intellectual Property Maintenance Fees.
(a) Sepracor shall keep current all Sepracor Patent Rights and
the trademarks selected by Sepracor pursuant to Section 2.4(d), and shall pay
all maintenance fees, issue fees, taxes and expenses in connection therewith
promptly as such fees, taxes and expenses become due and payable.
(b) Janssen shall keep current all Janssen Patent Rights and
the Trademarks, subject to Section 2.4, and shall pay all maintenance fees,
issue fees, taxes and expenses in connection therewith promptly as such fees,
taxes and expenses become due and payable.
8.2 Registering Patents and Other Intellectual Property Rights.
(a) All right, title, and interest in any Technical
Information (including but not limited to inventions, whether patentable or not)
conceived by
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Sepracor prior to the termination or expiration of this Agreement shall vest in
Sepracor. Sepracor may apply, at its own expense and discretion, for appropriate
patent and other intellectual property right registrations of such invention or
rights in any and all jurisdictions.
(b) All right, title, and interest in any Technical
Information (including but not limited to inventions, whether patentable or not)
conceived by Janssen prior to the termination or expiration of this Agreement
shall vest in Janssen. Janssen may apply, at its own expense and discretion, for
appropriate patent and other intellectual property right registrations of such
invention and rights in any and all jurisdictions.
(c) If Sepracor and Janssen jointly conceive a patentable
invention all right, title, and interest therein shall vest jointly in Sepracor
and Janssen. The patent representatives of each Party shall determine jointly on
a case by case basis which Party shall have primary responsibility for making
application for appropriate patent and other intellectual property right
registrations of such invention in any and all jurisdictions, and they shall
make all decisions concerning filing, maintenance, or defense of such patents
and patent applications. Costs of drafting, filing, and maintenance of jointly
owned patents and patent applications, and defense of jointly owned intellectual
property rights, shall be borne equally. Each Party shall provide to the other
Party, as to those jointly owned applications which it is filing, copies of all
patent applications prior to filing, for the purpose of obtaining comments and
advice from the other Party's patent advisors and the other Party's approval to
so file which approval shall be provided within a reasonable time. Upon the
other Party's approval, such Party shall be free to file said patent
applications. Such Party shall also consult with the other Party on the
prosecution of said applications and provide to such Party copies of all
substantive documents relating to the prosecution of said applications. If a
first Party wishes to abandon a jointly owned patent or patent application or to
refrain from filing such patent application or defending such patent, the other
Party shall have the right to take contrary action at its own expense, whereupon
the first Party shall assign all its right, title, and interest in such patent
or application to the other Party.
(d) Each Party hereto shall, at the request of the other
Party, both during and after the term of this Agreement, execute such documents
and render such assistance as may be appropriate to enable the other Party to
maintain or obtain registrations of patents or intellectual property rights in
any jurisdiction in accordance with this Section 8.2.
(e) Any decisions regarding the choice of extensions of Patent
Rights, including but without limitation supplementary protection certificates,
where such extensions can only be obtained for either the Janssen Patent Right
or the Sepracor Patent Right, shall be the right of the Party marketing and
selling the
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Product. In the United States such decision shall be the right of Janssen if
Janssen exercises the option of Section 2.3(a) and for so long as Janssen
retains the rights granted pursuant thereto.
9. CONFIDENTIAL INFORMATION
9.1 Confidentiality Maintained. Each Party hereto has a proprietary
interest in its own Confidential Information. During and after the term of this
Agreement, all disclosures of the Confidential Information of a Party (the
"disclosing Party") to the other Party (the "receiving Party"), its agents and
employees shall be held in strict confidence by such receiving Party, which
shall disclose such Confidential Information only to those of its agents and
employees to whom it is necessary in order to properly carry out their duties as
limited by the terms and conditions hereof. During and after the term of this
Agreement, the receiving Party shall not use such Confidential Information
except for the purposes of exercising its rights and carrying out its duties
hereunder or except to the extent the licenses granted under this Agreement have
been fully paid up in accordance with Article 6 of this Agreement. This Section
9.1 shall also apply to any consultants or subcontractors during and after the
term of this Agreement, that the receiving Party may engage in connection with
its obligations under this Agreement.
9.2 Liability for Disclosure. Notwithstanding anything contained in
this Agreement to the contrary, obligations of confidentiality shall not apply
when and to the extent that Confidential Information:
(a) was in the public domain at the time it was disclosed by
the disclosing Party to the receiving Party; or
(b) was known to or contained in the records of the receiving
Party from a source other than the disclosing Party at the time of disclosure by
the disclosing Party to the receiving Party and can be so demonstrated; or
(c) is disclosed inadvertently despite the exercise of the
same degree of care which the receiving Party takes to preserve and safeguard
its own proprietary confidential information; or
(d) was independently developed by the receiving Party and is
so demonstrated promptly upon receipt of the documentation and technology by the
receiving Party; or
(e) becomes known to the receiving Party from a source other
than the disclosing Party without breach of this Agreement by the receiving
Party and can be so demonstrated; or
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(f) must be disclosed pursuant to a court order or as
otherwise required by law, order, or regulation.
10. PROTECTION OF LICENSED TECHNOLOGY; LIMITATIONS ON LIABILITY
10.1 Infringements of Licensed Technology.
(a) This subsection (a) is with respect to OTC Product.
Janssen may take and control, but is not required to take and control, at its
own expense any and all actions which are necessary to: (i) terminate
infringements of any part of the Janssen Patent Rights involving OTC Product or
misappropriations of its Confidential Information involving OTC Product; or (ii)
terminate any attempted passing-off by imitation of any OTC Product. Sepracor
shall have the right to be kept informed of the status and progress of all such
actions instituted by Janssen. Any monetary recoveries received by Janssen in
excess of expenses incurred by Janssen in such action shall be considered as an
aggregate Janssen Net Invoice Price subject to the royalty obligation of Section
6.3(a). Janssen may also take and control, but is not required to take and
control, at its own expense any and all actions which are necessary to terminate
infringements of any part of the Sepracor Patent Rights involving OTC Product.
Sepracor shall have the right to be kept informed of the status and progress of
all such actions instituted by Janssen and Janssen shall take into due
consideration recommendations made by Sepracor. Any monetary recoveries received
by Janssen in excess of expenses incurred by Janssen in such action shall be
considered as an aggregate Janssen Net Invoice Price subject to the royalty
obligation of Section 6.3(a). If Janssen does not initiate such action within
one hundred twenty (120) days of receiving notice of infringement of Sepracor
Patent Rights involving OTC Product, Sepracor may initiate and control such
action at its own expense, whereupon any monetary recoveries received by
Sepracor in excess of expenses incurred by Sepracor in such action shall be
retained and/or received by Janssen, subject to the royalty obligation of
Section 6.3(a).
(b) This subsection (b) is with respect to Rx Product in the
United States if Janssen exercises its option described in Section 2.3 above and
provided and as long as Sepracor does not exercise an option under Section
2.3(d) of this Agreement and as long as the profit-sharing pursuant to Section
6.4 is in effect. Each Party shall have the primary right to take and control at
its own expense any and all actions which are necessary to terminate
infringements of any part of its own Patent Rights involving Rx Product in the
United States or misappropriations of its own Confidential Information involving
Rx Product in the United States. Any monetary recoveries received by the
proprietor Party shall be considered as Operating Income disbursed pursuant to
Section 6.4, after deduction of the expenses incurred in any such action. If a
Party does not initiate such action within one hundred twenty (120) days of
receiving notice of infringement of its own Patent
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Rights involving Rx Product in the United States, the other Party may initiate
and control such action at its own expense, and any monetary recoveries shall be
considered as Operating Income disbursed pursuant to Section 6.4, after
deduction of the expenses incurred in an such action. Each Party shall have the
right to be kept informed of the status and progress of all such actions
instituted by the other and shall take into due consideration recommendation
made by the other Party. The Parties shall jointly take and control any and all
actions necessary to terminate or any attempted passing-off by imitation of any
Rx Product in United States, and shall bear equally all the expenses of and all
monetary recoveries in all such actions.
(c) This subsection (c) is with respect to Rx Product in those
Rx Countries where Janssen exercises the option of Section 2.2 and for so long
as Janssen retains the rights and licenses granted pursuant thereto. Janssen may
take and control, but is not required to take and control, at its own expense
any and all actions which are necessary to: (i) terminate infringements of any
part of the Janssen Patent Rights involving Rx Product or misappropriations of
its Confidential Information involving Rx Product; or (ii) terminate any
attempted passing-off by imitation of any Rx Product. Sepracor shall have the
right to be kept informed of the status and progress of all such actions
instituted by Janssen. Any monetary recoveries received by Janssen in excess of
expenses incurred by Janssen in such action shall be considered as an aggregate
Janssen Net Invoice Price subject to the royalty obligation of Section 6.3(b).
Janssen may also take and control, but is not required to take and control, at
its own expense any and all actions which are necessary to terminate
infringements of any part of the Sepracor Patent Rights involving Rx Product.
Sepracor shall have the right to be kept informed of the status and progress of
all such actions instituted by Janssen and Janssen shall take into due
consideration recommendations made by Sepracor. Any monetary recoveries received
by Janssen in excess of expenses incurred by Janssen in such action shall be
considered as an aggregate Janssen Net Invoice Price subject to the royalty
obligation of Section 6.3(b). If Janssen does not initiate such action within
one hundred twenty (120) days of receiving notice of infringement of Sepracor
Patent Rights involving Rx Product, Sepracor may initiate and control such
action at its own expense, whereupon any monetary recoveries received by
Sepracor in excess of expenses incurred by Sepracor in such action shall be
retained and/or received by Janssen, subject to the royalty obligation of
Section 6.3(b).
(d) This subsection (d) is with respect to Rx Product in the
United States if Janssen does not exercise the option of Section 2.3 and to Rx
Product in those Rx Countries where Janssen does not exercise the option of
Section 2.2 and in those Countries where Janssen exercises the relevant option
but does not retain the rights and licenses granted pursuant thereto. Sepracor
may take and control, but is not required to take and control, at its own
expense any and all actions which are necessary to: (i) terminate infringements
of any part of the Sepracor Patent Rights involving Rx Product or
misappropriations of its Confidential Information involving
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Rx Product; or (ii) terminate any attempted passing-off by imitation of any Rx
Product. Janssen shall have the right to be kept informed of the status and
progress of all such actions instituted by Sepracor. Any monetary recoveries
received by Sepracor in excess of expenses incurred by Sepracor in such action
shall be considered as an aggregate Sepracor Net Invoice Price subject to the
royalty obligation of Section 7.1(a). Sepracor may also take and control , but
is not required to take and control, at its own expense any and all actions
which are necessary to terminate infringements of any part of the Janssen Patent
Rights involving Rx Product. Janssen shall have the right to be kept informed of
the status and progress of all such actions instituted by Sepracor and Sepracor
shall take into due consideration recommendations made by Janssen. Any monetary
recoveries received by Sepracor in excess of expenses incurred by Sepracor in
such action shall be considered as an aggregate Sepracor Net Invoice Price
subject to the royalty obligation of Section 7.1(a). If Sepracor does not
initiate such action within one hundred twenty (120) days of receiving notice of
infringement of Janssen Patent Rights involving Rx Product, Janssen may initiate
and control such action at its own expense, whereupon any monetary recoveries
received by Janssen in excess of expenses incurred by Janssen in such action
shall be retained and/or received by Sepracor, subject to the royalty obligation
pursuant to Section 7.1(a).
(e) Each Party agrees to keep watch to detect any actual or
suspected unauthorized use of any part of the Licensed Technology, any
misappropriation of any part of the Confidential Information, and any attempted
passing-off by imitation of any Product, and shall notify the other Party of any
such actual or suspected unauthorized use and any such attempted passing-off
within thirty (30) days after receiving knowledge of the actual or suspected
unauthorized use or the attempted passing-off.
10.2 Intellectual Property Infringements.
(a) Sepracor represents and warrants that it has not
previously granted, and will not grant to any third party during the term of
this Agreement, any rights, licenses or options with respect to the Compound,
the Products, the Sepracor Patent Rights or Sepracor's Confidential Information
that are inconsistent with the rights, licenses and options granted to Janssen
herein.
(b) Janssen represents and warrants that it has not previously
granted, and will not grant to any third party during the term of this
Agreement, any rights, licenses or options with respect to the Compound, the
Products, the Janssen Patent Rights, the Trademarks or Janssen's Confidential
Information that are inconsistent with the rights and licenses granted to
Sepracor herein.
(c) In the event of any claim or suit against either Party or
one of its Permitted Sublicensees or assigns for infringement of any
intellectual property
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
right of any third party as the result of the manufacture, use or sale of the
Compound or the Products by a Party hereto or one of its Permitted Sublicensees
or assigns, the Parties shall cooperate in good faith in determining how to
respond to such claim or suit. NEITHER PARTY SHALL HAVE ANY OBLIGATION TO
INDEMNIFY OR HOLD HARMLESS THE OTHER PARTY OR ITS PERMITTED SUBLICENSEES OR
ASSIGNS WITH RESPECT TO ANY SUCH CLAIM OR SUIT.
10.3 Product Liability Indemnity with Respect to Rx Products in
United States. If Janssen exercises the option described in Section 2.3 above,
the Parties shall divide equally between them any adverse monetary judgement
awarded against either one of them or any of their Permitted Sublicensees and
assigns with respect to any loss, cost, liability or expense (including court
costs and reasonable fees of attorneys and other professionals) incurred from a
claim or settlement arising or alleged to arise out of the use, distribution or
sale of any Rx Product in United States. To the extent that either Party is
required to pay to a third party more than [**] of any such judgment, the
other Party shall reimburse such Party for the amount which it paid over [**] of
such amount. If Janssen does not exercise the option described in Section 2.3
above, it shall be Sepracor's sole responsibility to defend and indemnify
against any loss, cost, liability or expense (including court costs and
reasonable fees of attorneys and other professionals) incurred from a claim
arising or alleged to arise out of the use, distribution or sale of any Rx
Product in the United States, excluding Janssen from any liability and
obligation to defend or indemnify Sepracor, its Affiliates, employees,
directors, officers, Permitted Sublicensees, agents or distributors.
10.4 Product Liability Indemnity with Respect to OTC Products and Rx
Products Outside United States.
(a) Janssen shall defend and indemnify against, and hold
Sepracor and its Affiliates, employees, directors, officers and agents harmless
from, any loss, cost, liability or expense (including court costs and reasonable
fees of attorneys and other professionals) incurred from a claim arising or
alleged to arise out of the use, distribution or sale by Janssen, its Affiliates
and its Permitted Sublicensees and assigns of any OTC Product anywhere in the
world and, if and to the extent Janssen exercises the option described in
Section 2.2 above, any Rx Product outside of United States; provided, however,
that: (i) Sepracor shall provide notice promptly to Janssen of any such actual
or threatened claim of which Sepracor becomes aware and reasonable cooperation,
information, and assistance in connection therewith; (ii) Janssen shall have
sole control and authority with respect to the defense, settlement, or
compromise thereof; and (iii) this Section 10.4(a) shall not
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apply to: (A) claims of infringement of a third party's intellectual property
rights; and (B) claims caused directly or indirectly by Sepracor's negligence or
willful misconduct.
(b) Sepracor shall defend and indemnify against, and hold
Janssen and its Affiliates, employees, directors, officers and agents harmless
from, any loss, cost, liability or expense (including court costs and reasonable
fees of attorneys and other professionals) incurred from a claim arising or
alleged to arise directly or indirectly out of Sepracor's negligence or willful
misconduct; provided, however, that (A) Janssen shall provide notice promptly to
Sepracor of any such actual or threatened claim of which Janssen becomes aware
and reasonable cooperation, information, and assistance in connection therewith;
and (B) Sepracor shall have sole control and authority with respect to the
defense, settlement, or compromise thereof, provided Janssen is no longer a
defendant in such claim.
(c) In the event a claim is based partially on an indemnified
claim described in Section 10.4(a) or (b) above and partially on a
non-indemnified claim, or in the event a claim is based partially on an
indemnified claim described in Section 10.4(a) above and partially on an
indemnified claim described in Section 10.4(b) above, any payments and
reasonable attorney fees incurred in connection with such claims are to be
apportioned between the Parties in accordance with the degree of cause
attributable to each Party.
(d) If and to the extent Janssen does not exercise the option
described in Section 2.3 above, it shall be Sepracor's sole responsibility to
defend and indemnify against any loss, cost, liability or expense (including
court costs and reasonable fees of attorneys and other professionals) incurred
from a claim arising or alleged to arise out of the use, distribution or sale of
any Rx Product in the United States, excluding Janssen from any liability and
obligation to defend or indemnify Sepracor, its Affiliates, employees,
directors, officers, Permitted Sublicensees, agents or distributors
10.5 Use of Name in Suit. Where, in the reasonable judgement of
Sepracor or Janssen it is necessary to use the other Party's name to prosecute
or defend an action pursuant to this Article 10, Sepracor and Janssen agree to
allow the other Party to so use its name; provided, however, that the other
Party agrees to hold Sepracor or Janssen, as the case may be, harmless against
any award of court costs or damages resulting solely from the use of Sepracor's
or Janssen's name by such other Party in such action.
10.6 Limitations on Liability. IN NO EVENT SHALL EITHER PARTY BE
LIABLE TO THE OTHER PARTY FOR SPECIAL, INCIDENTAL, CONSEQUENTIAL OR EXEMPLARY
DAMAGES (INCLUDING, BUT NOT LIMITED TO, LOSS OF PROFITS OR LOSS OF USE DAMAGES)
ARISING OUT OF THE
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MANUFACTURE, SALE OR SUPPLYING OF THE COMPOUND OR THE PRODUCTS, EVEN IF SUCH
PARTY HAD BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES OR LOSSES.
11. REPRESENTATIONS, WARRANTIES AND COVENANTS
Each of Sepracor and Janssen hereby represents, warrants and
covenants to the other as follows:
11.1 Right, Power and Authority. It has full right, power and
authority to enter into this Agreement and there is nothing which would prevent
it from performing its obligations under the terms and conditions imposed on it
by this Agreement.
11.2 Binding Obligation. This Agreement has been duly authorized by
all necessary corporate and stockholder action of Sepracor and Janssen,
respectively, and constitutes a valid and binding obligation on Sepracor and
Janssen, respectively, enforceable in accordance with the terms hereof.
11.3 Corporate Good-Standing. Sepracor and Janssen represents and
warrants that it is a corporation, duly organized and validly existing and in
good standing under the laws of Delaware and Belgium, respectively, and is duly
qualified and authorized to do business wherever the nature of its activities or
properties requires such qualification or authorization.
11.4 No Government Approvals Needed. Except as otherwise provided
herein, no registration with or approval of any government agency or commission
of any jurisdiction is necessary for the execution, delivery or performance by
it of any of the terms of this Agreement, or for the validity and enforceability
hereof or with respect to its obligations hereunder.
11.5 No Provisions Contravened. There is no provision in its
articles of incorporation, By-Laws or equivalent governing documents, and no
provision in any existing mortgage, indenture, contract or agreement binding on
it which would be contravened by the execution, delivery or performance by it of
this Agreement.
11.6 No Consent of Third Parties Needed. Except as provided in
Exhibit 11.6 hereto, no consent of any trustee or holder of any of its
indebtedness or any other third party is or shall be required as a condition to
the validity of this Agreement.
11.7 No Proceedings Pending. There is no action or proceeding
pending or in so far as it knows or ought to know threatened against it before
any
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court, administrative agency or other tribunal which might have a material
adverse effect on its business or condition, financial or otherwise, or its
operation of any business. It knows of no claim by any third party of
infringement by the Licensed Technology on such third party's patent, trademark,
copyright, trade secret or other intellectual property rights.
11.8 Not Contravene Any Law. Neither its execution nor its delivery
of this Agreement, nor its fulfillment of or compliance with the terms and
provisions hereof, shall contravene any provision of the laws of any
jurisdiction, including, without limitation, any statute, rule, regulation,
judgment, decree, order, franchise or permit applicable to it.
11.9 NEITHER PARTY MAKES ANY EXPRESS OR IMPLIED WARRANTY, STATUTORY
OR OTHERWISE, CONCERNING THE LICENSED TECHNOLOGY OR ANY CONFIDENTIAL INFORMATION
COMMUNICATED TO THE OTHER PARTY HERETO, INCLUDING WITHOUT LIMITATION ANY
WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, ANY WARRANTY AS TO QUALITY OR THE
USEFULNESS OF THE LICENSED TECHNOLOGY FOR ITS INTENDED PURPOSE OR ANY WARRANTY
OF NON-INFRINGEMENT.
12. TERMINATION OR EXPIRATION
12.1 Term of Agreement. Unless it is terminated earlier pursuant to
this Article 12, this Agreement shall continue in full force and effect for the
commercial life of Product or until it is terminated by mutual agreement of the
Parties. The term of this Agreement shall be from the Effective Date to the date
of termination or expiration of this Agreement, as the case may be.
12.2 Termination for Cause. This Agreement may be terminated by
either Party (the "Terminating Party") by giving written notice of termination
to the other Party, such termination being immediately effective upon the giving
of such notice of termination, after the occurrence of any of the following
events:
(a) a material breach or default as to any obligation
hereunder by the other Party and the failure of the other Party to promptly
pursue (within thirty (30) days after receiving written notice thereof from the
terminating Party) a reasonable remedy designed to cure (in the reasonable
judgement of the terminating Party) such material breach or default; or
(b) the filing of a petition in bankruptcy, insolvency or
reorganization against or by the other Party, or the other Party becoming
subject to a composition for creditors, whether by law or agreement, or the
other Party going into receivership or otherwise becoming insolvent.
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12.3 Termination by Janssen Without Cause. This Agreement may be
terminated by Janssen at any time without cause by giving written notice of
termination to Sepracor, such termination becoming effective ninety (90) days
after the giving of such notice. Upon such termination all rights and licenses
granted to Janssen hereunder shall be immediately revoked, and Janssen shall
have no right to any continued use of Sepracor Patent Rights or Technical
Information of Sepracor.
12.4 After Termination.
(a) In the event that this Agreement is terminated by Janssen
in accordance with Section 12.2(a) above based on a material breach or default
by Sepracor, then all rights and licenses granted to Sepracor under this
Agreement shall cease, effective immediately upon such termination. Sepracor and
Janssen agree that all rights and licenses granted under this Agreement by
Sepracor to Janssen shall become exclusive even as to Sepracor, its Affiliates
and Permitted Sublicensees, and all licenses granted under this Agreement by
Sepracor to Janssen shall become royalty-free, perpetual licenses in the Field.
If this Agreement is rejected by a trustee (including without limitation by
Sepracor as debtor in possession) in a bankruptcy proceeding with respect to
Sepracor, then Sepracor and Janssen agree that Janssen, as a licensee of the
rights granted under this Agreement, shall retain and may fully exercise all of
its rights and elections under the relevant bankruptcy code. Sepracor agrees
during the term of this Agreement to maintain and create current copies or, if
not amenable to copying, detailed descriptions or other appropriate embodiments
of the Licensed Technology hereunder. If a case is commenced by or against
Sepracor under the relevant bankruptcy code, then, unless and until this
Agreement is rejected as provided in the relevant bankruptcy code, Sepracor (in
any capacity, including debtor-in-possession) and its successors and assigns
(including, without limitation, a bankruptcy trustee) shall either perform all
of the obligations provided in this Agreement to be performed by Sepracor or
provide to Janssen all Licensed Technology (including all embodiments thereof)
held by Sepracor and such successors and assigns, as Janssen may elect in a
written request, immediately upon such request. If a bankruptcy case is
commenced by or against Sepracor, this Agreement is rejected as provided in the
relevant bankruptcy code and Janssen elects to retain the rights hereunder as
provided in the relevant bankruptcy code, then Sepracor (in any capacity,
including debtor-in-possession) and its successors and assigns (including
without limitation, a bankruptcy trustee) shall provide to Janssen all Licensed
Technology (including all embodiments thereof) held by Sepracor and such
successors and assigns immediately upon Janssen's written request therefor. All
rights, powers and remedies of Janssen provided herein are in addition to and
not in substitution for any and all other rights, powers and remedies now or
hereafter existing at law or in equity (including, without limitation, the
relevant bankruptcy code) in the event of commencement of a bankruptcy case by
or against Sepracor. Janssen, in addition to the rights, powers and remedies
expressly provided herein,
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shall be entitled to exercise all other such rights and powers and resort to all
other such remedies as may now or hereafter exist at law or in equity (including
the relevant bankruptcy code) in such event.
(b) In the event that this Agreement is terminated by Sepracor
in accordance with Section 12.2(a) above based on a material breach or default
by Janssen, then all rights and licenses granted to Janssen under this Agreement
shall cease, effective immediately upon such termination. Sepracor and Janssen
agree that all rights and licenses granted under this Agreement by Janssen to
Sepracor shall become exclusive even as to Janssen, its Affiliates and Permitted
Sublicensees, and all licenses granted under this Agreement by Janssen to
Sepracor shall become royalty-free, perpetual licenses in the Field. If this
Agreement is rejected by a trustee (including without limitation by Janssen as
debtor in possession) in a bankruptcy proceeding with respect to Janssen, then
Sepracor and Janssen agree that Sepracor, as a licensee of the rights granted
under this Agreement, shall retain and may fully exercise all of its rights and
elections under the relevant bankruptcy code. Janssen agrees during the term of
this Agreement to maintain and create current copies or, if not amenable to
copying, detailed descriptions or other appropriate embodiments of the Licensed
Technology hereunder. To the extent consistent with Belgium's bankruptcy code,
if a case is commenced by or against Janssen under the relevant bankruptcy code,
then, unless and until this Agreement is rejected as provided in the relevant
bankruptcy code, Janssen (in any capacity, including debtor-in-possession) and
its successors and assigns (including, without limitation, a bankruptcy trustee)
shall either perform all of the obligations provided in this Agreement to be
performed by Janssen or provide to Sepracor all Licensed Technology (including
all embodiments thereof) held by Janssen and such successors and assigns, as
Sepracor may elect in a written request, immediately upon such request. All
rights, powers and remedies of Sepracor provided herein are in addition to and
not in substitution for any and all other rights, powers and remedies now or
hereafter existing at law or in equity (including, without limitation, the
relevant bankruptcy code) in the event of commencement of a bankruptcy case by
or against Janssen. Sepracor, in addition to the rights, powers and remedies
expressly provided herein, shall be entitled to exercise all other such rights
and powers and resort to all other such remedies as may now or hereafter exist
at law (including the relevant bankruptcy code) in such event.
(c) The Parties hereto agree that, once this Agreement is
terminated in accordance with Section 12 .2(a) or expires in accordance with
Section 12.1, each Party (or, in the case of termination under Section 12.2(a),
the breaching Party) shall, at its own expense, return to the disclosing Party
all of its Confidential Information as soon as practicable after the date of
such termination or expiration, including, but not limited to, original
documents, drawings, computer diskettes, models, samples, notes, reports,
notebooks, letters, manuals, prints, memoranda and any copies thereof, which
have been received or derived by the receiving Party. All
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Confidential Information of the disclosing Party shall remain the exclusive
property of the disclosing Party during the term of this Agreement and
thereafter.
(d) The termination of this Agreement by Janssen in accordance
with Section 12.3 shall terminate any and all obligations of Janssen and
Sepracor under this Agreement and Janssen shall be deemed as having failed to
exercise its options under Sections 2.2(a) and 2.3(a). Such termination shall
have no effect on Sepracor's rights and licenses pursuant to Sections 2.1, 2.6,
and 4.6, and the provisions of Article 7 shall remain in effect.
12.5 Payment Obligations Continue. Upon termination or expiration of
this Agreement, nothing shall be construed to release either Party from its
obligations to pay the other Party any and all fees, royalties or other amounts
accrued or irrevocably obligated but unpaid hereunder prior to the date of such
termination or expiration.
12.6 No Damages for Termination. The Parties hereto agree that if
either Party terminates the other Party pursuant to this Article 12, then the
terminating Party shall not be liable for damages or injuries suffered by the
other Party as a result of that termination.
13. MISCELLANEOUS
13.1 Assignments and Change of Control. For the purposes of this
Section 13.1, "Control" shall mean the holding and/or possession of a beneficial
interest in and/or the ability to exercise the voting rights applicable to
shares, stocks, or other securities of a Party (whether directly or by means of
holding such interests in one or more legal entities) which confer in aggregate
on the holders thereof (i) in the case of an industrial corporate holder, 35% or
more, or (ii) in the case of a non-industrial holder, more than 50%, of the
total voting rights exercisable at general meetings of that Party or with
respect to all or substantially all matters affecting that Party.
(a) Except as provided in Section 2.6 above, this Agreement
and any and all of the rights and obligations of either Party hereunder shall
not be assigned, delegated, sublicensed, sold, transferred or otherwise disposed
of, by operation of law or otherwise, without the prior written consent of the
other Party; provided, however, that either Party may assign, delegate,
sublicense, sell, transfer or otherwise dispose of (collectively "transfer")
rights and obligations hereunder without such prior written consent to: (i) any
of its respective Affiliates; or (ii) a third party which acquires Control of or
all or substantially all of the assets or stock of such Party through purchase,
merger, consolidation or otherwise, provided, however, if Janssen exercises the
option of Section 2.3(a) and the profit-sharing and cost-sharing
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
provisions of this Agreement have not been converted to a royalty-bearing
license by action of any provision in this Agreement, the rights and licenses
for Rx Product in the United States shall be subject to and limited by the
provisions of Sections 13.1(b) and 13.1(c). This Agreement shall be binding
upon, and inure to the benefit of, Sepracor and Janssen and their respective
Permitted Successors and assigns, to the extent such assignments are in
accordance with this Section 13.1(a).
(b) With respect to the rights and licenses for Rx Product in
the United States, in the event that Janssen exercises the option of Section
2.3(a) and the profit-sharing and cost-sharing provisions of this Agreement have
not been converted to a royalty-bearing license by action of any provision in
this Agreement, and either (1) a third party not listed in Exhibit 13.1(b)
acquires Control of or all or substantially all of the assets or stock of
Sepracor through purchase, merger, consolidation or otherwise, or (2) a third
party listed in Exhibit 13.1(b) acquires Control of all or substantially all of
the assets or stock of Sepracor through purchase, merger, consolidation or
otherwise, and subsequently Control of such third party is acquired by a third
party not listed in Exhibit 13.1(b), then Janssen shall elect, in its sole
discretion,
(i) to continue the co-promotion rights pursuant to
Section 5.3 and the profit-sharing and cost-sharing envisaged in Section 6.4
under the terms and conditions of this Agreement, provided, however, that
Janssen must obtain the acquirer's written approval, and if such approval is
withheld, the provisions of Section 13.1(b)(iii) shall apply; or
(ii) to terminate the co-promotion rights pursuant to
Section 5.3 and maintain the profit-sharing and cost-sharing pursuant to Section
6.4 under the terms and conditions of this Agreement, provided, however, that
Janssen must obtain the acquirer's written approval, and if such approval is
withheld, the provisions of Section 13.1(b)(iii) shall apply; or
(iii) to convert the co-promotion rights pursuant to
Section 5.3 and the profit-sharing envisaged in Section 6.4 into a royalty
bearing exclusive license to the Rx Products in the United States, subject to
paying Sepracor or its successor a royalty or other amount for Rx Product sold
by or on behalf of Janssen, its Affiliates or its Permitted Sublicensees or
assigns (excluding returns) in the United States, which:
(A) if the third party acquires Control of or all
or substantially all of the assets or stock of Sepracor prior to submission of
the NDA for Rx Product in the United States, the royalty shall be [**] and
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
thereafter [**] of the Janssen Net Invoice Price for each Rx Product sold by or
on behalf of Janssen, its Affiliates or its Permitted Sublicensees or assigns,
provided, however, that the acquirer may elect to continue the joint funding of
R & D Expenses pursuant to Section 6.2 until NDA submission thereby raising the
royalty to [**]; and
(B) if the third party acquires Control of or all
or substantially all of the assets or stock of Sepracor after submission of the
NDA for Rx Product in the United States, then (1) if Sepracor has paid or is
obligated to pay [**] in Marketing and Technology Costs at the time of closing
of the acquisition, the royalty shall be [**] of the Janssen Net Invoice Price
for each Rx Product sold by or on behalf of Janssen, its Affiliates or its
Permitted Sublicensees or assigns, or (2) if Sepracor has paid or is obligated
to pay [**] or more in Marketing and Technology Costs at the time of closing of
the acquisition, then the royalty shall be [**] of the Janssen Net Invoice Price
for each Rx Product sold by or on behalf of Janssen, its Affiliates or its
Permitted Sublicensees or assigns.
Should the provisions of Section 13.1(b)(iii)apply, all such royalties shall be
reported, paid and audited in accordance with Sections 6.3, 6.5, 6.6, 6.8, 6.9
and 6.10 above. If the provisions of Section 13.1(b)(ii) apply, audits under
Section 6.9 shall be conducted by an independent accounting firm and Janssen may
designate competitively sensitive information, which the accounting firm may not
disclose to the acquirer, but such designation shall not encompass the
accounting firm's conclusions, and the accounting firm shall disclose to the
acquirer only whether the royalty reports are correct or incorrect and the
specific details concerning any discrepancies.
(c) In the event that Janssen exercises the option of Section
2.3(a) and the profit-sharing and cost-sharing provisions of this Agreement have
not been converted to a royalty-bearing license by action of any provision in
this Agreement, and a third party listed in Exhibit 13.1(b) acquires Control of
or all or substantially all of the assets or stock of Sepracor through purchase,
merger, consolidation or otherwise, then with respect to the rights and licenses
for Rx Product in the United States
(i) if the acquirer or any of its Affiliates do not
market a competing product in the United States or have a competing product in
development for the United States market, the acquirer shall decide to either:
(A) continue the co-promotion described in Section
5.3 and the profit-sharing and cost-sharing envisaged under Section 6.4 under
the terms and conditions of this Agreement; or
-58-
<PAGE> 59
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
(B) terminate the co-promotion described in
Section 5.3 and the profit-sharing and cost-sharing envisaged under Section 6.4
and convert such into a royalty bearing exclusive license to Rx Products in the
United States having a royalty equal to (1) if the third party acquires Control
of or all or substantially all of the assets or stock of Sepracor prior to
submission of the NDA for Rx Product in the United States,[**] and thereafter
[**] of the Janssen Net Invoice Price for each Rx Product sold by or on behalf
of Janssen, its Affiliates, or Permitted Sublicensees or assigns, or (2) if the
third party acquires Control of or all or substantially all of the assets or
stock of Sepracor after submission of the NDA for Rx Product in the United
States,[**] of Janssen Net Invoice Price for each Rx Product sold by or on
behalf of Janssen, its Affiliates or its Permitted Sublicensee or assigns.
(ii) if the acquirer or any of its Affiliates markets a
competing product in the United States or has a competing product in development
for the United States market, or subsequently develops or acquires a competing
product for the United States market, the acquirer shall decide to either:
(A) divest the competing product to an independent
third party, or discontinue marketing or development of such competing product,
within six (6) months after the closing of the acquisition or within six (6)
months of the subsequent development or acquisition of the competing product, as
appropriate, in which case, the acquirer may make an election as set forth in
Section 13.1(c)(i) above; or
(B) continue marketing or developing of the
competing product for the United States market, in which case, Janssen may make
an election as set forth in Sections 13.1(b)(i), 13.1(b)(ii), or
13.1(b)(iii)(A);
(iii) for the purposes of this Section 13.1(c), a
"competing product" means any pharmaceutical product which has been approved in
the United States or is actively promoted in the United States or as
appropriate, in development, for one or both of allergic rhinitis or chronic
urticaria.
(d) If the provisions of Sections 13.1(b)(i), 13.1(b)(ii),
13.1(b)(iii), 13.1(c)(i)(A) or 13.1(c)(i)(B) apply, the JMC of Section 5.2 and
the JR&DC of Section 4.2(a) shall cease to exist and Janssen alone shall assume
total control of marketing and R&D of Rx Product in the United States, as
appropriate.
13.2 Governing Law. This Agreement shall be governed, interpreted
and construed in accordance with the laws of the Commonwealth of Massachusetts,
applicable to agreements made and to be fully performed therein.
-59-
<PAGE> 60
13.3 Dispute Resolution.
(a) Any dispute, controversy or claim arising out of or
relating to this Agreement, or to a breach thereof, including its
interpretation, performance or termination, shall be submitted to and finally
resolved by arbitration. The arbitration shall be conducted in accordance with
the commercial rules of the American Arbitration Association (AAA), which shall
administer the arbitration and act as appointing authority. The arbitration,
including the rendering of the award, shall take place in Beerse, Belgium if
initiated by Sepracor or in Marlborough, Massachusetts if initiated by Janssen,
and shall be the exclusive forum for resolving such dispute, controversy or
claim. For the purposes of this arbitration, the provisions of this Agreement
and all rights and obligations hereunder shall be governed and construed in
accordance with the laws of the Commonwealth of Massachusetts, applicable to
agreements made and to be fully performed therein. The decision of the
arbitrators shall be executory, final and binding upon the parties hereto, and
the expense of the arbitration (including without limitation the award of
attorneys' fees to the prevailing Party) shall be paid as the arbitrators
determine.
(b) The arbitration shall be conducted by three (3)
arbitrators, one (1) to be appointed by Sepracor, one (1) to be appointed by
Janssen and the remaining arbitrator being nominated by the arbitrators so
selected or, if they cannot agree on the remaining arbitrator, by the President
of the AAA.
(c) Notwithstanding anything contained in this Section 13.3 to
the contrary, each Party shall have the right to institute judicial proceedings
against the other Party or anyone acting by, through or under such other Party
as necessary to prevent imminent and irreparable harm to its interests.
13.4 Waiver. A waiver of any breach of any provision of this
Agreement shall not be construed as a continuing waiver of other breaches of the
same or other provisions of this Agreement.
13.5 No Other Relationship. Nothing herein contained shall be deemed
to create a joint venture, agency or partnership relationship between the
Parties hereto. Neither Party shall have any power to enter into any contracts
or commitments in the name of, or on behalf of, the other Party, or to bind the
other Party in any respect whatsoever.
13.6 Notices.
(a) Each notice required or permitted to be sent under this
Agreement shall be given by telecopy transmission or by registered or recorded
-60-
<PAGE> 61
delivery letter to Sepracor and to Janssen at the addresses and telecopy numbers
indicated below.
For Sepracor:
111 Locke Drive
Suite 2
Marlborough, Massachusetts 01752-7231
Attention: President, Pharmaceuticals
Telecopy: 508-357-7492
For Janssen:
Turnhoutseweg 30
B-2340 Beerse, Belgium
Attention: Managing Director
Telecopy: 011 3214 60 3999
Either Party may change its address and/or telecopy number for purposes of this
Agreement by giving the other Party written notice of its new address and/or
telecopy number.
(b) Any properly addressed notice if given or made by
registered or recorded delivery letter shall be deemed to have been received on
the earlier of the date actually received and the date ten (10) Business Days
after the same was posted (and in proving such it shall be sufficient to prove
that the envelope containing the same was properly addressed and posted as
aforesaid) and if given or made by telecopy transmission shall be deemed to have
been received at the time of dispatch, unless such date of deemed receipt is not
a Business Day, in which case the date of deemed receipt shall be the next
succeeding Business Day.
13.7 Entire Understanding. This Agreement embodies the entire
understanding between the Parties relating to the subject matter hereof, whether
written or oral, and there are no prior representations, warranties or
agreements between the Parties not contained in this Agreement.
13.8 Invalidity. If any provision of this Agreement is declared
invalid or unenforceable by arbitration or a court having competent
jurisdiction, it is mutually agreed that this Agreement shall endure except for
the part declared invalid or unenforceable by order of such court. The Parties
shall consult and use their best efforts to agree upon a valid and enforceable
provision which shall be a reasonable substitute for such invalid or
unenforceable provision in light of the intent of this
-61-
<PAGE> 62
Agreement, and if the Parties cannot agree, the provision in question shall be
severed from this Agreement and the Agreement shall endure except for the
provision severed.
13.9 Amendments. Any amendment or modification of any provision of
this Agreement must be in writing, dated and signed by both Parties hereto.
13.10 RESERVED.
13.11 Responsibility for Taxes.
(a) Janssen shall be responsible for payment of taxes arising
out of or related to Product sales made by Janssen and for submission of proper
documentation with respect thereto to the tax authorities. Janssen shall
indemnify and hold Sepracor harmless from and against any and all claims and
losses (including but not limited to attorney fees) arising out of Janssen's
failure or delay in paying such taxes or submitting such documentation. No
interest or penalties associated with such failure or delay shall be included in
Marketing and Technology Expenses. Sepracor shall be responsible for payment of
taxes arising out of or related to Product sales made or profit shared by
Sepracor and for submission of proper documentation with respect thereto to the
tax authorities. Sepracor shall indemnify and hold Janssen harmless from and
against any and all claims and losses (including but not limited to attorney
fees) arising out of Sepracor's failure or delay in paying such taxes or
submitting such documentation. No interest or penalties associated with such
failure or delay shall be included in Marketing and Technology Expenses.
(b) Any tax required to be withheld by Janssen under the laws
of Belgium for the account of Sepracor in respect of payments to be made by
Janssen to Sepracor shall be promptly paid by Janssen for and on behalf of
Sepracor to the appropriate tax authorities and Janssen shall furnish Sepracor
with proof of payment of such tax together with receipts or other evidence of
payment sufficient to enable Sepracor to support a claim for income tax credit
in respect of any sum so withheld. Any such tax required to be withheld shall be
borne solely by Sepracor.
(c) Any tax required to be withheld by Sepracor for the
account of Janssen in respect of payments to be made by Sepracor to Janssen
shall be promptly paid by Sepracor for and on behalf of Janssen to the
appropriate tax authorities and Sepracor shall furnish Janssen with proof of
payment of such tax together with receipts or other evidence of payment
sufficient to enable Janssen to support a claim for income tax credit in respect
of any sum so withheld. Any such tax required to be withheld shall be borne
solely by Janssen.
-62-
<PAGE> 63
13.12 Scientific Publications. If Janssen exercises the option of
Section 2.3(a) or if Janssen exercises the option granted in Section 2.2(a) in
Japan or all of the United Kingdom, Italy, France and Germany, each Party shall
submit to the other any proposed publication containing Confidential Information
at least thirty (30) days in advance to allow the other Party to review the
publication and make any objections. If the reviewing Party makes any objections
to the publication, then the Parties shall discuss the advantages and
disadvantages of the proposed publication. If the Parties are unable to agree,
the research management of each of the Parties shall discuss with the President
of Janssen Research having the final say.
13.13 Force Majeure.
(a) Neither Sepracor nor Janssen shall be liable in damages,
or shall be subject to termination of this Agreement by the other Party, for any
delay or default in performing any obligation hereunder (other than payment
obligations) if that delay or default is due to any cause beyond the reasonable
control and without fault or negligence of such Party; provided, however, that:
(i) in order to excuse its delay or default hereunder, a Party shall notify the
other Party of the occurrence or the cause, specifying the nature and
particulars thereof and the expected duration thereof; and (ii) within ten (10)
Business Days after the termination of such occurrence or cause, such Party
shall give notice to the other Party specifying the date of termination thereof.
All obligations of both Parties shall return to being in full force and effect
upon the termination of such occurrence or cause. The Parties also agree that if
either Party is prevented from performing its obligation hereunder for a period
of more than six (6) months, then the other Party shall have the right to
terminate this Agreement, effectively immediately.
(b) For the purposes of this Section 13.13, a "cause beyond
the reasonable control" of a Party shall include, without limitation, any act of
God, act of any government or other authority or statutory undertaking,
industrial dispute, fire, explosion, accident, power failure, flood, riot or war
(declared or undeclared).
13.14 Public Announcements. If either Party desires to, or is
required by law to, make a public announcement concerning this Agreement or the
subject matter hereof, such Party shall provide the proposed text of such
announcement to the other Party for review and written approval prior to release
of such announcement.
13.15 Compliance With Laws. Each Party covenants and agrees that all
of its activities under or pursuant to this Agreement shall comply with all
applicable laws, rules and regulations.
-63-
<PAGE> 64
13.16 Headings. Any headings contained herein are for directory
purposes only, do not constitute a part of this Agreement, and shall not be
employed in interpreting this Agreement.
13.17 Counterparts. This Agreement may be executed in any number of
counterparts and each such counterpart shall be deemed to be an original.
13.18 Exhibits. All exhibits referred to in this Agreement are
attached hereto and incorporated herein by this reference.
IN WITNESS WHEREOF, the Parties hereto have signed this Agreement under
seal.
SEPRACOR INC. JANSSEN PHARMACEUTICA N.V.
By: /s/David P. Southwell By: /s/Staf VanReet
---------------------------- ----------------------------------------
David P. Southwell Name:
Executive Vice President and Managing Director
Chief Financial Officer
-64-
<PAGE> 65
EXHIBIT 1.10(a) Janssen Patents and Patent Applications
EXHIBIT 1.21 J&J Universal Calendar
EXHIBIT 1.22 Pre-Option Clinical Testing
EXHIBIT 1.26 R&D Plan
EXHIBIT 1.31 Sepracor Patents and Patent Applications
EXHIBIT 1.33 Trademarks, Trade Names, Service
Marks and Other Commercial Symbols
EXHIBIT 2.5(a) Quality Control Standards
EXHIBIT 3.1(e) Sepracor's Cost in Manufacturing
EXHIBIT 3.4(a) Specifications with Respect to the
Compound and the Product
EXHIBIT 4.2(d) Pre-Option Clinical Testing Parameters
EXHIBIT 11.6 Fleet Bank Letter
EXHIBIT 13.1(b) List of Third Parties
-65-
<PAGE> 66
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
EXHIBIT 1.10(a)
Docket No. JAB 286
<TABLE>
<CAPTION>
Country Type Application Filing Date Patent Grant Date Expiry Date Status
Number Number
<S> <C> <C> <C> <C> <C> <C> <C>
Algeria
Austria DIV
Austria MAIN
Bahrain REG
Belarus REG
Belgium EPO
Canada
Cyprus (Greek) REG
Democratic Rep. of Congo
Denmark MAIN
Denmark DIV
EPO
Finland
France EPO
Germany EPO
Great Britain EPO
Hong Kong REG
Hungary
Ireland
Israel
Italy EPO
Japan MAIN
Japan DIV
Kenya REG
Latvia REG [**]
Luxemburg EPO
Malaysia REG
Morocco
Netherlands EPO
New Zealand
Nigeria
Norway MAIN
Norway DIV
Philippines
Russia
Saban REG
Sarawak REG
Sierra Leone REG
Singapore REG
South Africa
Spain
Sweden EPO
Switzerland EPO
Trinidad & Tobago REG
Tunisia
Uganda REG
Ukraine REG
USA CIP
Zanzibar REG
</TABLE>
<PAGE> 67
Confidential materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
EXHIBIT 1.21
J&J Pharmaceutical Group
1998 Reporting Calendar
[**]
<PAGE> 68
EXHIBIT 1.22
PRE-OPTION CLINICAL TESTING
THE EVALUATION OF THREE NORASTEMIZOLE DOSES (15 MG,
30 MG, 45 MG) AND LORATADINE WHEN ADMINISTERED TO
SUBJECTS WITH SEASONAL ALLERGIC RHINITIS
A Multi-Dose, Double-Dummy, Double-Blind, Placebo-Controlled, Parallel
Group Study
Protocol 110-008
IND No. 49,639
26 June 1997
SEPRACOR INC.
111 Locke Drive
Marlborough, MA 01752
USA
<PAGE> 69
EXHIBIT 1.22
PRE-OPTION CLINICAL TESTING
Protocol 110-005
THE EFFECT OF ADMINISTRATION OF KETOCONAZOLE ON THE
PHARMACODYNAMICS AND PHARMACOKINETICS OF NORASTEMIZOLE
IN NORMAL HEALTHY VOLUNTEERS
IND NO. 49,639
6 November, 1997
DRAFT
SEPRACOR INC.
111 Locke Drive
Marlborough, MA 01752
USA
<PAGE> 70
EXHIBIT 1.22
PRE-OPTION CLINICAL TESTING
Protocol 110-005
THE EFFECT OF ADMINISTRATION OF KETOCONAZOLE ON THE
PHARMACODYNAMICS AND PHARMACOKINETICS OF NORASTEMIZOLE
IN NORMAL HEALTHY VOLUNTEERS
IND NO. 49,639
6 November, 1997
DRAFT
SEPRACOR INC.
111 Locke Drive
Marlborough, MA 01752
USA
<PAGE> 71
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions
EXHIBIT 1.26
R&D Plan
[**]
<PAGE> 72
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions
EXHIBIT 1.31
SEPRACOR PATENTS AND PATENT APPLICATION
norastemizole patents
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Case Number Country Status FilDate ApplNumber PatNumber Title
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
[**]
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
P056.A GB GRANTED 03-Sep-1993 9504329.5 2285219 METHOD AND COMPOSITIONS FOR TREATING
ALLERGIC DISORDERS ... USING
METABOLIC DERIVATIVES OF ASTEMIZOLE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
[**]
</TABLE>
<PAGE> 73
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions
norastemizole patents
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Case Number Country Status FilDate ApplNumber PatNumber Title
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
[**]
</TABLE>
<PAGE> 74
EXHIBIT 1.33
TRADEMARKS, TRADE NAMES, SERVICE MARKS AND
OTHER COMMERCIAL SYMBOLS
None Existing as of the Date of the Agreement
<PAGE> 75
EXHIBIT 2.5(a)
QUALITY CONTROL STANDARDS
To be provided pursuant to Section 2.5(a)
<PAGE> 76
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions
EXHIBIT 3.1(e)
Sepracor's Cost in Manufacturing
Under the Agreement, Sepracor is paid for a quantity of Compound and/or
Product based on Sepracor's fully-loaded manufacturing cost, which in turn is
equal to the sum of: [**]. For purposes of this Agreement, such costs are
defined as follows:
The cost of production includes [**] (including without limitation
[**]). Overheads include **].
The cost of production shall also include [**] to be agreed upon by the
Parties.
Administrative costs include [**].
<PAGE> 77
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions
EXHIBIT 3.4(a)
SPECIFICATIONS WITH REGARDS TO THE
COMPOUND AND THE PRODUCT
Chemical Name;
Common Name:
Structural Formula:
Chemical Structure: [**]
Molecular Formula:
Molecular Weight:
<PAGE> 78
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions
EXHIBIT 3.4(a)
Physical & Chemical Characteristics
Description:
Appearance: [**]
Melting Range:
Solubility: Solubility data is provided below.
Solubility in different solvents
<TABLE>
<CAPTION>
----------------------------------------------------------------
Solvent Solubility (g/100 mL)
----------------------------------------------------------------
<S> <C>
[**]
</TABLE>
<PAGE> 79
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions
EXHIBIT 4.2(d)
Pre-Option Data Package Prioritization
[**]
<PAGE> 80
EXHIBIT 11.6
Fleet Bank Letter
<PAGE> 81
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions
EXHIBIT 13.1(b)
LIST OF THIRD PARTIES
[**]
This list is an exhaustive list as of the date of this Agreement and shall not
include any of the companies or successor companies to the listed companies
resulting from a merger, consolidation, acquisition or other transaction as a
result of which the control (as defined in Section 13.1 in relation to the
Parties) over such company is changed.
<PAGE> 1
Exhibit 10.31
CONFIDENTIAL MATERIALS OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION. ASTERISKS DENOTE OMISSIONS
EXCLUSIVE LICENSE AGREEMENT
BY AND BETWEEN
SEPRACOR INC.
AND
SCHERING-PLOUGH LTD.
<PAGE> 2
CONFIDENTIAL MATERIALS OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION. ASTERISKS DENOTE OMISSIONS
TABLE OF CONTENTS
EXCLUSIVE LICENSE AGREEMENT
PAGE
----
ARTICLE I - DEFINITIONS........................................................1
1.1 Affiliate..................................................................1
1.2 Calendar Quarter...........................................................2
1.3 Calendar Year..............................................................2
1.4 Combination Product........................................................2
1.5 DCL........................................................................2
1.6 [**].......................................................................2
1.7 Effective Date.............................................................3
1.8 First Commercial Sale......................................................3
1.9 HRD........................................................................3
1.10 HSR Act...................................................................3
1.11 Improvement...............................................................3
1.12 Improvement Patent........................................................3
1.13 Increased Royalty Commencement Date.......................................3
1.14 Licensed Compound.........................................................4
1.15 Licensed Product(s).......................................................4
1.16 NDA.......................................................................4
1.17 Net Sales.................................................................4
1.18 Patent Rights.............................................................6
1.19 Proprietary Information...................................................6
1.20 Regulatory Approval.......................................................6
1.21 Sepracor Know-How.........................................................6
1.22 Sublicensee...............................................................7
1.23 Territory.................................................................7
1.24 Term......................................................................7
i
<PAGE> 3
CONFIDENTIAL MATERIALS OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION. ASTERISKS DENOTE OMISSIONS
1.25 [**]......................................................................8
1.26 Valid Claim...............................................................8
ARTICLE II - LICENSE; DISCLOSURE OF INFORMATION; DEVELOPMENT AND
COMMERCIALIZATION..............................................................8
2.1 Exclusive License Grant....................................................8
(a) License..............................................................8
(b) Right to Sublicense..................................................8
(c) Additional License..................................................8
2.2 Non-Exclusive License Grant................................................9
2.3 Disclosure of Information..................................................9
2.4 HSR Filing and Approvals..................................................10
(a) HSR Filing..........................................................10
(b) Sepracor's Obligations..............................................10
(c) Additional Approvals................................................10
2.5 Schering's Development Obligations........................................11
(a) Schering Diligence..................................................11
(b) Opportunity to Cure.................................................12
(c) Research and Development Activities.................................12
(d) Licensed Product Registrations; Pricing Reimbursement...............12
(e) Data................................................................13
(f) Assistance by Sepracor..............................................13
2.6 Independent Discoveries by Schering.......................................14
2.7 Excused Performance.......................................................14
2.8 Other Studies.............................................................14
2.9 Reports...................................................................15
ARTICLE III - PAYMENTS; ROYALTIES AND REPORTS.................................15
3.1 Consideration for License.................................................15
3.2 Royalties.................................................................15
(a) Royalty Rates.......................................................15
(b) Royalty Where Third Party Sales of DCL..............................17
(c) Term and Scope of Royalty Obligations...............................18
(d) Third Party Licenses................................................18
(e) Compulsory Licenses.................................................20
3.3 Reports and Payment of Royalty; Payment Exchange Rate and
Currency Conversions......................................................20
(a) Royalties Paid Quarterly............................................20
(b) Method of Payment...................................................20
3.4 Maintenance of Records; Audits............................................21
(a) Record Keeping by Schering..........................................21
ii
<PAGE> 4
(b) Underpayments/Overpayments..........................................22
(c) Record Keeping by Sublicensee.......................................22
(d) Confidentiality.....................................................22
3.5 Income Tax Withholding....................................................23
3.6 Direct Affiliate Licenses.................................................23
ARTICLE IV - PATENTS..........................................................23
4.1 Filing, Prosecution and Maintenance of Patents............................23
4.2 Option of Schering to Prosecute and Maintain Patents......................23
4.3 Enforcement...............................................................24
(a) Notice and Discontinuance of Infringement..........................24
(b) Continuance of Infringement.........................................24
4.4 Third Party Infringement Suit.............................................25
4.5 Certification Under Drug Price Competition and Patent
Restoration Act...........................................................25
4.6 Abandonment...............................................................26
4.7 Patent Term Restoration...................................................26
4.8 Notices Regarding Patents.................................................26
ARTICLE V - CONFIDENTIALITY AND PUBLICATION...................................27
5.1 Confidentiality...........................................................27
(a) Nondisclosure Obligation............................................27
(b) Disclosure to Agents................................................28
(c) Disclosure to a Third Party.........................................28
5.2 Return of Proprietary Information.........................................29
5.3 Publicity.................................................................29
5.4 Publication...............................................................32
ARTICLE VI - REPRESENTATIONS AND WARRANTIES...................................32
6.1 Representations and Warranties of Each Party..............................32
6.2 Sepracor's Representations................................................34
6.3 Schering's Representations................................................36
6.4 Continuing Representations................................................36
6.5 No Inconsistent Agreements................................................36
6.6 Representation by Legal Counsel...........................................36
ARTICLE VII - INDEMNIFICATION AND LIMITATION ON LIABILITY.....................36
7.1 Indemnification by Schering...............................................36
7.2 Indemnification by Sepracor...............................................37
7.3 Conditions to Indemnification.............................................37
7.4 Settlements...............................................................38
7.5 Limitation of Liability...................................................38
7.6 Insurance.................................................................38
iii
<PAGE> 5
CONFIDENTIAL MATERIALS OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION. ASTERISKS DENOTE OMISSIONS
ARTICLE VIII - TERM AND TERMINATION...........................................39
8.1 Term and Expiration.......................................................39
8.2 [**]......................................................................39
8.3 Termination...............................................................39
(a) Termination for Cause...............................................39
(b) Effect of Termination for Cause on License..........................40
(i) Termination by Schering......................................40
(ii) Termination by Sepracor......................................40
(iii) Effect of Bankruptcy.........................................40
8.4 Effect of Termination.....................................................40
ARTICLE IX - MISCELLANEOUS....................................................41
9.1 Assignment................................................................41
9.2 Governing Law.............................................................41
9.3 Waiver....................................................................42
9.4 Independent Relationship..................................................42
9.5 Export Control............................................................42
9.6 Entire Agreement; Amendment...............................................42
9.7 Notices...................................................................43
9.8 Provisions for Insolvency.................................................44
(a) Effect on Licenses..................................................44
(b) Rights to Intellectual Property.....................................45
(c) Schering's Rights...................................................45
(d) Deemed Grant of Rights..............................................46
(e) Security Interests..................................................46
9.9 Force Majeure.............................................................46
9.10 Severability.............................................................47
9.11 Counterparts.............................................................47
9.12 Captions.................................................................47
9.13 Recording................................................................47
9.14 Further Actions..........................................................47
iv
<PAGE> 6
SCHEDULES
SCHEDULE 1.18 ....................................................Patent Rights
SCHEDULE 2.8..................................Adverse Event Reporting Procedures
SCHEDULE 5.3.......................................................Press Release
SCHEDULE 6.1(d).............................................Fleet Bank Agreement
SCHEDULE 6.1(h)......................................Pending Patent Applications
SCHEDULE 6.2(c)...........................Exclusive License Agreement/Assignment
SCHEDULE 6.2(d)...........................Exclusive License Agreement/Assignment
SCHEDULE 6.2(e)................................... Third Party Patent Positions
SCHEDULE 6.2(h)................................... Third Party Patent Positions
SCHEDULE 6.2(k)...........................Exclusive License Agreement/Assignment
SCHEDULE 6.5 .............................Exclusive License Agreement/Assignment
SCHEDULE 9.2 .............................................Arbitration Provisions
1
<PAGE> 7
EXCLUSIVE LICENSE AGREEMENT
THIS EXCLUSIVE LICENSE AGREEMENT (the "Agreement") is made as of
December 5, 1997 by and between SEPRACOR INC., a Delaware corporation having its
principal place of business at 111 Locke Drive, Marlborough, Massachusetts
01752, (hereinafter referred to as "Sepracor") and SCHERING-PLOUGH LTD., a
corporation organized and existing under the laws of Switzerland and having its
principal place of business at Topferstrasse 5, 6004 Lucerne, Switzerland
(hereinafter referred to as "Schering"). Sepracor and Schering are sometimes
referred to herein individually as a party and collectively as the parties.
References to "Schering" and "Sepracor" shall include their respective
Affiliates (as hereinafter defined).
WHEREAS, Sepracor has developed certain Sepracor Know-How and has
rights to Patent Rights relating to the loratadine metabolite known as DCL (each
as hereinafter defined); and
WHEREAS, Schering, together with its Affiliates (as hereinafter
defined) possesses extensive capabilities in the development and
commercialization of pharmaceutical products on a worldwide basis; and
WHEREAS, Schering desires to obtain and Sepracor is willing to grant to
Schering, an exclusive license under the Patent Rights and to use the Sepracor
Know-How, upon the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing premises and
the mutual covenants herein contained, Schering and Sepracor hereby agree as
follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the following initially capitalized terms,
whether used in the singular or plural, shall have the respective meanings set
forth below:
1.1 "Affiliate" shall mean any individual or entity directly or
indirectly controlling, controlled by or under common control with, a party to
this Agreement. For purposes of this Agreement, the direct or indirect ownership
of fifty percent (50%) or more of the outstanding voting securities of an
entity, or the right to receive fifty percent (50%) or more of the profits or
earnings of an entity shall be deemed to constitute control. Such other
relationship as in fact results in actual control over the management, business
and affairs of an entity shall also be deemed to constitute control, provided,
however, that Schering shall not be deemed to exercise control over any entity
solely because such entity relies on Schering for a majority of its business.
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1.2 "Calendar Quarter" shall mean the respective periods of three (3)
consecutive calendar months ending on March 31, June 30, September 30 or
December 31, for so long as this Agreement is in effect.
1.3 "Calendar Year" shall mean each successive period of twelve (12)
months commencing on January 1 and ending on December 31, for so long as this
Agreement is in effect.
1.4 "Combination Product" shall mean a Licensed Product which comprises
two (2) or more active ingredients at least one (1) of which is Licensed
Compound.
1.5 "DCL" shall mean any form (including, without limitation, any salt,
hydrate, crystalline structure or the like) of the loratadine metabolite known
as descarboethoxyloratadine, also identified by the chemical name
8-chloro-6,11-dihydro-11-(4-piperidylidene)-5H-benzo[5, 6] cyclohepta[1,2-b]
pyridine.
1.6 [**] shall mean [**] in the Territory containing [**] (including,
without limitation, [**] (without any [**] and without any [**] (including,
without limitation, [**] (without any [**] and without any [**].
1.7 "Effective Date" shall mean the next business day following the
last to occur of (i) expiration or earlier termination of any notice and waiting
period under the HSR Act; or (ii) delivery of fully executed counterparts of
this Agreement.
1.8 "First Commercial Sale" shall mean, with respect to any Licensed
Product, the first sale by Schering to any third party, not an Affiliate or
Sublicensee, of such Licensed Product.
1.9 "HRD" shall mean a health registration dossier or its equivalent,
submitted to a national government or a supranational governmental authority,
consisting of the chemical, pharmaceutical and biological documentation; the
toxicological and pharmacological documentation; and the clinical documentation
respectively, and covering a Licensed Product which is filed in any country
outside the United States and which is analogous to a new drug application,
product license application or its equivalent filed with the United States Food
and Drug Administration seeking approval to market and sell a Licensed Product
in the Territory and including, where applicable, applications for pricing,
pricing reimbursement approval, labeling and Regulatory Approval.
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1.10 "HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
1.11 "Improvement" shall mean any enhancement in the formulation,
ingredients, preparation, presentation, means of delivery, dosage, packaging of,
manufacture, or any new or expanded therapeutic indications(s) for, Licensed
Product, Licensed Compound or any other loratadine metabolite, in each case
which is developed prior to or during the Term of this Agreement by or on behalf
of Sepracor.
1.12 "Improvement Patent" shall mean any patent (except DCL Formulation
Patent and Use Patent) containing claims that cover an Improvement.
1.13 "Increased Royalty Commencement Date" shall mean the following:
(i) with regard to the United States that date which is the later of:
[**]; or (B) [**].
(ii) with regard to any country in the Territory other than the United
States that date which is the later of: (A) [**] or (ii) [**].
1.14 "Licensed Compound" shall mean DCL.
1.15 "Licensed Product(s)" shall mean any form or dosage of
pharmaceutical composition or preparation in final form for sale by
prescription, over-the-counter or any other method, which contains as an active
ingredient the Licensed Compound, including, without limitation, Combination
Products.
1.16 "NDA" shall mean a New Drug Application or its equivalent filed
with the United States Food and Drug Administration seeking approval to market
and sell a Licensed Product in the United States.
1.17 "Net Sales" shall mean the invoice prices on all sales of Licensed
Product by Schering, its Affiliates or Sublicensees to an unaffiliated third
party and exclusive of intercompany transfers or inter-company sales, less
deductions from such gross amounts for: (i) normal and customary trade, cash and
quantity discounts, allowances and credits; (ii) credits or allowances actually
granted for damaged goods, returns or rejections of Licensed Product and
retroactive price reductions; (iii) sales taxes, duties or other taxes with
respect to such sales (including duties or other governmental charges levied on,
absorbed or otherwise imposed on the sale of Licensed Product including, without
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limitation, value added taxes or other governmental charges otherwise measured
by the billing amount, when included in billing but excluding income or other
taxes levied with respect to gross receipts) actually collected by Schering, its
Affiliates or Sublicensees and included in the invoice amount; (iv) insurance,
postage, customs duties and transportation costs incurred in shipping Licensed
Product(s) to unaffiliated third parties actually collected by Schering, its
Affiliates or Sublicensees separately itemized and included in the invoiced
amount; (v) charge back payments and rebates granted to managed health care
organizations or to federal, state and local governments, their agencies, and
purchasers and reimbursers or to trade customers, including but not limited to,
wholesalers and chain and pharmacy buying groups; (vi) rebates (or equivalents
thereof) granted to or charged by national, state or local governmental
authorities in countries other than the United States; and (vii) actual trade
receivables considered bad debt and deemed uncollectable, provided that (A) such
receivables have been written off the permanent books and records of Schering
and are not only reserved as uncollectable, and (B) any full or partial
settlements subsequently received shall be reinstated as Net Sales, provided,
however, that in the event any amounts described in this subsection (vi) are
applied retroactively and the result is that Net Sales differ to the extent that
the royalty due pursuant to Sections 3.2(a)(iii) and (iv) is changed, then
adjustment shall be made for such changed royalty. In the event that Licensed
Product is (A) transferred for consideration other than cash, or (B) as part of
a bundle, the Net Sales for such Licensed Product will be calculated based on
the unit price for such Licensed Product sales being equal to the average unit
price of such Licensed Product sold unbundled in a cash transaction.
In the event that Licensed Product is sold in the form of a Combination
Product containing as active ingredients only Licensed Compound and [**] then
Net Sales for such Combination Product will be calculated based on the invoice
price for such Combination Product in accordance with the preceding paragraph.
In the event that Licensed Product is sold in the form of any other Combination
Product, Net Sales for such Combination Product will be calculated by
multiplying actual Net Sales of such Combination Product by the fraction A/(A+B)
where: A is the invoice price of the Licensed Compound contained in the
Combination Product if sold separately by Schering, an Affiliate or Sublicensee
and B is the invoice price of any other active component or components in the
Combination Product if sold separately by Schering, an Affiliate or Sublicensee.
In the event that the Licensed Product is sold in the form of a Combination
Product containing one or more active ingredients other than Licensed Compound
and one or more such active ingredients of the Combination Product are not sold
separately, then the above formula shall be modified such that A shall be the
total cost to Schering, its Affiliate or Sublicensee(s) of the Licensed Compound
and B shall be the total cost to Schering, its Affiliate or Sublicensee of any
other active component or components in the combination. Notwithstanding the
previous two sentences, in no event shall Net Sales for any Combination Product
be calculated at less than the average unit price of Licensed Product, excluding
a Combination Product, sold unbundled in a cash transaction.
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1.18 "Patent Rights" shall mean Use Patent, DCL Formulation Patent, and
Improvement Patents, and patent applications in the Territory corresponding
thereto including, but not limited to, all issued patents, as set forth in
Schedule 1.18, any and all substitutions, divisions, continuations,
continuations-in-part, reissues, renewals, registrations, confirmations,
re-examinations, extensions, supplementary protection certificates or any like
filing thereof, and provisional applications of any such patents and patent
applications and any international equivalent of any of the foregoing.
1.19 "Proprietary Information" shall mean Sepracor Know-How and all
other scientific, clinical, regulatory, marketing, financial and commercial
information or data, whether communicated in writing, verbally or
electronically, which is provided by one party to the other party in connection
with this Agreement. When Propriety Information is disclosed in a manner other
than in writing, it shall be reduced to written form, marked "Confidential" and
transmitted to the receiving party within twenty (20) business days of
disclosure to the receiving party.
1.20 "Regulatory Approval" shall mean any applications or approvals,
including any NDA's, HRD's, supplements, amendments, pre- and post-approvals,
marketing authorizations based upon such approvals (including any prerequisite
manufacturing approvals or authorizations related thereto) and labeling
approval(s), technical, medical and scientific licenses, registrations or
authorizations of any national, regional, state or local regulatory agency,
department, bureau, commission, council or other governmental entity, necessary
for the development, manufacture, distribution, marketing, promotion, offer for
sale, use, import, export or sale of Licensed Product(s) and/or Licensed
Compound(s) in the Territory.
1.21 "Sepracor Know-How" shall mean any of Sepracor's or its
Affiliates' information and materials, except as otherwise provided in the last
sentence hereof, relating to the research, development, registration,
manufacture, marketing, use or sale of Licensed Compound and/or Licensed Product
which prior to or during the Term of this Agreement are developed by or at the
request of Sepracor or its Affiliates or in Sepracor's or its Affiliates'
possession or control through license or otherwise (provided that Sepracor is
permitted to make disclosure thereof to Schering without violating the terms of
any third party agreement), and which are not generally known. Sepracor Know-How
shall include, without limitation, discoveries, practices, methods, knowledge,
Improvements, processes, formulas, data, ideas, skill, experience, inventions,
know-how, technology, trade secrets, manufacturing procedures, purification and
isolation techniques, instructions, test data and other intellectual property,
patentable or
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otherwise, relating to Licensed Compound, Licensed Product or any loratadine
metabolite that is related to the use or administration of DCL, including
without limitation, test procedures and other new technologies derived
therefrom. Sepracor Know-How shall also include, without limitation: (i) all
biological, chemical, pharmacological, toxicological, pharmaceutical, physical
and analytical, clinical, safety, manufacturing and quality control data and
information related thereto; (ii) compositions of matter, assays and biological
materials specifically relating to development, manufacture, use or sale of any
Licensed Compound, Licensed Product and/or any [**] that is related to the use
or administration of DCL; and (iii) all applications, registrations, licenses,
authorizations, approvals and correspondence submitted to or received from any
regulatory authorities with jurisdiction in the Territory over an
investigational drug containing Licensed Compound and/or Licensed Product
(including, without limitation, minutes and meeting notes relating to any
communications with any regulatory authority with jurisdiction in the Territory
over an investigational drug containing Licensed Compound and/or Licensed
Product). Subject to the terms and conditions of Section 2.8, Sepracor Know-How
shall not include any information or materials developed by Sepracor or its
Affiliates (without use of Proprietary Information in violation of this
Agreement), using Licensed Compound or Licensed Product made commercially
available by, on behalf of, or with the consent of, Schering, its Affiliates or
Sublicensees.
1.22 "Sublicensee" shall mean any party not an Affiliate of Schering,
which party is authorized directly or indirectly by Schering or its Affiliates
through express or implied license or consent to discover, develop, make, have
made, import, export, use, distribute, market, promote, offer for sale and sell
Licensed Compound and/or Licensed Product(s) under Section 2.1(b).
1.23 "Territory" shall mean the entire world.
1.24 "Term" shall mean the period commencing on the Effective Date and
unless terminated earlier pursuant to the relevant provisions of Article VIII
shall continue until the expiration of the last to expire of the Patent Rights.
1.25 "[**]" shall mean [**]
1.26 "Valid Claim" shall mean a claim of an issued and unexpired patent
in a country in the Territory included within the Patent Rights, which (i) has
not been revoked or held unenforceable or invalid by a decision of a court or
other governmental agency of competent jurisdiction, unappealable or unappealed
within the time allowed
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for appeal; or (ii) has not been abandoned, disclaimed, or admitted to be
invalid or unenforceable through reissue or disclaimer or otherwise.
ARTICLE II
LICENSE; DISCLOSURE OF INFORMATION; DEVELOPMENT AND COMMERCIALIZATION
2.1 Exclusive License Grant.
(a) License. Sepracor hereby grants to Schering, as of the
Effective Date, an exclusive license, exclusive even as to Sepracor,
and immunity from suit by Sepracor, in the Territory to discover,
develop, make, have made, import, export, use, distribute, market,
promote, offer for sale and sell Licensed Compound and/or Licensed
Product(s) under the Patent Rights and Sepracor Know-How, such
exclusivity subject to Section 2.8 hereof. Furthermore, Sepracor
retains all rights under the Patent Rights not expressly granted to
Schering by this Section 2.1, and the right to use Sepracor Know-How
pursuant to Section 5.1(c) below
(b) Right to Sublicense. The license granted to Schering under
Section 2.1(a) shall include the right to grant sublicenses to
Affiliates and/or any third party, provided that Schering remains
responsible to Sepracor under this Agreement.
(c) Additional License. If Schering develops any [**] covered
by an Improvement Patent, Sepracor hereby grants to Schering an
exclusive license, exclusive even as to Sepracor, in the Territory to
discover, develop, make, have made, import, export, use, distribute,
market, promote, offer for sale and sell such [**] on license terms
substantially similar to those set forth in this Agreement.
2.2 Non-Exclusive License Grant. In the event that the discovery,
development, making, having made, importing, exporting, use, distribution,
marketing, promotion, offering for sale or sale by Schering, its Affiliates
and/or Sublicensees of Licensed Compound and/or Licensed Product(s) in the
Territory would infringe during the Term of this Agreement a claim of an issued
letters patent, and/or any patent rights which Sepracor owns or has the rights
to license and which patents are not covered by the grant in Section 2.1,
Sepracor hereby grants to Schering and its Affiliates, to the extent Sepracor is
legally able to do so, a non-exclusive, royalty-free license and immunity from
suit by Sepracor in the Territory under such issued letters patent solely for
Schering, its Affiliates and/or Sublicensees to discover, develop, make, have
made, use, distribute,
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market, promote, offer for sale and sell Licensed Compound and/or Licensed
Product(s) in the Territory.
2.3 Disclosure of Information. Promptly after the Effective Date,
Sepracor shall, at its own cost use good faith reasonable efforts to, disclose
to Schering in writing, or via mutually acceptable electronic media, copies or
reproductions of all Sepracor Know-How not previously disclosed to Schering in
order to enable Schering to exploit its rights granted under Section 2.1 and, if
applicable, Section 2.2 of this Agreement. In addition, during the Term of this
Agreement Sepracor shall promptly disclose to Schering in writing, or via
mutually acceptable electronic media, on an ongoing basis copies or
reproductions of all new Sepracor Know-How that is reasonably necessary to
research, development, registration, manufacture, marketing, use or sale of
Licensed Compound and/or Licensed Product. Such Sepracor Know-How and other
information shall be automatically deemed to be within the scope of the licenses
granted herein without payment of any additional compensation. Upon Schering's
request but reasonably subject to Sepracor's other business requirements,
Sepracor shall provide reasonable technical assistance to enable Schering to
utilize such additional Sepracor Know-How, provided, that Schering shall
promptly reimburse Sepracor for reasonable out-of-pocket costs and expenses
incurred by Sepracor in providing such technical assistance. Sepracor shall
invoice Schering for such costs and expenses, and shall provide documentation
for the invoice. The invoice shall be payable to Sepracor or its designee(s)
[**] days after receipt by Schering of the invoice provided, however, that such
cost and out-of-pocket expenses must be identified prior to being committed to
by Sepracor and provided to Schering to determine whether Schering agrees to
have the technical assistance provided at such cost and the final amount sought
to be reimbursed shall not exceed [**] of the estimated cost without Schering's
prior written consent. Schering shall be under no obligation to reimburse
Sepracor for out-of-pocket costs and expenses incurred by Sepracor without
Schering's agreement. Schering shall have the right to use for all purposes in
connection with obtaining any Regulatory Approval for the Licensed Product(s)
all Sepracor Know-How and other information, disclosed pursuant to this Section
and under this Agreement.
2.4 HSR Filing and Approvals.
(a) HSR Filing. To the extent necessary, each of Sepracor and
Schering shall file, within ten (10) days after the date of this
Agreement, with the Federal Trade Commission (the "FTC") and the
Antitrust Division of the United States Department of Justice (the
"Antitrust Division") any notification and report form (the "Report")
required of it in the reasonable opinion of either or both parties
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under the HSR Act with respect to the transactions as contemplated
hereby and shall cooperate with the other party to the extent necessary
to assist the other party in the preparation of its Report and to
proceed to obtain necessary approvals under the HSR Act, including but
not limited to the expiration or earlier termination of any and all
applicable waiting periods required by the HSR Act.
(b) Sepracor's Obligations. Sepracor shall use good faith
reasonable efforts to assist Schering in eliminating any concern on the
part of any court or government authority regarding the legality of the
proposed transaction, including, if required by federal or state
antitrust authorities, Schering's promptly taking all reasonable steps
to secure government antitrust clearance. Sepracor shall cooperate in
good faith at its own cost with any government investigation and
promptly produce documents and information demanded by a second request
for documents and of witnesses if requested.
(c) Additional Approvals. Sepracor and Schering will cooperate
and use respectively all reasonable efforts to make all other
registrations, filings and applications, to give all notices and to
obtain as soon as practicable all governmental or other consents,
transfers, approvals, orders, qualifications authorizations, permits
and waivers, if any, and to do all other things reasonably necessary or
desirable in Schering's opinion for the consummation of the
transactions as contemplated hereby (including, without limitation,
those act required to obtain necessary approvals under any foreign
equivalent antitrust statute to the HSR Act or regulation from any
government or regulatory authority having the requisite jurisdiction
provided, however, that Schering shall promptly reimburse Sepracor for
reasonable out-of-pocket cost and expenses incurred by Sepracor in
providing such cooperation. Sepracor shall invoice Schering for such
costs and expenses, and shall provide documentation for the invoice.
The invoice shall be payable to Sepracor or its designee(s) [**] days
after receipt by Schering of the invoice.
2.5 Schering's Development Obligations.
(a) Schering Diligence. Schering shall, at Schering's expense,
and subject to Sepracor's compliance with its obligations under
Sections 2.3 and 2.4, use [**] to develop, obtain Regulatory Approval
for, and commercialize the Licensed Product(s) in the Territory. The
parties acknowledge and agree that all business decisions including,
without limitation, decisions relating to Schering's research,
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development, registration, manufacture, sale, commercialization,
design, price, distribution, marketing and promotion of Licensed
Products covered under this Agreement, shall be within the sole
discretion of Schering. Sepracor acknowledges that Schering is in the
business of developing, manufacturing and selling pharmaceutical
products and, subject to the provisions of this Section, nothing in
this Agreement shall be construed as restricting such business or
imposing on Schering the duty to market and/or sell and exploit
Licensed Compound or Licensed Product for which royalties are payable
hereunder to the exclusion of, or in preference to, any other product,
or in any way other than in accordance with its normal commercial
practices. [**].
(b) Opportunity to Cure. If, in Sepracor's reasonable opinion,
Schering fails to comply with any of its diligence obligations under
Sections 2.5(a) and (c), then Sepracor shall have the right to give
Schering written notice thereof stating in reasonable detail the
particular failure(s). Schering shall have a period of [**] days from
the receipt of such notice to correct the failure or, in the event that
the failure cannot be reasonably cured within a [**] day period, then
Schering shall initiate actions reasonably expected to cure the failure
within[**] days of receiving notice and shall thereafter diligently
pursue such actions to cure the failure (even if requiring longer than
the [**] days specified in Section 8.3(a)(i)). In the event of a
dispute as to whether or not Schering has failed to exercise due
diligence under Sections 2.5(a) and 2.5(c) or whether Schering is
diligently pursuing actions reasonably expected to cure such failure
under this Section 2.5(b), such dispute shall be resolved through
binding arbitration in accordance with Section 9.2.
(c) Research and Development Activities. Subject to its
diligence obligations set forth in Section 2.5(a), following the
Effective Date, Schering shall be responsible, at its cost and expense,
and in its sole judgment, for all research and development activities
which are necessary to obtain Regulatory Approval for a Licensed
Product in the Territory and any post-approval studies required as a
condition of obtaining any Regulatory Approval for a Licensed Product.
In addition, Schering shall be responsible for any other studies (or
portions of studies) necessary or desirable, in its sole judgment, for
maintaining any Regulatory Approval in the Territory, as well as any
pre-marketing studies prior to Regulatory Approval and post-marketing
studies conducted following a Regulatory Approval.
(d) Licensed Product Registrations; Pricing Reimbursement
Approvals. Subject to its diligence obligations set forth in Section
2.5(a), Schering shall be
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responsible, at its cost and expense, and in its sole judgment, for
determining the appropriate regulatory strategy, for obtaining and
maintaining all Regulatory Approvals and for obtaining and maintaining
any pricing and reimbursement approvals required for the sale of
Licensed Product in the Territory. Each Regulatory Approval and each
pricing and reimbursement approval shall be placed in Schering's name
or the name of a Schering Affiliate unless applicable law requires, or
Sepracor and Schering otherwise agree, that an approval be solely or
jointly in the name of Sepracor or a designated Sepracor Affiliate.
Sepracor agrees that notwithstanding such Regulatory Approval or
pricing and reimbursement approval in its name, Schering retains the
exclusive rights to make, have made, import, export, use, distribute,
promote, offer for sale and sell Licensed Compound and/or Licensed
Product(s) as granted Schering in Section 2.1.
(e) Data. Schering shall own all data arising out of studies
performed by or on behalf of Schering under this Article II. Studies
performed pursuant to Section 2.8 shall not be deemed studies performed
by or on behalf of Schering.
(f) Assistance by Sepracor. In connection with any NDA, HRD or
other application for Regulatory Approval relating to Licensed Product,
Sepracor shall, at Schering's reasonable request but reasonably subject
to Sepracor's other business requirements, provide to Schering in a
prompt manner responses to questions which have been raised by any
regulatory authority in connection with such application for Regulatory
Approval and further provide to Schering estimates of Sepracor's
out-of-pocket costs for rendering such assistance. Sepracor shall
assist Schering from time to time, at Schering's reasonable request but
reasonably subject to Sepracor's other business requirements, in the
design and implementation of clinical studies. Sepracor shall
reasonably assist Schering to enable Schering to self-source bulk
material for the manufacture of Licensed Compound and/or Licensed
Product. Schering shall have no obligation whatsoever to purchase any
bulk material or Licensed Compound from Sepracor. Schering shall
reimburse Sepracor for its reasonable out-of-pocket costs and expenses
incurred in rendering assistance under this Section 2.5(f) (but no more
than [**] of those costs which Sepracor estimated, as provided above,
that the work would cost unless Schering provides written approval).
Sepracor shall invoice Schering for such costs and expenses, and shall
provide documentation for the invoice. The invoice shall be payable to
Sepracor or its designee(s) [**] days after receipt by Schering of the
invoice, provided, however, that Schering
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shall be under no obligation to reimburse Sepracor for out-of-pocket
costs and expenses incurred by Sepracor without Schering's agreement.
2.6 Independent Discoveries by Schering. Sepracor acknowledges that
Schering and/or its Affiliates have ongoing research programs which may now or
in the future independently discover, develop and/or acquire technologies and/or
products relating to treatment and prevention of any disease, disorder or
condition in humans or animals. Sepracor agrees that such technologies and
products, to the extent discovered without use of Sepracor Know-How, will not be
deemed to be Sepracor Know-How.
2.7 Excused Performance. In addition to the provisions of Article VIII
and Section 9.9, the obligations of Schering with respect to a Licensed Product
under Sections 2.5(a), 2.5(c) and 2.5(d) are expressly conditioned upon the
continuing absence of any adverse condition or event which warrants a delay in
commercialization of a Licensed Product including, but not limited to, an
adverse condition or event relating to the safety or efficacy of a Licensed
Product or unfavorable labeling or lack of Regulatory Approval, and the
obligation of Schering to develop or market any such Licensed Product (or, if
appropriate, all Licensed Product) shall be delayed or suspended so long as in
Schering's reasonable opinion any such condition or event exists.
2.8 Other Studies.
(a) [**] Sepracor shall conduct no studies, formulation
research or preclinical or clinical trials with Licensed Compound
without the express written consent of Schering, including the prior
written approval of any protocols to be used and any amendments
thereto. Sepracor shall request Schering's written consent by complying
with the notice provisions of Section 9.7. Schering may grant or
withhold such consent in its sole discretion and if Sepracor receives
no response within [**] from Sepracor's request for such consent,
Schering's consent is deemed to have been given. Sepracor acknowledges
that all Sepracor research results under this Section 2.8(a) shall
constitute Sepracor Know-How; accordingly, Sepracor shall provide to
Schering the results from such research and any background information
requested, at no additional royalty. Sepracor shall be permitted to
disclose such results to third parties only as provided under Section
5.1(c) below. At the option of Schering, Schering may have its
representative(s) monitor any approved preclinical, clinical or other
studies.
(b) [**] provided that [**] this Agreement. [**].
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2.9 Reports. Schering shall provide Sepracor with quarterly reports of
the status of the research and development activities and progress of any
Regulatory Approval, as applicable, in connection with Licensed Product in the
Territory. Further, Schering shall inform Sepracor of [**].
ARTICLE III
PAYMENTS; ROYALTIES AND REPORTS
3.1 Consideration for License. In partial consideration for the
licenses granted to Schering hereunder, Schering shall pay to Sepracor a license
fee ("License Fee") of five million dollars ($5,000,000), which payment shall be
due within [**] following the Effective Date. The License Fee shall be recovered
by reducing the royalty payments set forth in Section 3.2 until Schering recoups
the License Fee, provided, however, that no single royalty payment shall be
reduced by greater than [**] of the payment due to Sepracor.
3.2 Royalties.
(a) Royalty Rates. In further consideration for the licenses
granted to Schering hereunder, subject to the terms and conditions of
this Agreement, Schering shall pay to Sepracor royalties, on a
country-by-country basis as follows:
(i) For so long as the [**] in the applicable country
in the Territory contains a Valid Claim, for the period
commencing with the [**] of Licensed Product until the [**] of
all annual Net Sales of Licensed Product in such country;
(ii) For the period commencing on [**]:
(A) the [**] in the applicable country in the
Territory or
(B) the [**] containing a Valid Claim in the
applicable country in the Territory so long as
patents included in the [**] have, cumulatively,
the scope provided in both clauses (i) and (ii)
of Section 1.6,
until the [**], in addition to the royalty set
forth in Section 3.2 (a)(i), Schering shall pay
to Sepracor an additional [**] of all annual Net
Sales of Licensed Product in such country;
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(iii) For the period commencing on the applicable
[**] in each country in the Territory until the later of the
expiration date (including as the following patent(s) may be
extended pursuant to 35 U.S.C. Section 156 or other patent
extension statute) of:
(A) the [**], containing a Valid Claim, or
(B) the patents included in [**], containing a
Valid Claim in the applicable country in the
Territory, so long as patents included in the
[**] have, cumulatively, the scope provided in
both clauses (i) and (ii) of Section 1.6,
[**] of annual Net Sales of Licensed Product in
the applicable country if Net Sales in the
Territory in any Calendar Year are below [**];
(iv) For the period commencing on the applicable [**]
in each country in the Territory until the later of the
expiration date (including as such patent(s) may be extended
pursuant to 35 U.S.C. Section 156 or other patent extension
statute) of:
(A) the [**], containing a Valid Claim, or
(B) the patents included in [**], containing a
Valid Claim, in the applicable country in the
Territory, so long as patents included in the
[**] have, cumulatively, the scope provided in
both clauses (i) and (ii) of Section 1.6,
if Net Sales in the Territory in any Calendar
Year are [**] or more, [**] of annual Net Sales
of Licensed Product in the applicable country in
the Territory on the fraction of Net Sales in
the applicable country in the Territory equal to
[**] Net Sales in the Territory of Licensed
Product in U.S. dollars); and
(v) In that year of the occurrence of the [**],
should the [**] occur on a date other than January 1st, the
calculations and payments due under Sections 3.2(a)(iii) and
3.2(a)(iv) shall be based only on sales that occur subsequent
to the [**].
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(b) Third Party Sales of DCL. Notwithstanding any other
provision of this Agreement, in the event that any third party receives
approval from the FDA or the applicable regulatory authority to market
a product incorporating DCL in a country in the Territory without
Schering's consent then Sepracor shall receive the calculated royalty
provided in Section 3.2(a) (i)-(iv) for a period of [**] after such
approval. After such [**] period Schering shall have no further
obligation to pay any royalty in such country in the Territory on the
Net Sales of Licensed Compound and/or Licensed Product pursuant to
Section 3.2(a) during any period in which such third party product
incorporating DCL is being marketed in such country in the Territory
and such product achieves a market share of [**] or more of total unit
sales of all DCL product prescribed for allergic conditions and all
other indications subsequently developed by Schering, its Affiliates or
Sublicensees as reported by the "National Prescription Audit" report
compiled by IMS America. After the [**], the licenses granted to
Schering hereunder shall become non-exclusive and otherwise remain in
full force and effect in accordance with the terms hereof.
(c) Term and Scope of Royalty Obligations. Subject to Section
3.2(b) and Section 8.1 relating to term of royalty obligations,
royalties on each Licensed Product at the rate set forth in Section 3.2
(a)(i)-(iv) shall continue on a country-by-country basis until the
expiration of the last applicable Patent Right incorporating a Valid
Claim in such country. No royalties shall be due upon the sale or other
transfer among Schering, its Affiliates or Sublicensees, but in such
cases the royalty shall be due and calculated upon Schering's or its
Affiliates' or its Sublicensees' Net Sales to the first independent
third party. No royalties shall accrue on the disposition of Licensed
Product by Schering, Affiliates or its Sublicensees as samples
(promotion or otherwise) or as donations (for example, to non-profit
institutions or government agencies for a non-commercial purpose) or
for clinical studies. Such dispositions by Schering shall not be
included in the determination of Net Sales, during the period of time
in which such third party sales are occurring.
(d) Third Party Licenses. In the event that patent licenses
from third parties are required by Schering, its Affiliates or its
Sublicensees in order to discover, develop, make, have made, import,
export, use, distribute, promote, market, offer for sale or sell
Licensed Product (hereinafter "Third Party Licenses"), Schering shall
be solely responsible for acquiring such licenses at Schering's sole
discretion. Schering may reduce any royalty otherwise due Sepracor
hereunder
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to reimburse it for royalties and or license fees actually paid to such
third parties under any Third Party Licenses of patent claims covering,
in the Territory:
(i) Licensed Compound (including salts, solvates, or
other non-covalent derivatives thereof);
(ii) a use of Licensed Compound to treat a condition
recited in such patent claim [**] or to induce a biological
response [**]; or
(iii) an ingestible, non-controlled release, solid
oral dosage formulation of Licensed Compound
a license under clauses (i), (ii) or (iii) hereof being hereinafter
referred to as a "Qualifying Third Party License". Schering shall have
no right to reduce any royalty due Sepracor for any amounts paid to a
third party under any third party license to the extent it is not a
Qualifying Third Party License, including, without limitation, any
amount paid with respect to any third party patent claims covering a
non-ingestible formulation of Licensed Compound [**], or use or
manufacture of such a formulation, a controlled release formulation of
Licensed Compound, or use or manufacture of such a non-ingestible
formulation or controlled release formulation of Licensed Compound. The
amount of reduction of royalties due Sepracor and the amount of
reimbursement to Schering shall be equal to [**] of the royalties or
license fees paid to such third parties in consideration for the
Qualifying Third Party License but in no event shall the royalty due
Sepracor for any Licensed Product in any country in any Calendar
Quarter be thereby reduced to less than [**] of the royalties otherwise
due Sepracor hereunder for such Licensed Product in such country.
Notwithstanding anything to the contrary in this paragraph, in no event
shall Sepracor's royalty due under this Agreement for any Licensed
Product be reduced to less than [**] of Net Sales of such Licensed
Product in such country in the Territory.
By way of example and for avoidance of doubt, if Schering is
obligated to pay Sepracor a [**] royalty on Net Sales of a certain
Licensed Product, and is also obligated to pay a [**] royalty on the
same Net Sales of the same Licensed Product under a Qualifying Third
Party License, then the royalty rate under this Agreement would be
reduced by [**] to [**]. If the third party royalty obligation in the
above example were [**], the calculated royalty rate would not be
reduced by [**] rather the actual royalty rate would only be reduced to
[**] due to the [**] reduction provision. For further example, if
Schering is obligated to pay Sepracor
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a [**] royalty on Net Sales of certain Licensed Product, and it is also
obligated to pay a [**] royalty on the same Net Sales of the same
Licensed Product under a Qualifying Third Party License, the actual
royalty rate would not be reduced to [**] under the [**] reduction
provision; rather the actual royalty rate would be reduced to [**] due
to the final sentence of the preceding paragraph of this Section
3.2(d).
(e) Compulsory Licenses. If a compulsory license is granted
under the Patent Rights to a third party with respect to Licensed
Compound and/or Licensed Product in any country in the Territory with a
royalty rate lower than the royalty rate provided by Section 3.2(a),
then the royalty rate to be paid by Schering on Net Sales in that
country under Section 3.2(a) shall be reduced to the rate paid by the
compulsory licensee.
3.3 Reports; Payment of Royalty; Payment Exchange Rate and Currency
Conversions.
(a) Royalties Paid Quarterly. Within [**] calendar days
following the close of each Calendar Quarter, following the First
Commercial Sale of a Licensed Product, Schering shall furnish to
Sepracor a written report for the Calendar Quarter showing the Net
Sales of Licensed Product(s) sold by Schering, its Affiliates and its
Sublicensees in the Territory during such Calendar Quarter and the
royalties payable under this Agreement for such Calendar Quarter. In
addition, such written report shall include a detailed reconciliation
of gross sales to Net Sales including units sold and units sold at zero
value, donated, or otherwise disposed of, and details relating to any
overpayments and underpayments. Simultaneously with the submission of
the written report, Schering shall pay to Sepracor, for the account of
Schering or the applicable Affiliate or Sublicensee, as the case may
be, a sum equal to the aggregate royalty due for such Calendar Quarter
calculated in accordance with this Agreement (reconciled for any
previous overpayments or underpayments).
(b) Method of Payment. Payments to be made by Schering to
Sepracor under this Agreement shall be paid by bank wire transfer in
immediately available funds to such bank account as is designated in
writing by Sepracor from time to time. Royalties shall be deemed
payable by the entity making the Net Sales from the country in which
earned in local currency and subject to foreign exchange regulations
then prevailing. Royalty payments shall be made in United States
dollars to the extent that free conversions to United States dollars is
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permitted. The rate of exchange to be used in any such conversion from
the currency in the country where such Net Sales are made shall be the
rate of exchange used by Schering for reporting such sales for United
States financial statement purposes. If, due to restrictions or
prohibitions imposed by national or international authority, payments
cannot be made as aforesaid, the parties shall consult with a view to
finding a prompt and acceptable solution, and Schering will deal with
such monies as Sepracor may lawfully direct at no additional
out-of-pocket expense to Schering Notwithstanding the foregoing, if
royalties in any country cannot be remitted to Sepracor for any reason
within six (6) months after the end of the Calendar Quarter during
which they are earned, then Schering shall be obligated to deposit the
royalties in a bank account in such country in the name of Sepracor.
3.4 Maintenance of Records; Audits.
(a) Record Keeping by Schering. Schering and its Affiliates
shall keep complete and accurate records in sufficient detail to enable
the royalties payable hereunder to be determined. Upon [**] prior
written notice from Sepracor, Schering shall permit an independent
certified public accounting firm of nationally recognized standing
selected by Sepracor, at Sepracor's expense, to have access during
normal business hours to examine pertinent books and records of
Schering and/or its Affiliates as may be reasonably necessary to verify
the accuracy of the royalty reports hereunder. The examination shall be
limited to pertinent books and records for any year ending not more
than [**] prior to the date of such request. An examination under this
Section 3.4(a) shall not occur more than once in any Calendar Year.
Schering may designate competitively sensitive information, which such
auditor may not disclose to Sepracor, provided, however, that such
designation shall not encompass the auditor's conclusions. The
accounting firm shall disclose to Sepracor only whether the royalty
reports are correct or incorrect and the specific details concerning
any discrepancies. No other information shall be provided to Sepracor.
All such accounting firms shall sign a confidentiality agreement (in
form and substance reasonably acceptable to Schering) as to any of
Schering's or its Affiliate's confidential information which they are
provided, or to which they have access, while conducting any audit
pursuant to this Section 3.4(a).
(b) Underpayments/Overpayments. If such accounting firm
correctly concludes that additional royalties were owed during such
period, Schering shall pay the additional royalties within thirty (30)
days of the date Sepracor delivers
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to Schering such accounting firm's written report so correctly
concluding. If such underpayment exceeds [**] of the royalty correctly
due Sepracor then the fees charged by such accounting firm for the work
associated with the underpayment audit shall be paid by Schering. Any
overpayments by Schering will be credited against future royalty
obligations. In the event that Schering disagrees with the audit report
and the chief financial officers of Schering and Sepracor (or their
designees) fail to resolve such disagreement, the dispute will be
resolved through the dispute resolution mechanism set forth in Section
9.2.
(c) Record Keeping by Sublicensee. Schering shall include in
each sublicense granted by it pursuant to this Agreement a provision
requiring the Sublicensee to make reports to Schering, to keep and
maintain records of sales made pursuant to such sublicense and to grant
access to such records by Sepracor's independent accountant to the same
extent required of Schering under this Agreement. Upon the expiration
of [**] following the end of any year, the calculation of royalties
payable with respect to such year shall be binding and conclusive upon
Sepracor, Schering and its Sublicensees shall be released from any
liability or accountability with respect to royalties for such year.
(d) Confidentiality. Sepracor shall treat all financial
information subject to review under this Section 3.4, or under any
sublicense agreement, in accordance with the confidentiality provisions
of this Agreement, and shall cause its accounting firm to enter into an
acceptable confidentiality agreement with Schering obligating it to
retain all such financial information in confidence pursuant to such
confidentiality agreement.
3.5 Income Tax Withholding. If at any time, any jurisdiction within the
Territory requires the withholding of income taxes or other taxes imposed upon
payments set forth in this Article III, Schering shall make such withholding
payments as required and subtract such withholding payments from the payments
set forth in this Article III, or if applicable, Sepracor will promptly
reimburse Schering or its designee(s) of the amount of such payments. Schering
shall provide Sepracor with documentation of such withholding and payment in a
manner that is satisfactory for purposes of the U.S. Internal Revenue Service.
Any withholdings paid when due hereunder shall be for the account of Sepracor
and shall not be included in the calculation of Net Sales.
3.6 Direct Affiliate Licenses. Whenever Schering shall reasonably
demonstrate to Sepracor that, in order to facilitate direct royalty payments by
an Affiliate, it is desirable that a separate license agreement be entered into
between Sepracor and such
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Affiliate, Sepracor will grant such licenses directly to such Affiliate by means
of an agreement which shall be consistent with all of the provisions hereof,
provided that Schering guarantees the Affiliate's obligations thereunder.
ARTICLE IV
PATENTS
4.1 Filing, Prosecution and Maintenance of Patents. Sepracor agrees to
diligently file, prosecute and maintain in the Territory, all Patent Rights
owned in whole or in part by Sepracor and licensed to Schering under this
Agreement, including without limitation, any Improvement Patent. Sepracor shall
supply Schering with a copy of the applications as filed, together with notice
of its filing date and serial number. Sepracor shall keep Schering regularly
advised of the status of pending patent applications (including, without
limitation, the grant of any Patent Rights), and upon the written request of
Schering shall provide copies of any substantive papers related to the filing,
prosecution and maintenance of such patent filings. Schering shall treat all
information, papers, and other materials provided by Sepracor pursuant to this
Section 4.1 in accordance with the confidentiality provisions of this Agreement.
4.2 Option of Schering to Prosecute and Maintain Patents. Sepracor
shall give [**] notice to Schering of any desire to cease prosecution and/or
maintenance of a particular Patent Right and, in such case, shall permit
Schering, at its sole discretion, to continue prosecution or maintenance at its
own expense. If Schering elects to continue prosecution or maintenance, Sepracor
shall execute such documents and perform such acts, at Schering's expense, as
may be reasonably necessary to effect an assignment of such Patent Rights to
Schering. Any such assignment shall be completed in a timely manner to allow
Schering to continue such prosecution or maintenance. Any patents or patent
applications so assigned shall not be considered Patent Rights.
4.3 Enforcement.
(a) Notice and Discontinuance of Infringement. In the event
that either Schering or Sepracor becomes aware of any infringement
involving Licensed Product within the Territory of any issued patent
within the Patent Rights, it will notify the other party in writing to
that effect. Any such notice shall include evidence to support an
allegation of infringement by such third party. Sepracor shall use
reasonable efforts to obtain a discontinuance of such infringement or
bring suit against the third party infringer within [**] from the date
of said notice. Sepracor shall bear all the expenses of any suit
brought by it. Schering shall have
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the right, prior to commencement of the trial, suit or action brought
by Sepracor, to join any such suit or action, and in such event shall
pay one-half of the costs of such suit or action. In the event that
Schering has joined in the action and shared in the costs thereof as
set forth above, no settlement, consent judgment or other voluntary
final disposition of the suit may be entered into without the consent
of Schering. In the event that Schering has not joined the suit or
action, Schering will reasonably cooperate with Sepracor in any such
suit or action and shall have the right to consult with Sepracor and be
represented by its own counsel at its own expense. Any recovery or
damages derived from any suit under this Section shall be used first to
reimburse each of Sepracor and Schering for its documented
out-of-pocket legal expenses relating to the suit, shall be used second
to reimburse Sepracor for royalties lost as a result of reduced sales
of Licensed Product, shall be used third to reimburse Schering for
amounts attributed to Schering's lost profits, with any remaining
amounts, including but not limited to punitive, exemplary, or other
enhanced damages, to be shared equally by the parties.
(b) Continuance of Infringement. If Sepracor has neither
obtained a discontinuance of such infringement nor brought suit against
such infringer after the expiration of the [**] period specified in
Subsection 4.3(a), Schering shall have the right, but not the
obligation, to bring suit against such infringer under the Patent
Rights and join Sepracor as a party plaintiff, provided that Schering
shall bear all the expenses of such suit. Sepracor shall cooperate with
Schering in any such suit for infringement of a Patent Right brought by
Schering against a third party, and shall have the right to consult
with Schering and to participate in and be represented by independent
counsel in such litigation at its own expense. Schering shall
periodically reimburse Sepracor for its out of pocket costs (excluding
Sepracor's costs of retaining independent counsel) incurred in
cooperating with Schering. Schering shall incur no liability to
Sepracor as a consequence of such litigation or any unfavorable
decision resulting therefrom, including any decision holding any of the
Patent Rights invalid or unenforceable, except that Schering shall
indemnify and hold Sepracor harmless for any monetary judgment or award
against or penalty levied upon either Sepracor or Schering arising out
of Schering's acts in the enforcement of such Patent Rights. In the
event that Schering recovers any sums in such litigation by way of
damages or in settlement thereof, Schering shall retain all such sums.
4.4 Third Party Infringement Suit. In the event that a third party sues
Schering alleging that Schering's, its Affiliates' or its Sublicensees' making,
having made,
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importing, exporting, using, distributing, marketing, promoting, offering for
sale or selling Licensed Compound and/or Licensed Product under the Patent
Rights infringes or will infringe said third party's patent, then Schering may
elect to defend such suit at its sole expense and discretion. Upon Schering's
request and in connection with Schering's defense of any such third party
infringement suit, Sepracor shall cooperate with Schering for such defense
provided, that Schering shall promptly reimburse Sepracor for reasonable
out-of-pocket costs and expenses incurred by Sepracor in providing such
cooperation. Sepracor shall invoice Schering for such costs and expenses, and
shall provide documentation for the invoice. The invoice shall be payable to
Sepracor or its designee(s) [**] after receipt by Schering of the invoice.
4.5 Certification Under Drug Price Competition and Patent Restoration
Act. Sepracor and Schering each shall immediately give written notice to the
other of any certification of which they become aware filed pursuant to 21
U.S.C. Section 355(b)(2)(A) (or any amendment or successor statute thereto)
claiming that Patent Rights covering Licensed Compound and/or Licensed
Product(s) are invalid or that infringement will not arise from the manufacture,
use or sale of Licensed Compound or Licensed Product by a third party.
Notwithstanding any provision to the contrary, in the event that the Patent
Rights at issue are owned and/or controlled by Sepracor and Sepracor has failed
to bring an infringement action against such third party at least [**] prior to
expiration of the forty five (45) day period set forth in 21 U.S.C.
Section 355(c)(3)(C) (or any amendment or successor statute thereto), Schering
shall have the right to bring such an infringement action, in its sole
discretion and at its own expense, in its own name and/or in the name of
Sepracor. At Schering's request, Sepracor shall, at its own expense, provide
Schering reasonable assistance to conduct such infringement action, including,
without limitation, causing the execution of such legal documents as Schering
may deem necessary for the prosecution of such action. Schering shall
periodically reimburse Sepracor for its out-of-pocket costs (excluding any of
Sepracor's costs of retaining independent counsel) incurred in assisting
Schering. Schering shall incur no liability to Sepracor as a consequence of such
litigation or any unfavorable decision resulting therefrom, including any
decision holding any of the Patent Rights invalid or unenforceable, except that
Schering shall indemnify and hold Sepracor harmless for any monetary judgment or
award against or penalty levied upon either Sepracor or Schering arising out of
Schering's acts in the enforcement of such Patent Rights. In the event that
Schering recovers any sums in such litigation by way of damages or in settlement
thereof, Schering shall have the right to retain all such sums to offset its
costs, losses and expenses.
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4.6 Abandonment. Subject to Schering's rights pursuant to Section 4.2,
Sepracor shall at the earliest known date give notice to Schering of the grant,
lapse, revocation, surrender, invalidation or abandonment of any Patent Rights
licensed to Schering for which Sepracor is responsible for the filing,
prosecution and maintenance under this Agreement.
4.7 Patent Term Restoration. The parties hereto shall cooperate with
each other in obtaining patent term restoration or its equivalent in the
Territory where applicable to Patent Rights. In the event that elections with
respect to obtaining such patent term restoration are to be made, Schering shall
have the right to make the election and Sepracor agrees to abide by such
election.
4.8 Notices Regarding Patents. All notices, inquiries and
communications in connection with this Article IV shall be sent in the manner
set forth in Section 9.7 to the parties at the addresses and facsimile numbers
indicated below.
If to Sepracor: Sepracor Inc.
111 Locke Drive
Marlborough, Massachusetts 01752-1146
Attn.: Corporate Patent Counsel
Fax No.: (508) 357-7490
If to Schering: Schering Corporation
2000 Galloping Hill Road
Kenilworth, New Jersey 07033
Attn.: Staff Vice President - Patents and Trademarks
Fax No.: (908) 298-5388
ARTICLE V
CONFIDENTIALITY AND PUBLICATION
5.1 Confidentiality.
(a) Nondisclosure Obligation. Each of Sepracor and Schering
shall use only in accordance with this Agreement and shall not disclose
to any third party any Proprietary Information received by it from the
other party, without the prior written consent of the other party. The
foregoing obligations shall survive the expiration or termination of
this Agreement for a period of [**]. These obligations shall not apply
when and to the extent Proprietary Information:
(i) is known by the receiving party at the
time of its receipt, and not through a prior disclosure by the
disclosing party, as documented by business records;
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(ii) is at the time of disclosure or
thereafter becomes published or otherwise part of the public
domain without breach of this Agreement by the receiving
party;
(iii) is subsequently disclosed to the
receiving party by a third party that has the right to make
such disclosure;
(iv) is developed by the receiving party
independently of Proprietary Information or other information
received from the disclosing party and such independent
development can be documented by the receiving party;
(v) is disclosed to any institutional review
board of any entity conducting clinical trials or any
governmental or other regulatory agencies in order to obtain
patents or to gain approval to conduct clinical trials or to
market Licensed Compound and/or Licensed Product, but such
disclosure may be made only to the extent reasonably necessary
to obtain such patents or authorizations; or
(vi) is required by law, regulation, rule,
act or order of any governmental authority or agency to be
disclosed by a party, provided that notice is promptly
delivered to the other party in order to provide an
opportunity to seek a protective order or other similar order
with respect to such Proprietary Information and thereafter
the disclosing party discloses to the requesting entity only
the minimum Proprietary Information required to be disclosed
in order to comply with the request, whether or not a
protective order or other similar order is obtained by the
other party.
(b) Disclosure to Agents. Notwithstanding the provisions of
Section 5.1(a) and subject to the other terms of this Agreement,
Schering shall have the right to disclose Sepracor Proprietary
Information to its Sublicensees, agents, consultants, Affiliates or
other third parties (collectively "Agents") in accordance with this
Section 5.1(b). Such disclosure shall be limited only to those Agents
directly involved in the research, development, manufacturing,
marketing or promotion of Licensed Compound or Licensed Product (or for
such Agents to determine their interest in performing such activities)
in accordance with this Agreement. Any such Agents must agree in
writing to be bound by
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confidentiality and non-use obligations essentially the same as those
contained in this Agreement. The term of confidentiality and non-use
obligations for such Agents shall be no less than [**]. Schering shall
be jointly and severally liable for any disclosure of Sepracor
Proprietary Information by Agents.
(c) Disclosure to a Third Party. Sepracor shall have the right
to use and disclose any Sepracor Know-How at its sole option and
discretion for the limited purpose of filing, prosecuting, and
supporting Patent Rights. Subject to Section 5.3, either party may
publish Sepracor Know-How under the terms of Section 5.4 below.
Sepracor shall not otherwise disclose, provide or transfer any Sepracor
Know-How to any third party without the prior written approval of
Schering.
5.2 Return of Proprietary Information. Upon termination of this
Agreement the receiving party shall return all documents, and copies thereof,
(including those in the possession of Schering's Agents pursuant to Section
5.1(b)), containing the disclosing party's Proprietary Information at any time
upon request of the disclosing party. However, the receiving party may retain
one (1) copy of such documents in a secure location solely for the purpose of
determining its obligations hereunder, to comply with any applicable regulatory
requirements, or to defend against any product liability or other claims.
5.3 Publicity. Sepracor and Schering shall jointly issue a press
release concerning this Agreement promptly after the Effective Date, which press
release is appended hereto as Schedule 5.3. Following the date of execution of
this Agreement, Sepracor may also issue press releases limited substantially to
Schering's public announcements pursuant to Section 2.5. Except as provided in
Sections 2.5, 5.1 and this Section 5.3, a party may not use the name of the
other party in any publicity, advertising or in any other public way and, may
not issue press releases or otherwise publicize or disclose any information
related to the existence of this Agreement or the terms or conditions or any
information relating to the subject matter hereof, without the prior written
consent of the other party. Sepracor may use the substance of the joint press
release, Schering's public announcements, and any other materials approved by
Schering, in Sepracor's investor relations and public relations activities. [**]
Nothing in the foregoing, however, shall prohibit a party from making
disclosures to the extent deemed necessary under applicable federal or state
securities laws or any rule or regulation of any nationally recognized
securities exchange, provided same is accurate and complete. In such event,
however, the disclosing party shall use good faith efforts to consult with the
other party prior to such disclosure and, where applicable, shall request
confidential treatment to the extent available. [**] this Agreement [**] shall
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provide [**] shall have [**]. In the event that [**] shall provide [**] shall
have [**]. In the event that [**] shall provide [**] shall be [**] provided,
however, [**] only elect once to have the royalty rates provided for in Section
3.2 permanently reduced [**]; for example [**] as provided for above [**].
In addition, in the event that [**] shall provide [**]. In the event
that [**] shall provide [**] provided, however, [**] for example, [**] as
provided for above. In the event that [**] shall provide [**].
For the purposes of this Section 5.3, [**].
Nothing in this Section 5.3 and no specific remedy set forth herein
shall [**] under this Agreement, including but not limited to [**] pursuant to
the terms and conditions of Section 9.2. [**].
5.4 Publication. Schering and Sepracor each acknowledge the potential
benefit in publishing results of certain studies to obtain recognition within
the scientific community and to advance the state of scientific knowledge. Each
party also recognizes the mutual interest in obtaining valid patent protection
and in protecting business interests and trade secret information. No
publication of Sepracor Know-How or Patent Rights may be made without the prior
written consent of Sepracor. The parties agree that Schering, its Affiliates,
employees or consultants shall be free to make any publication which does not
disclose Sepracor Know-How or Patent Rights. In the event that any proposed
publication (as defined below) discloses Sepracor Know-How or Patent Rights, the
following procedure shall apply: Either party, its Affiliates, employees or
consultants wishing to make a publication shall deliver to the other party a
copy of the proposed written publication or an outline of an oral disclosure at
least [**] prior to submission for publication or presentation. For purposes of
this Agreement, the term "publication" shall include, without limitation,
abstracts and manuscripts for publication, slides and texts of oral or other
public presentations, and texts of any transmission through any electronic
media, e.g. any computer access system such as the Internet, including the World
Wide Web. The reviewing party shall have the right (i) to propose modifications
to the publication for patent reasons, trade secret reasons or business reasons
or (ii) to request delay of the publication or presentation in order to protect
patentable information. If the reviewing party requests a delay, the publishing
party shall delay submission or presentation for a period not less than [**]
from the filing date of the first patent application covering the information
contained in the proposed publication or presentation. If the reviewing party
requests modifications to the publication, the publishing party may edit such
publication to prevent disclosure or trade secret or proprietary business
information prior to submission of the publication or presentation.
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ARTICLE VI
REPRESENTATIONS AND WARRANTIES
6.1 Representations and Warranties of Each Party. Each of Sepracor and
Schering hereby represents, warrants and covenants to the other party hereto as
follows:
(a) it is a corporation or entity duly organized and validly
existing under the laws of the state or other jurisdiction of
incorporation or formation;
(b) the execution, delivery and performance of this Agreement
by such party has been duly authorized by all requisite corporate
action, subject only to receipt of requisite approval of its board of
directors;
(c) it has the power and authority to execute and deliver this
Agreement and to perform its obligations hereunder;
(d) except as set forth in Schedule 6.1(d), the execution,
delivery and performance by such party of this Agreement and its
compliance with the terms and provisions hereof does not and will not
conflict with or result in a breach of any of the terms and provisions
of or constitute a default under (i) a loan agreement, guaranty,
financing agreement, agreement affecting a product or other agreement
or instrument binding or affecting it or its property; (ii) the
provisions of its charter or operative documents or bylaws; or (iii)
any order, writ, injunction or decree of any court or governmental
authority entered against it or by which any of its property is bound;
(e) except for the governmental and Regulatory Approvals
required to market Licensed Product in the Territory and any filings or
approvals referred to in Section 2.4, the execution, delivery and
performance of this Agreement by such party does not require the
consent, approval or authorization of, or notice, declaration, filing
or registration with, any governmental or regulatory authority and the
execution, delivery or performance of this Agreement will not violate
any law, rule or regulation applicable to such party;
(f) this Agreement has been duly authorized, executed and
delivered and constitutes such party's legal, valid and binding
obligation enforceable against it in accordance with its terms subject,
as to enforcement, to bankruptcy, insolvency, reorganization and other
laws of general applicability relating to or
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affecting creditors' rights and to the availability of particular
remedies under general equity principles;
(g) it shall comply with all applicable material laws and
regulations relating to its activities under this Agreement; and
(h) other than as set forth in Schedule 6.1(h) to the best of
its knowledge there are no third party pending patent applications
which, if issued, may cover the development, manufacture, use or sale
of any Licensed Compound or Licensed Product.
6.2 Sepracor's Representations. Sepracor hereby represents, warrants
and covenants to Schering that:
(a) to the best of its knowledge, the Patent Rights and
Sepracor Know-How are subsisting and are not invalid or unenforceable,
in whole or in part;
(b) it has the full right, power and authority to grant all of
the right, title and interest in the licenses granted under Article II
hereof;
(c) except as set forth in Schedule 6.2(c), it has not
previously assigned, transferred, conveyed or otherwise encumbered its
right, title and interest in the Licensed Compound, Licensed Product,
the Patent Rights, or Sepracor Know-How;
(d) except as set forth in Schedule 6.2(d), it is the sole and
exclusive owner of the Patent Rights and Sepracor Know-How, all of
which are free and clear of any liens, charges and encumbrances, and no
other person, corporation or other private entity, or governmental
entity or subdivision thereof, has or shall have any claim of ownership
with respect to the Patent Rights or Sepracor Know-How, whatsoever;
(e) except as set forth in Schedule 6.2(e), to the best of its
knowledge, the Patent Rights and Sepracor Know-How, and the
development, manufacture, use, distribution, marketing, promotion and
sale of Licensed Products do not interfere or infringe on any
intellectual property rights owned or possessed by any third party;
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(f) there are no claims, judgments or settlements against or
amounts with respect thereto owed by Sepracor or pending or threatened
claims or litigation against Sepracor relating to Licensed Compound,
the Patent Rights and Sepracor Know-How;
(g) during the Term of this Agreement it will use reasonable
efforts not to diminish the rights under the Patent Rights and Sepracor
Know-How granted to Schering hereunder, including without limitation,
by not committing or permitting any actions or omissions which would
cause the breach of any agreements between itself and third parties
which provide for intellectual property rights applicable to the
development, manufacture, use or sale of Licensed Compound and/or
Licensed Product(s), that it will provide Schering promptly with notice
of any such alleged breach, and that as of the Effective Date, it is in
compliance in all material respects with any agreements with third
parties;
(h) other than as set forth in Schedule 6.2(h), to the best of
its knowledge, it has no knowledge of any circumstances that would
adversely affect the commercial utility of the use of the Licensed
Product or that would render Schering liable to a third party for
patent infringement as a consequence of Schering's sale of the Licensed
Product or use of Patent Rights or Sepracor Know-How;
(i) to the best of its knowledge, data summaries provided in
writing to Schering by Sepracor prior to the Effective Date relating to
pre-clinical and clinical studies of the Licensed Compound accurately
represent the raw data underlying such summaries;
(j) it has provided to Schering a summary of all material
adverse events known to it relating to the Licensed Compound;
(k) except as set forth in Schedule 6.2(k), there are no
collaborative, licensing, material transfer, supply, distributorship or
marketing agreements or arrangements or other similar agreements to
which it or any of its Affiliates are party relating to Licensed
Compound, Licensed Product or Patent Rights nor has it granted any
rights to any third party with respect to the Licensed Compound,
Licensed Product or Patent Rights; and
(l) there are no trademark(s) proposed, chosen, owned or
controlled by Sepracor or its Affiliates specifically in connection
with the Licensed Compound and/or the Licensed Product in the Territory
and Sepracor shall not seek or file for any such trademark in the
Territory during the Term of this Agreement.
6.3 Schering's Representations. Schering hereby represents, warrants and
covenants to Sepracor as follows:
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(a) it is the sole and exclusive owner of the Licensed
Compound in the Territory which is free and clear of any liens, charges
and encumbrances, and no other person, corporation or other private
entity, or governmental entity or subdivision thereof, has or shall
have any claim of ownership with respect to the Licensed Compound,
whatsoever;
(b) to the best of its knowledge, the Licensed Compound and
the development, manufacture, use, distribution, marketing, promotion
and sale of Licensed Compound or Licensed Product(s) does not interfere
or infringe on any intellectual property rights owned or possessed by
any third party; and
(c) there are no claims, judgments or settlements against or
amounts with respect thereto owed by Schering or pending or threatened
claims or litigation against Schering relating to Licensed Compound.
6.4 Continuing Representations. The representations and warranties of
each party contained in Sections 6.1, 6.2 and 6.3 shall survive the execution of
this Agreement.
6.5 No Inconsistent Agreements. Except as set forth in Schedule 6.5,
neither party has in effect and after the Effective Date neither party shall
enter into any oral or written agreement or arrangement that would be
inconsistent with its obligations under this Agreement.
6.6 Representation by Legal Counsel. Each party hereto represents that
it has been represented by legal counsel in connection with this Agreement and
acknowledges that it has participated in the drafting hereof. In interpreting
and applying the terms and provisions of this Agreement, the parties agree that
no presumption shall exist or be implied against the party which drafted such
terms and provisions.
ARTICLE VII
INDEMNIFICATION AND LIMITATION ON LIABILITY
7.1 Indemnification by Schering. Subject to Section 3.2(d), Schering
shall indemnify, defend and hold harmless Sepracor and its Affiliates, and each
of its and their respective employees, officers, directors and agents (each, a
"Sepracor Indemnified Party") from and against any and all claims, demands,
lawsuits, proceedings, settlement amounts, liability, loss, damage, cost, and
expense (including reasonable attorneys' fees), subject to the limitations in
Section 7.5 (collectively, a "Liability") which may be asserted against the
Sepracor Indemnified Party or which the Sepracor Indemnified Party may incur,
suffer or be required to pay resulting from or arising out of (i) the discovery,
development, manufacture, promotion, distribution, use, testing, marketing, sale
or other disposition of Licensed Compound and/or Licensed Product(s) by
Schering, its Affiliates or Sublicensees, including without limitation any
personal injury, death, or other injuries
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suffered by users of Licensed Compound or Licensed Product, or (ii) the breach
by Schering of any covenant, representation or warranty contained in this
Agreement; or (iii) the successful enforcement by a Sepracor Indemnified Party
of its rights under this Section 7.1. Notwithstanding the foregoing, Schering
shall have no obligation under this Agreement to indemnify, defend or hold
harmless any Sepracor Indemnified Party with respect to any Liability which
results from willful misconduct or negligent acts or omissions of Sepracor, its
Affiliates, or any of their respective employees, officers, directors or agents.
Schering shall also have no obligation under this Agreement to indemnify
Sepracor with respect to any Liability arising out of inaccuracy of Sepracor's
representations contained in Sections 6.2(c), 6.2(d) or 6.2(e) wherein
Schering's chief patent counsel had no knowledge, as of the Effective Date, of
material facts underlying such inaccuracy.
7.2 Indemnification by Sepracor. Sepracor shall indemnify, defend and
hold harmless Schering and its Affiliates, and each of its and their respective
employees, officers, directors and agents (each, a "Schering Indemnified Party")
from and against any Liability which the Schering Indemnified Party may incur,
suffer or be required to pay resulting from or arising out of (i) the breach by
Sepracor of any covenant, representation or warranty contained in this
Agreement; or (ii) the successful enforcement by a Schering Indemnified Party of
its rights under this Section 7.2. Notwithstanding the foregoing, Sepracor shall
have no obligation under this Agreement to indemnify, defend or hold harmless
any Schering Indemnified Party with respect to any Liability which results from
willful misconduct or negligent acts or omissions of Schering, its Affiliates,
or any of their respective employees, officers, directors or agents.
7.3 Conditions to Indemnification. Each party agrees to promptly give
the other party notice of any claim for which indemnification might be sought.
Failure of an indemnified party to provide notice of a claim to the indemnifying
party shall affect the indemnified party's right to indemnification only to the
extent that such failure has a material adverse effect on the indemnifying
party's ability to defend or the nature or the amount of the Liability. Subject
to the provisions of Article IV, the indemnifying party shall have the right to
assume the defense of any suit or claim related to the Liability if it has
assumed responsibility for the suit or claim in writing; however, if in the
reasonable judgment of the indemnified party, such suit or claim involves an
issue or matter which could have a materially adverse effect on the business
operations or assets of the indemnified party, the indemnified party may waive
its rights to indemnity under this Agreement and control the defense or
settlement thereof, but in no event shall any such waiver be construed as a
waiver of any indemnification rights such party may have at law or in equity. If
the indemnifying party defends the suit or claim, the
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indemnified party may participate in (but not control) the defense thereof at
its sole cost and expense.
7.4 Settlements. Subject to the provisions of Article IV, neither party
may settle a claim or action related to a Liability without the consent of the
other party, if such settlement would impose any monetary obligation on the
other party or require the other party to submit to an injunction or otherwise
limit the other party's rights under this Agreement; provided that such consent
shall not unreasonably be withheld or delayed. Any payment made by a party to
settle any such claim or action shall be at its own cost and expense.
7.5 Limitation of Liability. With respect to any claim by one party
against the other arising out of the performance or failure of performance of
the other party under this Agreement, the parties expressly agree that the
liability of such party to the other party for such breach shall be limited
under this Agreement or otherwise at law or equity to direct damages only and in
no event shall a party be liable for, punitive, exemplary or consequential
damages suffered or incurred by the other party.
7.6 Insurance. Each party acknowledges and agrees that during the Term
of this Agreement it shall maintain adequate insurance and/or a self-insurance
program for contractual liability insurance to cover such party's obligations
under this Agreement. In addition, Schering shall maintain adequate products
liability insurance to cover Schering's obligations under this Agreement. Each
party shall provide the other party with evidence of such insurance and/or
self-insurance program, upon request.
ARTICLE VIII
TERM AND TERMINATION
8.1 Term and Expiration. This Agreement shall be effective as of the
Effective Date and unless terminated earlier by mutual written agreement of the
parties or pursuant to Sections 8.2 or 8.3 below, the Term of this Agreement
shall continue in effect until the expiration of the last to expire Patent Right
incorporating a Valid Claim. Upon expiration of this Agreement, Schering's
licenses pursuant to Section 2.1 and 2.2 shall become fully paid-up, perpetual
non-exclusive licenses.
8.2 [**] this Agreement [**]. In the event [**].
8.3 Termination.
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(a) Termination for Cause. This Agreement may be terminated by
notice by the terminating party at any time during the Term of this
Agreement:
(i) by either party subject to Section 9.2, if the
other party is in material breach of its material obligations
hereunder (including but not limited to Schering's diligence
obligations set forth in Section 2.5(a))and has not cured such
breach within [**] after notice requesting cure of the breach
with reasonable detail of the particulars of the alleged
breach or initiated actions reasonably expected to cure the
cited failure within [**] of receiving notice and thereafter
diligently pursued such actions to cure the failure (even if
requiring longer than the [**] set forth in this
subsection); or
(ii) by either party upon the filing or institution
of bankruptcy, reorganization, liquidation or receivership
proceedings, or upon an assignment of a substantial portion of
the assets for the benefit of creditors by the other party, or
in the event a receiver or custodian is appointed for such
party's business, or if a substantial portion of such party's
business is subject to attachment or similar process;
provided, however, that in the case of any involuntary
bankruptcy proceeding such right to terminate shall only
become effective if the proceeding is not dismissed within
sixty (60) days after the filing thereof; or
(iii) by Sepracor if an action is brought by or on
behalf of Schering, its Affiliates or Sublicensees challenging
patentability, validity, or enforceability of any Patent
Rights.
(b) Effect of Termination for Cause on License.
(i) Termination by Schering. In the event Schering
terminates this Agreement under Section 8.3(a)(i), Schering's
licenses pursuant to Sections 2.1 and 2.2 shall become fully
paid-up, perpetual licenses.
(ii) Termination by Sepracor. In the event that
Sepracor terminates this Agreement under Section 8.3(a)(i) or
8.3(a)(iii), then the rights and licenses granted to Schering
under Sections 2.1 and 2.2 shall terminate and all rights to
Sepracor Know-How, Licensed Compounds and Licensed Products
granted pursuant to this Agreement shall revert to Sepracor.
(iii) Effect of Bankruptcy. In the event Schering
terminates this Agreement under Section 8.3(a)(ii) or this
Agreement is otherwise terminated under Section 8.3(a)(ii),
the parties agree that Schering, as a licensee of rights to
intellectual property under this Agreement, shall retain
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and may fully exercise all of its rights and elections under
the Insolvency Statute, including as set forth in Section 9.8
hereof.
8.4 Effect of Termination. Expiration or termination of the Agreement
shall not relieve the parties of any obligation accruing prior to such
expiration or termination, and the provisions of Article V and VII shall survive
the expiration of the Agreement. Any expiration or early termination of this
Agreement shall be without prejudice to the rights of either party against the
other accrued or accruing under this Agreement prior to termination, including
the obligation to pay royalties for Licensed Product(s) or Licensed Compound
sold prior to such termination. In the event of termination of this Agreement,
Schering shall have the right to continue to sell its existing inventory of
Licensed Product during the six (6) month period immediately following such
termination, provided that Schering shall continue to make royalty payments with
respect to such sales.
ARTICLE IX
MISCELLANEOUS
9.1 Assignment. Neither this Agreement nor any or all of the rights and
obligations of a party hereunder shall be assigned, delegated, sold,
transferred, sublicensed (except as otherwise provided herein) or otherwise
disposed of, by operation of law or otherwise, to any third party (other than an
Affiliate of an assigning party under the condition that the assignor remain
responsible to the other party under this Agreement), without the prior written
consent of the other party, and any attempted assignment, delegation, sale,
transfer, sublicense or other disposition, by operation of law or otherwise, of
this Agreement or of any rights or obligations hereunder contrary to this
Section 9.1 shall be a material breach of this Agreement by the attempting
party, and shall be void and without force or effect; provided, however, either
party may, without such consent, assign the Agreement and its rights and
obligations hereunder to an Affiliate or in connection with the transfer or sale
of all or substantially all of its assets related to the division or the subject
business, or in the event of its merger or consolidation or change in control or
similar transaction. This Agreement shall be binding upon, and inure to the
benefit of, each party, its Affiliates, and its permitted successors and
assigns. Each party shall be responsible for the compliance by its Affiliates
with the terms and conditions of this Agreement.
9.2 Governing Law. This Agreement shall be governed, interpreted and
construed in accordance with the laws of the State of Delaware, without giving
effect to conflict of law principles. Subject to the terms of this Agreement,
all disputes under this Agreement shall be governed by binding arbitration
pursuant to the mechanism set forth in Schedule 9.2 attached hereto and
incorporated hereby.
9.3 Waiver. Any delay or failure in enforcing a party's rights under
this Agreement or any waiver as to a particular default or other matter shall
not constitute
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a waiver of such party's rights to the future enforcement of its rights under
this Agreement, nor operate to bar the exercise or enforcement thereof at any
time or times thereafter, excepting only as to an express written and signed
waiver as to a particular matter for a particular period of time.
9.4 Independent Relationship. Nothing herein contained shall be deemed
to create an employment, agency, joint venture or partnership relationship
between the parties hereto or any of their agents or employees, or any other
legal arrangement that would impose liability upon one party for the act or
failure to act of the other party. Neither party shall have any power to enter
into any contracts or commitments or to incur any liabilities in the name of, or
on behalf of, the other party, or to bind the other party in any respect
whatsoever.
9.5 Export Control. This Agreement is made subject to any restrictions
concerning the export of products or technical information from the United
States of America which may be imposed upon or related to Sepracor or Schering
from time to time by the government of the United States of America.
Furthermore, Schering agrees that it will not export, directly or indirectly,
any technical information acquired from Sepracor under this Agreement or any
products using such technical information to any country for which the United
States government or any agency thereof at the time of export requires an export
license or other governmental approval, without first obtaining the written
consent to do so from the Department of Commerce or other agency of the United
States government when required by an applicable statute or regulation.
9.6 Entire Agreement; Amendment. This Agreement, including the Exhibits
and Schedules hereto and all the covenants, promises, agreements, warranties,
representations, conditions and understandings contained herein sets forth the
complete, final and exclusive agreement between the parties and supersedes and
terminates all prior and contemporaneous agreements and understandings between
the parties, whether oral or in writing. There are no covenants, promises,
agreements, warranties, representations, conditions or understandings, either
oral or written, between the parties other than as are set forth herein. No
subsequent alteration, amendment, change, waiver or addition to this Agreement
shall be binding upon the parties unless reduced to writing and signed by an
authorized officer of each party. Either party in deciding to execute this
Agreement has relied on no understanding, agreement, representation or promise,
not explicitly set forth herein.
9.7 Notices. Except as provided under Section 4.8 hereof, any notice
required or permitted to be given or sent under this Agreement shall be hand
delivered or sent by express delivery service or certified or registered mail,
postage prepaid, or by facsimile transmission (with written confirmation copy by
registered first-class mail) to the parties at the addresses and facsimile
numbers indicated below.
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If to Sepracor, to: Sepracor Inc.
111 Locke Drive
Marlborough, Massachusetts 01752-1146
Attn.: President, Pharmaceuticals
Fax No.: (508) 357-7490
with copies to: Sepracor Inc.
111 Locke Drive
Marlborough, Massachusetts 01752-1146
Attn.: Corporate Patent Counsel
Fax No.: (508) 357-7490
If to Schering to: Schering-Plough Ltd.
Topferstrasse 5
6004 Lucerne
Switzerland
Attn.: President
Fax No.: (41) (41) 418 16 30
With copies to: Schering Corporation
2000 Galloping Hill Road
Kenilworth, New Jersey 07033
Attn.: Vice President, Business
Development
Fax No.: (908) 298-5379
and Schering Corporation
2000 Galloping Hill Road
Kenilworth, New Jersey 07033
Attn.: Law Department - Senior Legal
Director, Licensing
Fax No.: (908) 298-2739
Any such notice shall be deemed to have been received on the date
actually received. Either party may change its address or its facsimile number
by giving the other party written notice, delivered in accordance with this
Section.
9.8 Provisions for Insolvency.
(a) Effect on Licenses. All rights and licenses granted under
or pursuant to this Agreement by Sepracor to Schering are, for all
purposes of Section 365(n) of Title 11 of the United States Code
(together with its foreign equivalent, the "Insolvency Statute"),
licenses of rights to "intellectual property"
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as defined in the Insolvency Statute. Sepracor agrees that Schering, as
licensee of such rights under this Agreement shall retain and may fully
exercise all of its rights and elections under the Insolvency Statute
provided that Schering makes all royalty payments under this Agreement.
Sepracor agrees during the Term of this Agreement to create and
maintain current copies or, if not amenable to copying, detailed
descriptions or other appropriate embodiments, to the extent feasible,
of all such intellectual property. If a case is commenced by or against
Sepracor under the Insolvency Statute, Sepracor (in any capacity,
including debtor-in-possession) and its successors and assigns
(including, without limitation, an Insolvency Statute Trustee) shall,
(i) as Schering may elect in a written request,
immediately upon such request:
(A) perform all of the obligations provided in this
Agreement to be performed by Sepracor including, where
applicable and without limitation, providing to Schering
portions of such intellectual property (including
embodiments thereof) held by Sepracor and such successors
and assigns or otherwise available to them; or
(B) provide to Schering all such intellectual
property (including all embodiments thereof) held by
Sepracor and such successors and assigns or otherwise
available to them; and
(ii) not interfere with the rights of Schering under this
Agreement, or any agreement supplemental hereto, to such
intellectual property (including such embodiments),
including any right to obtain such intellectual property
(or such embodiments) from another entity.
(b) Rights to Intellectual Property. If an Insolvency Statute
case is commenced by or against Sepracor, and this Agreement is
rejected as provided in the Insolvency Statute, and Schering elects to
retain its rights hereunder as provided in the Insolvency Statute, then
Sepracor (in any capacity, including debtor-in-possession) and its
successors and assigns (including, without limitation, an Insolvency
Statute Trustee) shall provide to Schering all such intellectual
property (including all embodiments thereof) held by Sepracor and such
successors and assigns, or otherwise available to them, immediately
upon Schering's written request. Whenever Sepracor or any of its
successors or assigns provides to Schering any of the intellectual
property licensed hereunder (or any embodiment thereof) pursuant to
this Section 9.8, Schering shall have the right to perform the
obligations of Sepracor hereunder with respect to such intellectual
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property, but neither such provision nor such performance by Schering
shall release Sepracor from any such obligation or liability for
failing to perform it.
(c) Schering's Rights. All rights, powers and remedies of
Schering provided herein are in addition to and not in substitution for
any and all other rights, powers and remedies now or hereafter existing
at law or in equity (including, without limitation, the Insolvency
Statute) in the event of the commencement of an Insolvency Statute case
by or against Sepracor. Schering, in addition to the rights, power and
remedies expressly provided herein, shall be entitled to exercise all
other such rights and powers and resort to all other such remedies as
may now or hereafter exist at law or in equity (including, without
limitation, the Insolvency Statute) in such event. The parties agree
that they intend the foregoing Schering rights to extend to the maximum
extent permitted by law, including, without limitation, for purposes of
the Insolvency Statute:
(i) the right of access to any intellectual property
(including all embodiments thereof) of Sepracor, or any third
party with whom Sepracor contracts to perform an obligation of
Sepracor under this Agreement, and, in the case of the third
party, which is necessary for the development, registration,
manufacture and marketing of Licensed Compound and/or Licensed
Product(s); and
(ii) the right to contract directly with any third
party described in (i) to complete the contracted work.
(d) Deemed Grant of Rights. In the event of any insolvency of
Sepracor and if any statute and/or regulation in any country in the
Territory requires that there be a specific grant or specific clause(s)
in order for Schering to obtain the rights and benefits as licensee
under this Agreement which are analogous to those rights under Section
365(n) of Title 11 of the United States Code, then this Agreement shall
be deemed to include any and all such required grant(s), clause(s)
and/or requirements.
(e) Security Interests. In addition to any other rights
granted to Schering hereunder, with respect to any country in the
Territory in which Schering reasonably determines that its rights set
forth in this Section 9.8 are nonexistent or inadequate to protect
Schering's interests in the licenses granted hereunder, Sepracor shall,
upon Schering's request, execute a security agreement, or any foreign
equivalent, for each country in the Territory, granting Schering a
secured interest in all intellectual property licensed to Schering
under this Agreement.
9.9 Force Majeure. Failure of any party to perform its obligations under
this Agreement (except the obligation to make payments when properly due) shall
not
39
<PAGE> 45
subject such party to any liability or place them in breach of any term or
condition of this Agreement to the other party if such failure is due to any
cause beyond the reasonable control of such non-performing party ("force
majeure"), unless conclusive evidence to the contrary is provided. Causes of
non-performance constituting force majeure shall include, without limitation,
acts of God, fire, explosion, flood, drought, war, riot, sabotage, embargo,
strikes or other labor trouble, failure in whole or in part of suppliers to
deliver on schedule materials, equipment or machinery, interruption of or delay
in transportation, a national health emergency or compliance with any order or
regulation of any government entity acting with color of right. The party
affected shall promptly notify the other party of the condition constituting
force majeure as defined herein and shall exert reasonable efforts to eliminate,
cure and overcome any such causes and to resume performance of its obligations
with all possible speed. If a condition constituting force majeure as defined
herein exists for more than ninety (90) consecutive days, the parties shall meet
to negotiate a mutually satisfactory resolution to the problem, if practicable.
9.10 Severability. If any provision of this Agreement is declared
illegal, invalid or unenforceable by a court having competent jurisdiction, it
is mutually agreed that this Agreement shall endure except for the part declared
invalid or unenforceable by order of such court, provided, however, that in the
event that the terms and conditions of this Agreement are materially altered,
the parties will, in good faith, renegotiate the terms and conditions of this
Agreement to reasonably substitute such invalid or unenforceable provisions in
light of the intent of this Agreement.
9.11 Counterparts. This Agreement shall become binding when any one or
more counterparts hereof, individually or taken together, shall bear the
signatures of each of the parties hereto. This Agreement may be executed in any
number of counterparts, each of which shall be an original as against either
party whose signature appears thereon, but all of which taken together shall
constitute but one and the same instrument.
9.12 Captions. The captions of this Agreement are solely for the
convenience of reference and shall not affect its interpretation.
9.13 Recording. Each party shall have the right, at any time, to
record, register, or otherwise notify this Agreement in appropriate governmental
or regulatory offices anywhere in the world, and each party shall provide
reasonable assistance to the other in effecting such recording, registering or
notifying. Notwithstanding the foregoing, prior to recording, registering, or
otherwise notifying this Agreement, the party desiring to so record, register,
or notify shall provide a copy of all materials to be filed for review, comment,
and approval by the other party, such approval not unreasonably to be withheld
or delayed.
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<PAGE> 46
CONFIDENTIAL MATERIALS OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION. ASTERISKS DENOTE OMISSIONS
9.14 Further Actions. Each party agrees to execute, acknowledge and
deliver such further instruments, and to do all other acts, as may be necessary
or appropriate in order to carry out the purposes and intent of this Agreement
including, without limitation, any filings with any antitrust agency which may
be required.
IN WITNESS WHEREOF, this Agreement has been executed by the duly
authorized representatives of the parties as of the date set forth below.
SEPRACOR INC. SCHERING-PLOUGH LTD.
By: Timothy J. Barberich By: David [illegible]
-------------------- -----------------
Title: President Title: Prokvrist
---------------- -----------------
Date: 12/5/97 Date: 5 December 1997
---------------- -----------------
CONSENTED TO AND AGREED BY A DULY
AUTHORIZED REPRESENTATIVE OF THE
UNDERSIGNED.
IN THE EVENT OF AN INCONSISTENCY
BETWEEN THIS AGREEMENT AND THE
EXCLUSIVE LICENSE AGREEMENT BETWEEN
SEPRACOR AND THE UNIVERSITY OF
MASSACHUSETTS (THE "UMASS/SEPRACOR
AGREEMENT"), THE TERMS OF THIS AGREEMENT
SHALL CONTROL AND THE UMASS/SEPRACOR
AGREEMENT SHALL BE DEEMED TO BE AMENDED
SO THAT IT IS IN FULL COMPLIANCE WITH AND GIVES
EFFECT TO ALL OF THE TERMS AND CONDITIONS OF
THIS AGREEMENT.
UNIVERSITY OF MASSACHUSETTS
By: James FX McGuirl
----------------
Title: Executive Director, CVIP
An Authorized Signatory
------------------------
Date: 10 Dec 97
-------------
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<PAGE> 47
CONFIDENTIAL MATERIALS OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION. ASTERISKS DENOTE OMISSIONS
SCHEDULE 1.18
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
CaseNumber Country Status ApplNumber FilDate PatNumber ISSDate Title
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
[**] AU Pending [**] 11-Dec-1995 [**]
- ------------------------------------------------------------------------------------------------------------------------------------
[**] WO Published 11-Dec-1995 [**]
- ------------------------------------------------------------------------------------------------------------------------------------
[**] CZ Pending [**] 11-Dec-1995 [**]
- ------------------------------------------------------------------------------------------------------------------------------------
[**] SK Pending [**] 11-Dec-1995 [**]
- ------------------------------------------------------------------------------------------------------------------------------------
[**] FI Pending [**] 11-Dec-1995 [**]
- ------------------------------------------------------------------------------------------------------------------------------------
[**] US Issued 30-Dec-1994 5,595,997 21-Jan-1997 Methods and Compositions
for Treating Allergic
Rhinitis and other
Disorders using
Descarboethoxyloratadine
- ------------------------------------------------------------------------------------------------------------------------------------
[**] NO Pending [**] 11-Dec-1995 [**]
- ------------------------------------------------------------------------------------------------------------------------------------
[**] MX Pending [**] 11-Dec-1995 [**]
- ------------------------------------------------------------------------------------------------------------------------------------
[**] EP Published 11-Dec-1995 [**]
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
42
<PAGE> 48
CONFIDENTIAL MATERIALS OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION. ASTERISKS DENOTE OMISSIONS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
CaseNumber Country Status ApplNumber FilDate PatNumber ISSDate Title
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
[**] KR Pending [**] 11-Dec-1995 [**]
- ------------------------------------------------------------------------------------------------------------------------------------
[**] NZ Pending [**] 11-Dec-1995 [**]
- ------------------------------------------------------------------------------------------------------------------------------------
[**] CA Pending [**] 11-Dec-1995 [**]
- ------------------------------------------------------------------------------------------------------------------------------------
[**] JP Pending [**] 11-Dec-1995 [**]
- ------------------------------------------------------------------------------------------------------------------------------------
[**] BR Pending [**] 11-Dec-1995 [**]
- ------------------------------------------------------------------------------------------------------------------------------------
[**] SG Pending [**] 11-Dec-1995 [**]
- ------------------------------------------------------------------------------------------------------------------------------------
[**] CN Pending [**] 11-Dec-1995 [**]
- ------------------------------------------------------------------------------------------------------------------------------------
[**] HU Pending [**] 11-Dec-1995 [**]
- ------------------------------------------------------------------------------------------------------------------------------------
[**] US Allowed 13-Jan-1997 [**]
- ------------------------------------------------------------------------------------------------------------------------------------
[**] US Pending [**] 07-Feb-1997 [**]
- ------------------------------------------------------------------------------------------------------------------------------------
[**] US Pending [**] 30-Apr-1997 [**]
- ------------------------------------------------------------------------------------------------------------------------------------
[**] US Pending [**] 21-Jul-1997 [**]
- ------------------------------------------------------------------------------------------------------------------------------------
[**] US Pending [**] 28-Feb-1997 [**]
- ------------------------------------------------------------------------------------------------------------------------------------
[**] US Pending [**] 11-Feb-1997 [**]
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
43
<PAGE> 49
SCHEDULE 2.8
ADVERSE EVENT REPORTING PROCEDURES FOR PRODUCTS
1. An Adverse Event ("AE") is defined as:
a) any experience which is adverse, including what are commonly
described as adverse or undesirable experiences, adverse
events, adverse reactions, side effects, or death due to any
cause associated with, or observed in conjunction with the use
of a drug, biological product, or device in humans, whether or
not considered related to the use of that product:
occurring in the course of the use of a drug,
biological product or device,
associated with, or observed in conjunction with
product overdose, whether accidental or intentional,
associated with, or observed in conjunction with
product abuse, and/or
associated with, or observed in conjunction with
product withdrawal
b) Any significant failure of expected pharmacological or
biologic therapeutical action (with the exception of in
clinical trials).
2. Serious or Non-Serious is defined as:
a) A serious AE is one that is life threatening or fatal,
permanently disabling, requires or prolongs in-patient
hospitalization or prolonged hospitalization, or is a
congenital anomaly, cancer or overdose. In addition, end organ
toxicity, including hematological, renal, hepatic, and central
nervous system AEs, may be considered serious. In laboratory
tests in animals, a serious AE includes any experience
suggesting significant risk for human subjects.
b) A Non-serious AE is any AE which does not meet the criteria
for a serious AE.
3. Life-threatening is defined as: the patient is at immediate risk of
death from the AE as it occurs.
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<PAGE> 50
4. End-Organ Toxicity is defined as: A medically significant event or lab
value change in which a patient may not necessarily be hospitalized or disabled,
but is clinically significant enough to warrant monitoring (e.g. seizures, blood
dyscrasias).
5. Expected or unexpected is defined as:
(a) Expected AE - An AE which is listed in the investigator's
brochure and/or protocol for clinical trials, included in
local labeling (e.g., Summary of Product Characteristics) for
marketed drugs, or in countries with no local labeling, in the
Corporate Standard Prescribing Document.
(b) Unexpected AE - An AE that does not meet the criteria for an
expected AE or an AE which is listed but differs from that
event in terms of severity or specificity.
6. Associated with or related to the use of the drug is defined as: A
reasonable possibility exists that the AE was caused by the drug.
7. Un-associated or unrelated to the use of the drug is defined as: A
reasonable possibility exists that the AE may not have been caused by the drug.
8. NDA Holder is defined as: An "Applicant" as defined in 21 CFR Part
314.3(b), for regulatory approval of a product in any regulatory jurisdiction,
including a holder of a foreign equivalent thereto.
9. IND Holder is defined as: A "Sponsor" as defined in 21 CFR Part
312.3(b) of an investigational new drug in any regulatory jurisdiction,
including a holder of a foreign equivalent thereto.
10. Capitalized terms not defined in this Schedule 2.8 shall have the
meaning assigned thereto in the Agreement.
11. With respect to all Licensed Products, the parties agree as follows:
(a) All initial reports (oral or written) for any and all Serious
AEs as defined above which become known to either party (other
than from disclosure by or on behalf of the other party) must
be communicated by telephone, telefax or electronically
directly to the other party and/or the NDA Holder, IND Holder
(individually and collectively referred to as "Holders")
within two (2) days of receipt of the information. Written
confirmation of the Serious AE received by the party should be
sent to the other party and/or the Holders as soon as it
becomes available, but in any event within two working days of
initial report of the Serious AE by such party.
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<PAGE> 51
(b) All parties and Holders should exchange Medwatch and/or CIOMS
forms and other health authority reports within two (2)
working days of submission to any regulatory agency.
(c) All initial reports and follow-up information received for all
non-serious AEs for marketed Licensed Products which become
known to a party (other than from disclosure by or on behalf
of the other party) must be communicated in writing, by
telefax or electronically to the other party and/or all
Holders on a monthly basis, on Medwatch or CIOMs forms (where
possible).
(d) Each party shall coordinate and cooperate with the other
whenever practicable to prepare a single written report
regarding all Serious AEs, provided, however, that neither
party shall be obligated to delay reporting of any AE in
violation of applicable law or regulations regarding the
reporting of adverse events.
12. The parties further agree that:
a) a written report be forwarded to the other party within two
(2) working days of receipt by the party making the report,
for AEs for animal studies which suggest a potential
significant risk for humans;
b) each party will give the other party a print-out or computer
disk of all AEs reported to it and its Affiliates relating to
Licensed Products within the last year, within 30 days of
receipt of a request from the other party;
c) upon request of a party, the other party shall make available
its AE records relating to Licensed Products (including
computer disks) for viewing and copying by the other party.
d) disclosure of information hereunder by a party to the other
party shall continue as long as either party and/or its
Affiliates continue to clinically test or market Licensed
Products.
e) all written regulatory reports, including periodic NDA, annual
IND, safety updates, or foreign equivalents thereto, etc.
should be sent by a party to the other party within two (2)
working days of submission to the appropriate regulatory
agency. The parties shall agree on a procedure for preparing
these reports.
13. Each party shall diligently undertake the following further obligations
where both parties are or will be commercializing products hereunder and/or
performing clinical trials with respect to product:
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<PAGE> 52
a) to immediately consult with the other party, with respect to
the investigation and handling of any Serious AE disclosed to
it by the other party or by a third party and to allow the
other party to review the Serious AE and to participate in the
follow-up investigation;
b) to immediately advise the other party of any Licensed Product
safety communication received from a health authority and
consult with the other party with respect to any product
warning, labeling change or change to an investigators'
brochure involving safety issues proposed by the other party,
including, without limitation, to the safety issues agreed to
by the parties;
c) to diligently handle in a timely manner the follow-up
investigation and resolution of each AE reported to it;
d) to provide the other party mutually agreed upon audit rights
of its AE reporting system and documentation, upon prior
notice, during normal business hours, at the expense of the
auditing party and under customary confidentiality
obligations;
e) to meet in a timely fashion from time to time as may be
reasonably required to implement the adverse event reporting
and consultation procedures described in this Schedule 2.8,
including identification of those individuals in each party's
Drug Safety group who will be responsible for reporting to and
receiving AE information from the other party, and the
development of a written standard operating procedure with
respect to adverse event reporting responsibilities, including
reporting responsibilities to investigators;
f) where possible, to transmit all data electronically;
g) to report to each other any addenda, revisions or changes to
this Agreement (e.g., change in territories, local
regulations, addition of new licensors/licensees to the
agreement, etc.) which might alter the adverse event reporting
responsibilities hereunder;
h) to utilize English as the language of communication and data
exchange between the parties; and
i) to develop a system of exchange of documents and information
in the event that the Agreement involves more than two
parties.
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<PAGE> 53
SCHEDULE 5.3
PRESS RELEASE
IMMEDIATELY
Schering-Plough and Sepracor Steve Galpin, Jr.
In Licensing Agreement (973) 822-7415
On CLARITIN(R) Metabolite
William O'Donnell
(973) 822-7476
MADISON, N.J., and MARLBOROUGH, Mass., Dec. 8, 1997 --Schering-Plough
Corporation (NYSE: SGP) and Sepracor Inc. (Nasdaq: SEPR) today announced a
licensing agreement giving Schering-Plough exclusive worldwide rights to
Sepracor's patents covering descarboethoxyloratadine (DCL), an active metabolite
of loratadine that in pre-clinical studies has shown the potential for greater
potency. Loratadine is the active agent in the five formulations of
Schering-Plough's CLARITIN(R) nonsedating antihistamine.
Under terms of the agreement, Sepracor has exclusively licensed its DCL
rights to Schering-Plough, which expects to develop and market the DCL product
worldwide. Schering-Plough will pay Sepracor an upfront license fee of $5
million and royalties on DCL sales beginning at first product launch. Royalties
paid to Sepracor will escalate over time and upon the achievement of sales
volume and other milestones.
"Schering-Plough is committed to expanding its portfolio of
pharmaceuticals and to exploring all opportunities to strengthen individual
product lines," said Thomas C. Lauda, executive vice president, global
marketing, Schering-Plough Pharmaceuticals. "We see development of the DCL
product as representing a potentially valuable addition to our CLARITIN
franchise."
- more -
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<PAGE> 54
"This agreement further validates Sepracor's ICE(TM) strategy as a
unique opportunity to extend the life cycle of major pharmaceutical franchises
through proprietary therapeutic advances," said Timothy J. Barberich, Sepracor's
president and chief executive officer. "We are pleased to be collaborating with
Schering-Plough on this exciting program, which we believe may provide a
platform for the evolution of the CLARITIN franchise."
Sepracor's patent portfolio for DCL includes a U.S. method-of-use
patent covering the use of DCL as a nonsedating antihistamine that expires in
2014 and U.S. patent filings covering pharmaceutical formulations and methods of
treatment. Schering-Plough holds composition-of-matter patents on DCL in the
United States, expiring in 2004, and in other countries. CLARITIN, the world's
No. 1 antihistamine, had sales of $1.2 billion in 1996; sales in the 1997 first
nine months totaled $1.3 billion.
Sepracor is a specialty pharmaceutical company dedicated to developing
and commercializing differentiated drugs for the treatment of respiratory,
urology and pain disorders. Referred to as Improved Chemical Entities, or
ICE(TM)s, these new single isomers or active metabolites may offer potential
safety and/or efficacy benefits over their parent compounds and in some cases
the opportunity for additional indications.
Schering-Plough Pharmaceuticals is the worldwide pharmaceutical
research and marketing units of Schering-Plough Corporation, a research-based
company engaged in the discovery, development, manufacturing and marketing of
pharmaceutical and health care products worldwide.
SEPRACOR FORWARD-LOOKING STATEMENT: This news release contains
forward-looking statements that involve risks and uncertainties, including
statements with respect to the safety, efficacy and potential benefits of
products under development. Among the factors tat could cause actual results to
differ materially from those indicated by such forward-looking statements are:
the results of the companies' clinical trials with respect to its products under
development; the scope of the companies' patent protection with respect to such
product candidates; the
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<PAGE> 55
availability of sufficient funds to continue research and development efforts;
and certain other factors that may affect future operating results and are
detailed in the companies' periodic reports filed with the Securities and
Exchange Commission.
SCHERING-PLOUGH FORWARD-LOOKING STATEMENT: The information in this
press release includes certain forward-looking information. Due to market
factors and the nature of the product development and regulatory approval
processes, the forward-looking statements contained in this press release are
subject to risks and uncertainties. For further details and a discussion of
these risks and uncertainties, see the company's Securities and Exchange
Commission filings, including Exhibit 99 of the company's 1996 Form 10-K.
SEPRACOR CONTACTS: David P. Southwell, Executive Vice President and Chief
financial Officer; Jean M. Devine, Director, Investor Relations; Jonae Barnes,
Manager, public Relations, all at (508) 357-7300. Sepracor press releases are
available through ann automated news fax line. To receive this or any recent
releases via fax, call (800) 211-9662.
###
III
<PAGE> 56
SCHEDULE 6.1(d)
1. REVOLVING CREDIT AND SECURITY AGREEMENT
between FLEET BANK and SEPRACOR INC.
i
<PAGE> 57
SCHEDULE 6.1(h)
Assignee:
Patent Family:
Publication No Date Application No Date
-------------- ---- -------------- ----
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<PAGE> 58
SCHEDULE 6.2(c)
1. EXCLUSIVE LICENSE AGREEMENT
by and between
the UNIVERSITY OF MASSACHUSETTS
and
SEPRACOR INC.
dated September 12, 1997
2. ASSIGNMENT
from
SEPRACOR INC.
to
the UNIVERSITY OF MASSACHUSETTS
dated September 12, 1997
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<PAGE> 59
SCHEDULE 6.2(d)
1. EXCLUSIVE LICENSE AGREEMENT
by and between
the UNIVERSITY OF MASSACHUSETTS
and
SEPRACOR INC.
dated September 12, 1997
2. ASSIGNMENT
from
SEPRACOR INC.
to
the UNIVERSITY OF MASSACHUSETTS
dated September 12, 1997
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<PAGE> 60
CONFIDENTIAL MATERIALS OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION. ASTERISKS DENOTE OMISSIONS
SCHEDULE 6.2(e)
Assignee: [**]
Patent Family:
Publication No Date Application No Date
-------------- ---- -------------- ----
[**]
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<PAGE> 61
CONFIDENTIAL MATERIALS OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION. ASTERISKS DENOTE OMISSIONS
SCHEDULE 6.2(h)
Assignee: [**]
Patent Family:
Publication No Date Application No Date
-------------- ---- -------------- ----
[**]
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<PAGE> 62
SCHEDULE 6.2(k)
1. EXCLUSIVE LICENSE AGREEMENT
by and between
the UNIVERSITY OF MASSACHUSETTS
and
SEPRACOR INC.
dated September 12, 1997
2. ASSIGNMENT
from
SEPRACOR INC.
to
the UNIVERSITY OF MASSACHUSETTS
dated September 12, 1997
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<PAGE> 63
SCHEDULE 6.5
1. EXCLUSIVE LICENSE AGREEMENT
by and between
the UNIVERSITY OF MASSACHUSETTS
and
SEPRACOR INC.
dated September 12, 1997
2. ASSIGNMENT
from
SEPRACOR INC.
to
the UNIVERSITY OF MASSACHUSETTS
dated September 12, 1997
ii
<PAGE> 64
SCHEDULE 9.2
ARBITRATION PROVISIONS
(a) Scope. Subject to and in accordance with the terms of this
Agreement and this Schedule 9.2, all differences, disputes, claims or
controversies arising out of or in any way connected or related to this
Agreement, whether arising before or after the expiration of the term of this
Agreement, and including, without limitation, its negotiation, execution,
delivery, enforceability, performance, breach, discharge, interpretation and
construction, existence, validity and any damages resulting therefrom or the
rights, privileges, duties and obligations of the parties under or in relation
to this Agreement (including any dispute as to whether an issue is arbitrable)
shall be referred to binding arbitration in accordance with the rules of the
American Arbitration Association, as in effect at the time of the arbitration.
(b) Parties to Arbitration. For the purposes of each arbitration under
this Agreement, Schering shall constitute one party to the arbitration and
Sepracor shall constitute the other party to the arbitration.
(c) Notice of Arbitration. A party requesting arbitration hereunder
shall give a notice of arbitration to the other party containing a concise
description of the matter submitted for arbitration, including references to the
relevant provisions of the Agreement and a proposed solution (a "Notice of
Arbitration"). Notice of Arbitration shall be delivered to the other party in
accordance with Section 9.7 of the Agreement.
(d) Response. The non-requesting party must respond in writing within
forty-five (45) days of receiving a Notice of Arbitration with an explanation,
including references to the relevant provisions of the Agreement and a response
to the proposed solution and suggested time frame for action.
The non-requesting party may add additional issues to be resolved.
(e) Meeting. Within fifteen (15) days of receipt of the response from
the non-requesting party pursuant to Paragraph (d), the parties shall meet and
discuss in good faith options for resolving the dispute. The requesting party
must initiate the scheduling of this resolution meeting. Each party shall make
available appropriate personnel to meet and confer with the other party during
such fifteen-(15) day period.
(f) Selection of Arbitrator. Any and all disputes that cannot be
resolved pursuant to Paragraphs (c), (d) and (e) shall be submitted to an
arbitrator (the "Arbitrator") to be selected by mutual agreement of the parties.
The Arbitrator shall be a retired judge of a state or federal court, to be
chosen from a list of such retired judges to be prepared jointly by the parties,
with each party entitled to submit the names of three such retired judges for
inclusion in the list. No Arbitrator appointed
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<PAGE> 65
or selected hereunder shall be an employee, director or shareholder of, or
otherwise have any current or previous relationship with, any party or its
respective Affiliates. If the parties fail to agree on the selection of the
Arbitrator, the Arbitrator shall be designated by a judge of the Federal
District Court in New Jersey upon application by either party.
(g) Powers of Arbitrator. The Arbitrator may determine all questions of
law and jurisdiction (including questions as to whether a dispute is arbitrable)
and all matters of procedure relating to the arbitration. The Arbitrator shall
have the right to grant legal and equitable relief (including injunctive relief)
and to award costs (including reasonable legal fees and costs of arbitration)
and interest. Nothing contained herein shall be construed to permit the
Arbitrator to award punitive, exemplary or any similar damages.
(h) Arbitration Procedure. In the event that Schering is the party
requesting arbitration, the arbitration shall take place in Massachusetts unless
otherwise agreed by the parties, at such place and time as the Arbitrator may
fix for the purpose of hearing the evidence and representations that the parties
may present. In the event that Sepracor is the party requesting arbitration, the
arbitration shall take place in the State of New Jersey unless otherwise agreed
by the parties at such place and time as the Arbitrator may fix for the purpose
of hearing the evidence and representations that the parties may present. The
arbitration proceedings shall be conducted in the English language. The law
applicable to the arbitration shall be the law of the State of Delaware. No
later than twenty (20) business days after hearing the representations and
evidence of the parties, the Arbitrator shall make its determination in writing
and deliver one copy to each of the parties.
(i) Discovery and Hearing. During the meeting referred to in Paragraph
(e), the parties shall negotiate in good faith the scope and schedule of
discovery, relating to depositions, document production and other discovery
devices, taking into account the nature of the dispute submitted for resolution.
If the parties are unable to reach agreement as to the scope and schedule of
discovery, the Arbitrator may order such discovery as it deems necessary. To the
extent practicable taking into account the nature of the dispute submitted for
resolution, such discovery shall be completed within sixty (60) days from the
date of the selection of the Arbitrator. At the hearing, which shall commence
within twenty (20) days after completion of discovery unless the Arbitrator
otherwise orders, the parties may present testimony (either live witness or
deposition), subject to cross-examination, and documentary evidence. To the
extent practicable taking into account the nature of the dispute submitted for
resolution and the availability of the Arbitrator, the hearing shall be
conducted over a period not to exceed thirty (30) consecutive business days,
with each party entitled to approximately half of the allotted time unless
otherwise ordered by the Arbitrator. Each party shall have sole discretion with
regard to the
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<PAGE> 66
admissibility of any evidence and all other matters relating to the conduct of
the hearing.
(j) Witness Lists. At least twenty (20) business days prior to the date
set for the hearing, each party shall submit to each other party and the
Arbitrator a list of all documents on which such party intends to rely in any
oral or written presentation to the Arbitrator and a list of all witnesses, if
any, such party intends to call at such hearing and a brief summary of each
witness' testimony. At least five (5) business days prior to the hearing, each
party must submit to the Arbitrator and serve on each other party a proposed
findings of fact and conclusions of law on each issue to be resolved. Following
the close of hearings, the parties shall each submit such post-hearing briefs to
the Arbitrator addressing the evidence and issues to be resolved as may be
required or permitted by the Arbitrator.
(k) Confidentiality. The arbitration proceedings shall be confidential
and, except as required by law, no party shall make, or instruct the Arbitrator
to make, any public announcement with respect to the proceedings or decision of
the Arbitrator without the prior written consent of the other party. The
existence of any dispute submitted to arbitration and the award of the
Arbitrator shall be kept in confidence by the parties and the Arbitrator, except
as required in connection with the enforcement of such award or as otherwise
required by law.
(l) Awards and Appeal. Subject to the provisions of this Schedule 9.2,
the decision of the Arbitrator shall be final and binding upon the parties in
respect of all matters relating to the arbitration, the conduct of the parties
during the proceedings, and the final determination of the issues in the
arbitration. There shall be no appeal from the final determination of the
Arbitrator to any court, except in the case of fraud or bad faith on the part of
the Arbitrator or any party to the arbitration proceeding in connection with the
conduct of such proceedings. Judgment upon any award rendered by the Arbitrator
may be entered in any court having jurisdiction thereof.
(m) Costs of Arbitration. The costs of any arbitration hereunder shall
be borne by the parties in the manner specified by the Arbitrator in its
determination.
(n) Performance of the Agreement. During the pendency of the
arbitration proceedings, the matter which is the subject of such arbitration
proceedings shall be performed by the parties (A) in the manner determined by
Schering in its sole discretion if it is a matter arising out of Schering's
development of Licensed Product, and (B) in the manner determined by Sepracor in
its sole discretion if it is a matter involving payment of License Fees under
Section 3.1 and royalty payments under Sections 3.2 or 3.3. Notwithstanding the
foregoing, in the event that Schering makes payments pursuant to Sections 3.1,
3.2 or 3.3 and it is subsequently determined by the Arbitrator that Schering was
not required to make such payment(s) then Sepracor shall promptly repay to
Schering all such payments. Further notwithstanding the
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foregoing, the time periods set forth in Section 2.5(b) of the Agreement shall
be suspended during the pendency of the arbitration proceedings. For purposes of
this Paragraph (n) the term "pendency of the arbitration proceeding" shall mean
the period starting on the date on which arbitration proceedings are commenced
by a party in accordance with Paragraph (c) of this Schedule 9.2 and ending on
the date on which the Arbitrator delivers its final determination in writing to
the parties.
iv
<PAGE> 1
Exhibit 10.32
PUT AGREEMENT
THIS AGREEMENT, dated as of December 30, 1997, by and between SEPRACOR
INC., a Delaware corporation ("Sepracor"), to FLEET NATIONAL BANK (the "Bank").
WHEREAS, Versicor, Inc., a Delaware corporation (the "Company"), and
the Bank have entered into a Revolving Credit, Term Loan and Security Agreement
dated as of December 31, 1996 as amended by the First Amendment Agreement dated
as of the date hereof (as further amended, supplemented or restated from time to
time, the "Credit Agreement") pursuant to which the Bank has agreed, subject to
the terms and conditions set forth therein, to make a term loan to the Company
(the "Term Loan"), such Term Loan to be evidenced by the Company's Term Notes,
each payable to the order of the Bank (the "Notes"); and
WHEREAS, Sepracor holds in excess of 19% of the outstanding capital
stock of the Company on a fully diluted basis and the making of the Term Loan
will therefore be beneficial to Sepracor; and
WHEREAS, the Bank has agreed to accept this Agreement from Sepracor in
substitution for the Guaranty Agreement (Sepracor/Versicor) dated as of December
31, 1996 previously delivered by Sepracor to the Bank; and
WHEREAS, the obligation of the Bank to make the Term Loan is subject to
the condition, among others, that Sepracor shall execute and deliver this Put
Agreement;
NOW, THEREFORE, in consideration of the willingness of the Bank to make
the Term Loan to the Company, and for other good and valuable consideration,
receipt of which is hereby acknowledged by Sepracor, Sepracor hereby agrees as
follows:
1. Put Right. The Bank shall have the right at any time after an
Event of Default (as each such term is defined in the Credit Agreement) has
occurred to require Sepracor to purchase up to $2,000,000 in principal amount of
the Term Loan (the "Put Right") on the terms and subject to the provisions of
this Section; provided, that so long as no Event of Default has occurred, the
Put Right shall terminate and Sepracor shall not be obligated to purchase any
portion of the Term Loan (i) at such time as the outstanding amount of the Term
Loan (including principal, accrued interest and premium, if any) shall no longer
exceed $4,000,000 or (ii) upon the closing by the Company of an underwritten
public offering pursuant to an effective registration statement under the
Securities Act of 1933, as amended, covering the offer and sale of the Company's
common stock for the account of the Company in which the aggregate net cash
proceeds (after deduction of any underwriting discounts, commissions or
expenses) received by the Company from such public offering shall exceed
$25,000,000. The Put Right may be exercised by the Bank delivery of written
notice (the "Put Notice") to Sepracor not less than ten (10) days prior to the
proposed date of purchase and sale (the "Settlement Date"). The Put Notice shall
state the proposed Settlement Date, the amount of the Term Loan to be
transferred, and the Put Purchase Price (as defined below) as well as provide
wire instructions for payment
<PAGE> 2
of the Put Purchase Price. The purchase price (the "Put Purchase Price") shall
be an amount equal to the sum of (i) the principal amount of the Term Loan
proposed to be transferred in the Put Notice, (ii) the amount of any accrued
interest and premium, if any, related to such principal amount and (iii) any
reasonable costs of the Bank related to the exercise of the Put Right (including
reasonable attorneys' fees and disbursements). On the Settlement Date, Sepracor
will pay the Put Purchase Price to the Bank in immediately available funds and
the Bank shall deliver a Term Note of the Company, in the original principal
amount of $2,000,000, endorsed to Sepracor, without recourse. Upon the
termination of the Amended and Restated Revolving Credit and Security Agreement
dated as of December 31, 1996 between Sepracor and the Bank or any successor
agreement, prior to the termination by the Bank of this Agreement, Sepracor
shall provide the Bank with cash collateral or other collateral in the form of
securities reasonably acceptable to the Bank in an amount not less than the
amount of the Put Purchase Price on the date of the termination of such
agreement.
2. Transfer of Security Interest. Upon consummation of the sale
contemplated by the Put Right and provided that the Bank has received with
respect to the Term Loan irrevocable and indefeasible payment in cash in full
and all obligation under the Credit Agreement have been discharged in full, the
Bank shall exercise reasonable efforts to cause the assignment to Sepracor of
its security interest and all UCC-1 financing statements filed by the Bank
against the Company; provided that the Bank shall not assign any security
interest granted pursuant to the Control and Security Agreement. Sepracor
expressly and knowingly acknowledges that the Bank has made no representations
or warranties to Sepracor as to the filing or locations for filing of any
financing statements or as to the perfection or enforceability of any security
interest. The Bank shall be under no obligation to Sepracor as to the
maintenance and enforceability of any security interest against the Company
prior to any transfer of a security interest contemplated by this Section 2 and
without the consent of Sepracor, may release any such security interest at its
sole discretion.
3. Waiver of Demands, Notices, Diligence, etc. Sepracor hereby
assents to all of the terms and conditions of the Term Loan and waives: (a)
demand for the payment of the principal of the Term Loan or of any claim for
interest or any part of any thereof (other than the Put Right provided for in
Section 1 hereof); (b) notice of the occurrence of a default or an event of
default under the Term Loan; (c) protest of the nonpayment of the principal of
the Term Loan 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 Bank; (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 Bank in the enforcement of any of its rights under the provisions of the
Term Loan or this Agreement; (h) any enforcement of the Term Loan; (i) any right
which Sepracor might have to require the Bank to proceed against any guarantor
of the Term Loan 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.
Notwithstanding anything to the contrary contained herein, the Bank shall not
without the prior written consent of Sepracor, release any
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<PAGE> 3
collateral securing the Term Loan or any obligations of Versicor under the Term
Notes.
4. Obligations of Sepracor Unconditional. The obligations of
Sepracor under this Agreement shall be unconditional, irrespective of the
validity, regularity or enforceability of the Term Loan, and shall not be
affected by any action taken under the Term Loan in the exercise of any right or
remedy therein conferred, or by any failure or omission on the part of the Bank
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 the Term Loan or this Agreement, or by any release of any security
or any guaranty at any time existing for the benefit of the Term Loan, 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
Bank 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 Sepracor) which may or might in any manner or to any
extent vary the risk of Sepracor hereunder, it being the purpose and intent of
Sepracor that the obligations of Sepracor 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. Notwithstanding anything to the contrary contained
herein, the Bank shall not without the prior written consent of Sepracor,
release any collateral securing the Term Loan or any obligations of Versicor
under the Term Notes.
5. Subordination of Claims of Sepracor. Any claims against the
Company to which Sepracor may be or become entitled (including, without
limitation, claims pursuant to any Term Note transferred hereunder pursuant to
the Put Right, claims by subrogation or otherwise by reason of any payment or
performance by Sepracor in satisfaction and discharge, in whole or in part, of
its obligations under this Agreement) shall be and hereby are made subject and
subordinate to the prior irrevocable and indefeasible payment or performance in
full of the Term Loan (including principal, interest and premium, if any).
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
Bank in respect of the Term Loan is rescinded or must otherwise be restored or
returned by the Bank upon the insolvency, bankruptcy, dissolution, liquidation
or reorganization of the Company or Sepracor or upon the appointment of an
intervenor or conservator of, or trustee or similar official for, the Company or
Sepracor 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
Sepracor or the Bank 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:
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<PAGE> 4
(a) if to Sepracor:
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
(b) if to the Bank:
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 Agreement shall inure to the benefit of
and be binding upon the Bank and Sepracor and their respective successors and
assigns, and the term "Bank" shall be deemed to include any other holder or
holders of any of the Term Loan. In case any provision in this 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 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. Sepracor
agrees, as principal obligor and not as guarantor, to pay to the Bank forthwith
upon demand in funds immediately available to the Bank, all reasonable costs and
expenses (including court costs and reasonable attorneys' fees and
disbursements) incurred or expended by the Bank in connection with the
enforcement of this Agreement. Terms used herein but not defined herein shall
have the meanings assigned to them in the Credit Agreement.
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<PAGE> 5
9. Governing Law; Jurisdiction; Waiver of Jury Trial. This
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. Sepracor, 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. Sepracor 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 Agreement or as otherwise provided under the laws of the Commonwealth of
Massachusetts. SEPRACOR 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.
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<PAGE> 6
IN WITNESS WHEREOF, the parties have executed this 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
The foregoing Agreement is
hereby accepted:
FLEET NATIONAL BANK
By /s/ Kimberly A. Martone
-------------------------------------
Name: Kimberly A. Martone
Title: Vice President
<PAGE> 1
Exhibit 10.33
$165,000,000
SEPRACOR INC.
6 1/4% Convertible Subordinated Debentures Due 2005
PURCHASE AGREEMENT
February 5, 1998
<PAGE> 2
February 5, 1998
Morgan Stanley & Co. Incorporated
Lehman Brothers Inc.
Smith Barney Inc.
Vector Securities International, Inc.
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Dear Sirs and Mesdames:
Sepracor Inc., a Delaware corporation (the "COMPANY"), proposes to
issue and sell to the several purchasers named in Schedule I hereto (the
"INITIAL PURCHASERS") $165,000,000 principal amount of its 6 1/4% Convertible
Subordinated Debentures due 2005 (the "FIRM SECURITIES") to be issued pursuant
to the provisions of an Indenture (the "INDENTURE") to be dated the Closing Date
(as defined below) between the Company and The Chase Manhattan Bank, as Trustee
(the "TRUSTEE"). The Company also proposes to issue and sell to the Initial
Purchasers not more than an additional $24,475,000 principal amount of its 6
1/4% Convertible Subordinated Debentures due 2005 (the "ADDITIONAL SECURITIES")
if and to the extent that you, as Managers of the offering, shall have
determined to exercise, on behalf of the Initial Purchasers, the right to
purchase such 6 1/4% Convertible Subordinated Debentures due 2005 granted to the
Initial Purchasers in Section 2 hereof. The Firm Securities and the Additional
Securities are hereinafter collectively referred to as the "SECURITIES". The
Securities will be convertible into shares of Common Stock, $.10 par value per
share ("Common Stock"), (the "UNDERLYING SECURITIES").
The Securities and the Underlying Securities will be offered without
being registered under the Securities Act of 1933, as amended (the "SECURITIES
ACT"), to qualified institutional buyers in compliance with the exemption from
registration provided by Rule 144A under the Securities Act, and to
institutional accredited investors (as defined in Rule 501(a)(1), (2), (3) or
(7) under the Securities Act) that deliver a letter in the form annexed to the
Final Memorandum (as defined below).
The Initial Purchasers and their direct and indirect transferees will
be entitled to the benefits of a Registration Rights Agreement dated the date
hereof between the Company and the Initial Purchasers (the "REGISTRATION RIGHTS
AGREEMENT").
In connection with the sale of the Securities, the Company has prepared a
preliminary offering memorandum (the "PRELIMINARY MEMORANDUM") and will
2
<PAGE> 3
prepare a final offering memorandum (the "FINAL MEMORANDUM" and, with the
Preliminary Memorandum, each a "MEMORANDUM") including or incorporating by
reference a description of the terms of the Securities and the Underlying
Securities, the terms of the offering, a description of the Company and any
material developments relating to the Company occurring after the date of the
most recent financial statements included or incorporated into each Memorandum.
As used herein, the term "Memorandum" shall include in each case the documents
incorporated by reference therein. The terms "SUPPLEMENT", "AMENDMENT" and
"AMEND" as used herein with respect to a Memorandum shall include all documents
deemed to be incorporated by reference in the Preliminary Memorandum or Final
Memorandum that are filed subsequent to the date of such Memorandum with the
Securities and Exchange Commission (the "COMMISSION") pursuant to the Securities
Exchange Act of 1934, as amended (the "EXCHANGE ACT").
1. Representations and Warranties. The Company represents and
warrants to, and agrees with, you that:
(a) (i) Each document, if any, filed or to be filed
pursuant to the Exchange Act and incorporated by reference in either
Memorandum complied or will comply when so filed in all material
respects with the requirements of the Exchange Act and the applicable
rules and regulations of the Commission thereunder and (ii) the
Preliminary Memorandum does not contain and the Final Memorandum, in
the form used by the Initial Purchasers to confirm sales and on the
Closing Date (as defined in Section 4), will not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements therein, in the light of the circumstances under
which they were made, not misleading, except that the representations
and warranties set forth in this paragraph do not apply to statements
or omissions in either Memorandum based upon information relating to
any Initial Purchaser furnished to the Company in writing by such
Initial Purchaser through you expressly for use therein.
(b) The Company has been duly incorporated, is validly
existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and
authority to own its property and to conduct its business as described
in each Memorandum and is duly qualified to transact business and is in
good standing in each jurisdiction in which the conduct of its business
or its ownership or leasing of property requires such qualification,
except to the extent that the failure to be so qualified or be in good
standing would not have a material adverse effect on the Company and
its subsidiaries, taken as a whole.
(c) Each subsidiary of the Company has been duly
incorporated, is validly existing as a corporation in good standing
under the laws of the
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<PAGE> 4
jurisdiction of its incorporation, has the corporate power and
authority to own its property and to conduct its business as described
in each Memorandum and is duly qualified to transact business and is in
good standing in each jurisdiction in which the conduct of its business
or its ownership or leasing of property requires such qualification,
except to the extent that the failure to be so qualified or be in good
standing would not have a material adverse effect on the Company and
its subsidiaries, taken as a whole; all of the issued shares of capital
stock of each subsidiary of the Company have been duly and validly
authorized and issued, are fully paid and non-assessable and (except
for shares of capital stock of BioSepra Inc., HemaSure Inc. and
Versicor Inc. to the extent described in each Memorandum) are owned
directly by the Company, free and clear of all liens, encumbrances,
equities or claims, except for a negative pledge under the Company's
credit agreement and the rights of the holders of the Company's Series
B Redeemable Exchangeable Preferred Stock to shares of Common Stock of
BioSepra Inc.
(d) This Agreement has been duly authorized, executed and
delivered by the Company.
(e) The authorized and outstanding capital stock of the
Company as of September 30, 1997 is as set forth in each Memorandum
under the caption "Capitalization" and the authorized capital stock of
the Company conforms as to legal matters to the description thereof
contained in the Final Memorandum. The shares of capital stock of the
Company outstanding prior to the issuance of the Securities have been
duly authorized and are validly issued, fully paid and non-assessable
and their issuance was not subject to any preemptive or similar rights.
(f) The shares of the Company's capital stock outstanding
on the date hereof have been duly authorized and are validly issued,
fully paid and non-assessable.
(g) The Securities have been duly authorized and, when
executed and authenticated in accordance with the provisions of the
Indenture and delivered to and paid for by the Initial Purchasers in
accordance with the terms of this Agreement, will be valid and binding
obligations of the Company, enforceable in accordance with their terms,
and will be entitled to the benefits of the Indenture and the
Registration Rights Agreement, except as (i) the enforceability thereof
may be limited by applicable bankruptcy, insolvency or similar laws
affecting creditors' rights generally, (ii) rights of acceleration and
the availability of equitable remedies may be limited by equitable
principles and (iii) the indemnification provisions of the Registration
Rights Agreement may be unenforceable as a matter of public policy.
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<PAGE> 5
(h) The Underlying Securities reserved for issuance upon
conversion of the Securities have been duly authorized and reserved
and, when issued upon conversion of the Securities in accordance with
the terms of the Securities, will be validly issued, fully paid and
non-assessable, and the issuance of the Securities is not, and the
issuance of the Underlying Securities will not be, subject to any
preemptive or similar rights.
(i) Each of the Indenture and Registration Rights
Agreement has been duly authorized, executed and delivered by, and is a
valid and binding agreement of, the Company, enforceable in accordance
with its terms, except as rights to indemnification and contribution
under the Registration Rights Agreement may be limited under applicable
law, except as (i) the enforceability thereof may be limited by
applicable bankruptcy, insolvency or similar laws affecting creditors'
rights generally and (ii) rights of acceleration and the availability
of equitable remedies may be limited by equitable principles.
(j) The execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement,
the Indenture, the Registration Rights Agreement and the Securities
will not contravene any provision of applicable law or the certificate
of incorporation or by-laws of the Company or any agreement or other
instrument binding upon the Company or any of its subsidiaries that is
material to the Company and its subsidiaries, taken as a whole, or any
judgment, order or decree of any governmental body, agency or court
having jurisdiction over the Company or any subsidiary except to the
extent such contravention would not singly or in the aggregate have
material adverse effect on the Company and its subsidiaries, taken as a
whole, and no consent, approval, authorization or order of, or
qualification with, any governmental body or agency is required for the
performance by the Company of its obligations under this Agreement, the
Indenture, the Registration Rights Agreement or the Securities, except
such as may be required by the securities or Blue Sky laws of the
various states in connection with the offer and sale of the Securities
and by Federal and state securities laws with respect to the Company's
obligations under the Registration Rights Agreement.
(k) There has not occurred any material adverse change,
or any development involving a prospective material adverse change, in
the condition, financial or otherwise, or in the earnings, business or
operations of the Company and its subsidiaries, taken as a whole, from
that set forth in the Final Memorandum.
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<PAGE> 6
(l) There are no legal or governmental proceedings
pending or threatened to which the Company or any of its subsidiaries
is a party or to which any of the properties of the Company or any of
its subsidiaries is subject other than proceedings accurately described
in all material respects in each Memorandum and proceedings that would
not have a material adverse effect on the Company and its subsidiaries,
taken as a whole, or on the power or ability of the Company to perform
its obligations under this Agreement, the Indenture, the Registration
Rights Agreement or the Securities or to consummate the transactions
contemplated by the Final Memorandum.
(m) The Company and its subsidiaries (i) are in
compliance with any and all applicable foreign, federal, state and
local laws and regulations relating to the protection of human health
and safety, the environment or hazardous or toxic substances or wastes,
pollutants or contaminants ("ENVIRONMENTAL LAWS"), (ii) have received
all permits, licenses or other approvals required of them under
applicable Environmental Laws to conduct their respective businesses
and (iii) are in compliance with all terms and conditions of any such
permit, license or approval, except where such noncompliance with
Environmental Laws, failure to receive required permits, licenses or
other approvals or failure to comply with the terms and conditions of
such permits, licenses or approvals would not, singly or in the
aggregate, have a material adverse effect on the Company and its
subsidiaries, taken as a whole.
(n) To the Company's knowledge, there are no costs or
liabilities associated with Environmental Laws (including, without
limitation, any capital or operating expenditures required for
clean-up, closure of properties or compliance with Environmental Laws
or any permit, license or approval, any related constraints on
operating activities and potential liabilities to third parties) which
would, singly or in the aggregate, have a material adverse effect on
the Company and its subsidiaries, taken as a whole.
(o) The Company is not, and after giving effect to the
offering and sale of the Securities and the application of the proceeds
thereof as described in the Final Memorandum, will not be an
"investment company" as such term is defined in the Investment Company
Act of 1940, as amended.
(p) Neither the Company nor any affiliate (as defined in
Rule 501(b) of Regulation D under the Securities Act, an "AFFILIATE")
of the Company has directly, or through any agent, (i) sold, offered
for sale, solicited offers to buy or otherwise negotiated in respect
of, any security (as defined in the Securities Act) which is or will be
integrated with the
6
<PAGE> 7
sale of the Securities in a manner that would require the registration
under the Securities Act of the Securities or (ii) engaged in any form
of general solicitation or general advertising in connection with the
offering of the Securities, (as those terms are used in Regulation D
under the Securities Act) or in any manner involving a public offering
within the meaning of Section 4(2) of the Securities Act.
(q) It is not necessary in connection with the offer,
sale and delivery of the Securities to the Initial Purchasers in the
manner contemplated by this Agreement to register the Securities under
the Securities Act or to qualify the Indenture under the Trust
Indenture Act of 1939, as amended.
(r) The Securities satisfy the requirements set forth in
Rule 144A(d)(3) under the Securities Act.
(s) The Company and its subsidiaries possess all
certificates, authorizations and permits issued by the appropriate
federal, state or foreign regulatory authorities necessary to conduct
their respective businesses, except to the extent that the failure to
so possess would not have a material adverse effect on the Company and
its subsidiaries, taken as a whole, and neither the Company nor any
such subsidiary has received any notice of proceedings relating to the
revocation or modification of any such certificate, authorization or
permit, which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would have a material adverse
effect on the Company and its subsidiaries, taken as a whole.
(t) The Company and its subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurance
that (i) transactions are executed in accordance with management's
general or specific authorizations; (ii) transactions are recorded as
necessary to permit preparation of financial statements in conformity
with generally accepted accounting principles and to maintain asset
accountability; (iii) access to assets is permitted only in accordance
with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with the existing assets
at reasonable intervals and appropriate action is taken with respect to
any differences.
(u) The accountants, Coopers & Lybrand L.L.P., who have
certified certain of the financial statements included or incorporated
by reference in each Memorandum (or any amendment or supplement
thereto) are independent public accountants as required by the
Securities Act.
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<PAGE> 8
(v) The financial statements, together with related
schedules and notes, included or incorporated by reference in each
Memorandum, present fairly the consolidated financial position, results
of operations and cash flows of the Company and its subsidiaries on the
basis stated in each Memorandum at the respective dates or for the
respective periods to which they apply; such statements and related
schedules and notes have been prepared in accordance with generally
accepted accounting principles consistently applied throughout the
periods involved, except as disclosed therein; and the other financial
and statistical information and data included or incorporated by
reference in either Memorandum are accurately presented and prepared,
in the case of the financial information, on a basis consistent with
such financial statements and the books and records of the Company and
its subsidiaries.
(w) The Company and each of its subsidiaries are
conducting their business in compliance with all the laws, rules and
regulations of the jurisdictions in which they are conducting business,
including, without limitation, those of the United States Food and Drug
Administration (the "FDA"), except where failure to be so in
compliance, singly or in the aggregate, would not have a material
adverse effect on the Company and its subsidiaries, taken as a whole.
(x) Except as disclosed in each Memorandum, the Company
owns or possesses adequate licenses or other rights to use all patents,
patent applications, trademarks, trademark applications, service marks,
service mark applications, tradenames, copyrights, manufacturing
processes, formulae, trade secrets and know-how or other information
(collectively, "Intellectual Property") described in either Memorandum
as owned by or used by it in the conduct of its business as such
business is described in each Memorandum or which, to the knowledge of
the Company, is necessary for the sale of its products or proposed
products described in either Memorandum, except as where the failure to
own or possess such rights would not, singly or the aggregate, have a
material adverse effect on the Company and its subsidiaries, taken as a
whole. To the knowledge of the Company, none of the material patent
rights owned or licensed by the Company is unenforceable or invalid.
Except as disclosed in each Memorandum, the Company is not aware of any
patents issued to third parties, pending patent applications filed by
third parties or proprietary rights of any third party which would be
infringed by the sale of any of the Company's products or proposed
products described in either Memorandum, except for such infringements
which would not singly or in the aggregate have a material adverse
effect on the Company and its subsidiaries, taken as a whole. The
Company is not aware of any infringement of any of the Company's or its
subsidiaries' Intellectual Property rights by any third party which
could be reasonably expected to
8
<PAGE> 9
have a material adverse effect on the Company and its subsidiaries,
taken as a whole.
(y) None of the statements in the Final Memorandum
describing (i) the License Agreement dated June 1, 1993 between the
Company and Marion Merrell Dow Inc., (ii) the Exclusive License
Agreement dated as of December 5, 1997 between the Company and
Schering-Plough Ltd. or (iii) the Norastemizole Collaboration and
License Agreement dated on or about February 2, 1998 between the
Company and Janssen Pharmaceutica N.V. contain any untrue statement of
a material fact or omit to state a material fact necessary in order to
make such statements and the descriptions of such agreements set forth
in the Final Memorandum, in the light of the circumstances under which
such statements and descriptions were made, not misleading.
(z) The Underlying Securities have been approved for
quotation on the Nasdaq National Market.
2. Agreements to Sell and Purchase. The Company hereby agrees to
sell to the several Initial Purchasers, and each Initial Purchaser, upon the
basis of the representations and warranties herein contained, but subject to the
conditions hereinafter stated, agrees, severally and not jointly, to purchase
from the Company the respective principal amount of Firm Securities set forth in
Schedule I hereto opposite its name at a purchase price of 97% of the principal
amount thereof (the "PURCHASE PRICE") plus accrued interest, if any, to the
Closing Date (as defined below).
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Company agrees to sell
to the Initial Purchasers the Additional Securities, and the Initial Purchasers
shall have a one-time right to purchase, severally and not jointly, up to
$24,475,000 principal amount of Additional Securities at the Purchase Price plus
accrued interest, if any, to the date of payment and delivery. If you, on behalf
of the Initial Purchasers, elect to exercise such option, you shall so notify
the Company in writing not later than 30 days after the date of this Agreement,
which notice shall specify the principal amount of Additional Securities to be
purchased by the Initial Purchasers and the date on which such Additional
Securities are to be purchased. Such date may be the same as the Closing Date
but not earlier than the Closing Date nor later than ten business days after the
date of such notice. Additional Securities may be purchased as provided in
Section 4 solely for the purpose of covering over-allotments made in connection
with the offering of the Firm Securities. If any Additional Securities are to be
purchased, each Initial Purchaser agrees, severally and not jointly, to purchase
the principal amount of Additional Securities (subject to such adjustments to
eliminate fractional Securities as you may determine) that bears the same
proportion to the total principal amount of
9
<PAGE> 10
Additional Securities to be purchased as the principal amount of Firm Securities
set forth in Schedule I opposite the name of such Initial Purchaser bears to the
total principal amount of Firm Securities.
The Company hereby agrees that, without the prior written consent of
Morgan Stanley & Co. Incorporated on behalf of the Initial Purchasers, it will
not, during the period ending 90 days after the date of the Final Memorandum,
(i) offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase, lend, or otherwise transfer or dispose of, directly or
indirectly, any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock or (ii) enter into any swap or
other arrangement that transfers to another, in whole or in part, any of the
economic consequences of ownership of the Common Stock, whether any such
transaction described in clause (i) or (ii) above is to be settled by delivery
of Common Stock or such other securities, in cash or otherwise. The foregoing
sentence shall not apply to (A) the sale of the Securities under this Agreement
or (B) the issuance of the Underlying Securities upon conversion of the
Securities or (C) the issuance by the Company of any shares of Common Stock upon
the exercise of an option or warrant or the conversion of a security outstanding
on the date hereof of which the Initial Purchasers have been advised in writing
or (D) the grant of options to employees, directors and consultants of the
Company, provided such options are not exercisable in such 90 day period.
The Company hereby agrees that it will cause each of its directors and
executive officers to enter into separate "lock-up" agreements, each
substantially in the form of Exhibit D hereto, relating to sales and certain
dispositions of shares of Common Stock or any securities convertible into or
exercisable or exchangeable for such Common Stock and the exercise of
registration rights with respect thereto (the "Lock-Up Agreements").
3. Terms of Offering. You have advised the Company that the
Initial Purchasers will make an offering of the Securities purchased by the
Initial Purchasers hereunder on the terms to be set forth in the Final
Memorandum, as soon as practicable after this Agreement is entered into as in
your judgment is advisable.
4. Payment and Delivery. Payment for the Firm Securities shall be
made to the Company in Federal or other funds immediately available in New York
City against delivery of such Firm Securities for the respective accounts of the
several Initial Purchasers at 10:00 a.m., New York City time, on February 10,
1998, at a closing to be held at the offices of Hale and Dorr LLP in Boston,
Massachusetts or at such other time and place on the same or such other date,
not later than February 17, 1998, as shall be designated in writing by you. The
time and date of such payment are hereinafter referred to as the "CLOSING DATE."
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<PAGE> 11
Payment for any Additional Securities shall be made to the Company in
Federal or other funds immediately available in New York City at a closing to be
held at the offices of Hale and Dorr LLP in Boston, Massachusetts against
delivery of such Additional Securities for the respective accounts of the
several Initial Purchasers at 10:00 a.m., New York City time, on the date
specified in the notice described in Section 2 or at such other time and place
on the same or on such other date, in any event not later than March 17, 1998,
as shall be designated in writing by you. The time and date of such payment are
hereinafter referred to as the "OPTION CLOSING DATE."
Certificates for the Firm Securities and Additional Securities shall be
in definitive form or global form, as specified by you, and registered in such
names and in such denominations as you shall request in writing not later than
one full business day prior to the Closing Date or the Option Closing Date, as
the case may be. The certificates evidencing the Firm Securities and Additional
Securities shall be delivered to you on the Closing Date or the Option Closing
Date, as the case may be, for the respective accounts of the several Initial
Purchasers, with any transfer taxes payable in connection with the transfer of
the Securities to the Initial Purchasers duly paid, against payment of the
Purchase Price therefor plus accrued interest, if any, to the date of payment
and delivery.
5. Conditions to the Initial Purchasers' Obligations. The several
obligations of the Initial Purchasers to purchase and pay for the Firm
Securities on the Closing Date are subject to the following conditions:
(a) Subsequent to the execution and delivery of this
Agreement and prior to the Closing Date there shall not have occurred
any change, or any development involving a prospective change, in the
condition, financial or otherwise, or in the earnings, business or
operations of the Company and its subsidiaries, taken as a whole, from
that set forth in the Final Memorandum (exclusive of any amendments or
supplements thereto subsequent to the date of this Agreement) that, in
your judgment, is material and adverse and that makes it, in your
judgment, impracticable to market the Securities on the terms and in
the manner contemplated in the Final Memorandum.
(b) The Initial Purchasers shall have received on the
Closing Date a certificate, dated the Closing Date and signed by an
executive officer of the Company, to the effect that the
representations and warranties of the Company contained in this
Agreement are true and correct as of the Closing Date and that the
Company has complied with all of the agreements and satisfied all of
the conditions on its part to be performed or satisfied hereunder on or
before the Closing Date.
The officer signing and delivering such certificate may rely upon the
best of his or her knowledge as to proceedings threatened.
11
<PAGE> 12
(c) The Initial Purchasers shall have received on the
Closing Date an opinion of Hale and Dorr LLP, outside counsel for the
Company, dated the Closing Date, to the effect set forth in Exhibit A.
Such opinion shall be rendered to the Initial Purchasers at the request
of the Company and shall so state therein.
(d) You shall have received on the Closing Date an
opinion of Stewart McKelvey Sterling Scales, Canadian counsel to the
Company, dated the Closing Date and addressed to you, with respect to
the matters set forth in clauses (B) and (I) of Exhibit A, and such
other matters as you and your counsel may reasonably request, relating
to Sepracor Canada Limited.
(e) You shall have received on the Closing Date an
opinion of Hyman, Phelps & McNamara, regulatory counsel for the
Company, dated the Closing Date, to the effect that it has reviewed the
information in each Memorandum under the captions "Risk Factors --
Risks Relating to Sepracor's Pharmaceutical Program -- Regulatory
Approvals and Clinical Trials", and "Business -- Government
Regulation", and to the extent that such information constitutes
matters of law or summaries of matters of law, such information is
complete and correct in all material respects. In addition, based upon
such counsel's representation of the Company in regulatory matters
relating to the FDA, such counsel shall state that it believes that
such information does not contain an untrue statement of a material
fact or omit to state a material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Such opinion shall be rendered to the Initial Purchasers at
the request of the Company and shall so state therein.
(f) The Initial Purchasers shall have received on the
Closing Date (i) an opinion of Pennie & Edmonds, patent counsel for the
Company, dated the Closing Date to the effect set forth in Exhibit B-1,
(ii) an opinion of Heslin & Rothenberg, a patent counsel to the
Company, dated the closing date to the effect set forth in Exhibit B-2,
and (iii) an opinion of Douglas Reedich, Esq. dated the Closing Date to
the effect set forth in Exhibit B-3. Such opinions shall be rendered to
the Initial Purchasers at the request of the Company and shall so state
therein.
(g) The Initial Purchasers shall have received on the
Closing Date an opinion of Ropes & Gray, counsel for the Initial
Purchasers, dated the Closing Date, to the effect set forth in Exhibit
C.
(h) The Initial Purchasers shall have received on each of
the date hereof and the Closing Date a letter, dated the date hereof or
the Closing Date, as the case may be, in form and substance
satisfactory to the Initial Purchasers, from Coopers & Lybrand LLP,
independent public
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<PAGE> 13
accountants, containing statements and information of the type
ordinarily included in accountants' "comfort letters" to underwriters
with respect to the financial statements and certain financial
information contained in or incorporated by reference into each
Memorandum; provided that the letter delivered on the Closing Date
shall use a "cut-off date" not earlier than the date hereof.
(i) The "lock-up" agreements, each substantially in the
form of Exhibit C hereto, between you and certain shareholders,
officers and directors of the Company relating to sales and certain
other dispositions of shares of common stock or certain other
securities, delivered to you on or before the date hereof, shall be in
full force and effect on the Closing Date.
(j) The Securities shall have been designated for trading
on PORTAL.
(k) The Underlying Securities shall have been approved
for quotation on the Nasdaq National Market.
(l) The Company shall have executed and delivered the
Indenture and the Registration Rights Agreement and the Trustee shall
have executed and delivered the Indenture.
The several obligations of the Initial Purchasers to purchase
Additional Securities hereunder are subject to the delivery to you on the Option
Closing Date of such documents as you may reasonably request with respect to the
good standing of the Company, the due authorization and issuance of the
Additional Securities and other matters related to the issuance of the
Additional Securities.
6. Covenants of the Company. In further consideration of the
agreements of the Initial Purchasers contained in this Agreement, the Company
covenants with each Initial Purchaser as follows:
(a) To furnish to you in New York City, without charge,
prior to 10:00 a.m. New York City time on the business day next
succeeding the date of this Agreement and during the period mentioned
in Section 6(c), as many copies of the Final Memorandum, any documents
incorporated by reference therein and any supplements and amendments
thereto as you may reasonably request.
(b) Before amending or supplementing either Memorandum,
to furnish to you a copy of each such proposed amendment or supplement
and not to use any such proposed amendment or supplement to which you
reasonably object.
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<PAGE> 14
(c) If, during such period after the date hereof and
prior to the date on which all of the Securities shall have been sold
by the Initial Purchasers, any event shall occur or condition exist as
a result of which it is necessary to amend or supplement the Final
Memorandum in order to make the statements therein, in the light of the
circumstances when the Final Memorandum is delivered to a purchaser,
not misleading, or if, in the opinion of counsel for the Initial
Purchasers, it is necessary to amend or supplement the Final Memorandum
to comply with applicable law, forthwith to prepare and furnish, at its
own expense, to the Initial Purchasers, either amendments or
supplements to the Final Memorandum so that the statements in the Final
Memorandum as so amended or supplemented will not, in the light of the
circumstances when the Final Memorandum is delivered to a purchaser, be
misleading or so that the Final Memorandum, as amended or supplemented,
will comply with applicable law.
(d) To endeavor to qualify the Securities for offer and
sale under the securities or Blue Sky laws of such jurisdictions as you
shall reasonably request.
(e) Whether or not the transactions contemplated in this
Agreement are consummated or this Agreement is terminated, to pay or
cause to be paid all expenses incident to the performance of its
obligations under this Agreement, including: (i) the fees,
disbursements and expenses of the Company's counsel and the Company's
accountants in connection with the issuance and sale of the Securities
and all other fees or expenses in connection with the preparation of
each Memorandum and all amendments and supplements thereto, including
all printing costs associated therewith, and the delivering of copies
thereof to the Initial Purchasers, in the quantities herein above
specified, (ii) all costs and expenses related to the transfer and
delivery of the Securities to the Initial Purchasers, including any
transfer or other taxes payable thereon, (iii) the cost of printing or
producing any Blue Sky or legal investment memorandum in connection
with the offer and sale of the Securities under state securities laws
and all expenses in connection with the qualification of the Securities
for offer and sale under state securities laws as provided in Section
6(d) hereof, including filing fees and the reasonable fees and
disbursements of counsel for the Initial Purchasers in connection with
such qualification and in connection with the Blue Sky or legal
investment memorandum, (iv) any fees charged by rating agencies for the
rating of the Securities, (v) all document production charges and
expenses of counsel to the Initial Purchasers (but not including their
fees for professional services) in connection with the preparation of
this Agreement, (vi) the fees and expenses, if any, incurred in
connection with the admission of the Securities for trading in PORTAL
or any appropriate market system, (vii) the costs and charges of the
Trustee and any transfer agent, registrar or
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<PAGE> 15
depositary, (viii) the cost of the preparation, issuance and delivery
of the Securities, (ix) the costs and expenses of the Company relating
to investor presentations on any "road show" undertaken in connection
with the marketing of the offering of the Securities, including,
without limitation, expenses associated with the production of road
show slides and graphics, fees and expenses of any consultants engaged
in connection with the road show presentations with the prior approval
of the Company, travel and lodging expenses of the representatives and
officers of the Company and any such consultants, and the cost of any
aircraft chartered in connection with the road show, and (x) all other
cost and expenses incident to the performance of the obligations of the
Company hereunder for which provision is not otherwise made in this
Section. It is understood, however, that except as provided in this
Section, Section 8, and the last paragraph of Section 10, the Initial
Purchasers will pay all of their costs and expenses, including fees and
disbursements of their counsel, transfer taxes payable on resale of any
of the Securities by them and any advertising expenses connected with
any offers they may make.
(f) Neither the Company nor any Affiliate will sell,
offer for sale or solicit offers to buy or otherwise negotiate in
respect of any security (as defined in the Securities Act) which could
be integrated with the sale of the Securities in a manner which would
require the registration under the Securities Act of the Securities.
(g) Neither the Company nor any Affiliate will solicit
any offer to buy or offer or sell the Securities or the Underlying
Securities by means of any form of general solicitation or general
advertising (as those terms are used in Regulation D under the
Securities Act) or in any manner involving a public offering within the
meaning of Section 4(2) of the Securities Act.
(h) While any of the Securities or the Underlying
Securities remain "restricted securities" within the meaning of the
Securities Act, to make available, upon request, to any seller of such
Securities the information specified in Rule 144A(d)(4) under the
Securities Act, unless the Company is then subject to Section 13 or
15(d) of the Exchange Act.
(i) To use its best efforts to permit the Securities to
be designated PORTAL securities in accordance with the rules and
regulations adopted by the National Association of Securities Dealers,
Inc. relating to trading in the PORTAL Market.
(j) None of the Company, its Affiliates or any person
acting on its or their behalf (other than the Initial Purchasers) will
engage in any directed selling efforts (as that term is defined in
Regulation S) with respect to the Securities, and the Company and its
Affiliates and each
15
<PAGE> 16
person acting on its or their behalf (other than the Initial
Purchasers) will comply with the offering restrictions requirement of
Regulation S.
(k) During the period of two years after the Closing Date
or the Option Closing Date, if later, the Company will not resell any
of the Securities or the Underlying Securities which constitute
"restricted securities" under Rule 144A that have been reacquired by
it.
(l) To comply with all of the terms and conditions of the
Registration Agreement, and all agreements set forth in the
representation letters of the Company to DTC relating to the approval
of the Securities by DTC for "book entry" transfer.
(m) Prior to any registration of the Securities pursuant
to the Registration Agreement, or at such earlier time as may be so
required, to qualify the Indenture under the 1939 Act and to enter into
any necessary supplemental indentures in connection therewith.
7. Offering of Securities; Restrictions on Transfer.
(a) Each Initial Purchaser, severally and not jointly,
represents and warrants that such Initial Purchaser is a qualified
institutional buyer as defined in Rule 144A under the Securities Act (a
"QIB"). Each Initial Purchaser, severally and not jointly, agrees with
the Company that (i) it will not solicit offers for, or offer or sell,
such Securities by any form of general solicitation or general
advertising (as those terms are used in Regulation D under the
Securities Act) or in any manner involving a public offering within the
meaning of Section 4(2) of the Securities Act and (ii) it will solicit
offers for such Securities only from, and will offer such Securities
only to, persons that it reasonably believes to be (1) QIBs or (2)
other institutional accredited investors (as defined in Rule 501(a)(1),
(2), (3) or (7) under the Securities Act ("INSTITUTIONAL ACCREDITED
INVESTORS") that, prior to their purchase of the Securities, deliver to
such Initial Purchaser a letter containing the representations and
agreements set forth in Appendix A to the Memorandum.
(b) Each Initial Purchaser, severally and not jointly,
represents, warrants, and agrees with respect to offers and sales
outside the United States that:
(i) such Initial Purchaser understands that no action has
been or will be taken in any jurisdiction by the Company that
would permit a public offering of the Securities, or
possession or distribution of either Memorandum or any other
offering or publicity material relating to the Securities, in
any country or jurisdiction where action for that purpose is
required;
16
<PAGE> 17
(ii) such Initial Purchaser will comply with all
applicable laws and regulations in each jurisdiction in which
it acquires, offers, sells or delivers Securities or has in
its possession or distributes either Memorandum or any such
other material, in all cases at its own expense;
(iii) the Securities have not been registered under the
Securities Act and may not be offered or sold within the
United States or to, or for the account or benefit of, U.S.
persons except in accordance with Rule 144A or Regulation S
under the Securities Act or pursuant to another exemption from
the registration requirements of the Securities Act;
(iv) such Initial Purchaser has offered the Securities and
will offer and sell the Securities (A) as part of their
distribution at any time and (B) otherwise until 40 days after
the later of the commencement of the offering and the Closing
Date (or Option Closing Date, if later), only in accordance
with Rule 903 of Regulation S or as otherwise permitted in
Section 7(a); accordingly, neither such Initial Purchaser, its
Affiliates nor any persons acting on its or their behalf have
engaged or will engage in any directed selling efforts (within
the meaning of Regulation S) with respect to the Securities,
and any such Initial Purchaser, its Affiliates and any such
persons have complied and will comply with the offering
restrictions requirement of Regulation S;
(v) such Initial Purchaser has (A) not offered or sold
and, prior to the date six months after the Closing Date, will
not offer or sell any Securities to persons in the United
Kingdom except to persons whose ordinary activities involve
them in acquiring, holding, managing or disposing of
investments (as principal or agent) for the purposes of their
businesses or otherwise in circumstances which have not
resulted and will not result in an offer to the public in the
United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995; (B) complied and will comply with
all applicable provisions of the Financial Services Act 1986
with respect to anything done by it in relation to the
Securities in, from or otherwise involving the United Kingdom,
and (C) only issued or passed on and will only issue or pass
on in the United Kingdom any document received by it in
connection with the issue of the Securities to a person who is
of a kind described in Article 11(3) of the Financial Services
Act 1986 (Investment Advertisements) (Exemptions) Order 1996
or is a person to whom such document may otherwise lawfully be
issued or passed on;
17
<PAGE> 18
(vi) such Initial Purchaser understands that the
Securities have not been and will not be registered under the
Securities and Exchange Law of Japan, and represents that it
has not offered or sold, and agrees not to offer or sell,
directly or indirectly, any Securities in Japan or for the
account of any resident thereof except pursuant to any
exemption from the registration requirements of the Securities
and Exchange Law of Japan and otherwise in compliance with
applicable provisions of Japanese law; and
(vii) such Initial Purchaser agrees that, at or prior to
confirmation of sales of the Securities, it will have sent to
each distributor, dealer or person receiving a selling
concession, fee or other remuneration that purchases
Securities from it during the restricted period a confirmation
or notice to substantially the following effect:
"The Securities covered hereby have not been registered under the U.S.
Securities Act of 1933 (the "Securities Act") and may not be offered and sold
within the United States or to, or for the account or benefit of, U.S. persons
(i) as part of their distribution at any time or (ii) otherwise until 40 days
after the later of the commencement of the offering and the closing date, except
in either case in accordance with Regulation S (or Rule 144A if available) under
the Securities Act. Terms used above have the meaning given to them by
Regulation S."
Terms used in this Section 7(b) have the meanings given to them by Regulation S.
8. Indemnity and Contribution.
(a) The Company agrees to indemnify and hold harmless
each Initial Purchaser and each person, if any, who controls any
Initial Purchaser within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act from and against any
and all losses, claims, damages and liabilities (including, without
limitation, any legal or other expenses reasonably incurred in
connection with defending or investigating any such action or claim)
caused by any untrue statement or alleged untrue statement of a
material fact contained in either Memorandum (as amended or
supplemented if the Company shall have furnished any amendments or
supplements thereto), or caused by any omission or alleged omission to
state therein a material fact necessary to make the statements therein
in the light of the circumstances under which they were made not
misleading, except insofar as such losses, claims, damages or
liabilities are caused by any such untrue statement or omission or
alleged untrue statement or omission based upon information relating to
any Initial Purchaser furnished to the Company in writing by such
Initial Purchaser through you expressly for use therein; provided,
however, that the foregoing indemnity agreement with respect to the
Preliminary Memorandum shall not inure to the benefit of any Initial
Purchaser from
18
<PAGE> 19
whom the person asserting any such losses, claims, damages or
liabilities purchased Securities, or any person controlling such
Initial Purchaser, if a copy of the Memorandum (as then amended or
supplemented if the Company shall have furnished any amendments or
supplements thereto) was not sent or given by or on behalf of such
Initial Purchaser to such person, if required by law so to have been
delivered, at or prior to the written confirmation of the sale of the
Securities to such person, and if the Memorandum (as so amended or
supplemented) would have cured the defect giving rise to such losses,
claims, damages or liabilities, unless such failure is the result of
noncompliance by the Company with Section 6(a) hereof.
(b) Each Initial Purchaser agrees, severally and not
jointly, to indemnify and hold harmless the Company, its directors, its
officers and each person, if any, who controls the Company within the
meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act to the same extent as the foregoing indemnity from the
Company to such Initial Purchaser, but only with reference to
information relating to such Initial Purchaser furnished to the Company
in writing by such Initial Purchaser through you expressly for use in
either Memorandum or any amendments or supplements thereto.
(c) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of
which indemnity may be sought pursuant to Section 8(a) or 8(b), such
person (the "INDEMNIFIED PARTY") shall promptly notify the person
against whom such indemnity may be sought (the "INDEMNIFYING PARTY") in
writing and the indemnifying party, upon request of the indemnified
party, shall retain counsel reasonably satisfactory to the indemnified
party to represent the indemnified party and any others the
indemnifying party may designate in such proceeding and shall pay the
reasonable fees and disbursements of such counsel related to such
proceeding. In any such proceeding, any indemnified party shall have
the right to retain its own counsel, but the fees and expenses of such
counsel shall be at the expense of such indemnified party unless (i)
the indemnifying party and the indemnified party shall have mutually
agreed to the retention of such counsel or (ii) the named parties to
any such proceeding (including any impleaded parties) include both the
indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or
potential differing interests between them. It is understood that the
indemnifying party shall not, in respect of the legal expenses of any
indemnified party in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for the fees and
expenses of more than one separate firm (in addition to any local
counsel) for all such indemnified parties and that all such fees and
expenses shall be reimbursed as they are incurred. Such firm shall be
designated in writing by Morgan
19
<PAGE> 20
Stanley & Co. Incorporated, in the case of parties indemnified pursuant
to Section 8(a), and by the Company, in the case of parties indemnified
pursuant to Section 8(b). The indemnifying party shall not be liable
for any settlement of any proceeding effected without its written
consent, but if settled with such consent or if there be a final
judgment for the plaintiff, the indemnifying party agrees to indemnify
the indemnified party from and against any loss or liability by reason
of such settlement or judgment. No indemnifying party shall, without
the prior written consent of the indemnified party, effect any
settlement of any pending or threatened proceeding in respect of which
any indemnified party is or could have been a party and indemnity could
have been sought hereunder by such indemnified party, unless such
settlement includes an unconditional release of such indemnified party
from all liability on claims that are the subject matter of such
proceeding.
(d) To the extent the indemnification provided for in
Section 8(a) or 8(b) is unavailable to an indemnified party or
insufficient in respect of any losses, claims, damages or liabilities
referred to therein, then each indemnifying party under such paragraph,
in lieu of indemnifying such indemnified party thereunder, shall
contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages or liabilities (i) in such
proportion as is appropriate to reflect the relative benefits received
by the Company on the one hand and the Initial Purchasers on the other
hand from the offering of the Securities or (ii) if the allocation
provided by clause 8(d)(i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative
benefits referred to in clause 8(d)(i) above but also the relative
fault of the Company on the one hand and of the Initial Purchasers on
the other hand in connection with the statements or omissions that
resulted in such losses, claims, damages or liabilities, as well as any
other relevant equitable considerations. The relative benefits received
by the Company on the one hand and the Initial Purchasers on the other
hand in connection with the offering of the Securities shall be deemed
to be in the same respective proportions as the net proceeds from the
offering of the Securities (before deducting expenses) received by the
Company and the total discounts and commissions received by the Initial
Purchasers, in each case as set forth in the Final Memorandum, bear to
the aggregate offering price of the Securities. The relative fault of
the Company on the one hand and of the Initial Purchasers on the other
hand shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to
information supplied by the Company or by the Initial Purchasers and
the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The
Initial Purchasers' respective obligations to contribute
20
<PAGE> 21
pursuant to this Section 8 are several in proportion to the respective
principal amount of Securities they have purchased hereunder, and not
joint.
(e) The Company and the Initial Purchasers agree that it
would not be just or equitable if contribution pursuant to this Section
8 were determined by pro rata allocation (even if the Initial
Purchasers were treated as one entity for such purpose) or by any other
method of allocation that does not take account of the equitable
considerations referred to in Section 8(d). The amount paid or payable
by an indemnified party as a result of the losses, claims, damages and
liabilities referred to in Section 8(d) shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding
the provisions of this Section 8, no Initial Purchaser shall be
required to contribute any amount in excess of the amount by which the
total price at which the Securities resold by it in the initial
placement of such Securities were offered to investors exceeds the
amount of any damages that such Initial Purchaser has otherwise been
required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who
was not guilty of such fraudulent misrepresentation. The remedies
provided for in this Section 8 are not exclusive and shall not limit
any rights or remedies which may otherwise be available to any
indemnified party at law or in equity.
(f) The indemnity and contribution provisions contained
in this Section 8 and the representations, warranties and other
statements of the Company contained in this Agreement shall remain
operative and in full force and effect regardless of (i) any
termination of this Agreement, (ii) any investigation made by or on
behalf of any Initial Purchaser or any person controlling any Initial
Purchaser or by or on behalf of the Company, its officers or directors
or any person controlling the Company and (iii) acceptance of and
payment for any of the Securities.
9. Termination. This Agreement shall be subject to termination by
notice given by you to the Company, if (a) after the execution and delivery of
this Agreement and prior to the Closing Date (i) trading generally shall have
been suspended or materially limited on or by, as the case may be, any of the
New York Stock Exchange, the American Stock Exchange, the National Association
of Securities Dealers, Inc., the Chicago Board of Options Exchange, the Chicago
Mercantile Exchange or the Chicago Board of Trade, (ii) trading of any
securities of the Company shall have been suspended on any exchange or in any
over-the-counter market, (iii) a general moratorium on commercial banking
activities in
21
<PAGE> 22
New York shall have been declared by either Federal or New York State
authorities or (iv) there shall have occurred any outbreak or escalation of
hostilities or any change in financial markets or any calamity or crisis that,
in your judgment, is material and adverse and (b) in the case of any of the
events specified in clauses 9(a)(i) through 9(a)(iv), such event, singly or
together with any other such event, makes it, in your judgment, impracticable to
market the Securities on the terms and in the manner contemplated in the Final
Memorandum.
10. Effectiveness; Defaulting Initial Purchasers. This Agreement
shall become effective upon the execution and delivery hereof by the parties
hereto.
If, on the Closing Date, or the Option Closing Date, as the case may
be, any one or more of the Initial Purchasers shall fail or refuse to purchase
Securities that it or they have agreed to purchase hereunder on such date, and
the aggregate principal amount of Securities which such defaulting Initial
Purchaser or Initial Purchasers agreed but failed or refused to purchase is not
more than one-tenth of the aggregate principal amount of Securities to be
purchased on such date, the other Initial Purchasers shall be obligated
severally in the proportions that the principal amount of Firm Securities set
forth opposite their respective names in Schedule I bears to the aggregate
principal amount of Securities set forth opposite the names of all such
non-defaulting Initial Purchasers, or in such other proportions as you may
specify, to purchase the Securities which such defaulting Initial Purchaser or
Initial Purchasers agreed but failed or refused to purchase on such date;
provided that in no event shall the principal amount of Securities that any
Initial Purchaser has agreed to purchase pursuant to this Agreement be increased
pursuant to this Section 10 by an amount in excess of one-ninth of such
principal amount of Securities without the written consent of such Initial
Purchaser. If, on the Closing Date any Initial Purchaser or Initial Purchasers
shall fail or refuse to purchase Firm Securities which it or they have agreed to
purchase hereunder on such date and the aggregate principal amount of Securities
with respect to which such default occurs is more than one-tenth of the
aggregate principal amount of Firm Securities to be purchased on such date, and
arrangements satisfactory to you and the Company for the purchase of such Firm
Securities are not made within 36 hours after such default, this Agreement shall
terminate without liability on the part of any non-defaulting Initial Purchaser
or of the Company. In any such case either you or the Company shall have the
right to postpone the Closing Date, but in no event for longer than seven days,
in order that the required changes, if any, in the Final Memorandum or in any
other documents or arrangements may be effected. If, on the Option Closing Date,
any Initial Purchaser or Initial Purchasers shall fail or refuse to purchase
Additional Securities and the aggregate principal amount of Additional
Securities with respect to which such default occurs is more than one-tenth of
the aggregate principal amount of Additional Securities to be purchased, the
non-defaulting Initial Purchasers shall have the option to (a) terminate their
obligation hereunder to purchase Additional Securities or (b) purchase not less
than the principal amount of Additional Securities that such non-defaulting
Initial Purchasers would have
22
<PAGE> 23
been obligated to purchase in the absence of such default. Any action taken
under this paragraph shall not relieve any defaulting Initial Purchaser from
liability in respect of any default of such Initial Purchaser under this
Agreement.
If this Agreement shall be terminated by the Initial Purchasers, or any
of them, because of any failure or refusal on the part of the Company to comply
with the terms or to fulfill any of the conditions of this Agreement, or if for
any reason the Company shall be unable to perform its obligations under this
Agreement, the Company will reimburse the Initial Purchasers or such Initial
Purchasers as have so terminated this Agreement with respect to themselves,
severally, for all out-of-pocket expenses (including the fees and disbursements
of their counsel) reasonably incurred by such Initial Purchasers in connection
with this Agreement or the offering contemplated hereunder.
11. Counterparts. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
12. Applicable Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York.
13. Headings. The headings of the sections of this Agreement have
been inserted for convenience of reference only and shall not be deemed a part
of this Agreement.
23
<PAGE> 24
Very truly yours,
SEPRACOR INC.
By: /s/David P. Southwell
----------------------------------------
Name: David P. Southwell
Title: Executive Vice President and Chief
Financial Officer
Accepted as of the date hereof
Morgan Stanley & Co. Incorporated
Lehman Brothers Inc.
Smith Barney Inc.
Vector Securities International, Inc.
Acting severally on behalf of themselves and
the several Initial Purchasers named in
Schedule I hereto.
By: Morgan Stanley & Co. Incorporated
By: /s/ William H. Wright II
---------------------------------
Name: William H. Wright II
Title: Managing Director
24
<PAGE> 25
SCHEDULE I
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT OF
INITIAL PURCHASER FIRM SECURITIES TO BE
----------------- PURCHASED
<S> <C>
Morgan Stanley & Co. Incorporated $99,000,000
Lehman Brothers Inc. 16,500,000
Smith Barney Inc. 33,000,000
Vector Securities International, Inc. 16,500,000
Total: $165,000,000
</TABLE>
1
<PAGE> 26
EXHIBIT A
OPINION OF HALE AND DORR LLP
The opinion of Hale and Dorr LLP, to be delivered pursuant to Section 5(c) of
the Purchase Agreement shall be to the effect that:
A. The Company has been duly incorporated, is validly existing as
a corporation in good standing under the laws of Delaware, has the corporate
power and authority to own its property and to conduct its business as described
in the Final Memorandum and is duly qualified to transact business and is in
good standing in Massachusetts.
B. Each domestic subsidiary of the Company has been duly
incorporated, is validly existing as a corporation in good standing under the
laws of the jurisdiction of its incorporation, has the corporate power and
authority to own its property and to conduct its business as described in the
Final Memorandum; all of the issued shares of capital stock of each domestic
subsidiary of the Company have been duly and validly authorized and issued, are
fully paid and non-assessable, and (except for BioSepra Inc.) are owned directly
by the Company, free and clear of all liens, encumbrances, equities or claims
known to such counsel, except for the negative pledge under the Company's credit
agreement and the right of the holders of the Company's Series B Redeemable
Exchangeable Preferred Stock to shares of BioSepra Inc.
C. The Purchase Agreement has been duly authorized, executed and
delivered by the Company.
D. The authorized and outstanding capital stock of the Company,
as of September 30, 1997, is as set forth in the Final Memorandum under the
caption "Capitalization". The authorized capital stock of the Company conforms
as to legal matters in all material respects to the description thereof
contained in the Final Memorandum under the caption "Description of Capital
Stock".
E. The shares of Common Stock outstanding on the Closing Date or
Option Closing Date have been duly authorized and are validly issued, fully paid
and non-assessable.
F. The Securities have been duly authorized by the Company and,
when executed and authenticated in accordance with the provisions of the
Indenture and delivered to and paid for by the Initial Purchasers in accordance
with the terms of the Purchase Agreement, will be valid and binding obligations
2
<PAGE> 27
of the Company, enforceable in accordance with their terms, subject to
applicable bankruptcy, insolvency or similar laws affecting creditors' rights
generally and general principles of equity, and will be entitled to the benefits
of the Indenture and the Registration Rights Agreement pursuant to which such
Securities are to be issued.
G. The Underlying Securities reserved for issuance upon
conversion of the Securities have been duly authorized and reserved and, when
issued upon conversion of the Securities in accordance with the terms of the
Securities, will be validly issued, fully paid and non-assessable and the
issuance of the Underlying Securities will not be subject to any preemptive
rights under Delaware law or the Company's Certificate of Incorporation.
H. Each of the Indenture and Registration Rights Agreement has
been duly authorized, executed and delivered by, and is a valid and binding
agreement of, the Company, enforceable in accordance with its terms, subject to
applicable bankruptcy, insolvency or similar laws affecting creditors' rights
generally and general principles of equity and except as rights to
indemnification and contribution under the Registration Rights Agreement may be
limited under applicable law.
I. The execution and delivery by the Company of, and the
performance by the Company of its obligations under the Purchase Agreement, the
Indenture, the Registration Rights Agreement and the Securities will not
contravene any provision of applicable law or the certificate of incorporation
or by-laws of the Company or, any agreement or other instrument binding upon the
Company or any of its subsidiaries that is an exhibit to any of the documents
incorporated by reference into either Memorandum or, to the best of such
counsel's knowledge, any judgment, order or decree of any United States or
Massachusetts governmental body, agency or court having jurisdiction over the
Company or any subsidiary, and no consent, approval, authorization or order of,
or qualification with, any United States or Massachusetts governmental body or
agency is required for the performance by the Company of its obligations under
the Purchase Agreement, the Indenture, the Registration Rights Agreement or the
Securities, except such as may be required by the securities or Blue Sky laws of
the various states in connection with the offer and sale of the Securities and
by Federal and state securities laws with respect to the Company's obligations
under the Registration Rights Agreement.
J. Such counsel does not know of any legal or governmental
proceedings (excluding proceedings relating to patent matters) pending which the
Company or any of its subsidiaries is a party or to which any of the properties
of the Company or any of its subsidiaries is subject other than proceedings
described
3
<PAGE> 28
in the Final Memorandum and proceedings which such counsel believes are not
likely to have a material adverse effect on the Company and its subsidiaries,
taken as a whole, or on the power or ability of the Company to perform its
obligations under the Purchase Agreement, the Indenture, the Registration Rights
Agreement or the Securities or to consummate the transactions contemplated by
the Final Memorandum.
K. The Company is not, and after giving effect to the offering
and sale of the Securities and the application of the proceeds thereof as
described in the Final Memorandum, will not be an "investment company" as such
term is defined in the Investment Company Act of 1940, as amended.
L. The statements in the Final Memorandum under the captions
"Description of Debentures", "Description of Capital Stock," "Plan of
Distribution", "Transfer Restrictions" in the Final Memorandum, insofar as such
statements constitute summaries of the legal matters, documents or proceedings
referred to therein, fairly summarize the matters referred to therein.
M. The statements in the Final Memorandum under the caption
"Certain Federal Income Tax Considerations," insofar as such statements
constitute a summary of the United States federal tax laws referred to therein,
are accurate and fairly summarize in all material respects the United States
federal tax laws referred to therein.
N. Each document incorporated by reference in the Final
Memorandum (except for financial statements and schedules and other financial
and statistical data included therein as to which such counsel need not express
any opinion), complied as to form when filed with the Commission in all material
respects with the Exchange Act and the rules and regulations of the Commission
thereunder.
O. No facts have come to such counsel's attention which causes
them to believe that (except for financial statements and schedules and other
financial and statistical data as to which such counsel need not express any
belief) the Final Memorandum when issued contained, or as of the date such
opinion is delivered contains, any untrue statement of a material fact or
omitted or omits to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
P. Based upon and assuming the accuracy of the representations,
warranties and agreements of the Company in Sections 1(p), 1(r), 6(f), 6(g) and
6(j) of the Purchase Agreement and of the Initial Purchasers in Section 7 of the
Purchase Agreement and of each institutional accredited investor in the letter
executed by such investor in the form of Appendix A to the Memorandum, it is
4
<PAGE> 29
not necessary in connection with the offer, sale and delivery of the Securities
to the Initial Purchasers under the Purchase Agreement or in connection with the
initial resale of such Securities by the Initial Purchasers in accordance with
Section 7 of the Purchase Agreement to register the Securities under the
Securities Act of 1933 or to qualify the Indenture under the Trust Indenture Act
of 1939, it being understood that no opinion is expressed as to any subsequent
resale of any Security or Underlying Security.
With respect to paragraph O above, counsel may state that its belief is based
upon its participation in the preparation of the Final Memorandum (and any
amendments or supplements thereto) and review and discussion of the contents
thereof and review of the documents incorporated by reference therein, but are
without independent check or verification except as specified.
5
<PAGE> 30
EXHIBIT B-1
OPINION OF PENNIE & EDMONDS
The opinion of Pennie & Edmonds LLP, patent counsel to the Company,
shall be to the effect that:
1. With respect to issued patents resulting from patent
applications prosecuted by such counsel, such counsel has disclosed, and with
respect to patent applications being prosecuted by such counsel, such counsel
has disclosed or intends to disclose, to the United States Patent and Trademark
Office ("U.S. PTO") any references known by such counsel to be material to the
patentability of the claimed inventions of the United States patents and patent
applications of the Company and its subsidiaries prosecuted by such counsel in
accordance with 37 C.F.R. Section 1.56.
2. With respect to patent applications of the Company being
prosecuted by such counsel, such counsel is of the belief that none of such
references disclosed, or such references that such counsel intends to disclose,
to the U.S. PTO constitute a bar under 35 U.S.C. Section 102 to patentability
of the claims pending in such applications.
3. To such counsel's knowledge, the Company (or its subsidiaries)
is the sole assignee (or a joint assignee and exclusive licensee) of each of the
United States patents and patent applications of the Company and its
subsidiaries being prosecuted by such counsel) (see Attachment I which
attachment lists all of the Company's and its subsidiaries' United States
patents and patent applications being prosecuted by such counsel; except as set
forth in the Final Memorandum, to such counsel's knowledge, no other entity or
individual has any right or claim in any of such patents or patent applications
(or any patent to be issued therefrom) by virtue of any contract, license or
other agreement, known to such counsel, entered into between such entity or
individual and the Company or a subsidiary of the Company.
4. Except as described in the Final Memorandum or in the
documents incorporated by reference into the Final Memorandum, to such counsel's
knowledge, neither the Company nor any subsidiary has received any notice of
infringement of a patent of another as of February __, 1998.
5. Such counsel is not aware of any valid basis for a finding of
unenforceability or invalidity under 35 U.S.C. Section 102 of any United States
patents with respect to which such counsel is patent counsel.
6
<PAGE> 31
6. Except as set forth in the Final Memorandum or in the
documents incorporated by reference into the Final Memorandum, there are no
judicial proceedings pending relating to patents or proprietary information to
which the Company or a subsidiary is a party and, to the best of counsel's
knowledge, no such judicial proceedings are threatened by any person;
7. The statements under the captions "Risk Factors - Risks
Relating to Sepracor's Pharmaceutical Development Program - Patent
Uncertainties", "Risk Factors - Patent Interference", "Business - Patents and
Proprietary Technology" and "Business - Legal Proceedings" that relate to
matters for which such counsel acts as patent counsel to the Company, insofar as
such statements constitute matters of law or legal conclusions thereunder are
accurate and correct in all material respects and fairly present such matters;
8. With respect to United States patent matters for which such
counsel acts as patent counsel to the Company, nothing has come to such
counsel's attention which would lead them to believe that the sections of the
Final Memorandum entitled "Risk Factors- Risks Relating to Sepracor's
Pharmaceutical Development Program - Patent Uncertainties", "Risk Factors --
Patent Interference", "Business - Patents and Proprietary Technology" and
"Business - Legal Proceedings", at the time the Final Memorandum was issued or
as of the date of this opinion, contained any untrue statement of material fact
or omitted to state a material fact required to be stated therein or necessary
to make the statements therein, not misleading.
7
<PAGE> 32
EXHIBIT B-2
OPINION OF HESLIN & ROTHENBERG
The opinion of Heslin & Rothenberg, patent counsel to the Company,
shall be to the effect that:
1. With respect to issued patents resulting from patent
applications prosecuted by such counsel, such counsel has disclosed, and with
respect to patent applications being prosecuted by such counsel, such counsel
has disclosed or intends to disclose, to the United States Patent and Trademark
Office ("U.S. PTO") any references known by such counsel to be material to the
patentability of the claimed inventions of the United States patents and patent
applications of the Company and its subsidiaries prosecuted by such counsel in
accordance with 37 C.F.R. Section 1.56.
2. With respect to patent applications of the Company being
prosecuted by such counsel, such counsel is of the belief that none of such
references disclosed, or such references such counsel intends to disclose to the
U.S. PTO constitute a bar under 35 U.S.C. Section. 102 to the patentability of
the claims pending in such applications.
3. To such counsel's knowledge, except for the three patent
applications identified on Attachment I, the Company (or its subsidiaries) is
the sole assignee (or a joint assignee and exclusive licensee) of each of the
United States patents and patent applications being prosecuted by such counsel
(see Attachment I which attachment lists all of the Company's and its
subsidiaries' United States patents and patent applications being prosecuted by
such counsel); except as set forth in the Final Memorandum, to such counsel's
knowledge, no other entity or individual has any right or claim in any of such
patents or patent applications (or any patent to be issued therefrom) by virtue
of any contract, license or other agreement, known to such counsel, entered into
between such entity or individual and the Company and a subsidiary of the
Company.
4. Except as described in the Final Memorandum or in the
documents incorporated by reference into the Final Memorandum, to such counsel's
knowledge, neither the Company nor any subsidiary has received any notice of
infringement of a patent of another as of February __, 1998.
5. Such counsel is not aware of any information or any activity
of the Company or of counsel that, in counsel's opinion, would provide a basis
for a
8
<PAGE> 33
finding of unenforceability or invalidity of any patents of the Company or its
subsidiaries.
6. Except as set forth in the Final Memorandum or in the
documents incorporated by reference into the Final Memorandum, there are no
judicial proceedings pending relating to patents or proprietary information to
which the Company or a subsidiary is a party and, to the best of counsel's
knowledge, no such judicial proceedings are threatened by any person;
7. The statements under the captions "Risk Factors - Risks
Relating to Sepracor's Pharmaceutical Development Program - Patent
Uncertainties" "Risk Factors - Patent Interference", "Business - Patents and
Proprietary Technology" and "Business - Legal Proceedings", insofar as such
matters constitute matters of law or legal conclusions thereunder are accurate
and correct in all material respects and fairly present such matters;
8. With respect to United States patent matters, nothing has come
to such counsel's attention which would lead them to believe that the sections
of the Final Memorandum entitled "Risk Factors- Risks Relating to Sepracor's
Pharmaceutical Development Program - Patent Uncertainties", "Risk Factors -
Patent Interference", "Business - Patents and Proprietary Technology" and
"Business - Legal Proceedings", at the time the Final Memorandum was issued or
as of the date of this opinion, contained any untrue statement of material fact
or omitted to state a material fact required to be stated therein or necessary
to make the statements therein, not misleading.
9
<PAGE> 34
EXHIBIT B-3
OPINION OF DOUGLAS REEDICH, ESQ.
The opinion of Douglas Reedich, Esq., patent counsel to the Company,
shall be to the effect that:
1. To such counsel's knowledge, based on such counsel's knowledge
of the products and proposed products of the Company and the conduct of the
business of the Company, the sale in the United States of the drug substances
recited as Sepracor ICEs in the Final Memorandum for the associated indications
recited in the Final Memorandum would not infringe any patent claiming (a) a
drug substance mentioned in the Final Memorandum or (b) its use for the
associated indication mentioned in the Final Memorandum of which such counsel is
aware that is not either (i) described in the Final Memorandum, (ii) mentioned
in this letter or (iii) owned by, controlled by, or licensed to Sepracor or its
licensees. Furthermore, to the best of such counsel's knowledge, the information
contained in the Final Memorandum concerning third party patents that may be
relevant to the sale of the products and proposed products of the Company is
correct.
2. Except as described in the Final Memorandum or in the
documents incorporated by reference into the Final Memorandum, to such counsel's
knowledge, neither the Company nor any subsidiary has received any notice of
infringement of or conflict with rights of others with respect to any patent.
10
<PAGE> 35
EXHIBIT C
OPINION OF ROPES & GRAY
The opinion of Ropes & Gray to be delivered pursuant to Section 5(d) of the
Purchase Agreement shall be to the effect that:
A. The Purchase Agreement has been duly authorized, executed and
delivered by the Company.
B. The Securities have been duly authorized by the Company and,
when executed and authenticated in accordance with the provisions of the
Indenture and delivered to and paid for by the Initial Purchasers in accordance
with the terms of the Purchase Agreement, will be valid and binding obligations
of the Company, enforceable in accordance with their terms, subject to
applicable bankruptcy, insolvency or similar laws affecting creditors' rights
generally and general principles of equity, and will be entitled to the benefits
of the Indenture and the Registration Rights Agreement pursuant to which such
Securities are to be issued. The Securities have been duly authorized and, when
issued and delivered in accordance with the terms of the Purchase Agreement,
will be validly issued, fully paid and non-assessable, and the issuance of such
Securities will not be subject to any preemptive or similar rights under
Delaware law or the Company's Certificate of Incorporation.
C. The Underlying Securities reserved for issuance upon
conversion of the Securities have been duly authorized and reserved and, when
issued upon conversion of the Securities in accordance with the terms of the
Securities, will be validly issued, fully paid and non-assessable, and the
issuance of the Underlying Securities will not be subject to any preemptive or
similar rights under Delaware law or the Company's Certificate of Incorporation.
D. Each of the Indenture and Registration Rights Agreement has
been duly authorized, executed and delivered by, and is a valid and binding
agreement of, the Company, enforceable in accordance with its terms, subject to
applicable bankruptcy, insolvency or similar laws affecting creditors' rights
generally and general principles of equity and except as rights to
indemnification and contribution under the Registration Rights Agreement may be
limited under applicable law.
E. The statements in the Final Memorandum under the captions
"Description of Securities", "Description of Capital Stock" "Plan of
Distribution" and "Transfer Restrictions", insofar as such statements constitute
summaries of the legal matters, documents or proceedings referred to therein,
accurately summarizes in all material respects the matters referred to therein.
1
<PAGE> 36
G. Nothing has caused such counsel to believe that (except for
financial statements and schedules and other financial and statistical data as
to which such counsel need not express any belief) the Final Memorandum when
issued contained, or as of the date such opinion is delivered contains, any
untrue statement of a material fact or omitted or omits to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
H. Based upon and assuming the accuracy of the representations,
warranties and agreements of the Company in Sections 1(p), 1(r), 6(f), 6(g) and
6(j) of the Purchase Agreement and of the Initial Purchasers in Section 7 of the
Purchase Agreement and of each institutional accredited investor in the letter
executed by such investor in the form of Appendix A to the Memorandum, it is not
necessary in connection with the offer, sale and delivery of the Securities to
the Initial Purchasers under the Purchase Agreement or in connection with the
initial resale of such Securities by the Initial Purchasers in accordance with
Section 7 of the Purchase Agreement to register the Securities under the
Securities Act of 1933 or to qualify the Indenture under the Trust Indenture Act
of 1939, it being understood that no opinion is expressed as to any subsequent
resale of any Security or Underlying Security.
With respect to paragraph G above, Ropes & Gray may state that their
belief is based upon their participation in the preparation of the Final
Memorandum (and any amendments or supplements thereto) and review and discussion
of the contents thereof (including the review of, but not participation in the
preparation of, the incorporated documents), but are without independent check
or verification except as specified.
2
<PAGE> 37
EXHIBIT D
FORM OF LOCK-UP LETTER
_____________, 1998
Morgan Stanley & Co. Incorporated
Lehman Brothers, Inc.
Smith Barney Inc.
Vector Securities International, Inc.
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, NY 10036
Dear Sirs and Mesdames:
The undersigned understands that Morgan Stanley & Co. Incorporated
("MORGAN STANLEY") proposes to enter into a Purchase Agreement (the "PURCHASE
AGREEMENT") with Sepracor Inc., a Delaware corporation (the "COMPANY"),
providing for the offering (the "OFFERING") by the several Initial Purchasers,
including Morgan Stanley (the "INITIAL PURCHASERS"), of $_____________ principal
amount of the Company's __% Convertible Subordinated Debentures Due 2005 (the
"SECURITIES"). The Securities will be convertible into shares of Common Stock,
$.10 par value, of the Company (the "COMMON STOCK").
To induce the Initial Purchasers that may participate in the Offering
to continue their efforts in connection with the Offering, the undersigned
hereby agrees that, without the prior written consent of Morgan Stanley on
behalf of the Initial Purchasers, it will not, during the period commencing on
the date hereof and ending 90 days after the date of the final offering
memorandum relating to the Offering (the "FINAL MEMORANDUM"), (1) offer, pledge,
sell, contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant to purchase,
lend, or otherwise transfer or dispose of, directly or indirectly, any shares of
Common Stock or any securities convertible into or exercisable or exchangeable
for Common Stock or (2) enter into any swap or other arrangement that transfers
to another, in whole or in part, any of the economic consequences of ownership
of the Common Stock, whether any such transaction described in clause (1) or (2)
above is to be settled by delivery of Common Stock or such other securities, in
cash or otherwise. The foregoing sentence shall not apply to securities of the
Company transferred by gift when the
1
<PAGE> 38
donee agrees in writing to be bound hereby or transactions relating to shares of
Common Stock or other securities acquired in open market transactions after the
completion of the Offering. In addition, the undersigned agrees that, without
the prior written consent of Morgan Stanley on behalf of the Initial Purchasers,
it will not, during the period commencing on the date hereof and ending 90 days
after the date of the Final Memorandum, make any demand for or exercise any
right with respect to, the registration of any shares of Common Stock or any
security convertible into or exercisable or exchangeable for Common Stock.
Whether or not the Offering actually occurs depends on a number of
factors, including market conditions. Any Offering will be made only pursuant to
a Purchase Agreement, the terms of which are subject to negotiation between the
Company and the Initial Purchasers.
Very truly yours,
(Name)
(Address)
2
<PAGE> 1
Exhibit 10.34
EXECUTION COPY
SEPRACOR INC.
TO
THE CHASE MANHATTAN BANK
TRUSTEE
INDENTURE
DATED AS OF FEBRUARY 10, 1998
6 1/4% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2005
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TABLE OF CONTENTS
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ARTICLE I
DEFINITIONS 1
SECTION 1.1. DEFINITIONS.................................................................. 1
ARTICLE II
ISSUE, DESCRIPTION, EXECUTION, REGISTRATION AND EXCHANGE OF DEBENTURES 9
SECTION 2.1. DESIGNATION AMOUNT AND ISSUE OF DEBENTURES................................... 9
SECTION 2.2. FORM OF DEBENTURES........................................................... 10
SECTION 2.3. DATE AND DENOMINATION OF DEBENTURES; PAYMENTS OF INTEREST.................... 10
SECTION 2.4. EXECUTION OF DEBENTURES...................................................... 12
SECTION 2.5. EXCHANGE AND REGISTRATION OF TRANSFER OF DEBENTURES; RESTRICTIONS
ON TRANSFER; DEPOSITARY...................................................... 13
SECTION 2.6. MUTILATED, DESTROYED, LOST OR STOLEN DEBENTURES. ........................... 20
SECTION 2.7. TEMPORARY DEBENTURES......................................................... 21
SECTION 2.8. CANCELLATION OF DEBENTURES PAID, ETC. ...................................... 22
SECTION 2.9. CUSIP NUMBERS................................................................ 22
ARTICLE III
REDEMPTION OF DEBENTURES 22
SECTION 3.1. REDEMPTION PRICES............................................................ 22
SECTION 3.2. NOTICE OF REDEMPTION; SELECTION OF DEBENTURES................................ 22
SECTION 3.3. PAYMENT OF DEBENTURES CALLED FOR REDEMPTION.................................. 24
SECTION 3.4. CONVERSION ARRANGEMENT ON CALL FOR REDEMPTION................................ 25
SECTION 3.5. REDEMPTION AT OPTION OF HOLDERS.............................................. 25
ARTICLE IV
SUBORDINATION OF DEBENTURES 27
SECTION 4.1. AGREEMENT OF SUBORDINATION................................................... 27
SECTION 4.2. PAYMENTS TO DEBENTUREHOLDERS................................................. 28
SECTION 4.3. SUBROGATION OF DEBENTURES.................................................... 30
SECTION 4.4. AUTHORIZATION TO EFFECT SUBORDINATION........................................ 31
SECTION 4.5. NOTICE TO TRUSTEE............................................................ 31
SECTION 4.6. TRUSTEE'S RELATION TO SENIOR OBLIGATIONS..................................... 32
SECTION 4.7. NO IMPAIRMENT OF SUBORDINATION............................................... 32
SECTION 4.8. CERTAIN CONVERSIONS NOT DEEMED PAYMENT....................................... 33
SECTION 4.9. ARTICLE APPLICABLE TO PAYING AGENTS.......................................... 33
SECTION 4.10. SENIOR OBLIGATIONS ENTITLED TO RELY.......................................... 33
SECTION 4.11. RELIANCE ON JUDICIAL ORDER OR CERTIFICATE OF LIQUIDATING AGENT............... 33
ARTICLE V
PARTICULAR COVENANTS OF THE COMPANY 34
SECTION 5.1. PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST................................... 34
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SECTION 5.2. MAINTENANCE OF OFFICE OR AGENCY.............................................. 34
SECTION 5.3. APPOINTMENTS TO FILL VACANCIES IN TRUSTEE'S OFFICE........................... 35
SECTION 5.5. EXISTENCE.................................................................... 36
SECTION 5.6. MAINTENANCE OF PROPERTIES.................................................... 36
SECTION 5.7. PAYMENT OF TAXES AND OTHER CLAIMS............................................ 37
SECTION 5.8. RULE 144A INFORMATION REQUIREMENT............................................ 37
SECTION 5.9. STAY, EXTENSION AND USURY LAWS............................................... 37
SECTION 5.10. COMPLIANCE CERTIFICATE....................................................... 38
ARTICLE VI
DEBENTUREHOLDERS' LISTS AND REPORTS BY THE COMPANY AND THE TRUSTEE 38
SECTION 6.1. DEBENTUREHOLDERS' LISTS...................................................... 38
SECTION 6.2. PRESERVATION AND DISCLOSURE OF LISTS......................................... 38
SECTION 6.3. REPORTS BY TRUSTEE........................................................... 39
SECTION 6.4. REPORTS BY COMPANY........................................................... 39
ARTICLE VII
REMEDIES OF THE TRUSTEE AND DEBENTUREHOLDERS
ON AN EVENT OF DEFAULT 39
SECTION 7.1. EVENTS OF DEFAULT............................................................ 40
SECTION 7.2. PAYMENTS OF DEBENTURES ON DEFAULT; SUIT THEREFOR............................. 42
SECTION 7.3. APPLICATION OF MONIES COLLECTED BY TRUSTEE................................... 43
SECTION 7.4. PROCEEDINGS BY DEBENTUREHOLDER............................................... 44
SECTION 7.5. PROCEEDINGS BY TRUSTEE....................................................... 45
SECTION 7.6. REMEDIES CUMULATIVE AND CONTINUING........................................... 45
SECTION 7.7. DIRECTION OF PROCEEDINGS AND WAIVER OF DEFAULTS BY MAJORITY OF
DEBENTUREHOLDERS............................................................. 45
SECTION 7.8. NOTICE OF DEFAULTS........................................................... 46
SECTION 7.9. UNDERTAKING TO PAY COSTS..................................................... 46
ARTICLE VIII
CONCERNING THE TRUSTEE 46
SECTION 8.1. DUTIES AND RESPONSIBILITIES OF TRUSTEE....................................... 46
SECTION 8.2. RELIANCE ON DOCUMENTS, OPINIONS, ETC......................................... 48
SECTION 8.3. NO RESPONSIBILITY FOR RECITALS, ETC.......................................... 49
SECTION 8.4. TRUSTEE, PAYING AGENTS, CONVERSION AGENTS OR REGISTRAR MAY OWN
DEBENTURES.................................................................. 49
SECTION 8.5. MONIES TO BE HELD IN TRUST................................................... 49
SECTION 8.6. COMPENSATION AND EXPENSES OF TRUSTEE......................................... 49
SECTION 8.7. OFFICERS' CERTIFICATE AS EVIDENCE............................................ 50
SECTION 8.8. CONFLICTING INTERESTS OF TRUSTEE............................................. 50
SECTION 8.9. ELIGIBILITY OF TRUSTEE....................................................... 50
SECTION 8.10. RESIGNATION OR REMOVAL OF TRUSTEE............................................ 51
SECTION 8.11. ACCEPTANCE BY SUCCESSOR TRUSTEE.............................................. 52
SECTION 8.12. SUCCESSION BY MERGER, ETC.................................................... 53
SECTION 8.13. PREFERENTIAL COLLECTION OF CLAIMS............................................ 53
SECTION 8.14. TRUSTEE'S APPLICATION FOR INSTRUCTIONS FROM THE COMPANY...................... 53
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ARTICLE IX
CONCERNING THE DEBENTUREHOLDERS 54
SECTION 9.1. ACTION BY DEBENTUREHOLDERS................................................... 54
SECTION 9.2. PROOF OF EXECUTION BY DEBENTUREHOLDERS....................................... 54
SECTION 9.3. WHO ARE DEEMED ABSOLUTE OWNERS............................................... 54
SECTION 9.4. COMPANY-OWNED DEBENTURES DISREGARDED......................................... 55
SECTION 9.5. REVOCATION OF CONSENTS; FUTURE HOLDERS BOUND................................. 55
ARTICLE X
DEBENTUREHOLDERS' MEETINGS 55
SECTION 10.1. PURPOSE OF MEETINGS.......................................................... 55
SECTION 10.2. CALL OF MEETINGS BY TRUSTEE.................................................. 56
SECTION 10.3. CALL OF MEETINGS BY COMPANY OR DEBENTUREHOLDERS.............................. 56
SECTION 10.4. QUALIFICATIONS FOR VOTING.................................................... 56
SECTION 10.5. REGULATIONS.................................................................. 57
SECTION 10.6. VOTING....................................................................... 57
SECTION 10.7. NO DELAY OF RIGHTS BY MEETING................................................ 58
ARTICLE XI
SUPPLEMENTAL INDENTURES 58
SECTION 11.1. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF DEBENTUREHOLDERS.............. 58
SECTION 11.2. SUPPLEMENTAL INDENTURES WITH CONSENT OF DEBENTUREHOLDERS..................... 59
SECTION 11.3. EFFECT OF SUPPLEMENTAL INDENTURE............................................. 60
SECTION 11.4. NOTATION ON DEBENTURES....................................................... 60
SECTION 11.5. EVIDENCE OF COMPLIANCE OF SUPPLEMENTAL INDENTURE TO BE
FURNISHED TRUSTEE............................................................ 61
ARTICLE XII
CONSOLIDATION, MERGER, SALE, CONVEYANCE AND LEASE 61
SECTION 12.1. COMPANY MAY CONSOLIDATE ETC. ON CERTAIN TERMS................................ 61
SECTION 12.2. SUCCESSOR CORPORATION TO BE SUBSTITUTED...................................... 61
SECTION 12.3. OPINION OF COUNSEL TO BE GIVEN TRUSTEE....................................... 62
ARTICLE XIII
SATISFACTION AND DISCHARGE OF INDENTURE 62
SECTION 13.1. DISCHARGE OF INDENTURE....................................................... 62
SECTION 13.2. DEPOSITED MONIES TO BE HELD IN TRUST BY TRUSTEE.............................. 63
SECTION 13.3. PAYING AGENT TO REPAY MONIES HELD............................................ 63
SECTION 13.4. RETURN OF UNCLAIMED MONIES................................................... 63
SECTION 13.5. REINSTATEMENT................................................................ 63
ARTICLE XIV
IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS 64
SECTION 14.1. INDENTURE AND DEBENTURES SOLELY CORPORATE OBLIGATIONS........................ 64
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ARTICLE XV
CONVERSION OF DEBENTURES 64
SECTION 15.1. RIGHT TO CONVERT............................................................. 64
SECTION 15.2. EXERCISE OF CONVERSION PRIVILEGE; ISSUANCE OF COMMON STOCK ON
CONVERSION; NO ADJUSTMENT FOR INTEREST OR DIVIDENDS.......................... 65
SECTION 15.3. CASH PAYMENTS IN LIEU OF FRACTIONAL SHARES................................... 66
SECTION 15.4. CONVERSION PRICE............................................................. 66
SECTION 15.5. ADJUSTMENT OF CONVERSION PRICE............................................... 67
SECTION 15.6. EFFECT OF RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE.................... 75
SECTION 15.7. TAXES ON SHARES ISSUED....................................................... 76
SECTION 15.8. RESERVATION OF SHARES; SHARES TO BE FULLY PAID; COMPLIANCE WITH
GOVERNMENTAL REQUIREMENTS; LISTING OF COMMON STOCK........................... 77
SECTION 15.9. RESPONSIBILITY OF TRUSTEE.................................................... 77
SECTION 15.10. NOTICE TO HOLDERS PRIOR TO CERTAIN ACTIONS................................... 78
ARTICLE XVI
MISCELLANEOUS PROVISIONS 79
SECTION 16.1. PROVISIONS BINDING ON COMPANY'S SUCCESSORS................................... 79
SECTION 16.2. OFFICIAL ACTS BY SUCCESSOR CORPORATION....................................... 79
SECTION 16.3. ADDRESSES FOR NOTICES, ETC................................................... 79
SECTION 16.4. GOVERNING LAW................................................................ 80
SECTION 16.5. EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT; CERTIFICATES
TO TRUSTEE................................................................... 80
SECTION 16.6. LEGAL HOLIDAYS............................................................... 80
SECTION 16.7. TRUST INDENTURE ACT.......................................................... 80
SECTION 16.8. NO SECURITY INTEREST CREATED................................................. 81
SECTION 16.9. BENEFITS OF INDENTURE........................................................ 81
SECTION 16.10. TABLE OF CONTENTS, HEADINGS, ETC............................................. 81
SECTION 16.11. AUTHENTICATING AGENT......................................................... 81
SECTION 16.12. EXECUTION IN COUNTERPARTS.................................................... 82
EXHIBIT A FORM OF DEBENTURE.................................................................................... A-1
EXHIBIT B ACCREDITED INVESTOR LETTER........................................................................... B-1
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INDENTURE
INDENTURE, dated as of February 10, 1998, between Sepracor
Inc., a Delaware corporation (hereinafter sometimes called the "Company", as
more fully set forth in Section 1.1), and The Chase Manhattan Bank, a New York
banking corporation, as trustee hereunder (hereinafter sometimes called the
"Trustee", as more fully set forth in Section 1.1).
WITNESSETH:
WHEREAS, for its lawful corporate purposes, the Company has
duly authorized the issue of its 6 1/4% Convertible Subordinated Debentures due
2005 (hereinafter sometimes called the "Debentures"), in an aggregate principal
amount not to exceed $189,475,000 and, to provide the terms and conditions upon
which the Debentures are to be authenticated, issued and delivered, the Company
has duly authorized the execution and delivery of this Indenture; and
WHEREAS, the Debentures, the certificate of authentication to
be borne by the Debentures, a form of assignment, a form of option to elect
repayment upon a Fundamental Change, and a form of conversion notice to be borne
by the Debentures are to be substantially in the forms hereinafter provided for;
and
WHEREAS, all acts and things necessary to make the Debentures,
when executed by the Company and authenticated and delivered by the Trustee or a
duly authorized authenticating agent, as in this Indenture provided, the valid,
binding and legal obligations of the Company, and to constitute these presents a
valid agreement according to its terms, have been done and performed, and the
execution of this Indenture and the issue hereunder of the Debentures have in
all respects been duly authorized.
NOW THEREFORE THIS INDENTURE WITNESSETH:
That in order to declare the terms and conditions upon which the Debentures are,
and are to be, authenticated, issued and delivered, and in consideration of the
premises and of the purchase and acceptance of the Debentures by the holders
thereof, the Company covenants and agrees with the Trustee for the equal and
proportionate benefit of the respective holders from time to time of the
Debentures (except as otherwise provided below) as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. DEFINITIONS. The terms defined in this Section 1.1 (except
as herein otherwise expressly provided or unless the context otherwise requires)
for all purposes of this Indenture and of any indenture supplemental hereto
shall have the respective meanings specified in this Section 1.1. All other
terms used in this Indenture that are defined in the Trust Indenture Act or
which are by reference therein defined in the Securities Act (except as herein
otherwise
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expressly provided or unless the context otherwise requires) shall have the
meanings assigned to such terms in said Trust Indenture Act and in said
Securities Act as in force at the date of the execution of this Indenture. The
words "herein," "hereof," "hereunder" and words of similar import refer to this
Indenture as a whole and not to any particular Article, Section or other
Subdivision. The terms defined in this Article include the plural as well as the
singular.
AFFILIATE: The term "Affiliate" of any specified Person shall
mean any other Person directly or indirectly controlling or controlled by or
under direct or indirect common control with such specified Person. For the
purposes of this definition, "control," when used with respect to any specified
Person means, the power to direct or cause the direction of the management and
policies of such Person, directly or indirectly, whether through the ownership
of voting securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
BOARD OF DIRECTORS: The term "Board of Directors" shall mean
the Board of Directors of the Company or a committee of such Board duly
authorized to act for it hereunder.
BUSINESS DAY: The term "Business Day" shall mean each Monday,
Tuesday, Wednesday, Thursday and Friday which is not a day on which the banking
institutions in The City of New York or the city in which the Corporate Trust
Office is located are authorized or obligated by law or executive order to close
or be closed.
CLOSING PRICE: The term "Closing Price" shall have the meaning
specified in Section 15.5(h)(1).
COMMISSION: The term "Commission" shall mean the Securities
and Exchange Commission.
COMMON STOCK: The term "Common Stock" shall mean any stock of
any class of the Company which has no preference in respect of dividends or of
amounts payable in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Company and which is not subject to redemption
by the Company. Subject to the provisions of Section 15.6, however, shares
issuable on conversion of Debentures shall include only shares of the class
designated as common stock of the Company at the date of this Indenture or
shares of any class or classes resulting from any reclassification or
reclassifications thereof and which have no preference in respect of dividends
or of amounts payable in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Company and which are not subject to redemption
by the Company; provided that if at any time there shall be more than one such
resulting class, the shares of each such class then so issuable shall be
substantially in the proportion which the total number of shares of such class
resulting from all such reclassifications bears to the total number of shares of
all such classes resulting from all such reclassifications.
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COMPANY: The term "Company" shall mean Sepracor Inc., a
Delaware corporation, having its principal office at 111 Locke Drive,
Marlborough, MA 01752 and subject to the provisions of Article XII, shall
include its successors and assigns.
CONVERSION PRICE: The term "Conversion Price" shall have the
meaning specified in Section 15.4.
CORPORATE TRUST OFFICE: The term "Corporate Trust Office" or
other similar term, shall mean the principal corporate trust office of the
Trustee at which at any particular time its corporate trust business shall be
principally administered, which office is, at the date as of which this
Indenture is dated, located at The Chase Manhattan Bank, 450 West 33rd Street,
15th Floor, New York, New York 10001-2697, Attention: Global Trust Services.
CREDIT AGREEMENT: The term "Credit Agreement" shall mean that
certain Amended and Restated Revolving Credit and Security Agreement, dated as
of December 31, 1996, among the Company, Sepracor Securities Corporation and
Fleet National Bank, as amended through the date hereof, as further amended,
amended and restated, supplemented or otherwise modified from time to time,
including any agreement extending the maturity of, refinancing, replacing,
consolidating or otherwise restructuring (including adding subsidiaries of the
Company as additional borrowers or guarantors thereunder) all or any portion of
the Indebtedness under such agreement or any replacement or successor agreement,
and whether by Fleet National Bank, individually or as agent for itself and
other lenders, and whether or not increasing the amount of Indebtedness that may
be incurred thereunder. The term "Credit Agreement" shall also include the
Company's obligations under the put agreement with Fleet National Bank to
purchase up to $2.0 million of Indebtedness of a former wholly owned Subsidiary
in the event of a default thereof by such Subsidiary.
CUSTODIAN: The term "Custodian" shall mean The Chase Manhattan
Bank, as custodian with respect to the Debentures in global form, or any
successor entity thereto.
DEBENTURE OR DEBENTURES: The terms "Debenture" or "Debentures"
shall mean any Debenture or Debentures, as the case may be, authenticated and
delivered under this Indenture, including the Global Debenture.
DEBENTUREHOLDER OR HOLDER: The terms "Debentureholder" or
"holder" as applied to any Debenture, or other similar terms (but excluding the
term "beneficial holder"), shall mean any Person in whose name at the time a
particular Debenture is registered on the Debenture registrar's books.
DEBENTURE REGISTER: The term "Debenture register" shall have
the meaning specified in Section 2.5.
DEFAULT: The term "default" shall mean any event that is, or
after notice or passage of time, or both, would be, an Event of Default.
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DEPOSITARY: The term "Depositary" shall mean, with respect to
the Debentures issuable or issued in whole or in part in global form, the person
specified in Section 2.5(d) as the Depositary with respect to such Debentures,
until a successor shall have been appointed and become such pursuant to the
applicable provisions of this Indenture, and thereafter, "Depositary" shall mean
or include such successor.
DESIGNATED SENIOR OBLIGATIONS: The term "Designated Senior
Obligations" shall mean Senior Obligations under the Credit Agreement or any
other Senior Obligations in which the instrument creating or evidencing the same
or the assumption or guarantee thereof (or related agreements or documents to
which the Company is a party) expressly provides that such Senior Obligations
shall be "Designated Senior Obligations" for purposes of this Indenture
(provided that such instrument, agreement or other document may place
limitations and conditions on the right of such Senior Obligations to exercise
the rights of Designated Senior Obligations). If any payment made to any holder
of any Designated Senior Obligations or its Representative with respect to such
Designated Senior Obligations is rescinded or must otherwise be returned by such
holder or Representative upon the insolvency, bankruptcy or reorganization of
the Company or otherwise, the reinstated Indebtedness of the Company arising as
a result of such rescission or return shall constitute Designated Senior
Obligations effective as of the date of such rescission or return.
EXCHANGE ACT: The term "Exchange Act" shall mean the
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder, as in effect from time to time.
EVENT OF DEFAULT: The term "Event of Default" shall mean any
event specified in Section 7.1(a), (b), (c), (d) or (e).
FUNDAMENTAL CHANGE: The term "Fundamental Change" shall mean
the occurrence of any transaction or event in connection with which all or
substantially all the Common Stock shall be exchanged for, be converted into, be
acquired for, or constitute in all material respects solely the right to
receive, consideration which is not all or substantially all common stock which
is (or, upon consummation of or immediately following such transaction or event,
will be) listed on a United States national securities exchange or approved for
quotation on the Nasdaq National Market or any similar United States system of
automated dissemination of quotations of securities prices (whether by means of
an exchange offer, liquidation, tender offer, consolidation, merger,
combination, reclassification, recapitalization or otherwise).
INDEBTEDNESS: The term "Indebtedness" shall mean, with respect
to any Person, and without duplication, (a) all indebtedness, obligations and
other liabilities (contingent or otherwise) of such Person for borrowed money
(including obligations of the Company in respect of overdrafts, foreign exchange
contracts, currency exchange agreements, interest rate protection agreements,
and any loans or advances from banks, whether or not evidenced by notes or
similar instruments, and all commitment, stand by and other fees due and payable
to financial institutions with respect to credit facilities available to such
Person) or evidenced by bonds, debentures, notes
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or similar instruments (whether or not the recourse of the lender is to the
whole of the assets of such Person or to only a portion thereof) (other than any
account payable or other accrued current liability or obligation incurred in the
ordinary course of business in connection with the obtaining of materials or
services); (b) all reimbursement obligations and other liabilities (contingent
or otherwise) of such Person with respect to letters of credit, bank guarantees
or bankers' acceptances; (c) all obligations and liabilities (contingent or
otherwise) in respect of leases of real or personal property or other assets of
such Person required, in conformity with generally accepted accounting
principles, to be accounted for as capitalized lease obligations on the balance
sheet of such Person and all obligations and other liabilities (contingent or
otherwise) under any lease or related document (including a purchase agreement)
in connection with the lease of real property which provides that such Person is
contractually obligated to purchase or cause a third party to purchase the
leased property and thereby guarantee a minimum residual value of the leased
property to the lessor and the obligations of such Person under such lease or
related document to purchase or to cause a third party to purchase such leased
property; (d) all obligations of such Person (contingent or otherwise) with
respect to an interest rate or other swap, cap or collar agreement or other
similar instrument or agreement or foreign currency hedge, exchange, purchase or
similar instrument or agreement; (e) all direct or indirect guaranties or
similar agreements by such Person in respect of, and obligations or liabilities
(contingent or otherwise) of such Person to purchase or otherwise acquire or
otherwise assure a creditor against loss in respect of indebtedness, obligations
or liabilities of another Person of the kind described in clauses (a) through
(d); (f) any indebtedness or other obligations described in clauses (a) through
(e) secured by any mortgage, pledge, lien or other encumbrance existing on
property which is owned or held by such Person, regardless of whether the
indebtedness or other obligation secured thereby shall have been assumed by such
Person; and (g) any and all deferrals, renewals, extensions and refundings of,
or amendments, modifications or supplements to, any indebtedness, obligation or
liability of the kind described in clauses (a) through (f).
INDENTURE: The term "Indenture" shall mean this instrument as
originally executed or, if amended or supplemented as herein provided, as so
amended or supplemented.
INITIAL PURCHASERS: The term "Initial Purchasers" shall mean
Morgan Stanley & Co. Incorporated, Lehman Brothers Inc., Smith Barney Inc. and
Vector Securities International, Inc.
INSTITUTIONAL ACCREDITED INVESTOR: The term "Institutional
Accredited Investor" shall mean an institutional "accredited investor" within
the meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act.
LIQUIDATED DAMAGES: The term "Liquidated Damages" shall have
the meaning specified in Section 2(f) of the Registration Rights Agreement.
NON-U.S. PERSON: The term Non-U.S. Person shall mean a person
other than a U.S. Person (as defined in Regulation S).
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OFFICERS' CERTIFICATE: The term "Officers' Certificate," when
used with respect to the Company, shall mean a certificate signed by both (a)
the President or Chief Executive Officer or any Executive or Senior Vice
President or any Vice President (whether or not designated by a number or
numbers or word or words added before or after the title "Vice President") and
(b) by the Treasurer or any Assistant Treasurer or Secretary or any Assistant
Secretary of the Company.
OPINION OF COUNSEL: The term "Opinion of Counsel" shall mean
an opinion in writing signed by legal counsel, who may be an employee of or
counsel to the Company, or other counsel reasonably acceptable to the Trustee.
OUTSTANDING: The term "outstanding," when used with reference
to Debentures, shall, subject to the provisions of Section 9.4, mean, as of any
particular time, all Debentures authenticated and delivered by the Trustee under
this Indenture, except
(a) Debentures theretofore canceled by the Trustee or
delivered to the Trustee for cancellation;
(b) Debentures, or portions thereof, (i) for the redemption of
which monies in the necessary amount shall have been deposited in trust with the
Trustee or with any paying agent (other than the Company) or (ii) which shall
have been otherwise defeased in accordance with Article XIII;
(c) Debentures in lieu of which, or in substitution for which,
other Debentures shall have been authenticated and delivered pursuant to the
terms of Section 2.6; and
(d) Debentures converted into Common Stock pursuant to Article
XV and Debentures deemed not outstanding pursuant to Article III.
PAYMENT BLOCKAGE NOTICE: The term "Payment Blockage Notice"
shall have the meaning specified in Section 4.2.
PERSON: The term "Person" shall mean a corporation, an
association, a partnership, a limited liability company, an individual, a joint
venture, a joint stock company, a trust, an unincorporated organization or a
government or an agency or a political subdivision thereof.
PORTAL MARKET: The term "The Portal Market" shall mean The
Portal Market operated by the National Association of Securities Dealers, Inc.
or any successor thereto.
PREDECESSOR DEBENTURE: The term "Predecessor Debenture" of any
particular Debenture shall mean every previous Debenture evidencing all or a
portion of the same debt as that evidenced by such particular Debenture; and,
for the purposes of this definition, any Debenture authenticated and delivered
under Section 2.6 in lieu of a lost, destroyed or stolen
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Debenture shall be deemed to evidence the same debt as the lost, destroyed or
stolen Debenture that it replaces.
QIB: The term "QIB" shall mean a "qualified institutional
buyer" as defined in Rule 144A.
REGISTRATION RIGHTS AGREEMENT: The term "Registration Rights
Agreement" shall mean that certain Registration Rights Agreement, dated as of
February 5, 1998, between the Company and the Initial Purchasers, as amended
from time to time in accordance with its terms, a copy of which is attached as
Exhibit C hereto.
REGULATION S: The term "Regulation S" shall mean Regulation S
as promulgated under the Securities Act.
REPRESENTATIVE: The term "Representative" shall mean the (a)
indenture trustee or other trustee, agent or representative for any Senior
Obligations or (b) with respect to any Senior Obligations that do not have any
such trustee, agent or other representative, (i) in the case of such Senior
Obligations issued pursuant to an agreement providing for voting arrangements as
among the holders or owners of such Senior Obligations, any holder or owner of
such Senior Obligations acting with the consent of the required persons
necessary to bind such holders or owners of such Senior Obligations and (ii) in
the case of all other such Senior Obligations, the holder or owner of such
Senior Obligations.
RESPONSIBLE OFFICER: The term "Responsible Officer," when used
with respect to the Trustee, shall mean an officer assigned to the Corporate
Trust Office, including any managing director, vice president, assistant vice
president, assistant treasurer, assistant secretary or any other officer of the
Trustee customarily performing functions similar to those performed by any of
the above designated officers and having direct responsibility for the
administration of this Indenture, and also, with respect to a particular matter,
any other officer to whom such matter is referred because of such officer's
knowledge of and familiarity with the particular subject.
RESTRICTED SECURITIES: The term "Restricted Securities" shall
have the meaning specified in Section 2.5.
RULE 144A: The term "Rule 144A" shall mean Rule 144A as
promulgated under the Securities Act.
SECURITIES ACT: The term "Securities Act" shall mean the
Securities Act of 1933, as amended, and the rules and regulations promulgated
thereunder, as in effect from time to time.
SENIOR OBLIGATIONS: The term "Senior Obligations" shall mean
the principal of, premium, if any, interest (including all interest accruing
subsequent to the commencement of any bankruptcy or similar proceeding, whether
or not a claim for post-petition interest is allowable
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<PAGE> 13
as a claim in any such proceeding) and rent payable on or in connection with,
and all fees, costs, expenses and other amounts accrued or due on or in
connection with, Indebtedness of the Company, whether outstanding on the date of
this Indenture or thereafter created, incurred, assumed, guaranteed or in effect
guaranteed by the Company (including all deferrals, renewals, extensions or
refundings of, or amendments, modifications or supplements to, the foregoing),
unless in the case of any particular Indebtedness the instrument creating or
evidencing the same or the assumption or guarantee thereof expressly provides
that such Indebtedness shall not be senior in right of payment to the Debentures
or expressly provides that such Indebtedness is "pari passu" or "junior" to the
Debentures. Notwithstanding the foregoing, the term Senior Obligations shall not
include the aggregate principal amount of $80,880,000 in 7% Convertible
Subordinated Debentures due 2002 or any Indebtedness of the Company to any
subsidiary of the Company, a majority of the voting stock of which is owned,
directly or indirectly, by the Company. If any payment made to any holder of any
Senior Obligations or its Representative with respect to such Senior Obligations
is rescinded or must otherwise be returned by such holder or Representative upon
the insolvency, bankruptcy or reorganization of the Company or otherwise, the
reinstated Indebtedness of the Company arising as a result of such rescission or
return shall constitute Senior Obligations effective as of the date of such
rescission or return. Notwithstanding anything else to the contrary in this
Indenture, the term "Senior Obligations" shall include Indebtedness under the
Credit Agreement.
SIGNIFICANT SUBSIDIARY: The term "Significant Subsidiary"
shall mean, as of any date of determination, a subsidiary of the Company, a
majority of the voting stock or other voting power of which is owned directly or
indirectly by the Company, if as of such date of determination either (a) the
assets of such subsidiary equal 10% or more of the Company's total consolidated
assets or (b) the total revenue of which represented 10% or more of the
Company's consolidated total revenue for the most recently completed fiscal
year; provided, however, for purposes of this Indenture, BioSepra, Inc. shall
not be deemed to be a Significant Subsidiary.
SUBSIDIARY: The term "Subsidiary" shall mean, with respect to
any Person, (i) any corporation, association or other business entity of which
more than 50% of the total voting power of shares of capital stock entitled
(without regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof is at the time owned or controlled,
directly or indirectly, by such Person or one or more of the other subsidiaries
of that Person (or a combination thereof) and (ii) any partnership (a) the sole
general partner or managing general partner of which is such Person or a
subsidiary of such Person or (b) the only general partners of which are such
Person or one or more subsidiaries of such Person (or any combination thereof).
TRADING DAY: The term "Trading Day" shall have the meaning
specified in Section 15.5(h)(5).
TRIGGER EVENT: The term "Trigger Event" shall have the meaning
specified in Section 15.5(d).
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<PAGE> 14
TRUST INDENTURE ACT: The term "Trust Indenture Act" shall mean
the Trust Indenture Act of 1939, as amended, as it was in force at the date of
execution of this Indenture, except as provided in Sections 11.3 and 15.6;
provided, however, that in the event the Trust Indenture Act of 1939 is amended
after the date hereof, the term "Trust Indenture Act" shall mean, to the extent
required by such amendment, the Trust Indenture Act of 1939 as so amended.
TRUSTEE: The term "Trustee" shall mean The Chase Manhattan
Bank, and its successors and any corporation resulting from or surviving any
consolidation or merger to which it or its successors be a party and any
successor trustee at the time serving as successor trustee hereunder.
The definitions of certain other terms are as specified in
Sections 2.5 and 3.5 and Article XV.
ARTICLE II
ISSUE, DESCRIPTION, EXECUTION, REGISTRATION AND EXCHANGE OF DEBENTURES
SECTION 2.1. DESIGNATION AMOUNT AND ISSUE OF DEBENTURES. The Debentures
shall be designated as "6 1/4% Convertible Subordinated Debentures due 2005."
Debentures not to exceed the aggregate principal amount of $165,000,000 (or
$189,475,000 if the over-allotment option set forth in Section 2 of the Purchase
Agreement dated February 5, 1998 (as amended from time to time by the parties
thereto) by and between the Company and the Initial Purchasers is exercised in
full) (except pursuant to Sections 2.5, 2.6, 3.3, 3.5 and 15.2 hereof) upon the
execution of this Indenture, or from time to time thereafter, may be executed by
the Company and delivered to the Trustee for authentication, and the Trustee
shall thereupon authenticate and deliver said Debentures to or upon the written
order of the Company, signed by its (a) Chief Executive Officer, President, any
Executive or Senior Vice President or any Vice President (whether or not
designated by a number or numbers or word or words added before or after the
title "Vice President") and (b) Treasurer or Assistant Treasurer or its
Secretary or any Assistant Secretary, without any further action by the Company
hereunder.
In authenticating any Debentures, the Trustee shall be entitled to
receive prior to the first authentication of any Debentures, and shall be fully
protected in relying upon, unless and until such documents have been superseded
or revoked:
(1) an Officers' Certificate setting forth the form or forms and terms
of the Debentures, stating that the form or forms and terms of the
Debentures have been, or will be when established in accordance with
such procedures as shall be referred to therein, established in
compliance with this Indenture; and
(2) an Opinion of Counsel substantially to the effect that the form or
forms and terms of the Debentures have been, or will be when
established in accordance with such procedures as shall be referred to
therein, established in compliance with this Indenture
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<PAGE> 15
and that the supplemental indenture, to the extent applicable, and
Debentures have been duly authorized and, if executed and authenticated
in accordance with the provisions of the Indenture and delivered to and
duly paid for by the purchasers thereof on the date of such opinion,
would be entitled to the benefits of the Indenture and would be valid
and binding obligations of the Company, enforceable against the Company
in accordance with their respective terms, subject to bankruptcy,
insolvency, reorganization, receivership, moratorium and other similar
laws affecting creditors' rights generally, general principles of
equity, and such other matters as shall be specified therein.
SECTION 2.2. FORM OF DEBENTURES. The Debentures and the Trustee's
certificate of authentication to be borne by such Debentures shall be
substantially in the form set forth in Exhibit A, which is incorporated in and
made a part of this Indenture.
Any of the Debentures may have such letters, numbers or other
marks of identification and such notations, legends and endorsements as the
officers executing the same may approve (execution thereof to be conclusive
evidence of such approval) and as are not inconsistent with the provisions of
this Indenture, or as may be required to comply with any law or with any rule or
regulation made pursuant thereto or with any rule or regulation of any
securities exchange or automated quotation system on which the Debentures may be
listed, or to conform to usage.
Any Debenture in global form shall represent such of the
outstanding Debentures as shall be specified therein and shall provide that it
shall represent the aggregate amount of outstanding Debentures from time to time
endorsed thereon and that the aggregate amount of outstanding Debentures
represented thereby may from time to time be increased or reduced to reflect
transfers or exchanges permitted hereby. Any endorsement of a Debenture in
global form to reflect the amount of any increase or decrease in the amount of
outstanding Debentures represented thereby shall be made by the Trustee or the
Custodian, at the direction of the Trustee, in such manner and upon written
instructions given by the holder of such Debentures in accordance with this
Indenture. Payment of principal of and interest and premium, if any, on any
Debenture in global form shall be made to the holder of such Debenture.
The terms and provisions contained in the form of Debenture
attached as Exhibit A hereto shall constitute, and are hereby expressly made, a
part of this Indenture and the Company and the Trustee, by their execution and
delivery of this Indenture, expressly agree to such terms and provisions and to
be bound thereby.
SECTION 2.3. DATE AND DENOMINATION OF DEBENTURES; PAYMENTS OF INTEREST.
The Debentures shall be issuable in registered form without coupons in
denominations of $1,000 principal amount and integral multiples thereof. Every
Debenture shall be dated the date of its authentication and shall bear interest
from the applicable date in each case as specified on the face of the form of
Debenture attached as Exhibit A hereto. Interest on the Debentures shall be
computed on the basis of a 360-day year comprised of twelve (12) 30-day months
and shall be payable semi-annually on each of February 15 and August 15 of each
year.
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<PAGE> 16
The Person in whose name any Debenture (or its Predecessor Debenture)
is registered on the Debenture register at the close of business on any record
date with respect to any interest payment date shall be entitled to receive the
interest payable on such interest payment date, except (i) that the interest
payable upon redemption (unless the date of redemption is an interest payment
date) will be payable to the person to whom principal is payable and (ii) as set
forth in the next succeeding sentence. In the case of any Debenture (or portion
thereof) which is converted into Common Stock of the Company during the period
from (but excluding) a record date for any interest payment date to (but
excluding) such interest payment date either (i) if such Debenture (or portion
thereof) has been called for redemption on a redemption date which occurs during
such period, or is to be redeemed in connection with a Fundamental Change on a
Repurchase Date (as defined in Section 3.5) which occurs during such period, the
Company shall not be required to pay interest on such interest payment date in
respect of any such Debenture (or portion thereof) except to the extent required
to be paid upon redemption of such Debenture or portion thereof pursuant to
Section 3.3 or 3.5 hereof or (ii) if otherwise, any such Debenture (or portion
thereof) submitted for conversion during such period shall be accompanied by
funds equal to the interest payable on such interest payment date on the
principal amount so converted. Interest may, as the Company shall specify to the
paying agent in writing by each record date, be paid either (i) by check mailed
to the address of the person entitled thereto as it appears in the Debenture
register (provided that a holder of Debentures with an aggregate principal
amount in excess of $2,000,000 shall, at the written election of such holder, be
paid by wire transfer in immediately available funds) or (ii) by transfer to an
account maintained by such person located in the United States; provided,
however, that payments to the Depositary will be made by wire transfer of
immediately available funds to the account of the Depositary or its nominee. The
term "record date" with respect to any interest payment date shall mean the
January 31 or July 31 preceding said February 15 or August 15, respectively.
Any interest on any Debenture which is payable, but is not
punctually paid or duly provided for, on any said February 15 or August 15
(herein called "Defaulted Interest") shall forthwith cease to be payable to the
Debentureholder on the relevant record date by virtue of his having been such
Debentureholder; and such Defaulted Interest shall be paid by the Company, at
its election in each case, as provided in clause (1) or (2) below;
(1) The Company may elect to make payment of any
Defaulted Interest to the Persons in whose names the Debentures (or
their respective Predecessor Debentures) are registered at the close of
business on a special record date for the payment of such Defaulted
Interest, which shall be fixed in the following manner. The Company
shall notify the Trustee in writing of the amount of Defaulted Interest
to be paid on each Debenture and the date of the payment (which shall
be not less than twenty-five (25) days after the receipt by the Trustee
of such notice, unless the Trustee shall consent to an earlier date),
and at the same time the Company shall deposit with the Trustee an
amount of money equal to the aggregate amount to be paid in respect of
such Defaulted Interest or shall make arrangements satisfactory to the
Trustee for such deposit prior to the date of the proposed payment,
such money when deposited to be held in trust
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<PAGE> 17
for the benefit of the Persons entitled to such Defaulted Interest as
in this clause provided. Thereupon the Trustee shall fix a special
record date for the payment of such Defaulted Interest which shall be
not more than fifteen (15) days and not less than ten (10) days prior
to the date of the proposed payment, and not more than ten (10) days
after the receipt by the Trustee of the notice of the proposed payment,
the Trustee shall promptly notify the Company of such special record
date and, in the name and at the expense of the Company, shall cause
notice of the proposed payment of such Defaulted Interest and the
special record date therefor to be mailed, first-class postage prepaid,
to each Debentureholder at his address as it appears in the Debenture
register, not less than ten (10) days prior to such special record
date. Notice of the proposed payment of such Defaulted Interest and the
special record date therefor having been so mailed, such Defaulted
Interest shall be paid to the Persons in whose names the Debentures (or
their respective Predecessor Debentures) were registered at the close
of business on such special record date and shall no longer be payable
pursuant to the following clause (2) of this Section 2.3.
(2) The Company may make payment of any Defaulted
Interest in any other lawful manner not inconsistent with the
requirements of any securities exchange or automated quotation system
on which the Debentures may be listed or designated for issuance, and
upon such notice as may be required by such exchange or automated
quotation system, if, after written notice given by the Company to the
Trustee of the proposed payment pursuant to this clause, such manner of
payment shall be deemed practicable by the Trustee.
SECTION 2.4. EXECUTION OF DEBENTURES. The Debentures shall be signed in
the name and on behalf of the Company by the facsimile signature of its Chief
Executive Officer or President or any Executive or Senior Vice President or any
Vice President (whether or not designated by a number or numbers or word or
words added before or after the title "Vice President") and attested by the
facsimile signature of its Secretary or any of its Assistant Secretaries or
Treasurer or any of its Assistant Treasurers (which may be printed, engraved or
otherwise reproduced thereon, by facsimile or otherwise). Only such Debentures
as shall bear thereon a certificate of authentication substantially in the form
set forth on the form of Debenture attached as Exhibit A hereto, manually
executed by the Trustee (or an authenticating agent appointed by the Trustee as
provided by Section 16.11), shall be entitled to the benefits of this Indenture
or be valid or obligatory for any purpose. Such certificate by the Trustee (or
such an authenticating agent) upon any Debenture executed by the Company shall
be conclusive evidence that the Debenture so authenticated has been duly
authenticated and delivered hereunder and that the holder is entitled to the
benefits of this Indenture.
In case any officer of the Company who shall have signed any
of the Debentures shall cease to be such officer before the Debentures so signed
shall have been authenticated and delivered by the Trustee, or disposed of by
the Company, such Debentures nevertheless may be authenticated and delivered or
disposed of as though the person who signed such Debentures had not ceased to be
such officer of the Company; and any Debenture may be signed on behalf of
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<PAGE> 18
the Company by such persons as, at the actual date of the execution of such
Debenture, shall be the proper officers of the Company, although at the date of
the execution of this Indenture any such person was not such an officer:
SECTION 2.5. EXCHANGE AND REGISTRATION OF TRANSFER OF DEBENTURES;
RESTRICTIONS ON TRANSFER; DEPOSITARY.
(a) The Company shall cause to be kept at the Corporate Trust
Office a register (the register maintained in such office and in any other
office or agency of the Company designated pursuant to Section 5.2 being herein
sometimes collectively referred to as the "Debenture register") in which,
subject to such reasonable regulations as it may prescribe, the Company shall
provide for the registration of Debentures and of transfers of Debentures. The
Debenture register shall be in written form or in any form capable of being
converted into written form within a reasonably prompt period of time. The
Trustee is hereby appointed "Debenture registrar" for the purpose of registering
Debentures and transfers of Debentures as herein provided. The Company may
appoint one or more co-registrars in accordance with Section 5.2.
Upon surrender for registration of transfer of any Debenture
to the Debenture registrar or any co-registrar, and satisfaction of the
requirements for such transfer set forth in this Section 2.5, the Company shall
execute, and the Trustee shall authenticate and deliver, in the name of the
designated transferee or transferees, one or more new Debentures of any
authorized denominations and of a like aggregate principal amount and bearing
such restrictive legends as may be required by this Indenture.
Debentures may be exchanged for other Debentures of any
authorized denominations and of a like aggregate principal amount, upon
surrender of the Debentures to be exchanged at any such office or agency
maintained by the Company pursuant to Section 5.2. Whenever any Debentures are
so surrendered for exchange, the Company shall execute, and the Trustee shall
authenticate and deliver, the Debentures which the Debentureholder making the
exchange is entitled to receive bearing registration numbers not
contemporaneously outstanding.
All Debentures issued upon any registration of transfer or
exchange of Debentures shall be the valid obligations of the Company, evidencing
the same debt, and entitled to the same benefits under this Indenture, as the
Debentures surrendered upon such registration of transfer or exchange.
All Debentures presented or surrendered for registration of
transfer or for exchange, redemption or conversion shall (if so required by the
Company or the Debenture registrar) be duly endorsed, or be accompanied by a
written instrument or instruments of transfer in form satisfactory to the
Company, and the Debentures shall be duly executed by the Debentureholder
thereof or his attorney duly authorized in writing.
No service charge shall be made for any registration of
transfer or exchange of Debentures, but the Company may require payment of a sum
sufficient to cover any tax,
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<PAGE> 19
assessment or other governmental charge that may be imposed in connection with
any registration of transfer or exchange of Debentures.
Neither the Company nor the Trustee nor any Debenture
registrar or any Company registrar shall be required to exchange or register a
transfer of (a) any Debentures for a period of fifteen (15) days next preceding
any selection of Debentures to be redeemed or (b) any Debentures or portions
thereof called for redemption pursuant to Section 3.2 or (c) any Debentures or
portion thereof surrendered for conversion pursuant to Article XV or (d) any
Debentures or portions thereof tendered for redemption (and not withdrawn)
pursuant to Section 3.5.
(b) So long as the Debentures are eligible for book-entry
settlement with the Depositary, or unless otherwise required by law, all
Debentures that upon initial issuance are beneficially owned by QIBs and all
Debentures that are beneficially owned by Non-U.S. Persons as a result of a sale
or transfer after initial issuance will be represented by one or more Debentures
in global form registered in the name of the Depositary or the nominee of the
Depositary (each, a "Global Debenture"), except as otherwise specified below.
The transfer and exchange of beneficial interests in any such Global Debenture
shall be effected through the Depositary in accordance with this Indenture and
the procedures of the Depositary therefor. The Trustee shall make appropriate
endorsements to reflect increases or decreases in the principal amounts of any
such Global Debenture as set forth on the face of the Debenture ("Principal
Amount") to reflect any such transfers. Except as provided below, beneficial
owners of a Global Debenture shall not be entitled to have certificates
registered in their names, will not receive or be entitled to receive physical
delivery of certificates in definitive form and will not be considered holders
of such Debentures in global form.
(c) So long as the Debentures are eligible for book-entry
settlement, or unless otherwise required by law, upon any transfer of a
definitive Debenture to a QIB in accordance with Rule 144A or to a Non-U.S.
Person in accordance with Regulation S, and upon receipt of the definitive
Debenture or Debentures being so transferred, together with a certification,
substantially in the form on the reverse of the Debenture, from the transferor
that the transfer is being made in compliance with Rule 144A or to a Non-U.S.
Person in accordance with Regulation S (or other evidence satisfactory to the
Trustee), the Trustee shall make an endorsement on the applicable Global
Debenture to reflect an increase in the aggregate Principal Amount of the
Debentures represented by such Debenture in global form, the Trustee shall
cancel such definitive Debenture or Debentures in accordance with the standing
instructions and procedures of the Depositary, the aggregate Principal Amount of
Debentures represented by such Debenture in global form to be increased
accordingly; provided that no definitive Debenture, or portion thereof, in
respect of which the Company or an Affiliate of the Company held any beneficial
interest shall be included in such Debenture in global form until such
definitive Debenture is freely tradable in accordance with Rule 144(k); provided
further that the Trustee shall issue Debentures in definitive form upon any
transfer of a beneficial interest in the Debenture in global form to the Company
or any Affiliate of the Company.
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<PAGE> 20
Upon any sale or transfer of a Debenture to an Institutional
Accredited Investor (other than pursuant to a registration statement that has
been declared effective under the Securities Act), such Institutional Accredited
Investor shall, prior to such sale or transfer, furnish to the Company and/or
the Trustee a signed letter containing representations and agreements relating
to restrictions on transfer substantially in the form set forth in Exhibit B to
this Indenture.
Any Debenture in global form may be endorsed with or have
incorporated in the text thereof such legends or recitals or changes not
inconsistent with the provisions of this Indenture as may be required by the
Custodian, the Depositary or by the National Association of Securities Dealers,
Inc. in order for the Debentures to be tradeable on The Portal Market or as may
be required for the Debentures to be tradeable on any other market developed for
trading of securities pursuant to Rule 144A or Regulation S or required to
comply with any applicable law or any regulation thereunder or with the rules
and regulations of any securities exchange or automated quotation system upon
which the Debentures may be listed or traded or to conform with any usage with
respect thereto, or to indicate any special limitations or restrictions to which
any particular Debentures are subject.
(d) Every Debenture that bears or is required under this
Section 2.5(d) to bear the legend set forth in this Section 2.5(d) (together
with any Common Stock issued upon conversion of the Debentures and required to
bear the legend set forth in Section 2.5(e), collectively, the "Restricted
Securities") shall be subject to the restrictions on transfer set forth in this
Section 2.5(d) (including those set forth in the legend set forth below) unless
such restrictions on transfer shall be waived by written consent of the Company,
and the holder of each such Restricted Security, by such holder's acceptance
thereof, agrees to be bound by all such restrictions on transfer. As used in
Sections 2.5(d) and 2.5(e), the term "transfer" encompasses any sale, pledge,
transfer or other disposition whatsoever of any Restricted Security.
Until the expiration of the holding period applicable to sales
thereof under Rule 144(k) under the Securities Act (or any successor provision),
any certificate evidencing such Debenture (and all securities issued in exchange
therefor or substitution thereof, other than Common Stock, if any, issued upon
conversion thereof, which shall bear the legend set forth in Section 2.5(e), if
applicable) shall bear a legend in substantially the following form, unless such
Debenture has been sold pursuant to a registration statement that has been
declared effective under the Securities Act (and which continues to be effective
at the time of such transfer), or unless otherwise agreed by the Company in
writing, with written notice thereof to the Trustee:
THE DEBENTURE EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR
ANY STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD
WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF,
UNITED STATES PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY
ITS ACQUISITION HEREOF, THE HOLDER (1)
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<PAGE> 21
REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED
IN RULE 144A UNDER THE SECURITIES ACT), (B) IT IS AN INSTITUTIONAL
"ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7)
UNDER THE SECURITIES ACT) ("INSTITUTIONAL ACCREDITED INVESTOR") OR (C)
IT IS NOT A UNITED STATES PERSON AND IS ACQUIRING THE DEBENTURE
EVIDENCED HEREBY IN AN OFFSHORE TRANSACTION; (2) AGREES THAT IT WILL
NOT, PRIOR TO EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF
THE SECURITY EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE SECURITIES
ACT (OR ANY SUCCESSOR PROVISION), RESELL OR OTHERWISE TRANSFER THE
DEBENTURE EVIDENCED HEREBY OR THE COMMON STOCK ISSUABLE UPON CONVERSION
OF SUCH DEBENTURE EXCEPT (A) TO SEPRACOR INC. OR ANY SUBSIDIARY
THEREOF, (B) INSIDE THE UNITED STATES TO A QUALIFIED INSTITUTIONAL
BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE
THE UNITED STATES TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR
TO SUCH TRANSFER, FURNISHES TO THE CHASE MANHATTAN BANK, AS TRUSTEE (OR
A SUCCESSOR TRUSTEE, AS APPLICABLE), A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER
OF THE DEBENTURE EVIDENCED HEREBY (THE FORM OF WHICH LETTER CAN BE
OBTAINED FROM SUCH TRUSTEE OR A SUCCESSOR TRUSTEE, AS APPLICABLE), (D)
OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904 UNDER THE
SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION
PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (F)
PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE
UNDER THE SECURITIES ACT (AND WHICH CONTINUES TO BE EFFECTIVE AT THE
TIME OF SUCH TRANSFER); (3) PRIOR TO SUCH TRANSFER (OTHER THAN A
TRANSFER PURSUANT TO CLAUSE 2(F) ABOVE), IT WILL FURNISH TO THE CHASE
MANHATTAN BANK, AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE),
SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS SUCH
TRUSTEE MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING
MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO,
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND (4) AGREES THAT
IT WILL DELIVER TO EACH PERSON TO WHOM THE DEBENTURE EVIDENCED HEREBY
IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN
CONNECTION WITH ANY TRANSFER OF THE DEBENTURE EVIDENCED HEREBY PRIOR TO
THE EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF THE
DEBENTURE EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE SECURITIES
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<PAGE> 22
ACT (OR ANY SUCCESSOR PROVISION), THE HOLDER MUST CHECK THE APPROPRIATE
BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH
TRANSFER AND SUBMIT THIS CERTIFICATE TO THE CHASE MANHATTAN BANK, AS
TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE). IF THE PROPOSED
TRANSFEREE IS AN INSTITUTIONAL ACCREDITED INVESTOR OR A PURCHASER WHO
IS NOT A UNITED STATES PERSON, THE HOLDER MUST, PRIOR TO SUCH TRANSFER,
FURNISH TO THE CHASE MANHATTAN BANK, AS TRUSTEE (OR A SUCCESSOR
TRUSTEE, AS APPLICABLE), SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER
INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER
IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THIS
LEGEND WILL BE REMOVED UPON THE EARLIER OF THE TRANSFER OF THE
DEBENTURE EVIDENCED HEREBY PURSUANT TO CLAUSE 2(F) ABOVE OR UPON ANY
TRANSFER OF THE DEBENTURE EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE
SECURITIES ACT (OR ANY SUCCESSOR PROVISION). AS USED HEREIN, THE TERMS
"OFFSHORE TRANSACTION," "UNITED STATES" AND "UNITED STATES PERSON" HAVE
THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.
Any Debenture (or security issued in exchange or substitution
therefor) as to which such restrictions on transfer shall have expired in
accordance with their terms or as to which the conditions for removal of the
foregoing legend set forth therein have been satisfied may, upon surrender of
such Debenture for exchange to the Debenture registrar in accordance with the
provisions of this Section 2.5, be exchanged for a new Debenture or Debentures,
of like tenor and aggregate principal amount, which shall not bear the
restrictive legend required by this Section 2.5(d).
Notwithstanding any other provisions of this Indenture (other
than the provisions set forth in Section 2.5(c) and in this Section 2.5(d)), a
Debenture in global form may not be transferred as a whole or in part except by
the Depositary to a nominee of the Depositary or by a nominee of the Depositary
to the Depositary or another nominee of the Depositary or by the Depositary or
any such nominee to a successor Depositary or a nominee of such successor
Depositary.
The Depositary shall be a clearing agency registered under the
Exchange Act. The Company initially appoints The Depository Trust Company to act
as Depositary with respect to the Debentures in global form. Initially, Global
Debentures shall be issued to the Depositary, registered in the name of Cede &
Co., as the nominee of the Depositary, and deposited with the Custodian for Cede
& Co.
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If at any time the Depositary for a Debenture in global form
notifies the Company that it is unwilling or unable to continue as Depositary
for such Debenture, the Company may appoint a successor Depositary with respect
to such Debenture. If a successor Depositary is not appointed by the Company
within ninety (90) days after the Company receives such notice, the Company will
execute, and the Trustee, upon receipt of an Officers' Certificate for the
authentication and delivery of Debentures, will authenticate and deliver,
Debentures in certificated form, in aggregate principal amount equal to the
principal amount of such Debenture in global form, in exchange for such
Debenture in global form.
If a Debenture in certificated form is issued in exchange for
any portion of a Debenture in global form after the close of business at the
office or agency where such exchange occurs on any record date and before the
opening of business at such office or agency on the next succeeding interest
payment date, interest will not be payable on such interest payment date in
respect of such Debenture, but will be payable on such interest payment date,
subject to the provisions of Section 2.3, only to the person to whom interest in
respect of such portion of such Debenture in global form is payable in
accordance with the provisions of this Indenture.
Debentures in certificated form issued in exchange for all or
a part of a Debenture in global form pursuant to this Section 2.5 shall be
registered in such names and in such authorized denominations as the Depositary,
pursuant to instructions from its direct or indirect participants or otherwise,
shall instruct the Trustee. Upon execution and authentication, the Trustee shall
deliver such Debentures in certificated form to the persons in whose names such
Debentures in certificated form are so registered.
At such time as all interests in a Debenture in global form
have been redeemed, converted, canceled, exchanged for Debentures in
certificated form, or transferred to a transferee who receives Debentures in
certificated form thereof, such Debenture in global form shall, upon receipt
thereof, be canceled by the Trustee in accordance with standing procedures and
instructions existing between the Depositary and the Custodian. At any time
prior to such cancellation, if any interest in a global Debenture is exchanged
for Debentures in certificated form, redeemed, converted, repurchased or
canceled, exchanged for Debentures in certificated form or transferred to a
transferee who receives Debentures in certificated form therefor or any
Debenture in certificated form is exchanged or transferred for part of a
Debenture in global form, the principal amount of such Debenture in global form
shall, in accordance with the standing procedures and instructions existing
between the Depositary and the Custodian, be appropriately reduced or increased,
as the case may be, and an endorsement shall be made on such Debenture in global
form, by the Trustee or the Custodian, at the direction of the Trustee, to
reflect such reduction or increase.
(e) Until the expiration of the holding period applicable to
sales thereof under Rule 144(k) under the Securities Act (or any successor
provision), any stock certificate representing Common Stock issued upon
conversion of such Debenture shall bear a legend in substantially the following
form, unless such Common Stock has been sold pursuant to a registration
statement that has been declared effective under the Securities Act (and which
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continues to be effective at the time of such transfer) or such Common Stock has
been issued upon conversion of Debentures that have been transferred pursuant to
a registration statement that has been declared effective under the Securities
Act, or unless otherwise agreed by the Company in writing with written notice
thereof to the transfer agent:
THE COMMON STOCK EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE
U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY
STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD
WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S.
PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. THE HOLDER
HEREOF AGREES THAT UNTIL THE EXPIRATION OF THE HOLDING PERIOD
APPLICABLE TO SALES OF THE SECURITY EVIDENCED HEREBY UNDER RULE 144(K)
UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION), (1) IT WILL NOT
RESELL OR OTHERWISE TRANSFER THE COMMON STOCK EVIDENCED HEREBY EXCEPT
(A) TO SEPRACOR INC. OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED
STATES TO A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A
UNDER THE SECURITIES ACT) IN COMPLIANCE WITH RULE 144A, (C) INSIDE THE
UNITED STATES TO AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN
RULE 501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) THAT PRIOR TO
SUCH TRANSFER FURNISHES TO BOSTON EQUISERVE LP, AS TRANSFER AGENT (OR A
SUCCESSOR TRANSFER AGENT, AS APPLICABLE), A SIGNED LETTER CONTAINING
CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON
TRANSFER OF THE COMMON STOCK EVIDENCED HEREBY (THE FORM OF WHICH LETTER
CAN BE OBTAINED FROM SUCH TRANSFER AGENT OR A SUCCESSOR TRANSFER AGENT,
AS APPLICABLE), (D) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE
904 UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM
REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF
AVAILABLE), OR (F) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN
DECLARED EFFECTIVE UNDER THE SECURITIES ACT (AND WHICH CONTINUES TO BE
EFFECTIVE AT THE TIME OF SUCH TRANSFER); (2) PRIOR TO SUCH TRANSFER
(OTHER THAN A TRANSFER PURSUANT TO CLAUSE 1(F) ABOVE), IT WILL FURNISH
TO BOSTON EQUISERVE LP, AS TRANSFER AGENT (OR A SUCCESSOR TRANSFER
AGENT, AS APPLICABLE), SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER
INFORMATION AS SUCH TRANSFER AGENT MAY REASONABLY REQUIRE TO CONFIRM
THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND (3) IT WILL DELIVER
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TO EACH PERSON TO WHOM THE COMMON STOCK EVIDENCED HEREBY IS TRANSFERRED
(OTHER THAN A TRANSFER PURSUANT TO CLAUSE 1(F) ABOVE) A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. THIS LEGEND WILL BE REMOVED
UPON THE EARLIER OF THE TRANSFER OF THE COMMON STOCK EVIDENCED HEREBY
PURSUANT TO CLAUSE 1(F) ABOVE OR UPON ANY TRANSFER OF THE COMMON STOCK
EVIDENCED HEREBY AFTER THE EXPIRATION OF THE HOLDING PERIOD APPLICABLE
TO SALES OF THE SECURITY EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE
SECURITIES ACT (OR ANY SUCCESSOR PROVISION). AS USED HEREIN, THE TERMS
"UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY
REGULATION S UNDER THE SECURITIES ACT.
Any such Common Stock as to which such restrictions on
transfer shall have expired in accordance with their terms or as to which the
conditions for removal of the foregoing legend set forth therein have been
satisfied may, upon surrender of the certificates representing such shares of
Common Stock for exchange in accordance with the procedures of the transfer
agent for the Common Stock, be exchanged for a new certificate or certificates
for a like number of shares of Common Stock, which shall not bear the
restrictive legend required by this Section 2.5(e).
(f) Any Debenture or Common Stock issued upon the conversion
or exchange of a Debenture that, prior to the expiration of the holding period
applicable to sales thereof under Rule 144(k) under the Securities Act (or any
successor provision), is purchased or owned by the Company or any Affiliate
thereof may not be resold by the Company or such Affiliate unless registered
under the Securities Act or resold pursuant to an exemption from the
registration requirements of the Securities Act in a transaction which results
in such Debentures or Common Stock, as the case may be, no longer being
"restricted securities" (as defined under Rule 144).
SECTION 2.6. MUTILATED, DESTROYED, LOST OR STOLEN DEBENTURES. In case
any Debenture shall become mutilated or be destroyed, lost or stolen, the
Company in its discretion may execute, and upon its written request the Trustee
or an authenticating agent appointed by the Trustee shall authenticate and make
available for delivery, a new Debenture, bearing a number not contemporaneously
outstanding, in exchange and substitution for the mutilated Debenture, or in
lieu of and in substitution for the Debenture so destroyed, lost or stolen. In
every case the applicant for a substituted Debenture shall furnish to the
Company, to the Trustee and, if applicable, to such authenticating agent such
security or indemnity as may be required by them to save each of them harmless
for any loss, liability, cost or expense caused by or connected with such
substitution, and, in every case of destruction, loss or theft, the applicant
shall also furnish to the Company, to the Trustee and, if applicable, to such
authenticating agent evidence to their satisfaction of the destruction, loss or
theft of such Debenture and of the ownership thereof.
Following receipt by the Trustee or such authenticating agent,
as the case may be, of satisfactory security or indemnity and evidence, as
described in the preceding paragraph, the
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Trustee or such authenticating agent may authenticate any such substituted
Debenture and make available for delivery such Debenture. Upon the issuance of
any substituted Debenture, the Company may require the payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
relation thereto and any other expenses connected therewith. In case any
Debenture which has matured or is about to mature or has been called for
redemption or has been tendered for redemption (and not withdrawn) or is about
to be converted into Common Stock shall become mutilated or be destroyed, lost
or stolen, the Company may, instead of issuing a substitute Debenture, pay or
authorize the payment of or convert or authorize the conversion of the same
(without surrender thereof except in the case of a mutilated Debenture), as the
case may be, if the applicant for such payment or conversion shall furnish to
the Company, to the Trustee and, if applicable, to such authenticating agent
such security or indemnity as may be required by them to save each of them
harmless for any loss, liability, cost or expense caused by or connected with
such substitution, and, in case of destruction, loss or theft, evidence
satisfactory to the Company, the Trustee and, if applicable, any paying agent or
conversion agent of the destruction, loss or theft of such Debenture and of the
ownership thereof.
Every substitute Debenture issued pursuant to the provisions
of this Section 2.6 by virtue of the fact that any Debenture is destroyed, lost
or stolen shall constitute an additional contractual obligation of the Company,
whether or not the destroyed, lost or stolen Debenture shall be found at any
time, and shall be entitled to all the benefits of (but shall be subject to all
the limitations set forth in) this Indenture equally and proportionately with
any and all other Debentures duly issued hereunder. To the extent permitted by
law, all Debentures shall be held and owned upon the express condition that the
foregoing provisions are exclusive with respect to the replacement or payment or
conversion of mutilated, destroyed, lost or stolen Debentures and shall preclude
any and all other rights or remedies notwithstanding any law or statute existing
or hereafter enacted to the contrary with respect to the replacement or payment
or conversion of negotiable instruments or other securities without their
surrender.
SECTION 2.7. TEMPORARY DEBENTURES. Pending the preparation of
Debentures in certificated form, the Company may execute and the Trustee or an
authenticating agent appointed by the Trustee shall, upon the written request of
the Company, authenticate and deliver temporary Debentures (printed or
lithographed). Temporary Debentures shall be issuable in any authorized
denomination, and substantially in the form of the Debentures in certificated
form, but with such omissions, insertions and variations as may be appropriate
for temporary Debentures, all as may be determined by the Company. Every such
temporary Debenture shall be executed by the Company and authenticated by the
Trustee or such authenticating agent upon the same conditions and in
substantially the same manner, and with the same effect, as the Debentures in
certificated form. Without unreasonable delay the Company will execute and
deliver to the Trustee or such authenticating agent Debentures in certificated
form (other than in the case of Debentures in global form) and thereupon any or
all temporary Debentures (other than any such Debenture in global form) may be
surrendered in exchange therefor, at each office or agency maintained by the
Company pursuant to Section 5.2 and the Trustee or such authenticating agent
shall authenticate and make available for delivery in exchange for such
temporary Debentures an equal aggregate principal amount of Debentures in
certificated form. Such exchange shall be
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made by the Company at its own expense and without any charge therefor. Until so
exchanged, the temporary Debentures shall in all respects be entitled to the
same benefits and subject to the same limitations under this Indenture as
Debentures in certificated form authenticated and delivered hereunder.
SECTION 2.8. CANCELLATION OF DEBENTURES PAID, ETC. All Debentures
surrendered for the purpose of payment, redemption, conversion, exchange or
registration of transfer, shall, if surrendered to the Company or any paying
agent or any Debenture registrar or any conversion agent, be surrendered to the
Trustee and promptly canceled by it, or, if surrendered to the Trustee, shall be
promptly canceled by it, and no Debentures shall be issued in lieu thereof
except as expressly permitted by any of the provisions of this Indenture. The
Trustee shall return such canceled Debentures to the Company. If the Company
shall acquire any of the Debentures, such acquisition shall not operate as a
redemption or satisfaction of the indebtedness represented by such Debentures
unless and until the same are delivered to the Trustee for cancellation.
SECTION 2.9. CUSIP NUMBERS. The Company in issuing the Debentures may
use "CUSIP" numbers (if then generally in use), and, if so, the Trustee shall
use "CUSIP" numbers in notices of redemption as a convenience to
Debentureholders; provided that any such notice may state that no representation
is made as to the correctness of such numbers either as printed on the
Debentures or as contained in any notice of a redemption and that reliance may
be placed only on the other identification numbers printed on the Debentures,
and any such redemption shall not be affected by any defect in or omission of
such numbers. The Company will promptly notify the Trustee in writing of any
change in the CUSIP numbers.
ARTICLE III
REDEMPTION OF DEBENTURES
SECTION 3.1. REDEMPTION PRICES. The Company may not redeem the
Debentures prior to February 18, 2001. At any time on or after February 18,
2001, the Company , at its option, redeem all or from time to time any part of
the Debentures on any date prior to maturity, upon notice as set forth in
Section 3.2, and at the optional redemption prices set forth in the form of
Debenture attached as Exhibit A hereto, together with accrued interest to, but
excluding, the date fixed for redemption.
SECTION 3.2. NOTICE OF REDEMPTION; SELECTION OF DEBENTURES. In case the
Company shall desire to exercise the right to redeem all or, as the case may be,
any part of the Debentures pursuant to Section 3.1, it shall fix a date for
redemption and it or, at its written request received by the Trustee not fewer
than forty-five (45) days prior (or such shorter period of time as may be
acceptable to the Trustee) to the date fixed for redemption, the Trustee in the
name of and at the expense of the Company, shall mail or cause to be mailed a
notice of such redemption not less than thirty (30) nor more than sixty (60)
days prior to the date fixed for redemption to the holders of Debentures so to
be redeemed as a whole or in part at their last addresses as the same appear on
the Debenture register; provided that if the Company shall give such notice, it
shall
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also give written notice, and written notice of the Debentures to be redeemed,
to the Trustee. Such mailing shall be by first class mail. The notice if mailed
in the manner herein provided shall be conclusively presumed to have been duly
given, whether or not the holder receives such notice. In any case, failure to
give such notice by mail or any defect in the notice to the holder of any
Debenture designated for redemption as a whole or in part shall not affect the
validity of the proceedings for the redemption of any other Debenture.
Each such notice of redemption shall specify the aggregate
principal amount of Debentures to be redeemed, the CUSIP numbers, the date fixed
for redemption (which shall be a Business Day), the redemption price at which
Debentures are to be redeemed, the place or places of payment, that payment will
be made upon presentation and surrender of such Debentures, that interest
accrued to the date fixed for redemption will be paid as specified in said
notice, and that on and after said date interest thereon or on the portion
thereof to be redeemed will cease to accrue. Such notice shall also state the
current Conversion Price and the date on which the right to convert such
Debentures or portions thereof into Common Stock will expire. If fewer than all
the Debentures are to be redeemed, the notice of redemption shall identify the
Debentures to be redeemed (including CUSIP numbers, if any). In case any
Debenture is to be redeemed in part only, the notice of redemption shall state
the portion of the principal amount thereof to be redeemed and shall state that
on and after the date fixed for redemption, upon surrender of such Debenture, a
new Debenture or Debentures in principal amount equal to the unredeemed portion
thereof will be issued.
On or prior to the redemption date specified in the notice of
redemption given as provided in this Section 3.2, the Company will deposit with
the Trustee or with one or more paying agents (or, if the Company is acting as
its own paying agent, set aside, segregate and hold in trust as provided in
Section 5.4) an amount of money sufficient to redeem on the redemption date all
the Debentures (or portions thereof) so called for redemption (other than those
theretofore surrendered for conversion into Common Stock) at the appropriate
redemption price, together with accrued interest to, but excluding, the date
fixed for redemption; provided that if such payment is made on the redemption
date it must be received by the Trustee or paying agent, as the case may be, by
10:00 a.m. New York City time, on such date. If any Debenture called for
redemption is converted pursuant hereto, any money deposited with the Trustee or
any paying agent or so segregated and held in trust for the redemption of such
Debenture shall be paid to the Company upon its written request, or, if then
held by the Company, shall be discharged from such trust. Whenever any
Debentures are to be redeemed, the Company will give the Trustee written notice
in the form of an Officers' Certificate not fewer than forty-five (45) days (or
such shorter period of time as may be acceptable to the Trustee) prior to the
redemption date as to the aggregate principal amount of Debentures to be
redeemed.
If fewer than all the Debentures are to be redeemed, the
Trustee shall select the Debentures or portions thereof of the Global Debenture
or the Debentures in certificated form to be redeemed (in principal amounts of
$1,000 or integral multiples thereof), by lot, on a pro rata basis or by another
method the Trustee deems fair and appropriate. If any Debenture selected for
partial redemption is converted in part after such selection, the converted
portion of
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such Debenture shall be deemed (so far as may be) to be the portion to be
selected for redemption. The Debentures (or portions thereof) so selected shall
be deemed duly selected for redemption for all purposes hereof, notwithstanding
that any such Debenture is converted as a whole or in part before the mailing of
the notice of redemption.
Upon any redemption of less than all Debentures, the Company
and the Trustee may (but need not) treat as outstanding any Debentures
surrendered for conversion during the period of fifteen (15) days next preceding
the mailing of a notice of redemption and may (but need not) treat as
outstanding any Debenture authenticated and delivered during such period in
exchange for the unconverted portion of any Debenture converted in part during
such period.
SECTION 3.3. PAYMENT OF DEBENTURES CALLED FOR REDEMPTION. If notice of
redemption has been given as above provided, the Debentures or portion of
Debentures with respect to which such notice has been given shall, unless
converted into Common Stock pursuant to the terms hereof, become due and payable
on the date fixed for redemption and at the place or places stated in such
notice at the applicable redemption price, together with interest accrued to
(but excluding) the date fixed for redemption, and on and after said date
(unless the Company shall default in the payment of such Debentures at the
redemption price, together with interest accrued to said date), interest on the
Debentures or portion of Debentures so called for redemption shall cease to
accrue and such Debentures shall cease after the close of business on the
Business Day next preceding the date fixed for redemption to be convertible into
Common Stock and, except as provided in Sections 8.5 and 13.4, to be entitled to
any benefit or security under this Indenture, and the holders thereof shall have
no right in respect of such Debentures except the right to receive the
redemption price thereof and unpaid interest to (but excluding) the date fixed
for redemption. On presentation and surrender of such Debentures at a place of
payment in said notice specified, the said Debentures or the specified portions
thereof shall be paid and redeemed by the Company at the applicable redemption
price, together with interest accrued thereon to (but excluding) the date fixed
for redemption; provided that, if the applicable redemption date is an interest
payment date, the semi-annual payment of interest becoming due on such date
shall be payable to the holders of such Debentures registered as such on the
relevant record date instead of the holders surrendering such Debentures for
redemption on such date.
Upon presentation of any Debenture redeemed in part only, the
Company shall execute and the Trustee shall authenticate and make available for
delivery to the holder thereof, at the expense of the Company, a new Debenture
or Debentures, of authorized denominations, in principal amount equal to the
unredeemed portion of the Debentures so presented.
Notwithstanding the foregoing, the Trustee shall not redeem
any Debentures or mail any notice of optional redemption during the continuance
of a default in payment of interest or premium on the Debentures or of any Event
of Default of which, in the case of any Event of Default other than under
Sections 7.1 (a) or 7.1 (b), a Responsible Officer of the Trustee has actual
knowledge. If any Debenture called for redemption shall not be so paid upon
surrender thereof for redemption, the principal and premium, if any, shall,
until paid or duly provided for, bear interest from the date fixed for
redemption at the rate borne by the Debenture and such
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Debenture shall remain convertible into Common Stock until the principal and
premium, if any, shall have been paid or duly provided for.
SECTION 3.4. CONVERSION ARRANGEMENT ON CALL FOR REDEMPTION. In
connection with any redemption of Debentures, the Company may arrange for the
purchase and conversion of any Debentures by an agreement with one or more
investment bankers or other purchasers to purchase such Debentures by paying to
the Trustee in trust for the Debentureholders, on or before the date fixed for
redemption, an amount not less than the applicable redemption price, together
with interest accrued to (but excluding) the date fixed for redemption, of such
Debentures. Notwithstanding anything to the contrary contained in this Article
III, the obligation of the Company to pay the redemption price of such
Debentures, together with interest accrued to (but excluding) the date fixed for
redemption, shall be deemed to be satisfied and discharged to the extent such
amount is so paid by such purchasers. If such an agreement is entered into, a
copy of which will be filed with the Trustee prior to the date fixed for
redemption, any Debentures not duly surrendered for conversion by the holders
thereof may, at the option of the Company, be deemed, to the fullest extent
permitted by law, acquired by such purchasers from such holders and
(notwithstanding anything to the contrary contained in Article XV) surrendered
by such purchasers for conversion, all as of immediately prior to the close of
business on the date fixed for redemption (and the right to convert any such
Debentures shall be extended through such time), subject to payment of the above
amount as aforesaid. At the written direction of the Company, the Trustee shall
hold and dispose of any such amount paid to it in the same manner as it would
monies deposited with it by the Company for the redemption of Debentures.
Without the Trustee's prior written consent, no arrangement between the Company
and such purchasers for the purchase and conversion of any Debentures shall
increase or otherwise affect any of the powers, duties, responsibilities or
obligations of the Trustee as set forth in this Indenture.
SECTION 3.5. REDEMPTION AT OPTION OF HOLDERS.
(a) If there shall occur a Fundamental Change, then each
Debentureholder shall have the right, at such holder's option, to require the
Company to redeem all of such holder's Debentures, or any portion thereof that
is an integral multiple of $1,000 principal amount, on the date (the "Repurchase
Date") that is thirty (30) days after the date of the Company Notice (as defined
in Section 3.5(b) below) of such Fundamental Change (or, if such 30th day is not
a Business Day, the next succeeding Business Day) at a redemption price equal to
100% of the principal amount thereof, together with accrued interest to the date
of redemption; provided that, if such Repurchase Date is February 15 or August
15, then the interest payable on such date shall be paid to the holders of
record of the Debentures on the next preceding January 31 or July 31,
respectively.
Upon presentation of any Debenture redeemed in part only, the
Company shall execute and, upon the Company's written direction to the Trustee,
the Trustee shall authenticate and deliver to the holder thereof, at the expense
of the Company, a new Debenture or Debentures, of authorized denominations, in
principal amount equal to the unredeemed portion of the Debentures so presented.
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(b) On or before the tenth day after the occurrence of a
Fundamental Change, the Company, or, at its written request (which must be
received by the Trustee at least five (5) Business Days prior to the date the
Trustee is requested to give notice as described below), the Trustee in the name
of and at the expense of the Company, shall mail or cause to be mailed to all
holders of record on the date of the Fundamental Change a notice (the "Company
Notice") of the occurrence of such Fundamental Change and of the redemption
right at the option of the holders arising as a result thereof. Such notice
shall be mailed in the manner and with the effect set forth in the first
paragraph of Section 3.2. The Company shall also deliver a copy of the Company
Notice to the Trustee at such time as it is mailed to Debentureholders.
Each Company Notice shall specify the circumstances
constituting the Fundamental Change, the Repurchase Date, the price at which the
Company shall be obligated to redeem Debentures, the latest time on the
Repurchase Date by which the holder must exercise the redemption right (the
"Fundamental Change Expiration Time"), that the holder shall have the right to
withdraw any Debentures surrendered prior to the Fundamental Change Expiration
Time, a description of the procedure which a Debentureholder must follow to
exercise such redemption right and to withdraw any surrendered Debentures, the
place or places where the holder is to surrender such holder's Debentures, and
the amount of interest accrued on each Debenture to the Repurchase Date.
No failure of the Company to give the foregoing notices and no
defect therein shall limit the Debentureholders' redemption rights or affect the
validity of the proceedings for the repurchase of the Debentures pursuant to
this Section 3.5.
(c) For a Debenture to be so redeemed at the option of the
holder, the Company must receive at the office or agency of the Company
maintained for that purpose or, at the option of such holder, the Corporate
Trust Office, such Debenture with the form entitled "Option to Elect Repayment
Upon A Fundamental Change" on the reverse thereof duly completed, together with
such Debentures duly endorsed for transfer, on or before the Fundamental Change
Expiration Time. All questions as to the validity, eligibility (including time
of receipt) and acceptance of any Debenture for repayment shall be determined by
the Company, whose determination shall be final and binding absent manifest
error.
(d) On or prior to the Repurchase Date, the Company will
deposit with the Trustee or with one or more paying agents (or, if the Company
is acting as its own paying agent, set aside, segregate and hold in trust as
provided in Section 5.4) an amount of money sufficient to repay on the
Repurchase Date all the Debentures to be repaid on such date at the redemption
price, together with accrued interest to (but excluding) the Repurchase Date;
provided that if such payment is made on the Repurchase Date it must be received
by the Trustee or paying agent, as the case may be, by 10:00 a.m. New York City
time, on such date. Payment for Debentures surrendered for redemption (and not
withdrawn) prior to the Fundamental Change Expiration Time will be made promptly
(but in no event more than five (5) Business Days) following the Repurchase Date
by mailing checks for the amount payable to the holders of such Debentures
entitled thereto as they shall appear on the Debenture register of the Company.
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(e) In the case of a reclassification, change of the
outstanding shares of Common Stock, consolidation, merger, combination, sale or
conveyance to which Section 15.6 applies, in which the Common Stock of the
Company is changed or exchanged as a result into the right to receive stock,
securities or other property or assets (including cash), which includes shares
of Common Stock of the Company or another Person that are, or upon issuance will
be, traded on a United States national securities exchange or approved for
trading on an established automated over-the-counter trading market in the
United States and such shares constitute at the time such change or exchange
becomes effective in excess of 50% of the aggregate fair market value of such
stock, securities or other property or assets (including cash), then the Person
formed by such consolidation or resulting from such merger or which acquires
such assets, as the case may be, shall execute and deliver to the Trustee a
supplemental indenture (accompanied by an Opinion of Counsel that such
supplemental indenture complies with the Trust Indenture Act as in force at the
date of execution of such supplemental indenture) modifying the provisions of
this Indenture relating to the right of holders of the Debentures to cause the
Company to repurchase the Debentures following a Fundamental Change, including
without limitation the applicable provisions of this Section 3.5 and the
definitions of Common Stock and Fundamental Change, as appropriate, as
determined in good faith by the Company, to make such provisions apply to the
common stock and the issuer thereof if different from the Company and Common
Stock of the Company (in lieu of the Company and the Common Stock of the
Company).
(f) The Company will comply with the provisions of Rule 13e-4
and any other tender offer rules under the Exchange Act to the extent then
applicable in connection with the redemption rights of the holders of Debentures
in the event of a Fundamental Change.
ARTICLE IV
SUBORDINATION OF DEBENTURES
SECTION 4.1. AGREEMENT OF SUBORDINATION. The Company covenants and
agrees, and each holder of Debentures issued hereunder by its acceptance thereof
likewise covenants and agrees, that all Debentures shall be issued subject to
the provisions of this Article IV; and each Person holding any Debenture,
whether upon original issue or upon transfer, assignment or exchange thereof,
accepts and agrees to be bound by such provisions.
The payment of the principal of, premium, if any, and interest
(including Liquidated Damages, if any) on all Debentures (including, but not
limited to, the redemption price with respect to the Debentures called for
redemption in accordance with Section 3.2 or submitted for redemption in
accordance with Section 3.5, as the case may be, as provided in the Indenture)
issued hereunder shall, to the extent and in the manner hereinafter set forth,
be subordinated and subject in right of payment to the prior payment in full of
all Senior Obligations, whether outstanding at the date of this Indenture or
thereafter incurred.
No provision of this Article IV shall prevent the occurrence
of any default or Event of Default hereunder.
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SECTION 4.2. PAYMENTS TO DEBENTUREHOLDERS. No payment shall be made
with respect to the principal of, premium, if any, or interest (including
Liquidated Damages, if any) on the Debentures (including, but not limited to,
the redemption price with respect to the Debentures to be called for redemption
in accordance with Section 3.2 or submitted for redemption in accordance with
Section 3.5, as the case may be, as provided in this Indenture), except payments
and distributions made by the Trustee as permitted by the first or second
paragraph of Section 4.5, if:
(i) a default in the payment of principal, premium, if any,
interest, rent or other obligations in respect of Senior Obligations occurs and
is continuing (a "Payment Default"), unless and until such Payment Default shall
have been cured or waived or shall have ceased to exist; or
(ii) a default, other than a Payment Default, on any
Designated Senior Obligations occurs and is continuing that then permits holders
of such Designated Senior Obligations to accelerate its maturity and the Trustee
receives a written notice of the default (a "Payment Blockage Notice") from a
holder of Designated Senior Obligations, a Representative of Designated Senior
Obligations or the Company (a "Non-Payment Default").
If the Trustee receives any Payment Blockage Notice pursuant
to clause (ii) above, no subsequent Payment Blockage Notice shall be effective
for purposes of this Section 4.2 unless and until at least 365 days shall have
elapsed since the initial effectiveness of the immediately prior Payment
Blockage Notice. No Non-Payment Default that existed or was continuing on the
date of delivery of any Payment Blockage Notice to the Trustee shall be, or be
made, the basis for a subsequent Payment Blockage Notice.
The Company may and shall resume payments on and distributions
in respect of the Debentures, including any past scheduled payments of the
principal of, premium, if any, and interest (including Liquidated Damages, if
any) on such Debentures to which the holders of the Debentures would have been
entitled but for the provisions of this Article IV:
(1) in the case of a Payment Default, on the date upon
which such Payment Default is cured or waived or
ceases to exist, and
(2) in the case of a Non-Payment Default, the earlier of
(a) the date upon which such default is cured or
waived or ceases to exist or (b) 179 days after the
Payment Blockage Notice is received by the Trustee if
the maturity of such Designated Senior Obligations
has not been accelerated and no Payment Default with
respect to any Senior Obligations has occurred which
has not been cured or waived or ceased to exist (in
such event clause (1) above shall instead be
applicable),
unless this Article IV otherwise prohibits the payment or distribution at the
time of such payment or distribution.
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Upon any payment by the Company, or distribution of assets of
the Company of any kind or character, whether in cash, property or securities,
to creditors upon any dissolution or winding up or liquidation or reorganization
of the Company, whether voluntary or involuntary or in bankruptcy, insolvency,
receivership or other proceedings, all amounts due or to become due upon all
Senior Obligations shall first be paid in full in cash or other payment
satisfactory to the holders of such Senior Obligations, or payment thereof in
accordance with its terms provided for in cash or other payment satisfactory to
the holders of such Senior Obligations before any payment is made on account of
the principal of, premium, if any, or interest (including Liquidated Damages, if
any) on the Debentures (except payments made pursuant to Article XIII from
monies deposited with the Trustee pursuant thereto prior to commencement of
proceedings for such dissolution, winding up, liquidation or reorganization);
and upon any such dissolution or winding up or liquidation or reorganization of
the Company or bankruptcy, insolvency, receivership or other proceeding, any
payment by the Company, or distribution of assets of the Company of any kind or
character, whether in cash, property or securities, to which the holders of the
Debentures or the Trustee would be entitled, except for the provision of this
Article IV, shall (except as aforesaid) be paid by the Company or by any
receiver, trustee in bankruptcy, liquidating trustee, agent or other Person
making such payment or distribution, or by the holders of the Debentures or by
the Trustee under this Indenture if received by them or it, directly to the
holders of Senior Obligations (pro rata to such holders on the basis of the
respective amounts of Senior Obligations held by such holders, or as otherwise
required by law or a court order) or their representative or representatives, or
to the trustee or trustees under any indenture pursuant to which any instruments
evidencing any Senior Obligations may have been issued, as their respective
interests may appear, to the extent necessary to pay all Senior Obligations in
full, in cash or other payment satisfactory to the holders of such Senior
Obligations, after giving effect to any concurrent payment or distribution to or
for the holders of Senior Obligations, before any payment or distribution is
made to the holders of the Debentures or to the Trustee.
For purposes of this Article IV, the words, "cash, property or
securities" shall not be deemed to include shares of stock of the Company as
reorganized or readjusted, or securities of the Company or any other corporation
provided for by a plan of reorganization or readjustment, the payment of which
is subordinated at least to the extent provided in this Article IV with respect
to the Debentures to the payment of all Senior Obligations which may at the time
be outstanding; provided that (i) the Senior Obligations are assumed by the new
corporation, if any, resulting from any reorganization or readjustment, and (ii)
the rights of the holders of Senior Obligations are not, without the consent of
such holders, altered by such reorganization or readjustment. The consolidation
of the Company with, or the merger of the Company into, another corporation or
the liquidation or dissolution of the Company following the conveyance or
transfer of its property as an entirety, or substantially as an entirety, to
another corporation upon the terms and conditions provided for in Article XII
shall not be deemed a dissolution, winding-up, liquidation or reorganization for
the purposes of this Section 4.2 if such other corporation shall, as a part of
such consolidation, merger, conveyance or transfer, comply with the conditions
stated in Article XII.
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In the event of the acceleration of the Debentures because of
an Event of Default, no payment or distribution shall be made to the Trustee or
any holder of Debentures in respect of the principal of, premium, if any, or
interest (including Liquidated Damages, if any) on the Debentures (including,
but not limited to, the redemption price with respect to the Debentures called
for redemption in accordance with Section 3.2 or submitted for redemption in
accordance with Section 3.5, as the case may be, as provided in the Indenture),
except payments and distributions made by the Trustee as permitted by the first
or second paragraph of Section 4.5, until all Senior Obligations have been paid
in full in cash or other payment satisfactory to the holders of Senior
Obligations or such acceleration is rescinded in accordance with the terms of
this Indenture. If payment of the Debentures is accelerated because of an Event
of Default, the Company shall promptly notify holders of Senior Obligations of
the acceleration.
In the event that, notwithstanding the foregoing provisions,
any payment or distribution of assets of the Company of any kind or character,
whether in cash, property or securities (including, without limitation, by way
of setoff or otherwise), prohibited by the foregoing provisions in this Section
4.2, shall be received by the Trustee or the holders of the Debentures before
all Senior Obligations are paid in full in cash or other payment satisfactory to
the holders of such Senior Obligations, or provision is made for such payment
thereof in accordance with its terms in cash or other payment satisfactory to
the holders of such Senior Obligations, such payment or distribution shall be
held in trust for the benefit of and shall be paid over or delivered to the
holders of Senior Obligations or their representative or representatives, or to
the trustee or trustees under any indenture pursuant to which any instruments
evidencing any Senior Obligations may have been issued, as their respective
interests may appear, as calculated by the Company, for application to the
payment of any Senior Obligations remaining unpaid to the extent necessary to
pay all Senior Obligations in full in cash or other payment satisfactory to the
holders of such Senior Obligations, after giving effect to any concurrent
payment or distribution to or for the holders of such Senior Obligations.
Nothing in this Section 4.2 shall apply to claims of, or
payments to, the Trustee under or pursuant to Section 8.6. This Section 4.2
shall be subject to the further provisions of Section 4.5.
SECTION 4.3. SUBROGATION OF DEBENTURES. Subject to the payment in full
of all Senior Obligations, the rights of the holders of the Debentures shall be
subrogated to the extent of the payments or distributions made to the holders of
such Senior Obligations pursuant to the provisions of this Article IV (equally
and ratably with the holders of all indebtedness of the Company which by its
express terms is subordinated to other indebtedness of the Company to
substantially the same extent as the Debentures are subordinated and is entitled
to like rights of subrogation) to the rights of the holders of Senior
Obligations to receive payments or distributions of cash, property or securities
of the Company applicable to the Senior Obligations until the principal,
premium, if any, and interest (including Liquidated Damages, if any) on the
Debentures shall be paid in full; and, for the purposes of such subrogation, no
payments or distributions to the holders of the Senior Obligations of any cash,
property or securities to which the holders of the Debentures or the Trustee
would be entitled except for the provisions of this
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Article IV, and no payment over pursuant to the provisions of this Article IV,
to or for the benefit of the holders of Senior Obligations by holders of the
Debentures or the Trustee, shall, as between the Company, its creditors other
than holders of Senior Obligations, and the holders of the Debentures, be deemed
to be a payment by the Company to or on account of the Senior Obligations; and
no payments or distributions of cash, property or securities to or for the
benefit of the holders of the Debentures pursuant to the subrogation provisions
of this Article IV, which would otherwise have been paid to the holders of
Senior Obligations shall be deemed to be a payment by the Company to or for the
account of the Debentures. It is understood that the provisions of this Article
IV are and are intended solely for the purposes of defining the relative rights
of the holders of the Debentures, on the one hand, and the holders of the Senior
Obligations, on the other hand.
Nothing contained in this Article IV or elsewhere in this
Indenture or in the Debentures is intended to or shall impair, as among the
Company, its creditors other than the holders of Senior Obligations, and the
holders of the Debentures, the obligation of the Company, which is absolute and
unconditional, to pay to the holders of the Debentures the principal of,
premium, if any, and interest (including Liquidated Damages, if any) on the
Debentures as and when the same shall become due and payable in accordance with
their terms, or is intended to or shall affect the relative rights of the
holders of the Debentures and creditors of the Company other than the holders of
the Senior Obligations, nor shall anything herein or therein prevent the Trustee
or the holder of any Debenture from exercising all remedies otherwise permitted
by applicable law upon default under this Indenture, subject to the rights, if
any, under this Article IV of the holders of Senior Obligations in respect of
cash, property or securities of the Company received upon the exercise of any
such remedy.
SECTION 4.4. AUTHORIZATION TO EFFECT SUBORDINATION. Each holder of a
Debenture by the holder's acceptance thereof authorizes and directs the Trustee
on the holder's behalf to take such action as may be necessary or appropriate to
effectuate the subordination as provided in this Article IV and appoints the
Trustee to act as the holder's attorney-in-fact for any and all such purposes.
If the Trustee does not file a proper proof of claim or proof of debt in the
form required in any proceeding referred to in the third paragraph of Section
7.2 hereof at least thirty (30) days before the expiration of the time to file
such claim, the holders of any Senior Obligations or their representatives are
hereby authorized to file an appropriate claim for and on behalf of the holders
of the Debentures.
SECTION 4.5. NOTICE TO TRUSTEE. The Company shall give prompt written
notice in the form of an Officers' Certificate to a Responsible Officer of the
Trustee and to any paying agent of any fact known to the Company which would
prohibit the making of any payment of monies to or by the Trustee or any paying
agent in respect of the Debentures pursuant to the provisions of this Article
IV. Notwithstanding the provisions of this Article IV or any other provision of
this Indenture, the Trustee shall not be charged with knowledge of the existence
of any facts which would prohibit the making of any payment of monies to or by
the Trustee in respect of the Debentures pursuant to the provisions of this
Article IV, unless and until a Responsible Officer of the Trustee shall have
received written notice thereof at the Corporate Trust Office
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from the Company (in the form of an Officers' Certificate) or a Representative
or a holder or holders of Senior Obligations or from any trustee thereof; and
before the receipt of any such written notice, the Trustee shall be entitled in
all respects to assume that no such facts exist; provided that if on a date not
less than two (2) Business Days prior to the date upon which by the terms hereof
any such monies may become payable for any purpose (including, without
limitation, the payment of the principal of, or premium, if any, or interest
(including Liquidated Damages, if any) on any Debenture) the Trustee shall not
have received, with respect to such monies, the notice provided for in this
Section 4.5, then, anything herein contained to the contrary notwithstanding,
the Trustee shall have full power and authority to apply monies received to the
purpose for which they were received, and shall not be affected by any notice to
the contrary which may be received by it on or after such prior date.
Notwithstanding anything in this Article IV to the contrary,
nothing shall prevent any payment by the Trustee to the Debentureholders of
monies deposited with it pursuant to Section 13.1, provided such deposit was not
in violation of this Article IV, and any such payment shall not be subject to
the provisions of Section 4.1 or 4.2.
The Trustee shall be entitled to conclusively rely on the
delivery to it of a written notice by a Representative or a person representing
himself to be a holder of Senior Obligations (or a trustee on behalf of such
holder) to establish that such notice has been given by a Representative or a
holder of Senior Obligations or a trustee on behalf of any such holder or
holders. The Trustee shall not be required to make any payment or distribution
to or on behalf of a holder of Senior Obligations pursuant to this Article IV
unless it has received reasonably satisfactory evidence as to the amount of
Senior Obligations held by such person, the extent to which such person is
entitled to participate in such payment or distribution and any other facts
pertinent to the rights of such person under this Article IV.
SECTION 4.6. TRUSTEE'S RELATION TO SENIOR OBLIGATIONS. The Trustee in
its individual capacity shall be entitled to all the rights set forth in this
Article IV in respect of any Senior Obligations at any time held by it, to the
same extent as any other holder of Senior Obligations, and nothing in Section
8.13 or elsewhere in this Indenture shall deprive the Trustee of any of its
rights as such holder.
With respect to the holders of Senior Obligations, the Trustee
undertakes to perform or to observe only such of its covenants and obligations
as are specifically set forth in this Article IV, and no implied covenants or
obligations with respect to the holders of Senior Obligations shall be read into
this Indenture against the Trustee. The Trustee shall not be deemed to owe any
fiduciary duty to the holders of Senior Obligations.
SECTION 4.7. NO IMPAIRMENT OF SUBORDINATION. No right of any present or
future holder of any Senior Obligations to enforce subordination as herein
provided shall at any time in any way be prejudiced or impaired by any act or
failure to act on the part of the Company or by any act or failure to act, in
good faith, by any such holder, or by any noncompliance by the
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Company with the terms, provisions and covenants of this Indenture, regardless
of any knowledge thereof which any such holder may have or otherwise be charged
with.
SECTION 4.8. CERTAIN CONVERSIONS NOT DEEMED PAYMENT. For the purposes
of this Article IV only, (1) the issuance and delivery of junior securities upon
conversion of Debentures in accordance with Article XV shall not be deemed to
constitute a payment or distribution on account of the principal of, premium, if
any, or interest (including Liquidated Damages, if any) on Debentures or on
account of the purchase or other acquisition of Debentures, and (2) the payment,
issuance or delivery of cash (except in satisfaction of fractional shares
pursuant to Section 15.3), property or securities (other than junior securities)
upon conversion of a Debenture shall be deemed to constitute payment on account
of the principal of, premium, if any, or interest (including Liquidated Damages,
if any) on such Debenture. For the purposes of this Section 4.8, the term
"junior securities" means (a) shares of any stock of any class of the Company or
(b) securities of the Company that are subordinated in right of payment to all
Senior Obligations that may be outstanding at the time of issuance or delivery
of such securities to substantially the same extent as, or to a greater extent
than, the Debentures are so subordinated as provided in this Article. Nothing
contained in this Article IV or elsewhere in this Indenture or in the Debentures
is intended to or shall impair, as among the Company, its creditors (other than
holders of Senior Obligations) and the Debentureholders, the right, which is
absolute and unconditional, of the Holder of any Debenture to convert such
Debenture in accordance with Article XV.
SECTION 4.9. ARTICLE APPLICABLE TO PAYING AGENTS. If at any time any
paying agent other than the Trustee shall have been appointed by the Company and
be then acting hereunder, the term "Trustee" as used in this Article shall
(unless the context otherwise requires) be construed as extending to and
including such paying agent within its meaning as fully for all intents and
purposes as if such paying agent were named in this Article in addition to or in
place of the Trustee; provided, however, that the first paragraph of Section 4.5
shall not apply to the Company or any Affiliate of the Company if it or such
Affiliate acts as paying agent.
The Trustee shall not be responsible for the actions or
inactions of any other paying agents (including the Company if acting as its own
paying agent) and shall have no control of any funds held by such other paying
agents.
SECTION 4.10. SENIOR OBLIGATIONS ENTITLED TO RELY. The holders of
Senior Obligations (including, without limitation, Designated Senior
Obligations) shall have the right to rely upon this Article IV, and no amendment
or modification of the provisions contained herein shall diminish the rights of
such holders unless such holders shall have agreed in writing thereto.
SECTION 4.11. RELIANCE ON JUDICIAL ORDER OR CERTIFICATE OF LIQUIDATING
AGENT. Upon any payment or distribution of assets of the Company referred to in
this Article, the Trustee and the Debentureholders shall be entitled to
conclusively rely upon any order or decree entered by any court of competent
jurisdiction in which such insolvency, bankruptcy, receivership, liquidation,
reorganization, dissolution, winding up or similar case or proceeding is
pending, or a certificate of the trustee in bankruptcy, liquidating trustee,
custodian, receiver, assignee for the
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benefit of creditors, agent or other person making such payment or distribution,
delivered to the Trustee or to the Debentureholders, for the purpose of
ascertaining the persons entitled to participate in such payment or
distribution, the holders of Senior Obligations and other indebtedness of the
Company, the amount thereof or payable thereon, the amount or amounts paid or
distributed thereon and all other facts pertinent thereto or to this Article.
ARTICLE V
PARTICULAR COVENANTS OF THE COMPANY
SECTION 5.1. PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST. The Company
covenants and agrees that it will duly and punctually pay or cause to be paid
the principal of and premium, if any (including upon redemption pursuant to
Article III), and interest (including Liquidated Damages, if any) on each of the
Debentures at the places, at the respective times and in the manner provided
herein and in the Debentures. Each installment of interest on the Debentures due
on any semi-annual interest payment date may be paid either (i) by check mailed
to the address of the person entitled thereto as it appears in the Debenture
register; provided that the holder of Debentures with an aggregate principal
amount in excess of $2,000,000 shall, at the written election of such holder, be
paid by wire transfer in immediately available funds; or (ii) by transfer to an
account maintained by such person located in the United States; provided,
however, that payments to the Depositary will be made by wire transfer of
immediately available funds to the account of Depositary or its nominee.
SECTION 5.2. MAINTENANCE OF OFFICE OR AGENCY. The Company will maintain
an office or agency in The Borough of Manhattan, The City of New York, where the
Debentures may be surrendered for registration of transfer or exchange or for
presentation for payment or for conversion or redemption and where notices and
demands to or upon the Company in respect of the Debentures and this Indenture
may be served. The Company will give prompt written notice to the Trustee of the
location, and any change in the location, of such office or agency not
designated or appointed by the Trustee. If at any time the Company shall fail to
maintain any such required office or agency or shall fail to furnish the Trustee
with the address thereof, such presentations, surrenders, notices and demands
may be made or served at the Corporate Trust Office or the office or agency of
the Trustee in The Borough of Manhattan, The City of New York (which shall
initially be located at 450 West 33rd Street, 15th Floor, New York, New York
10001-2697).
The Company may also from time to time designate co-registrars
and one or more other offices or agencies where the Debentures may be presented
or surrendered for any or all such purposes and may from time to time rescind
such designations. The Company will give prompt written notice of any such
designation or rescission and of any change in the location of any such other
office or agency.
The Company hereby initially designates the Trustee as paying
agent, Debenture registrar, Custodian and conversion agent and each of the
Corporate Trust Office of the Trustee
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and the office or agency of the Trustee in The Borough of Manhattan, The City of
New York (which shall initially be located at The Chase Manhattan Bank, 450 West
33rd Street, 15th Floor, New York, New York 10001-2697), shall be considered as
one such office or agency of the Company for each of the aforesaid purposes.
So long as the Trustee is the Debenture registrar, the Trustee
agrees to mail, or cause to be mailed, the notice set forth in Section 8.10(a)
and, if requested by the Company, the notice set forth in the third paragraph of
Section 8.11. If co-registrars have been appointed in accordance with this
Section, the Trustee shall mail such notices only to the Company and the holders
of Debentures it can identify from its records.
SECTION 5.3. APPOINTMENTS TO FILL VACANCIES IN TRUSTEE'S OFFICE. The
Company, whenever necessary to avoid or fill a vacancy in the office of Trustee,
will appoint, in the manner provided in Section 8.10, a Trustee, so that there
shall at all times be a Trustee hereunder.
SECTION 5.4 PROVISIONS AS TO PAYING AGENT.
(a) If the Company shall appoint a paying agent other than the
Trustee, or if the Trustee shall appoint such a paying agent, it will cause such
paying agent to execute and deliver to the Trustee an instrument in which such
agent shall agree with the Trustee, subject to the provisions of this Section
5.4:
(1) that it will hold all sums held by it as such
agent for the payment of the principal of and premium, if any, or
interest on the Debentures (whether such sums have been paid to it by
the Company or by any other obligor on the Debentures) in trust for the
benefit of the holders of the Debentures;
(2) that it will give the Trustee written notice of
any failure by the Company (or by any other obligor on the Debentures)
to make any payment of the principal of and premium, if any, or
interest on the Debentures when the same shall be due and payable; and
(3) that at any time during the continuance of an
Event of Default, upon request of the Trustee, it will forthwith pay to
the Trustee all sums so held in trust.
The Company shall, on or before each due date of the principal of,
premium, if any, or interest on the Debentures, deposit with the paying agent a
sum sufficient to pay such principal, premium, if any, or interest, and (unless
such paying agent is the Trustee) the Company will promptly notify the Trustee
of any failure to take such action; provided that if such deposit is made on the
due date, such deposit shall be received by the paying agent by 10:00 a.m. New
York City time, on such date.
(b) If the Company shall act as its own paying agent, it will,
on or before each due date of the principal of, premium, if any, or interest
(including Liquidated Damages, if any)
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on the Debentures, set aside, segregate and hold in trust for the benefit of the
holders of the Debentures a sum sufficient to pay such principal, premium, if
any, or interest (including Liquidated Damages, if any) so becoming due and will
notify the Trustee in writing of any failure to take such action and of any
failure by the Company (or any other obligor under the Debentures) to make any
payment of the principal of, premium, if any, or interest (including Liquidated
Damages, if any) on the Debentures when the same shall become due and payable.
(c) Anything in this Section 5.4 to the contrary
notwithstanding, the Company may, at any time, for the purpose of obtaining a
satisfaction and discharge of this Indenture, or for any other reason, pay or
cause to be paid to the Trustee all sums held in trust by the Company or any
paying agent hereunder as required by this Section 5.4, such sums to be held by
the Trustee upon the trusts herein contained and upon such payment by the
Company or any paying agent to the Trustee, the Company or such paying agent
shall be released from all further liability with respect to such sums.
(d) Anything in this Section 5.4 to the contrary
notwithstanding, the agreement to hold sums in trust as provided in this Section
5.4 is subject to Sections 13.3 and 13.4.
The Trustee shall not be responsible for the actions of any other
paying agents (including the Company if acting as its own paying agent) and
shall have no control of any funds held by such other paying agents.
SECTION 5.5. EXISTENCE. Subject to Article XII, the Company will do or
cause to be done all things necessary to preserve and keep in full force and
effect its existence and rights (charter and statutory); provided, however, that
the Company shall not be required to preserve any such right if the Company
shall determine that the preservation thereof is no longer desirable in the
conduct of the business of the Company and that the loss thereof is not
disadvantageous in any material respect to the holders.
SECTION 5.6. MAINTENANCE OF PROPERTIES. The Company will cause all
properties used or useful in the conduct of its business or the business of any
Significant Subsidiary to be maintained and kept in good condition, repair and
working order and supplied with all necessary equipment and will cause to be
made all necessary repairs, renewals, replacements, betterments and improvements
thereof, all as in the judgment of the Company may be necessary so that the
business carried on in connection therewith may be properly and advantageously
conducted at all times; provided, however, that nothing in this Section shall
prevent the Company from discontinuing the operation or maintenance of any of
such properties if such discontinuance is, in the judgment of the Company,
desirable in the conduct of its business or the business of any Significant
Subsidiary and not disadvantageous in any material respect to the holders.
SECTION 5.7. PAYMENT OF TAXES AND OTHER CLAIMS. The Company will pay or
discharge, or cause to be paid or discharged, before the same become delinquent,
(i) all taxes, assessments and governmental charges levied or imposed upon the
Company or any Significant Subsidiary or upon the income, profits or property of
the Company or any Significant Subsidiary,
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(ii) all claims for labor, materials and supplies which, if unpaid, might by law
become a lien or charge upon the property of the Company or any Significant
Subsidiary and (iii) all stamps and other duties, if any, which may be imposed
by the United States or any political subdivision thereof or therein in
connection with the issuance, transfer, exchange or conversion of any Debentures
or with respect to this Indenture; provided, however, that, in the case of
clauses (i) and (ii), the Company shall not be required to pay or discharge or
cause to be paid or discharged any such tax, assessment, charge or claim (A) if
the failure to do so will not, in the aggregate, have a material adverse impact
on the Company, or (B) if the amount, applicability or validity is being
contested in good faith by appropriate proceedings.
SECTION 5.8. RULE 144A INFORMATION REQUIREMENT. Within the period prior
to the expiration of the holding period applicable to sales thereof under Rule
144(k) under the Securities Act (or any successor provision), the Company
covenants and agrees that it shall, during any period in which it is not subject
to Section 13 or 15(d) under the Exchange Act, make available to any holder or
beneficial holder of Debentures or any Common Stock issued upon conversion
thereof (other than a holder or beneficial holder of Debentures or any Common
Stock issued upon conversion thereof that is an Affiliate of the Company) which
continue to be Restricted Securities in connection with any sale thereof and any
prospective purchaser of Debentures or such Common Stock from such holder or
beneficial holder, the information required pursuant to Rule 144A(d)(4) under
the Securities Act upon the request of any holder or beneficial holder of the
Debentures or such Common Stock and it will take such further action as any
holder or beneficial holder of such Debentures or such Common Stock may
reasonably request, all to the extent required from time to time to enable such
holder or beneficial holder to sell its Debentures or Common Stock without
registration under the Securities Act within the limitation of the exemption
provided by Rule 144A, as such Rule may be amended from time to time. Upon the
request of any holder or any beneficial holder of the Debentures or such Common
Stock, the Company will deliver to such holder a written statement as to whether
it has complied with such requirements.
SECTION 5.9. STAY, EXTENSION AND USURY LAWS. The Company covenants (to
the extent that it may lawfully do so) that it shall not at any time insist
upon, plead, or in any manner whatsoever claim or take the benefit or advantage
of, any stay, extension or usury law or other law which would prohibit or
forgive the Company from paying all or any portion of the principal of, premium,
if any, or interest (including Liquidated Damages, if any) on the Debentures as
contemplated herein, wherever enacted, now or at any time hereafter in force, or
which may affect the covenants or the performance of this Indenture and the
Company (to the extent it may lawfully do so) hereby expressly waives all
benefit or advantage of any such law, and covenants that it will not, by resort
to any such law, hinder, delay or impede the execution of any power herein
granted to the Trustee, but will suffer and permit the execution of every such
power as though no such law has been enacted.
SECTION 5.10. COMPLIANCE CERTIFICATE. The Company shall deliver to the
Trustee, within one hundred twenty (120) days after the end of each fiscal year
of the Company, a certificate signed by either the principal executive officer,
principal financial officer or principal accounting
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officer of the Company, stating whether or not to the best knowledge of the
signer thereof the Company is in default in the performance and observance of
any of the terms, provisions and conditions of this Indenture (without regard to
any period of grace or requirement of notice provided hereunder) and, if the
Company shall be in default, specifying all such defaults and the nature and
status thereof of which the signer may have knowledge.
The Company will deliver to a Responsible Officer of the
Trustee, forthwith upon becoming aware of any default in the performance or
observance of any covenant, agreement or condition contained in this Indenture,
or any Event of Default, an Officers' Certificate specifying with particularity
such default or Event of Default and further stating what action the Company has
taken, is taking or proposes to take with respect thereto.
Any notice required to be given under this Section 5.10 shall
be delivered to the Trustee at its Corporate Trust Office.
ARTICLE VI
DEBENTUREHOLDERS' LISTS AND REPORTS BY THE COMPANY AND THE TRUSTEE
SECTION 6.1. DEBENTUREHOLDERS' LISTS. The Company covenants and agrees
that it will furnish or cause to be furnished to the Trustee, semiannually, not
more than fifteen (15) days after each January 31 and July 31 in each year
beginning with July 31, 1998, and at such other times as the Trustee may request
in writing, within thirty (30) days after receipt by the Company of any such
request (or such lesser time as the Trustee may reasonably request in order to
enable it to timely provide any notice to be provided by it hereunder), a list
in such form as the Trustee may reasonably require of the names and addresses of
the holders of Debentures as of a date not more than fifteen (15) days (or such
other date as the Trustee may reasonably request in order to so provide any such
notices) prior to the time such information is furnished, except that no such
list need be furnished by the Company to the Trustee so long as the Trustee is
acting as the sole Debenture registrar.
SECTION 6.2. PRESERVATION AND DISCLOSURE OF LISTS.
(a) The Trustee shall preserve, in as current a form as is
reasonably practicable, all information as to the names and addresses of the
holders of Debentures contained in the most recent list furnished to it as
provided in Section 6.1 or maintained by the Trustee in its capacity as
Debenture registrar or co-registrar in respect of the Debentures, if so acting.
The Trustee may destroy any list furnished to it as provided in Section 6.1 upon
receipt of a new list so furnished.
(b) The rights of Debentureholders to communicate with other
holders of Debentures with respect to their rights under this Indenture or under
the Debentures, and the corresponding rights and duties of the Trustee, shall be
as provided by the Trust Indenture Act.
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(c) Every Debentureholder, by receiving and holding the same,
agrees with the Company and the Trustee that neither the Company nor the Trustee
nor any agent of either of them shall be held accountable by reason of any
disclosure of information as to names and addresses of holders of Debentures
made pursuant to the Trust Indenture Act.
SECTION 6.3. REPORTS BY TRUSTEE
(a) Within sixty (60) days after August 15 of each year
commencing with the year 1998, the Trustee shall transmit to holders of
Debentures such reports dated as of August 15 of the year in which such reports
are made concerning the Trustee and its actions under this Indenture as may be
required pursuant to the Trust Indenture Act at the times and in the manner
provided pursuant thereto.
(b) A copy of such report shall, at the time of such
transmission to holders of Debentures, be filed by the Trustee with each stock
exchange and automated quotation system upon which the Debentures are listed and
with the Company. The Company will notify the Trustee in writing within a
reasonable time when the Debentures are listed on any stock exchange or
automated quotation system.
SECTION 6.4. REPORTS BY COMPANY. The Company shall file with the
Trustee (and the Commission if at any time after the Indenture becomes qualified
under the Trust Indenture Act), and transmit to holders of Debentures, such
information, documents and other reports and such summaries thereof, as may be
required pursuant to the Trust Indenture Act at the times and in the manner
provided pursuant to such Act, whether or not the Debentures are governed by
such Act; provided that any such information, documents or reports required to
be filed with the Commission pursuant to Section 13 or 15(d) of the Exchange Act
shall be filed with the Trustee within fifteen (15) days after the same is so
required to be filed with the Commission. Delivery of such reports, information
and documents to the Trustee is for informational purposes only and the
Trustee's receipt of such shall not constitute constructive notice of any
information contained therein or determinable from information contained
therein, including the Company's compliance with any of its covenants hereunder
(as to which the Trustee is entitled to conclusively rely exclusively on
Officers' Certificates).
ARTICLE VII
REMEDIES OF THE TRUSTEE AND DEBENTUREHOLDERS
ON AN EVENT OF DEFAULT
SECTION 7.1. EVENTS OF DEFAULT. In case one or more of the following
Events of Default (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or pursuant
to any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body) shall have occurred and be
continuing:
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(a) default in the payment of any installment of interest
(including Liquidated Damages, if any) upon any of the Debentures as and when
the same shall become due and payable, and continuance of such default for a
period of thirty (30) days, whether or not such payment is permitted under
Article IV hereof; or
(b) default in the payment of the principal of or premium, if
any, on any of the Debentures as and when the same shall become due and payable
either at maturity or in connection with any redemption pursuant to Article III,
by acceleration or otherwise, whether or not such payment is permitted under
Article IV hereof; or
(c) failure on the part of the Company duly to observe or
perform any other of the covenants or agreements on the part of the Company in
the Debentures or in this Indenture (other than a covenant or agreement a
default in whose performance or whose breach is elsewhere in this Section 7.1
specifically dealt with) continued for a period of sixty (60) days after the
date on which written notice of such failure, requiring the Company to remedy
the same, shall have been given to the Company by the Trustee, or to the Company
and a Responsible Officer of the Trustee by the holders of at least twenty-five
percent (25%) in aggregate principal amount of the Debentures at the time
outstanding determined in accordance with Section 9.4; or
(d) the Company or any Significant Subsidiary shall commence a
voluntary case or other proceeding seeking liquidation, reorganization or other
relief with respect to itself or any Significant Subsidiary or its or such
Significant Subsidiary's debts under any bankruptcy, insolvency or other similar
law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
Significant Subsidiary or any substantial part of the property of the Company or
any Significant Subsidiary, or shall consent to any such relief or to the
appointment of or taking possession by any such official in an involuntary case
or other proceeding commenced against it or any Significant Subsidiary, or shall
make a general assignment for the benefit of creditors, or shall fail generally
to pay its debts as they become due; provided that a liquidation or winding up
of a Significant Subsidiary pursuant to applicable corporate law shall not be
deemed an Event of Default hereunder; or
(e) an involuntary case or other proceeding shall be commenced
against the Company or any Significant Subsidiary seeking liquidation,
reorganization or other relief with respect to it or any Significant Subsidiary
or its debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any Significant
Subsidiary or any substantial part of the property of the Company or any
Significant Subsidiary, and such involuntary case or other proceeding shall
remain undismissed and unstayed for a period of ninety (90) consecutive days;
then, and in each and every such case (other than an Event of Default specified
in Section 7.1 (d) or (e) with respect to the Company), unless the principal of
all of the Debentures shall have already become due and payable, either the
Trustee or the holders of not less than twenty-five percent (25%) in aggregate
principal amount of the Debentures then outstanding hereunder determined in
accordance with Section 9.4, by notice in writing to the Company (and to the
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Trustee if given by Debentureholders), may declare the principal of and premium,
if any, on all the Debentures and the interest accrued thereon (including
Liquidated Damages, if any) to be due and payable immediately, and upon any such
declaration the same shall become and shall be immediately due and payable,
anything in this Indenture or in the Debentures contained to the contrary
notwithstanding. If an Event of Default specified in Section 7. 1(d) or (e) with
respect to the Company occurs, the principal of all the Debentures and the
interest accrued thereon (including Liquidated Damages, if any) shall be
immediately and automatically due and payable without necessity of further
action on the part of the Trustee or the Debentureholders. This provision,
however, is subject to the conditions that if, at any time after the principal
of the Debentures shall have been so declared due and payable, and before any
judgment or decree for the payment of the monies due shall have been obtained or
entered as hereinafter provided, the Company shall pay or shall deposit with the
Trustee a sum sufficient to pay all matured installments of interest upon
(including Liquidated Damages, if any) all Debentures and the principal of and
premium, if any, on any and all Debentures which shall have become due otherwise
than by acceleration (with interest on overdue installments of interest
(including Liquidated Damages, if any) (to the extent that payment of such
interest is enforceable under applicable law) and on such principal and premium,
if any, at the rate borne by the Debentures, to the date of such payment or
deposit) and amounts due to the Trustee pursuant to Section 8.6, and if any and
all defaults under this Indenture, other than the nonpayment of principal of and
premium, if any, and accrued interest on (including Liquidated Damages, if any)
Debentures which shall have become due by acceleration, shall have been cured or
waived pursuant to Section 7.7 -- then and in every such case the holders of a
majority in aggregate principal amount of the Debentures then outstanding, by
written notice to the Company and to the Trustee, may waive all defaults or
Events of Default and rescind and annul such declaration and its consequences;
but no such waiver or rescission and annulment shall extend to or shall affect
any subsequent default or Event of Default, or shall impair any right consequent
thereon. The Company shall notify, in writing, a Responsible Officer of the
Trustee, promptly upon becoming aware thereof, of any Event of Default.
In case the Trustee shall have proceeded to enforce any right under
this Indenture and such proceedings shall have been discontinued or abandoned
because of such waiver or rescission and annulment or for any other reason or
shall have been determined adversely to the Trustee, then and in every such case
the Company, the holders of Debentures, and the Trustee shall be restored
respectively to their several positions and rights hereunder, and all rights,
remedies and powers of the Company, the holders of Debentures, and the Trustee
shall continue as though no such proceeding had been taken.
SECTION 7.2. PAYMENTS OF DEBENTURES ON DEFAULT; SUIT THEREFOR. In the
event that the Trustee or the holders of not less than twenty-five percent (25%)
in aggregate principal amount of the Debentures then outstanding hereunder
determined in accordance with Section 9.4 have declared the principal of and
premium, if any, on all the Debentures and the interest accrued thereon
(including Liquidated Damages, if any) to be due and payable immediately in
accordance with Section 7.1, and the Company shall have failed forthwith to pay
such amounts, the Trustee, in its own name and as trustee of an express trust,
shall be entitled and empowered to institute
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any actions or proceedings at law or in equity for the collection of the sums so
due and unpaid (including such further amounts as shall be sufficient to cover
the costs and expenses of collection, including compensation to the Trustee, its
agents, attorneys, custodians, nominees and counsel, and any expenses or
liabilities incurred by the Trustee hereunder other than through its negligence
or bad faith), and may prosecute any such action or proceeding to judgment or
final decree, and may enforce any such judgment or final decree against the
Company or any other obligor on the Debentures and collect in the manner
provided by law out of the property of the Company or any other obligor on the
Debentures wherever situated the monies adjudged or decreed to be payable.
In the case there shall be pending proceedings for the bankruptcy or
for the reorganization of the Company or any other obligor on the Debentures
under Title 11 of the United States Code, or any other applicable law, or in
case a receiver, assignee or trustee in bankruptcy or reorganization,
liquidator, sequestrator or similar official shall have been appointed for or
taken possession of the Company or such other obligor, the property of the
Company or such other obligor, or in the case of any other judicial proceedings
relative to the Company or such other obligor upon the Debentures, or to the
creditors or property of the Company or such other obligor, the Trustee,
irrespective of whether the principal of the Debentures shall then be due and
payable as therein expressed or by declaration or otherwise and irrespective of
whether the Trustee shall have made any demand pursuant to the provisions of
this Section 7.2, shall be entitled and empowered, by intervention in such
proceedings or otherwise, to file and prove a claim or claims for the whole
amount of principal, premium, if any, and interest (including Liquidated
Damages, if any) owing and unpaid in respect of the Debentures, and, in case of
any judicial proceedings, to file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses,
disbursements, and advances of the Trustee, its agents, and counsel) and of the
Debentureholders allowed in such judicial proceedings relative to the Company or
any other obligor on the Debentures, its or their creditors, or its or their
property, and to collect and receive any monies or other property payable or
deliverable on any such claims, and to distribute the same after the deduction
of any amounts due the Trustee under Section 8.6; and any receiver, assignee or
trustee in bankruptcy or reorganization, liquidator, custodian or similar
official in any such judicial proceeding, is hereby authorized by each of the
Debentureholders to make such payments to the Trustee as administrative expenses
associated with any such proceeding, and, in the event that the Trustee shall
consent to the making of such payments directly to the Debentureholders, to pay
to the Trustee any amount due it for reasonable compensation, expenses, advances
and disbursements of the Trustee and its agents, including counsel fees incurred
by it up to the date of such distribution and any other amounts due to the
Trustee under Section 8.6 hereof. To the extent that such payment of reasonable
compensation, expenses, advances and disbursements of the Trustee, its agents,
and counsel, and any other amounts due to the Trustee under Section 8.6 hereof
out of the estate in any such proceedings shall be denied for any reason,
payment of the same shall be secured by a lien on, and shall be paid out of, any
and all distributions, dividends, monies, securities and other property which
the holders of the Debentures may be entitled to receive in such proceedings,
whether in liquidation or under any plan of reorganization or arrangement or
otherwise. Nothing herein contained shall
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be deemed to authorize the Trustee to authorize or consent to or accept or adopt
on behalf of any Debentureholder any plan or reorganization, arrangement,
adjustment or composition affecting the Debentureholder or the rights of any
Debentureholder thereof, or to authorize the Trustee to vote in respect of the
claim of any Debentureholder in any such proceeding.
All rights of action and of asserting claims under this Indenture, or
under any of the Debentures, may be enforced by the Trustee without the
possession of any of the Debentures, or the production thereof at any trial or
other proceeding relative thereto, and any such suit or proceeding instituted by
the Trustee shall be brought in its own name as trustee of an express trust, and
any recovery of judgment shall, after provision for the payment of the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents, attorneys, custodians, nominees and counsel, be for the ratable
benefit of the holders of the Debentures.
In any proceedings brought by the Trustee (and in any proceedings
involving the interpretation of any provision of this Indenture to which the
Trustee shall be a party) the Trustee shall be held to represent all the holders
of the Debentures, and it shall not be necessary to make any holders of the
Debentures parties to any such proceedings.
SECTION 7.3. APPLICATION OF MONIES COLLECTED BY TRUSTEE. Any monies
collected by the Trustee pursuant to this Article VII shall be applied in the
order following, at the date or dates fixed by the Trustee for the distribution
of such monies, upon presentation of the several Debentures, and stamping
thereon the payment, if only partially paid, and upon surrender thereof, if
fully paid:
FIRST: To the payment of all amounts due the Trustee under
Section 8.6;
SECOND: Subject to the provisions of Article IV, in case the
principal of the outstanding Debentures shall not have become due and be unpaid,
to the payment of interest on (including Liquidated Damages, if any) the
Debentures in default in the order of the maturity of the installments of such
interest, with interest (to the extent that such interest has been collected by
the Trustee) upon the overdue installments of interest (including Liquidated
Damages, if any) at the rate borne by the Debentures, such payments to be made
ratably to the persons entitled thereto;
THIRD: Subject to the provisions of Article IV, in case the
principal of the outstanding Debentures shall have become due, by declaration or
otherwise, and be unpaid to the payment of the whole amount then owing and
unpaid upon the Debentures for principal and premium, if any, and interest
(including Liquidated Damages, if any), with interest on the overdue principal
and premium, if any, and (to the extent that such interest has been collected by
the Trustee) upon overdue installments of interest (including Liquidated
Damages, if any) at the rate borne by the Debentures; and in case such monies
shall be insufficient to pay in full the whole amounts so due and unpaid upon
the Debentures, then to the payment of such principal and premium, if any, and
interest (including Liquidated Damages, if any) without preference or priority
of principal and premium, if any, over interest (including Liquidated Damages,
if any),
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or of interest (including Liquidated Damages, if any) over principal and
premium, if any, or of any installment of interest over any other installment of
interest, or of any Debenture over any other Debenture, ratably to the aggregate
of such principal and premium, if any, and accrued and unpaid interest; and
FOURTH: Subject to the provisions of Article IV, to the
payment of the remainder, if any, to the Company or any other person lawfully
entitled thereto.
SECTION 7.4. PROCEEDINGS BY DEBENTUREHOLDER. No holder of any Debenture
shall have any right by virtue of or by availing of any provision of this
Indenture to institute any suit, action or proceeding in equity or at law upon
or under or with respect to this Indenture, or for the appointment of a
receiver, trustee, liquidator, custodian or other similar official, or for any
other remedy hereunder, unless such holder previously shall have given to the
Trustee written notice of an Event of Default and of the continuance thereof, as
hereinbefore provided, and unless also the holders of not less than twenty-five
percent (25%) in aggregate principal amount of the Debentures then outstanding
shall have made written request upon the Trustee to institute such action, suit
or proceeding in its own name as Trustee hereunder and shall have offered to the
Trustee such indemnity as it may require against the costs, expenses and
liabilities to be incurred therein or thereby, and the Trustee for sixty (60)
days after its receipt of such notice, request and offer of indemnity, shall
have neglected or refused to institute any such action, suit or proceeding and
no direction inconsistent with such written request shall have been given to the
Trustee pursuant to Section 7.7; it being understood and intended, and being
expressly covenanted by the taker and holder of every Debenture with every other
taker and holder and the Trustee, that no one or more holders of Debentures
shall have any right in any manner whatever by virtue of or by availing of any
provision of this Indenture to affect, disturb or prejudice the rights of any
other holder of Debentures, or to obtain or seek to obtain priority over or
preference to any other such holder, or to enforce any right under this
Indenture, except in the manner herein provided and for the equal, ratable and
common benefit of all holders of Debentures (except as otherwise provided
herein). For the protection and enforcement of this Section 7.4, each and every
Debentureholder and the Trustee shall be entitled to such relief as can be given
either at law or in equity.
Notwithstanding any other provision of this Indenture and any
provision of any Debenture, the right of any holder of any Debenture to receive
payment of the principal of and premium, if any (including upon redemption
pursuant to Article III), and accrued interest on (including Liquidated Damages,
if any) such Debenture, on or after the respective due dates expressed in such
Debenture or in the event of redemption, or to institute suit for the
enforcement of any such payment on or after such respective dates against the
Company shall not be impaired or affected without the consent of such holder.
Anything in this Indenture or the Debentures to the contrary
notwithstanding, the holder of any Debenture, without the consent of either the
Trustee or the holder of any other Debenture, in its own behalf and for its own
benefit, may enforce, and may institute and maintain any proceeding suitable to
enforce, its rights of conversion as provided herein.
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SECTION 7.5. PROCEEDINGS BY TRUSTEE. In case of an Event of Default the
Trustee may in its discretion proceed to protect and enforce the rights vested
in it by this Indenture by such appropriate judicial proceedings as the Trustee
shall deem most effectual to protect and enforce any of such rights, either by
suit in equity or by action at law or by proceeding in bankruptcy or otherwise,
whether for the specific enforcement of any covenant or agreement contained in
this Indenture or in aid of the exercise of any power granted in this Indenture,
or to enforce any other legal or equitable right vested in the Trustee by this
Indenture or by law.
SECTION 7.6. REMEDIES CUMULATIVE AND CONTINUING. Except as provided in
Section 2.6, all powers and remedies given by this Article VII to the Trustee or
to the Debentureholders shall, to the extent permitted by law, be deemed
cumulative and not exclusive of any thereof or of any other powers and remedies
available to the Trustee or the holders of the Debentures, by judicial
proceedings or otherwise, to enforce the performance or observance of the
covenants and agreements contained in this Indenture, and no delay or omission
of the Trustee or of any holder of any of the Debentures to exercise any right
or power accruing upon any default or Event of Default occurring and continuing
as aforesaid shall impair any such right or power, or shall be construed to be a
waiver of any such default or any acquiescence therein; and, subject to the
provisions of Section 7.4, every power and remedy given by this Article VII or
by law to the Trustee or to the Debentureholders may be exercised from time to
time, and as often as shall be deemed expedient, by the Trustee or by the
Debentureholders.
SECTION 7.7. DIRECTION OF PROCEEDINGS AND WAIVER OF DEFAULTS BY
MAJORITY OF DEBENTUREHOLDERS. The holders of a majority in aggregate principal
amount of the Debentures at the time outstanding determined in accordance with
Section 9.4 shall have the right to direct in writing the time, method, and
place of conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred on the Trustee; provided, however, that
(a) such direction shall not be in conflict with any rule of law or with this
Indenture, (b) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction and (c) the Trustee may
decline to take any action that would benefit some Debentureholder to the
detriment of other Debentureholders. The holders of a majority in aggregate
principal amount of the Debentures at the time outstanding determined in
accordance with Section 9.4 may on behalf of the holders of all of the
Debentures waive any past default or Event of Default hereunder and its
consequences except (i) a default in the payment of interest or premium, if any,
on, or the principal of, the Debentures which has not been cured pursuant to the
provisions of Section 7.1, (ii) a failure by the Company to convert any
Debentures into Common Stock, (iii) a default in the payment of redemption price
pursuant to Article III or (iv) a default in respect of a covenant or provisions
hereof which under Article XI cannot be modified or amended without the consent
of the holders of all Debentures then outstanding. Upon any such waiver, the
Company, the Trustee and the holders of the Debentures shall be restored to
their former positions and rights hereunder; but no such waiver shall extend to
any subsequent or other default or Event of Default or impair any right
consequent thereon. Whenever any default or Event of Default hereunder shall
have been waived as permitted by this Section 7.7, said default or Event of
Default shall for all purposes of the Debentures and this Indenture be
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deemed to have been cured and to be not continuing; but no such waiver shall
extend to any subsequent or other default or Event of Default or impair any
right consequent thereon.
SECTION 7.8. NOTICE OF DEFAULTS. The Trustee shall, within ninety (90)
days after a Responsible Officer of the Trustee has actual knowledge of the
occurrence of a default, mail to all Debentureholders, as the names and
addresses of such holders appear upon the Debenture register, notice of all
defaults actually known to a Responsible Officer, unless such defaults shall
have been cured or waived before the giving of such notice; and provided that,
except in the case of default in the payment of the principal of, or premium, if
any, or interest (including Liquidated Damages, if any) on any of the
Debentures, the Trustee shall be protected in withholding such notice if and so
long as a trust committee of directors and/or Responsible Officers of the
Trustee in good faith determine that the withholding of such notice is in the
interests of the Debentureholders.
SECTION 7.9. UNDERTAKING TO PAY COSTS. All parties to this Indenture
agree, and each holder of any Debenture by his acceptance thereof shall be
deemed to have agreed, that any court may, in its discretion, require, in any
suit for the enforcement of any right or remedy under this Indenture, or in any
suit against the Trustee for any action taken or omitted by it as Trustee, the
filing by any party litigant in such suit of an undertaking to pay the costs of
such suit and that such court may in its discretion assess reasonable costs,
including reasonable attorneys' fees, against any party litigant in such suit,
having due regard to the merits and good faith of the claims or defenses made by
such party litigant; provided that the provisions of this Section 7.9 (to the
extent permitted by law) shall not apply to any suit instituted by the Trustee,
to any suit instituted by any Debentureholder, or group of Debentureholders,
holding in the aggregate more than ten percent in principal amount of the
Debentures at the time outstanding determined in accordance with Section 9.4, or
to any suit instituted by any Debentureholder for the enforcement of the payment
of the principal of or premium, if any, or interest on any Debenture on or after
the due date expressed in such Debenture or to any suit for the enforcement of
the right to convert any Debenture in accordance with the provisions of Article
XV.
ARTICLE VIII
CONCERNING THE TRUSTEE
SECTION 8.1. DUTIES AND RESPONSIBILITIES OF TRUSTEE. The Trustee, prior
to the occurrence of an Event of Default with respect to the Debentures and
after the curing of all Events of Default with respect to the Debentures which
may have occurred, undertakes to perform such duties and only such duties as are
specifically set forth in this Indenture. In case an Event of Default with
respect to the Debentures has occurred (which has not been cured or waived) the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in their exercise, as a
prudent man would exercise or use under the circumstances in the conduct of his
own affairs.
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No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act or its own willful misconduct, except that
(a) prior to the occurrence of an Event of Default and after the
curing or waiving of all Events of Default which may have occurred:
(1) the duties and obligations of the Trustee shall be
determined solely by the express provisions of this Indenture and the Trust
Indenture Act, and the Trustee shall not be liable except for the performance of
such duties and obligations as are specifically set forth in this Indenture and
no implied covenants or obligations shall be read into this Indenture and the
Trust Indenture Act against the Trustee; and
(2) in the absence of bad faith and willful misconduct on the
part of the Trustee, the Trustee may conclusively rely, as to the truth of the
statements and the correctness of the opinions expressed therein, upon any
certificates or opinions furnished to the Trustee and conforming to the
requirements of this Indenture; but, in the case of any such certificates or
opinions which by any provisions hereof are specifically required to be
furnished to the Trustee, the Trustee shall be under a duty to examine the same
to determine whether or not they conform to the requirements of this Indenture;
(b) the Trustee shall not be liable for any error of judgment made
in good faith by a Responsible Officer or Officers of the Trustee, unless the
Trustee was negligent in ascertaining the pertinent facts;
(c) the Trustee shall not be liable with respect to any action
taken or omitted to be taken by it in good faith in accordance with the written
direction of the holders of not less than a majority in principal amount of the
Debentures at the time outstanding determined as provided in Section 9.4
relating to the time, method and place of conducting any proceeding for any
remedy available to the Trustee, or exercising any trust or power conferred upon
the Trustee, under this Indenture with respect to the Debentures;
(d) whether or not therein provided, every provision of this
Indenture relating to the conduct or affecting the liability of, or affording
protection to, the Trustee shall be subject to the provisions of this Section;
(e) the Trustee shall not be liable in respect of any payment (as
to the correctness of amount, entitlement to receive or any other matters
relating to payment) or notice effected by the Company or any paying agent or
any records maintained by any co-registrar with respect to the Debentures;
(f) if any party fails to deliver a notice relating to an event
the fact of which, pursuant to this Indenture, requires notice to be sent to the
Trustee, the Trustee may conclusively rely on its failure to receive such notice
as reason to act as if no such event occurred;
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(g) in no event shall the Trustee be liable for the selection of
investments or for investment losses incurred thereon or for losses incurred as
a result of the liquidation of any such investment prior to its stated maturity
or the failure of the party directing such investment to provide timely written
investment direction, and the Trustee shall have no obligation to invest or
reinvest any amounts held hereunder in the absence of such written investment
direction; and
(h) in the event that the Trustee is also acting as Custodian,
Debenture registrar, paying agent, conversion agent or transfer agent hereunder,
the rights and protections afforded to the Trustee pursuant to this Article VIII
shall also be afforded to such Custodian, Debenture registrar, paying agent,
conversion agent or transfer agent.
None of the provisions contained in this Indenture shall
require the Trustee to expend or risk its own funds or otherwise incur personal
financial liability in the performance of any of its duties or in the exercise
of any of its rights or powers, if there is reasonable ground for believing that
the repayment of such funds or adequate indemnity against such risk or liability
is not assured to it.
SECTION 8.2. RELIANCE ON DOCUMENTS, OPINIONS, ETC. Except as otherwise
provided in Section 8.1:
(a) the Trustee may conclusively rely and shall be fully protected
in acting upon any resolution, certificate, statement, instrument, opinion,
report, notice, request, consent, order, bond, note, debenture, coupon or other
paper or document believed by it in good faith to be genuine and to have been
signed or presented by the proper party or parties and the Trustee need not
investigate any fact or matter stated in the document;
(b) any request, direction, order or demand of the Company
mentioned herein shall be sufficiently evidenced by an Officers' Certificate
(unless other evidence in respect thereof be herein specifically prescribed);
and any resolution of the Board of Directors may be evidenced to the Trustee by
a copy thereof certified by the Secretary or an Assistant Secretary of the
Company;
(c) before the Trustee acts or refrains from acting, the Trustee
may consult with counsel and require an Opinion of Counsel and any advice or
Opinion of Counsel shall be full and complete authorization and protection in
respect of any action taken or omitted by it hereunder in good faith and in
accordance with such advice or Opinion of Counsel;
(d) the Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Indenture at the request, order or
direction of any of the Debentureholders pursuant to the provisions of this
Indenture, unless such Debentureholders shall have offered to the Trustee
security or indemnity satisfactory to it against the costs, expenses and
liabilities which may be incurred therein or thereby;
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(e) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, may consent, order, bond, debenture
or other paper or document, but the Trustee, in its discretion, make such
further inquiry or investigation into such facts or matters as it may see fit,
and, if the Trustee shall determine to make such further inquiry or
investigation, it shall be entitled to examine the books, records and premises
of the Company, personally or by agent or attorney;
(f) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents, attorneys,
custodians or nominees and the Trustee shall not be responsible for any
misconduct or negligence on the part of any agent, attorney, custodian or
nominee appointed by it with due care hereunder; and
(g) before the Trustee acts or refrains from acting, it may require an
Officers' Certificate and the Trustee shall not be liable for any action it
takes or omits to take in good faith in reliance on such Officer's Certificate.
SECTION 8.3. NO RESPONSIBILITY FOR RECITALS, ETC. The recitals
contained herein and in the Debentures (except in the Trustee's certificate of
authentication) shall be taken as the statements of the Company, and the Trustee
assumes no responsibility for the correctness of the same. The Trustee makes no
representations as to the validity or sufficiency of this Indenture or of the
Debentures. The Trustee shall not be accountable for the use or application by
the Company of any Debentures or the proceeds of any Debentures authenticated
and delivered by the Trustee in conformity with the provisions of this
Indenture.
SECTION 8.4. TRUSTEE, PAYING AGENTS, CONVERSION AGENTS OR REGISTRAR MAY
OWN DEBENTURES. The Trustee, any paying agent, any conversion agent or Debenture
registrar, in its individual or any other capacity, may become the owner or
pledgee of Debentures with the same rights it would have if it were not Trustee,
paying agent, conversion agent or Debenture registrar.
SECTION 8.5. MONIES TO BE HELD IN TRUST. Subject to the provisions of
Section 13.4 and Section 4.2, all monies received by the Trustee shall, until
used or applied as herein provided, be held in trust for the purposes for which
they were received. Money held by the Trustee in trust hereunder need not be
segregated from other funds except to the extent required by law. The Trustee
shall be under no liability for interest on any money received by it hereunder
except as may be agreed from time to time by the Company and the Trustee.
SECTION 8.6. COMPENSATION AND EXPENSES OF TRUSTEE. The Company
covenants and agrees to pay to the Trustee from time to time, and the Trustee
shall be entitled to, reasonable compensation for all services rendered by it
hereunder in any capacity (which shall not be limited by any provision of law in
regard to the compensation of a trustee of an express trust) as mutually agreed
to in writing between the Company and the Trustee, and the Company will pay or
reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances reasonably incurred or made by the Trustee in
accordance with any of the provisions of this
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Indenture (including the reasonable compensation and the expenses and
disbursements of its counsel and of all persons not regularly in its employ)
except any such expense, disbursement or advance as may arise from its
negligence, willful misconduct, recklessness or bad faith. The Company also
covenants to indemnify the Trustee (or any officer, director, agent or employee
of the Trustee) in any capacity under this Indenture and any other documents and
transactions entered into in connection therewith and its agents and any
authenticating agent for, and to hold them harmless against, any loss, liability
or expense incurred without negligence, willful misconduct, recklessness, or bad
faith on the part of the Trustee or such officers, directors, employees and
agent or authenticating agent, as the case may be, and arising out of or in
connection with the acceptance or administration of this trust or in any other
capacity hereunder, including the costs and expenses of defending themselves
against any claim of liability in the premises. The obligations of the Company
under this Section 8.6 to compensate or indemnify the Trustee and to pay or
reimburse the Trustee for expenses, disbursements and advances shall be secured
by a lien prior to that of the Debentures upon all property and funds held or
collected by the Trustee as such, except funds held in trust for the benefit of
the holders of particular Debentures. The Trustee's right to receive payment of
any amounts due under this Section 8.6 shall not be subordinate to any other
liability or indebtedness of the Company (even though the Debentures may be so
subordinated). The obligation of the Company under this Section shall survive
the satisfaction and discharge of this Indenture and the earlier removal or
resignation of the Trustee.
When the Trustee and its agents and any authenticating agent
incur expenses or render services after an Event of Default specified in Section
7.1(d) or (e) with respect to the Company occurs, the expenses and the
compensation for the services are intended to constitute expenses of
administration under any bankruptcy, insolvency or similar laws.
SECTION 8.7. OFFICERS' CERTIFICATE AS EVIDENCE. Whenever in the
administration of the provisions of this Indenture the Trustee shall deem it
necessary or desirable that a matter be proved or established prior to taking or
omitting any action hereunder, such matter (unless other evidence in respect
thereof be herein specifically prescribed) may, in the absence of negligence,
willful misconduct, recklessness, or bad faith on the part of the Trustee, be
deemed to be conclusively proved and established by an Officers' Certificate
delivered to the Trustee.
SECTION 8.8. CONFLICTING INTERESTS OF TRUSTEE. If the Trustee has or
shall acquire a conflicting interest within the meaning of the Trust Indenture
Act, the Trustee shall either eliminate such interest or resign, to the extent
and in the manner provided by, and subject to the provisions of, the Trust
Indenture Act and this Indenture.
SECTION 8.9. ELIGIBILITY OF TRUSTEE. There shall at all times be a
Trustee hereunder which shall be a Person that is eligible pursuant to the Trust
Indenture Act to act as such and has a combined capital and surplus of at least
$50,000,000 (or if such Person is a member of a bank holding company system, its
bank holding company shall have a combined capital and surplus of at least
$50,000,000). If such person publishes reports of condition at least annually,
pursuant to law or to the requirements of any supervising or examining
authority, then for the purposes
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of this Section, the combined capital and surplus of such person shall be deemed
to be its combined capital and surplus as set forth in its most recent report of
condition so published. If at any time the Trustee shall cease to be eligible in
accordance with the provisions of this Section, it shall resign immediately in
the manner and with the effect hereinafter specified in this Article.
SECTION 8.10. RESIGNATION OR REMOVAL OF TRUSTEE.
(a) The Trustee may at any time resign by giving written
notice of such resignation to the Company and to the holders of Debentures. Upon
receiving such notice of resignation, the Company shall promptly appoint a
successor trustee by written instrument, in duplicate, executed by order of the
Board of Directors, one copy of which instrument shall be delivered to the
resigning Trustee and one copy to the successor trustee. If no successor trustee
shall have been so appointed and have accepted appointment sixty (60) days after
the mailing of such notice of resignation to the Debentureholders, the resigning
Trustee may petition any court of competent jurisdiction for the appointment of
a successor trustee, or any Debentureholder who has been a bona fide holder of a
Debenture or Debentures for at least six (6) months may, subject to the
provisions of Section 7.9, on behalf of himself and all others similarly
situated, petition any such court for the appointment of a successor trustee.
Such court may thereupon, after such notice, if any, as it may deem proper and
prescribe, appoint a successor trustee.
(b) In case at any time any of the following shall occur:
(1) the Trustee shall fail to comply with Section
8.8 after written request therefor by the Company or by any
Debentureholder who has been a bona fide holder of a Debenture or
Debentures for at least six (6) months; or
(2) the Trustee shall cease to be eligible in
accordance with the provisions of Section 8.9 and shall fail to resign
after written request therefor by the Company or by any such
Debentureholder; or
(3) the Trustee shall become incapable of acting, or
shall be adjudged a bankrupt or insolvent, or a receiver of the Trustee
or of its property shall be appointed, or any public officer shall take
charge or control of the Trustee or of its property or affairs for the
purpose of rehabilitation, conservation or liquidation;
then, in any such case, the Company may remove the Trustee and appoint a
successor trustee by written instrument, in duplicate, executed by order of the
Board of Directors, one copy of which instrument shall be delivered to the
Trustee so removed and one copy to the successor trustee, or, subject to the
provisions of Section 7.9, any Debentureholder who has been a bona fide holder
of a Debenture or Debentures for at least six (6) months may, on behalf of
himself and all others similarly situated, petition any court of competent
jurisdiction for the removal of the Trustee and the appointment of a successor
trustee; provided that if no successor Trustee shall have been appointed and
have accepted appointment sixty (60) days after either the Company or the
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Debentureholders has removed the Trustee, the Trustee so removed may petition
any court of competent jurisdiction for an appointment of a successor trustee.
Such court may thereupon, after such notice, if any, as it deem proper and
prescribe, remove the Trustee and appoint a successor trustee.
(c) The holders of a majority in aggregate principal amount of
the Debentures at the time outstanding may at any time remove the Trustee and
nominate a successor trustee which shall be deemed appointed as successor
trustee unless within ten (10) days after notice to the Company of such
nomination the Company objects thereto, in which case the Trustee so removed or
any Debentureholder, upon the terms and conditions and otherwise as in Section
8.10(a) provided, may petition any court of competent jurisdiction for an
appointment of a successor trustee.
(d) Any resignation or removal of the Trustee and appointment
of a successor trustee pursuant to any of the provisions of this Section 8.10
shall become effective upon acceptance of appointment by the successor trustee
as provided in Section 8.11.
SECTION 8.11. ACCEPTANCE BY SUCCESSOR TRUSTEE. Any successor trustee
appointed as provided in Section 8.10 shall execute, acknowledge and deliver to
the Company and to its predecessor trustee an instrument accepting such
appointment hereunder, and thereupon the resignation or removal of the
predecessor trustee shall become effective and such successor trustee, without
any further act, deed or conveyance, shall become vested with all the rights,
powers, duties and obligations of its predecessor hereunder, with like effect as
if originally named as trustee herein; but, nevertheless, on the written request
of the Company or of the successor trustee, the trustee ceasing to act shall,
upon payment of any and all amounts then due and owing to it hereunder, execute
and deliver an instrument transferring to such successor trustee all the rights
and powers of the trustee so ceasing to act. Upon request of any such successor
trustee, the Company shall execute any and all instruments in writing for more
fully and certainly vesting in and confirming to such successor trustee all such
rights and powers. Any trustee ceasing to act shall, nevertheless, retain a lien
upon all property and funds held or collected by such trustee as such, except
for funds held in trust for the benefit of holders of particular Debentures, to
secure any amounts then due it hereunder.
No successor trustee shall accept appointment as provided in
this Section 8.11 unless at the time of such acceptance such successor trustee
shall be qualified under the provisions of Section 8.8 and be eligible under the
provisions of Section 8.9.
Upon acceptance of appointment by a successor trustee as
provided in this Section 8.11, the Company (or the former trustee, at the
written direction and at the expense of the Company) shall mail or cause to be
mailed notice of the succession of such trustee hereunder to the holders of
Debentures at their addresses as they shall appear on the Debenture register. If
the Company fails to mail such notice within ten (10) days after acceptance of
appointment by the successor trustee, the successor trustee shall cause such
notice to be mailed at the expense of the Company.
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SECTION 8.12. SUCCESSION BY MERGER, ETC. Any corporation into which the
Trustee may be merged or converted or with which it may be consolidated, or any
corporation resulting from any merger, conversion or consolidation to which the
Trustee shall be a party, or any corporation succeeding to all or substantially
all of the corporate trust business of the Trustee (including any trust created
by this Indenture), shall be the successor to the Trustee hereunder without the
execution or filing of any paper or any further act on the part of any of the
parties hereto, provided that in the case of any corporation succeeding to all
or substantially all of the corporate trust business of the Trustee such
corporation shall be qualified under the provisions of Section 8.8 and eligible
under the provisions of Section 8.9.
In case at the time such successor to the Trustee shall
succeed to the trusts created by this Indenture, any of the Debentures shall
have been authenticated but not delivered, any such successor to the Trustee may
adopt the certificate of authentication of any predecessor trustee or
authenticating agent appointed by such predecessor trustee, and deliver such
Debentures so authenticated; and in case at that time any of the Debentures
shall not have been authenticated, any successor to the Trustee or an
authenticating agent appointed by such successor trustee may authenticate such
Debentures either in the name of any predecessor trustee hereunder or in the
name of the successor trustee; and in all such cases such certificates shall
have the full force which it is anywhere in the Debentures or in this Indenture
provided that the certificate of the Trustee shall have; provided, however, that
the right to adopt the certificate of authentication of any predecessor Trustee
or authenticate Debentures in the name of any predecessor Trustee shall apply
only to its successor or successors by merger, conversion or consolidation.
SECTION 8.13. PREFERENTIAL COLLECTION OF CLAIMS. If and when the
Trustee shall be or become a creditor of the Company (or any other obligor upon
the Debentures), the Trustee shall be subject to the provisions of the Trust
Indenture Act regarding the collection of the claims against the Company (or any
such other obligor).
SECTION 8.14. TRUSTEE'S APPLICATION FOR INSTRUCTIONS FROM THE COMPANY.
Any application by the Trustee for written instructions from the Company (other
than with regard to any action proposed to be taken or omitted to be taken by
the Trustee that affects the rights of the holders of the Debentures or holders
of Senior Obligations under this Indenture, including, without limitation, under
Article IV hereof) may, at the option of the Trustee, set forth in writing any
action proposed to be taken or omitted by the Trustee under this Indenture and
the date on and/or after which such action shall be taken or such omission shall
be effective. The Trustee shall not be liable for any action taken by, or
omission of, the Trustee in accordance with a proposal included in such
application on or after the date specified in such application (which date shall
not be less than three (3) Business Days after the date any officer of the
Company actually receives such application, unless any such officer shall have
consented in writing to any earlier date) unless prior to taking any such action
(or the effective date in the case of an omission), the Trustee shall have
received written instructions in response to such application specifying the
action to be taken or omitted.
ARTICLE IX
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CONCERNING THE DEBENTUREHOLDERS
SECTION 9.1. ACTION BY DEBENTUREHOLDERS. Whenever in this Indenture it
is provided that the holders of a specified percentage in aggregate principal
amount of the Debentures may take any action (including the making of any demand
or request, the giving of any notice, consent or waiver or the taking of any
other action), the fact that at the time of taking any such action, the holders
of such specified percentage have joined therein may be evidenced (a) by any
instrument or any number of instruments of similar tenor executed by
Debentureholders in person or by agent or proxy appointed in writing, or (b) by
the record of the holders of Debentures voting in favor thereof at any meeting
of Debentureholders duly called and held in accordance with the provisions of
Article X, or (c) by a combination of such instrument or instruments and any
such record of such a meeting of Debentureholders. Whenever the Company or the
Trustee solicits the taking of any action by the holders of the Debentures, the
Company or the Trustee may fix in advance of such solicitation, a date as the
record date for determining holders entitled to take such action. The record
date shall be not more than fifteen (15) days prior to the date of commencement
of solicitation of such action.
SECTION 9.2. PROOF OF EXECUTION BY DEBENTUREHOLDERS. Subject to the
provisions of Sections 8.1, 8.2 and 10.5, proof of the execution of any
instrument by a Debentureholder or its agent or proxy shall be sufficient if
made in accordance with such reasonable rules and regulations as may be
prescribed by the Trustee or in such manner as shall be satisfactory to the
Trustee. The holding of Debentures shall be proved by the registry of such
Debentures or by a certificate of the Debenture registrar.
The record of any Debentureholders' meeting shall be proved in
the manner provided in Section 10.6.
SECTION 9.3. WHO ARE DEEMED ABSOLUTE OWNERS. Subject to Section 2.3,
the Company, the Trustee, any paying agent, any conversion agent and any
Debenture registrar may deem the person in whose name such Debenture shall be
registered upon the Debenture register to be, and may treat it as, the absolute
owner of such Debenture (whether or not such Debenture shall be overdue and
notwithstanding any notation of ownership or other writing thereon) for the
purpose of receiving payment of or on account of the principal of, premium, if
any, and interest on such Debenture, for conversion of such Debenture and for
all other purposes; and neither the Company nor the Trustee nor any paying agent
nor any conversion agent nor any Debenture registrar shall be affected by any
notice to the contrary. All such payments so made to any holder for the time
being, or upon his order, shall be valid, and, to the extent of the sum or sums
so paid, effectual to satisfy and discharge the liability for monies payable
upon any such Debenture.
SECTION 9.4. COMPANY-OWNED DEBENTURES DISREGARDED. In determining
whether the holders of the requisite aggregate principal amount of Debentures
have concurred in any direction, consent, waiver or other action under this
Indenture, Debentures which are owned by the Company or any other obligor on the
Debentures or any Affiliate of the Company or any
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other obligor on the Debentures shall be disregarded and deemed not to be
outstanding for the purpose of any such determination; provided that for the
purposes of determining whether the Trustee shall be protected in relying on any
such direction, consent, waiver or other action only Debentures which a
Responsible Officer actually knows are so owned shall be so disregarded.
Debentures so owned which have been pledged in good faith may be regarded as
outstanding for the purposes of this Section 9.4 if the pledgee shall establish
to the satisfaction of the Trustee the pledgee's right to vote such Debentures
and that the pledgee is not the Company, any other obligor on the Debentures or
any Affiliate of the Company or any such other obligor. In the case of a dispute
as to such right, any decision by the Trustee taken upon the advice of counsel
shall be full protection to the Trustee. Upon request of the Trustee, the
Company shall furnish to the Trustee promptly an Officers' Certificate listing
and identifying all Debentures, if any, known by the Company to be owned or held
by or for the account of any of the above described persons; and, subject to
Section 8.1, the Trustee shall be entitled to accept such Officers' Certificate
as conclusive evidence of the facts therein set forth and of the fact that all
Debentures not listed therein are outstanding for the purpose of any such
determination.
SECTION 9.5. REVOCATION OF CONSENTS; FUTURE HOLDERS BOUND. At any time
prior to (but not after) the evidencing to the Trustee, as provided in Section
9.1, of the taking of any action by the holders of the percentage in aggregate
principal amount of the Debentures specified in this Indenture in connection
with such action, any holder of a Debenture which is shown by the evidence to be
included in the Debentures the holders of which have consented to such action
may, by filing written notice with the Trustee at its Corporate Trust Office and
upon proof of holding as provided in Section 9.2, revoke such action so far as
concerns such Debenture. Except as aforesaid, any such action taken by the
holder of any Debenture shall be conclusive and binding upon such holder and
upon all future holders and owners of such Debenture and of any Debentures
issued in exchange or substitution therefor, irrespective of whether any
notation in regard thereto is made upon such Debenture or any Debenture issued
in exchange or substitution therefor.
ARTICLE X
DEBENTUREHOLDERS' MEETINGS
SECTION 10.1. PURPOSE OF MEETINGS. A meeting of Debentureholders may be
called at any time and from time to time pursuant to the provisions of this
Article X for any of the following purposes:
(1) to give any notice to the Company or to the
Trustee or to give any directions to the Trustee permitted under this
Indenture, or to consent to the waiving of any default or Event of
Default hereunder and its consequences, or to take any other action
authorized to be taken by Debentureholders pursuant to any of the
provisions of Article VII;
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(2) to remove the Trustee and nominate a successor
trustee pursuant to the provisions of Article VIII;
(3) to consent to the execution of an indenture or
indentures supplemental hereto pursuant to the provisions of Section
11.2; or
(4) to take any other action authorized to be taken
by or on behalf of the holders of any specified aggregate principal
amount of the Debentures under any other provision of this Indenture or
under applicable law.
SECTION 10.2. CALL OF MEETINGS BY TRUSTEE. The Trustee may, at the
expense of the Company, at any time call a meeting of Debentureholders to take
any action specified in Section 10.1, to be held at such time and at such place
as the Trustee shall determine. Notice of every meeting of the Debentureholders,
setting forth the time and the place of such meeting and in general terms the
action proposed to be taken at such meeting and the establishment of any record
date pursuant to Section 9.1, shall be mailed to holders of Debentures at their
addresses as they shall appear on the Debenture register. Such notice shall also
be mailed to the Company. Such notices shall be mailed not less than twenty (20)
nor more than ninety (90) days prior to the date fixed for the meeting.
Any meeting of Debentureholders shall be valid without notice
if the holders of all Debentures then outstanding are present in person or by
proxy or if notice is waived before or after the meeting by the holders of all
Debentures outstanding, and if the Company and the Trustee are either present by
duly authorized representatives or have, before or after the meeting, waived
notice.
SECTION 10.3. CALL OF MEETINGS BY COMPANY OR DEBENTUREHOLDERS. In case
at any time the Company, pursuant to a resolution of its Board of Directors, or
the holders of at least ten percent (10%) in aggregate principal amount of the
Debentures then outstanding, shall have requested the Trustee to call a meeting
of Debentureholders, by written request setting forth in reasonable detail the
action proposed to be taken at the meeting, and the Trustee shall not have
mailed the notice of such meeting within twenty (20) days after receipt of such
request, then the Company or such Debentureholders may determine the time and
the place for such meeting and call such meeting to take any action authorized
in Section 10.1, by mailing notice thereof as provided in Section 10.2.
SECTION 10.4. QUALIFICATIONS FOR VOTING. To be entitled to vote at any
meeting of Debentureholders a person shall (a) be a holder of one or more
Debentures on the record date pertaining to such meeting or (b) be a person
appointed by an instrument in writing as proxy by a holder of one or more
Debentures. The only persons who shall be entitled to be present or to speak at
any meeting of Debentureholders shall be the persons entitled to vote at such
meeting and their counsel and any representatives of the Trustee and its counsel
and any representatives of the Company and its counsel.
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SECTION 10.5. REGULATIONS. Notwithstanding any other provisions of this
Indenture, the Trustee may make such reasonable regulations as it may deem
advisable for any meeting of Debentureholders, in regard to proof of the holding
of Debentures and of the appointment of proxies, and in regard to the
appointment and duties of inspectors of votes, the submission and examination of
proxies, certificates and other evidence of the right to vote, and such other
matters concerning the conduct of the meeting as it shall think fit.
The Trustee shall, by an instrument in writing, appoint a
temporary chairman of the meeting, unless the meeting shall have been called by
the Company or by Debentureholders as provided in Section 10.3, in which case
the Company or the Debentureholders calling the meeting, as the case may be,
shall in like manner appoint a temporary chairman. A permanent chairman and a
permanent secretary of the meeting shall be elected by vote of the holders of a
majority in principal amount of the Debentures represented at the meeting and
entitled to vote at the meeting.
Subject to the provisions of Section 9.4, at any meeting each
Debentureholder or proxyholder shall be entitled to one vote for each $1,000
principal amount of Debentures held or represented by him; provided, however,
that no vote shall be cast or counted at any meeting in respect of any Debenture
challenged as not outstanding and ruled by the chairman of the meeting to be not
outstanding. The chairman of the meeting shall have no right to vote other than
by virtue of Debentures held by him or instruments in writing as aforesaid duly
designating him as the proxy to vote on behalf of other Debentureholders. Any
meeting of Debentureholders duly called pursuant to the provisions of Section
10.2 or 10.3 may be adjourned from time to time by the holders of a majority of
the aggregate principal amount of Debentures represented at the meeting, whether
or not constituting a quorum, and the meeting may be held as so adjourned
without further notice.
SECTION 10.6. VOTING. The vote upon any resolution submitted to any
meeting of Debentureholders shall be by written ballot on which shall be
subscribed the signatures of the holders of Debentures or of their
representatives by proxy and the principal amount of the Debentures held or
represented by them. The permanent chairman of the meeting shall appoint two
inspectors of votes who shall count all votes cast at the meeting for or against
any resolution and who shall make and file with the secretary of the meeting
their verified written reports in duplicate of all votes cast at the meeting. A
record in duplicate of the proceedings of each meeting of Debentureholders shall
be prepared by the secretary of the meeting and there shall be attached to said
record the original reports of the inspectors of votes on any vote by ballot
taken thereat and affidavits by one or more persons having knowledge of the
facts setting forth a copy of the notice of the meeting and showing that said
notice was mailed as provided in Section 10.2. The record shall show the
principal amount of the Debentures voting in favor of or against any resolution.
The record shall be signed and verified by the affidavits of the permanent
chairman and secretary of the meeting and one of the duplicates shall be
delivered to the Company and the other to the Trustee to be preserved by the
Trustee, the latter to have attached thereto the ballots voted at the meeting.
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Any record so signed and verified shall be conclusive evidence
of the matters therein stated.
SECTION 10.7. NO DELAY OF RIGHTS BY MEETING. Nothing in this Article X
contained shall be deemed or construed to authorize or permit, by reason of any
call of a meeting of Debentureholders or any rights expressly or impliedly
conferred hereunder to make such call, any hindrance or delay in the exercise of
any right or rights conferred upon or reserved to the Trustee or to the
Debentureholders under any of the provisions of this Indenture or of the
Debentures.
ARTICLE XI
SUPPLEMENTAL INDENTURES
SECTION 11.1. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF
DEBENTUREHOLDERS. The Company, when authorized by the resolutions of the Board
of Directors, and the Trustee, at the Company's expense, may from time to time
and at any time enter into an indenture or indentures supplemental hereto for
one or more of the following purposes:
(b) to make provision with respect to the conversion rights of
the holders of Debentures pursuant to the requirements of Section 15.6 and the
redemption obligations of the Company pursuant to the requirements of Section
3.5(e);
(b) subject to Article IV, to convey, transfer, assign,
mortgage or pledge to the Trustee as security for the Debentures, any property
or assets;
(c) to evidence the succession of another corporation to the
Company, or successive successions, and the assumption by the successor
corporation of the covenants, agreements and obligations of the Company pursuant
to Article XII;
(d) to add to the covenants of the Company such further
covenants, restrictions or conditions as the Board of Directors and the Trustee
shall consider to be for the benefit of the holders of Debentures, and to make
the occurrence, or the occurrence and continuance, of a default in any such
additional covenants, restrictions or conditions a default or an Event of
Default permitting the enforcement of all or any of the several remedies
provided in this Indenture as herein set forth; provided, however, that in
respect of any such additional covenant, restriction or condition such
supplemental indenture may provide for a particular period of grace after
default (which period may be shorter or longer than that allowed in the case of
other defaults) or may provide for an immediate enforcement upon such default or
may limit the remedies available to the Trustee upon such default;
(e) to provide for the issuance under this Indenture of
Debentures in coupon form (including Debentures registrable as to principal
only) and to provide for exchangeability of such Debentures with the Debentures
issued hereunder in fully registered form and to make all appropriate changes
for such purpose;
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(f) to cure any ambiguity or to correct or supplement any
provision contained herein or in any supplemental indenture which may be
defective or inconsistent with any other provision contained herein or in any
supplemental indenture, or to make such other provisions in regard to matters or
questions arising under this Indenture which shall not materially adversely
affect the interests of the holders of the Debentures;
(g) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee with respect to the Debentures; or
(h) to modify, eliminate or add to the provisions of this
Indenture to such extent as shall be necessary to effect the qualification of
this Indenture under the Trust Indenture Act, or under any similar federal
statute hereafter enacted.
Upon the written request of the Company, accompanied by a copy
of the resolutions of the Board of Directors certified by its Secretary or
Assistant Secretary authorizing the execution of any supplemental indenture, the
Trustee is hereby authorized to join with the Company in the execution of any
such supplemental indenture, to make any further appropriate agreements and
stipulations which may be therein contained and to accept the conveyance,
transfer and assignment of any property thereunder, but the Trustee shall not be
obligated to, but may in its discretion, enter into any supplemental indenture
which affects the Trustee's own rights, duties or immunities under this
Indenture or otherwise.
Any supplemental indenture authorized by the provisions of
this Section 11.1 may be executed by the Company and the Trustee without the
consent of the holders of any of the Debentures at the time outstanding,
notwithstanding any of the provisions of Section 11.2.
Notwithstanding any other provision of the Indenture or the
Debentures, the Registration Rights Agreement and the obligation to pay
Liquidated Damages thereunder may be amended, modified or waived in accordance
with the provisions of the Registration Rights Agreement.
SECTION 11.2. SUPPLEMENTAL INDENTURES WITH CONSENT OF DEBENTUREHOLDERS.
With the consent (evidenced as provided in Article IX) of the holders of not
less than a majority in aggregate principal amount of the Debentures at the time
outstanding, the Company, when authorized by the resolutions of the Board of
Directors, and the Trustee may, at the Company's expense, from time to time and
at any time enter into an indenture or indentures supplemental hereto for the
purpose of adding any provisions to or changing in any manner or eliminating any
of the provisions of this Indenture or any supplemental indenture or of
modifying in any manner the rights of the holders of the Debentures; provided,
however, that no such supplemental indenture shall (i) extend the fixed maturity
of any Debenture, or reduce the rate or extend the time of payment of interest
thereon, or reduce the principal amount thereof or premium, if any, thereon, or
reduce any amount payable on redemption thereof, or impair the right of any
Debentureholder to institute suit for the payment thereof, or make the principal
thereof or interest or premium, if any, thereon payable in any coin or currency
other than that provided in the
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Debentures, or modify the provisions of this Indenture with respect to the
subordination of the Debentures in a manner adverse to the Debentureholders in
any material respect, or change the obligation of the Company to redeem any
Debenture upon the happening of a Fundamental Change in a manner adverse to the
holder of Debentures, or impair the right to convert the Debentures into Common
Stock subject to the terms set forth herein including Section 15.6, in each
case, without the consent of the holder of each Debenture so affected, or (ii)
reduce the aforesaid percentage of Debentures, the holders of which are required
to consent to any such supplemental indenture, without the consent of the
holders of all Debentures then outstanding.
Upon the written request of the Company, accompanied by a copy
of the resolutions of the Board of Directors certified by its Secretary or
Assistant Secretary authorizing the execution of any such supplemental
indenture, and upon the filing with the Trustee of evidence of the consent of
Debentureholders as aforesaid, the Trustee shall join with the Company in the
execution of such supplemental indenture unless such supplemental indenture
affects the Trustee's own rights, duties or immunities under this Indenture or
otherwise, in which case the Trustee may in its discretion, but shall not be
obligated to, enter into such supplemental indenture.
It shall not be necessary for the consent of the
Debentureholders under this Section 11.2 to approve the particular form of any
proposed supplemental indenture, but it shall be sufficient if such consent
shall approve the substance thereof.
SECTION 11.3. EFFECT OF SUPPLEMENTAL INDENTURE. Any supplemental
indenture executed pursuant to the provisions of this Article XI shall comply
with the Trust Indenture Act, as then in effect; provided that this Section 11.3
shall not require such supplemental indenture or the Trustee to be qualified
under the Trust Indenture Act prior to the time such qualification is in fact
required under the terms of the Trust Indenture Act or the Indenture has been
qualified under the Trust Indenture Act, nor shall it constitute any admission
or acknowledgment by any party to such supplemental indenture that any such
qualification is required prior to the time such qualification is in fact
required under the terms of the Trust Indenture Act or the Indenture has been
qualified under the Trust Indenture Act. Upon the execution of any supplemental
indenture pursuant to the provisions of this Article XI, this Indenture shall be
and be deemed to be modified and amended in accordance therewith and the
respective rights, limitation of rights; obligations, duties and immunities
under this Indenture of the Trustee, the Company and the holders of Debentures
shall thereafter be determined, exercised and enforced hereunder subject in all
respects to such modifications and amendments and all the terms and conditions
of any such supplemental indenture shall be and be deemed to be part of the
terms and conditions of this Indenture for any and all purposes.
SECTION 11.4. NOTATION ON DEBENTURES. Debentures authenticated and
delivered after the execution of any supplemental indenture pursuant to the
provisions of this Article XI may bear a notation in form approved by the
Trustee as to any matter provided for in such supplemental indenture. If the
Company or the Trustee shall so determine, new Debentures so modified as to
conform, in the opinion of the Trustee and the Board of Directors, to any
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modification of this Indenture contained in any such supplemental indenture may,
at the Company's expense, be prepared and executed by the Company, authenticated
by the Trustee (or an authenticating agent duly appointed by the Trustee
pursuant to Section 16.11) and delivered in exchange for the Debentures then
outstanding, upon surrender of such Debentures then outstanding.
SECTION 11.5. EVIDENCE OF COMPLIANCE OF SUPPLEMENTAL INDENTURE TO BE
FURNISHED TRUSTEE. Prior to entering into any supplemental indenture, the
Trustee may request an Officers' Certificate and an Opinion of Counsel as
conclusive evidence that any supplemental indenture executed pursuant hereto
complies with the requirements of this Article XI.
ARTICLE XII
CONSOLIDATION, MERGER, SALE, CONVEYANCE AND LEASE
SECTION 12.1. COMPANY MAY CONSOLIDATE ETC. ON CERTAIN TERMS. Subject to
the provisions of Section 12.2 and notwithstanding anything to the contrary in
this Indenture, the Company shall not consolidate or merge with or into any
other Person (whether or not affiliated with the Company), or sale, convey or
lease all or substantially all of its assets or properties to any Person unless
the Person formed by such consolidation or into which the Company is merged or
the Person which acquires by conveyance or transfer, or which leases the assets
or properties of the Company substantially as an entirety shall be a corporation
organized under the laws of the United States of America, any state thereof or
the District of Columbia. Further, upon any such consolidation, merger, sale,
conveyance or lease, the due and punctual payment of the principal of and
premium, if any, and interest (including Liquidated Damages, if any) on all of
the Debentures, according to their tenor, and the due and punctual performance
and observance of all of the covenants and conditions of this Indenture to be
performed by the Company, shall be expressly assumed by supplemental indenture
satisfactory in form to the Trustee, executed and delivered to the Trustee by
the corporation (if other than the Company) formed by such consolidation, or
into which the Company shall have been merged, or by the corporation which shall
have acquired or leased such property, and such supplemental indenture shall
provide for the applicable conversion rights set forth in Section 15.6.
SECTION 12.2. SUCCESSOR CORPORATION TO BE SUBSTITUTED. In case of any
such consolidation, merger, sale, conveyance or lease and upon the assumption by
the successor corporation, by supplemental indenture, executed and delivered to
the Trustee and satisfactory in form to the Trustee, of the due and punctual
payment of the principal of and premium, if any, and interest on all of the
Debentures and the due and punctual performance of all of the covenants and
conditions of this Indenture to be performed by the Company, such successor
corporation shall succeed to and be substituted for the Company, with the same
effect as if it had been named herein as the party of the first part. Such
successor corporation thereupon may cause to be signed, and may issue either in
its own name or in the name of Sepracor Inc. any or all of the Debentures
issuable hereunder which theretofore shall not have been signed by the Company
and delivered to the Trustee; and, upon the order of such successor corporation
instead of the
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Company and subject to all the terms, conditions and limitations in this
Indenture prescribed, the Trustee shall authenticate and shall deliver, or cause
to be authenticated and delivered, any Debentures which previously shall have
been signed and delivered by the officers of the Company to the Trustee for
authentication, and any Debentures which such successor corporation thereafter
shall cause to be signed and delivered to the Trustee for that purpose. All the
Debentures so issued shall in all respects have the same legal rank and benefit
under this Indenture as the Debentures theretofore or thereafter issued in
accordance with the terms of this Indenture as though all of such Debentures had
been issued at the date of the execution hereof. In the event of any such
consolidation, merger, sale, conveyance or lease, the person named as the
"Company" in the first paragraph of this Indenture or any successor which shall
thereafter have become such in the manner prescribed in this Article XII may be
dissolved, wound up and liquidated at any time thereafter and such person shall
be released from its liabilities as obligor and maker of the Debentures and from
its obligations under this Indenture.
In case of any such consolidation, merger, sale, conveyance or
lease, such changes in phraseology and form (but not in substance) may be made
in the Debentures thereafter to be issued as may be appropriate.
SECTION 12.3. OPINION OF COUNSEL TO BE GIVEN TRUSTEE. The Trustee shall
receive an Officers' Certificate and an Opinion of Counsel as conclusive
evidence that any such consolidation, merger, sale, conveyance or lease and any
such assumption complies with the provisions of this Article XII.
ARTICLE XIII
SATISFACTION AND DISCHARGE OF INDENTURE
SECTION 13.1. DISCHARGE OF INDENTURE. When (a) the Company shall
deliver to the Trustee for cancellation all Debentures theretofore authenticated
(other than any Debentures which have been destroyed, lost or stolen and in lieu
of or in substitution for which other Debentures shall have been authenticated
and delivered) and not theretofore canceled, or (b) all the Debentures not
theretofore canceled or delivered to the Trustee for cancellation shall have
become due and payable, or are by their terms to become due and payable within
one year or are to be called for redemption within one year under arrangements
satisfactory to the Trustee for the giving of notice of redemption, and the
Company shall deposit with the Trustee, in trust, funds sufficient to pay at
maturity or upon redemption of all of the Debentures (other than any Debentures
which shall have been mutilated, destroyed, lost or stolen and in lieu of or in
substitution for which other Debentures shall have been authenticated and
delivered) not theretofore canceled or delivered to the Trustee for
cancellation, including principal and premium, if any, and interest due or to
become due to such date of maturity or redemption date, as the case may be,
accompanied by a verification report, as to the sufficiency of the deposited
amount, from an independent certified accountant or other financial professional
satisfactory to the Trustee, and if the Company shall also pay or cause to be
paid all other sums payable hereunder by the Company, then this Indenture shall
cease to be of further effect (except as to (i) remaining rights
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of registration of transfer, substitution and exchange and conversion of
Debentures, (ii) rights hereunder of Debentureholders to receive payments of
principal of and premium, if any, and interest on, the Debentures and the other
rights, duties and obligations of Debentureholders, as beneficiaries hereof with
respect to the amounts, if any, so deposited with the Trustee, (iii) the rights,
obligations and immunities of the Trustee hereunder and (iv) the obligations of
the Company under Section 8.6), and the Trustee, on written demand of the
Company accompanied by an Officers' Certificate and an Opinion of Counsel as
required by Section 16.5 and at the cost and expense of the Company, shall
execute proper instruments acknowledging satisfaction of and discharging this
Indenture; the Company, however, hereby agreeing to reimburse the Trustee for
any costs or expenses thereafter reasonably and properly incurred by the Trustee
and to compensate the Trustee for any services thereafter reasonably and
properly rendered by the Trustee in connection with this Indenture or the
Debentures.
SECTION 13.2. DEPOSITED MONIES TO BE HELD IN TRUST BY TRUSTEE. Subject
to Section 13.4, all monies deposited with the Trustee pursuant to Section 13.1,
provided such deposit was not in violation of Article IV, shall be held in trust
for the sole benefit of the Debentureholders and shall not be subject to the
subordination provisions of Article IV, and such monies shall be applied by the
Trustee to the payment, either directly or through any paying agent (including
the Company if acting as its own paying agent), to the holders of the particular
Debentures for the payment or redemption of which such monies have been
deposited with the Trustee, of all sums due and to become due thereon for
principal and interest and premium, if any.
SECTION 13.3. PAYING AGENT TO REPAY MONIES HELD. Upon the satisfaction
and discharge of this Indenture, all monies then held by any paying agent of the
Debentures (other than the Trustee) shall, upon written request of the Company,
be repaid to it or paid to the Trustee, and thereupon such paying agent shall be
released from all further liability with respect to such monies.
SECTION 13.4. RETURN OF UNCLAIMED MONIES. Subject to the requirements
of applicable law, any monies deposited with or paid to the Trustee for payment
of the principal of, premium, if any, or interest on Debentures and not applied
but remaining unclaimed by the holders of Debentures for two years after the
date upon which the principal of, premium, if any, or interest on such
Debentures, as the case may be, shall have become due and payable, shall be
repaid to the Company by the Trustee on written demand and all liability of the
Trustee shall thereupon cease with respect to such monies; and the holder of any
of the Debentures shall thereafter look only to the Company for any payment
which such holder may be entitled to collect unless an applicable abandoned
property law designates another Person.
SECTION 13.5. REINSTATEMENT. If the Trustee or the paying agent is
unable to apply any money in accordance with Section 13.2 by reason of any order
or judgment of any court or governmental authority enjoining, restraining or
otherwise prohibiting such application, the Company's obligations under this
Indenture and the Debentures shall be revived and reinstated as though no
deposit had occurred pursuant to Section 13.1 until such time as the Trustee or
the paying agent is permitted to apply all such money in accordance with Section
13.2; provided,
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however, that if the Company makes any payment of interest on or principal of
any Debenture following the reinstatement of its obligations, the Company shall
be subrogated to the rights of the holders of such Debentures to receive such
payment from the money held by the Trustee or paying agent.
ARTICLE XIV
IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS
SECTION 14.1. INDENTURE AND DEBENTURES SOLELY CORPORATE OBLIGATIONS. No
recourse for the payment of the principal of or premium, if any, or interest on
any Debenture, or for any claim based thereon or otherwise in respect thereof,
and no recourse under or upon any obligation, covenant or agreement of the
Company in this Indenture or in any supplemental indenture or in any Debenture,
or because of the creation of any indebtedness represented thereby, shall be had
against any incorporator, stockholder, employee, agent, officer, or director or
subsidiary, as such, past, present or future, of the Company or of any successor
corporation, either directly or through the Company or any successor
corporation, whether by virtue of any constitution, statute or rule of law, or
by the enforcement of any assessment or penalty or otherwise; it being expressly
understood that all such liability is hereby expressly waived and released as a
condition of, and as a consideration for, the execution of this Indenture and
the issue of the Debentures.
ARTICLE XV
CONVERSION OF DEBENTURES
SECTION 15.1. RIGHT TO CONVERT. Subject to and upon compliance with the
provisions of this Indenture, including without limitation Article IV, the
holder of any Debenture shall have the right, at its option, at any time after
ninety (90) days following the latest date of original issuance thereof through
the close of business on February 15, 2005 (except that, with respect to any
Debenture or portion of a Debenture which shall be called for redemption, such
right shall terminate, except as provided in Section 15.2 or Section 3.4, at the
close of business on the Business Day next preceding the date fixed for
redemption of such Debenture or portion of a Debenture unless the Company shall
default in payment due upon redemption thereof) to convert the principal amount
of any such Debenture, or any portion of such principal amount which is $1,000
or an integral multiple thereof, into that number of fully paid and
non-assessable shares of Common Stock (as such shares shall then be constituted)
obtained by dividing the principal amount of the Debenture or portion thereof
surrendered for conversion by the Conversion Price in effect at such time, by
surrender of the Debenture so to be converted in whole or in part in the manner
provided, together with any required funds, in Section 15.2. A Debenture in
respect of which a holder is exercising its option to require redemption upon a
Fundamental Change pursuant to Section 3.5 may be converted only if such holder
withdraws its election to exercise in accordance with Section 3.5. A holder of
Debentures is not entitled to any rights of a holder of Common Stock until such
holder has converted his Debentures to Common Stock, and only
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to the extent such Debentures are deemed to have been converted to Common Stock
under this Article XV.
SECTION 15.2. EXERCISE OF CONVERSION PRIVILEGE; ISSUANCE OF COMMON
STOCK ON CONVERSION; NO ADJUSTMENT FOR INTEREST OR DIVIDENDS. In order to
exercise the conversion privilege with respect to any Debenture in certificated
form, the holder of any such Debenture to be converted in whole or in part shall
surrender such Debenture, duly endorsed, at an office or agency maintained by
the Company pursuant to Section 5.2, accompanied by the funds, if any, required
by the penultimate paragraph of this Section 15.2, and shall give written notice
of conversion in the form provided on the Debentures (or such other notice which
is acceptable to the Company) to the office or agency that the holder elects to
convert such Debenture or the portion thereof specified in said notice. Such
notice shall also state the name or names (with address or addresses) in which
the certificate or certificates for shares of Common Stock which shall be
issuable on such conversion shall be issued, and shall be accompanied by
transfer taxes, if required pursuant to Section 15.7. Each such Debenture
surrendered for conversion shall, unless the shares issuable on conversion are
to be issued in the same name as the registration of such Debenture, be duly
endorsed by, or be accompanied by instruments of transfer in form satisfactory
to the Company duly executed by, the holder or his duly authorized attorney.
In order to exercise the conversion privilege with respect to any
interest in a Debenture in global form, the holder must complete the appropriate
instruction form for conversion pursuant to the Depository's book-entry
conversion program, deliver by book-entry delivery an interest in such Debenture
in global form, furnish appropriate endorsements and transfer documents if
required by the Company or the Trustee or conversion agent, and pay the funds,
if any, required by this Section 15.2 and any transfer taxes if required
pursuant to Section 15.7.
As promptly as practicable after satisfaction of the requirements for
conversion set forth above, subject to compliance with any restrictions on
transfer if shares issuable on conversion are to be issued in a name other than
that of the Debentureholder (as if such transfer were a transfer of the
Debenture or Debentures (or portion thereof) so converted), the Company shall
issue and shall deliver to such holder at the office or agency maintained by the
Company for such purpose pursuant to Section 5.2, a certificate or certificates
for the number of full shares of Common Stock issuable upon the conversion of
such Debenture or portion thereof in accordance with the provisions of this
Article and a check or cash in respect of any fractional interest in respect of
a share of Common Stock arising upon such conversion, as provided in Section
15.3. In case any Debenture of a denomination greater than $1,000 shall be
surrendered for partial conversion, and subject to Section 2.3, the Company
shall execute and the Trustee shall authenticate and deliver to the holder of
the Debenture so surrendered, at the Company's expense, a new Debenture or
Debentures in authorized denominations in an aggregate principal amount equal to
the unconverted portion of the surrendered Debenture.
Each conversion shall be deemed to have been effected as to
any such Debenture (or portion thereof) on the date on which the requirements
set forth above in this Section 15.2 have been satisfied as to such Debenture
(or portion thereof), and the person in whose name any
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certificate or certificates for shares of Common Stock shall be issuable upon
such conversion shall be deemed to have become on said date the holder of record
of the shares represented thereby; provided, however, that any such surrender on
any date when the stock transfer books of the Company shall be closed shall
constitute the person in whose name the certificates are to be issued as the
record holder thereof for all purposes on the next succeeding day on which such
stock transfer books are open, but such conversion shall be at the Conversion
Price in effect on the date upon which such Debenture shall be surrendered.
Any Debenture or portion thereof surrendered for conversion
during the period from (but excluding) a record date for any interest payment
date to (but excluding) such interest payment date shall (unless such Debenture
or portion thereof being converted shall have been called for redemption on a
redemption date which occurs during such period) be accompanied by payment, in
New York Clearing House funds or other funds acceptable to the Company, of an
amount equal to the interest otherwise payable on such interest payment date on
the principal amount being converted; provided, however, that no such payment
need be made if there shall exist at the time of conversion a default in the
payment of interest on the Debentures. Except as provided above in this Section
15.2, no payment or other adjustment shall be made for interest accrued on any
Debenture converted or for dividends on any shares issued upon the conversion of
such Debenture as provided in this Article.
Upon the conversion of an interest in a Debenture in global
form, the Trustee (or other conversion agent appointed by the Company), or the
Custodian at the direction of the Trustee (or other conversion agent appointed
by the Company), shall make a notation on such Debenture in global form as to
the reduction in the principal amount represented thereby. The Company shall
notify the Trustee in writing of any conversions of Debentures effected through
any conversion agent other than the Trustee.
SECTION 15.3. CASH PAYMENTS IN LIEU OF FRACTIONAL SHARES. No fractional
shares of Common Stock or scrip representing fractional shares shall be issued
upon conversion of Debentures. If more than one Debenture shall be surrendered
for conversion at one time by the same holder, the number of full shares which
shall be issuable upon conversion shall be computed on the basis of the
aggregate principal amount of the Debentures (or specified portions thereof to
the extent permitted hereby) so surrendered. If any fractional share of stock
would be issuable upon the conversion of any Debenture or Debentures, the
Company shall make an adjustment and payment therefor in cash at the current
market price thereof to the holder of Debentures. The current market price of a
share of Common Stock shall be the Closing Price on the last Business Day
immediately preceding the day on which the Debentures (or specified portions
thereof) are deemed to have been converted.
SECTION 15.4. CONVERSION PRICE. The conversion price shall be as
specified in the form of Debenture (herein called the "Conversion Price")
attached as Exhibit A hereto, subject to adjustment as provided in this Article
XV.
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SECTION 15.5. ADJUSTMENT OF CONVERSION PRICE. The Conversion Price
shall be adjusted from time to time by the Company as follows:
(a) In case the Company shall hereafter pay a dividend or make
a distribution to all holders of the outstanding Common Stock in shares of
Common Stock, the Conversion Price in effect at the opening of business on the
date following the date fixed for the determination of stockholders entitled to
receive such dividend or other distribution shall be reduced by multiplying such
Conversion Price by a fraction of which the numerator shall be the number of
shares of Common Stock outstanding at the close of business on the date fixed
for such determination and the denominator shall be the sum of such number of
shares and the total number of shares constituting such dividend or other
distribution, such reduction to become effective immediately after the opening
of business on the day following the date fixed for such determination. The
Company will not pay any dividend or make any distribution on shares of Common
Stock held in the treasury of the Company. If any dividend or distribution of
the type described in this Section 15.5(a) is declared but not so paid or made,
the Conversion Price shall again be adjusted to the Conversion Price which would
then be in effect if such dividend or distribution had not been declared.
(b) In case the Company shall issue rights or warrants to all
holders of its outstanding shares of Common Stock entitling them (for a period
expiring within forty-five (45) days after the date fixed for determination of
stockholders entitled to receive such rights or warrants) to subscribe for or
purchase shares of Common Stock at a price per share less than the Current
Market Price (as defined below) on the date fixed for determination of
stockholders entitled to receive such rights or warrants, the Conversion Price
shall be adjusted so that the same shall equal the price determined by
multiplying the Conversion Price in effect immediately prior to the date fixed
for determination of stockholders entitled to receive such rights or warrants by
a fraction of which the numerator shall be the number of shares of Common Stock
outstanding at the close of business on the date fixed for determination of
stockholders entitled to receive such rights and warrants plus the number of
shares which the aggregate offering price of the total number of shares so
offered would purchase at such Current Market Price, and of which the
denominator shall be the number of shares of Common Stock outstanding on the
date fixed for determination of stockholders entitled to receive such rights and
warrants plus the total number of additional shares of Common Stock offered for
subscription or purchase. Such adjustment shall be successively made whenever
any such rights and warrants are issued, and shall become effective immediately
after the opening of business on the day following the date fixed for
determination of stockholders entitled to receive such rights or warrants. To
the extent that shares of Common Stock are not delivered after the expiration of
such rights or warrants, the Conversion Price shall be readjusted to the
Conversion Price which would then be in effect had the adjustments made upon the
issuance of such rights or warrants been made on the basis of delivery of only
the number of shares of Common Stock actually delivered. In the event that such
rights or warrants are not so issued, the Conversion Price shall again be
adjusted to be the Conversion Price which would then be in effect if such date
fixed for the determination of stockholders entitled to receive such rights or
warrants had not been fixed. In determining whether any rights or warrants
entitle the holders to subscribe for or purchase shares of Common
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Stock at less than such Current Market Price, and in determining the aggregate
offering price of such shares of Common Stock, there shall be taken into account
any consideration received by the Company for such rights or warrants, the value
of such consideration, if other than cash, to be determined in good faith by the
Board of Directors.
(c) In case outstanding shares of Common Stock shall be
subdivided into a greater number of shares of Common Stock, the Conversion Price
in effect at the opening of business on the day following the day upon which
such subdivision becomes effective shall be proportionately reduced, and
conversely, in case outstanding shares of Common Stock shall be combined into a
smaller number of shares of Common Stock, the Conversion Price in effect at the
opening of business on the day following the day upon which such combination
becomes effective shall be proportionately increased, such reduction or
increase, as the case may be, to become effective immediately after the opening
of business on the day following the day upon which such subdivision or
combination becomes effective.
(d) In case the Company shall, by dividend or otherwise,
distribute to all holders of its Common Stock shares of any class of capital
stock of the Company (other than any dividends or distributions to which Section
15.5(a) applies) or evidences of its indebtedness or assets (including
securities, but excluding any rights or warrants referred to in Section 15.5(b),
and excluding any dividend or distribution (x) paid exclusively in cash or (y)
referred to in Section 15.5(a) (any of the foregoing hereinafter in this Section
15.5(d) called the "Securities")), then, in each such case (unless the Company
elects to reserve such Securities for distribution to the Debentureholders upon
the conversion of the Debentures so that any such holder converting Debentures
will receive upon such conversion, in addition to the shares of Common Stock to
which such holder is entitled, the amount and kind of such Securities which such
holder would have received if such holder had converted its Debentures into
Common Stock immediately prior to the Record Date (as defined in Section 15.5(h)
for such distribution of the Securities), the Conversion Price shall be reduced
so that the same shall be equal to the price determined by multiplying the
Conversion Price in effect on the Record Date with respect to such distribution
by a fraction of which the numerator shall be the Current Market Price per share
of the Common Stock on such Record Date less the fair market value (as
determined in good faith by the Board of Directors, whose determination shall be
conclusive, and described in a resolution of the Board of Directors) on the
Record Date of the portion of the Securities so distributed applicable to one
share of Common Stock and the denominator shall be the Current Market Price per
share of the Common Stock, such reduction to become effective immediately prior
to the opening of business on the day following such Record Date; provided,
however, that in the event the fair market value (as so determined) of the
portion of the Securities so distributed applicable to one share of Common Stock
is equal to or greater than the Current Market Price of the Common Stock on the
Record Date, in lieu of the foregoing adjustment, adequate provision shall be
made so that each Debentureholder shall have the right to receive upon
conversion the amount of Securities such holder would have received had such
holder converted each Debenture on the Record Date. In the event that such
dividend or distribution is not so paid or made, the Conversion Price shall
again be adjusted to be the Conversion Price which would then be in effect if
such dividend or distribution had not been declared. If the Board of Directors
determines the fair market value
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of any distribution for purposes of this Section 15.5(d) by reference to the
actual or when issued trading market for any securities, it must in doing so
consider the prices in such market over the same period used in computing the
Current Market Price of the Common Stock.
Rights or warrants distributed by the Company to all holders
of Common Stock entitling the holders thereof to subscribe for or purchase
shares of the Company's capital stock (either initially or under certain
circumstances), which rights or warrants, until the occurrence of a specified
event or events ("Trigger Event"): (i) are deemed to be transferred with such
shares of Common Stock; (ii) are not exercisable; and (iii) are also issued in
respect of future issuances of Common Stock, shall be deemed not to have been
distributed for purposes of this Section 15.5 (and no adjustment to the
Conversion Price under this Section 15.5 will be required) until the occurrence
of the earliest Trigger Event, whereupon such rights and warrants shall be
deemed to have been distributed and an appropriate adjustment (if any is
required) to the Conversion Price shall be made under this Section 15.5(d). If
any such right or warrant, including any such existing rights or warrants
distributed prior to the date of this Indenture, are subject to events, upon the
occurrence of which such rights or warrants become exercisable to purchase
different securities, evidences of indebtedness or other assets, then the date
of the occurrence of any and each such event shall be deemed to be the date of
distribution and record date with respect to new rights or warrants with such
rights (and a termination or expiration of the existing rights or warrants
without exercise by any of the holders thereof). In addition, in the event of
any distribution (or deemed distribution) of rights or warrants, or any Trigger
Event or other event (of the type described in the preceding sentence) with
respect thereto that was counted for purposes of calculating a distribution
amount for which an adjustment to the Conversion Price under this Section 15.5
was made, (1) in the case of any such rights or warrants which shall all have
been redeemed or repurchased without exercise by any holders thereof, the
Conversion Price shall be readjusted upon such final redemption or repurchase to
give effect to such distribution or Trigger Event, as the case may be, as though
it were a cash distribution, equal to the per share redemption or repurchase
price received by a holder or holders of Common Stock with respect to such
rights or warrants (assuming such holder had retained such rights or warrants),
made to all holders of Common Stock as of the date of such redemption or
repurchase, and (2) in the case of such rights or warrants which shall have
expired or been terminated without exercise by any holders thereof, the
Conversion Price shall be readjusted as if such rights and warrants had not been
issued.
Notwithstanding the foregoing, in the event that the Company
shall distribute rights or warrants to subscribe for additional shares of the
Common Stock (other than rights or warrants described in Section 15.5(b)), pro
rata to holders of Common Stock, the Company may, in lieu of making any
adjustment pursuant to this Section 15.5(d), make proper provision so that each
holder of a Debenture who converts such Debenture (or any portion thereof) after
the record date for such distribution shall be entitled to receive upon such
conversion, in addition to the shares of Common Stock issuable upon such
conversion (the "Conversion Shares"), a number of rights or warrants to be
determined as follows: (i) if such conversion occurs on or prior to the date for
the distribution to the holders of such rights or warrants of separate
certificates evidencing such rights or warrants (the "Distribution Date"), the
same number of rights or warrants to which a
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holder of a number of shares of Common Stock equal to the number of Conversion
Shares is entitled at the time of such conversion in accordance with the terms
and provisions of and applicable to such rights or warrants; and (ii) if such
conversion occurs after the Distribution Date, the same number of rights or
warrants to which a holder of the number of shares of Common Stock into which
the principal amount of the Debenture so converted was convertible immediately
prior to the Distribution Date would have been entitled on the Distribution Date
in accordance with the terms and provisions of, and applicable to such rights or
warrants.
For purposes of this Section 15.5(d) and Sections 15.5(a) and
(b), any dividend or distribution to which this Section 15.5(d) is applicable
that also includes shares of Common Stock, or rights or warrants to subscribe
for or purchase shares of Common Stock (or both), shall be deemed instead to be
(1) a dividend or distribution of the evidences of indebtedness, assets or
shares of capital stock other than such shares of Common Stock or rights or
warrants (and any Conversion Price reduction required by this Section 15.5(d)
with respect to such dividend or distribution shall then be made) immediately
followed by (2) a dividend or distribution of such shares of Common Stock or
such rights or warrants (and any further Conversion Price reduction required by
Sections 15.5(a) and (b) with respect to such dividend or distribution shall
then be made), except (A) the Record Date of such dividend or distribution shall
be substituted as "the date fixed for the determination of stockholders entitled
to receive such dividend or other distribution" and "the date fixed for such
determination" within the meaning of Sections 15.5(a) and (b) and (B) any shares
of Common Stock included in such dividend or distribution shall not be deemed
"outstanding at the close of business on the date fixed for such determination"
within the meaning of Section 15.5(a).
(e) In case the Company shall, by dividend or otherwise,
distribute to all holders of its Common Stock cash (excluding (x) any quarterly
cash dividend on the Common Stock to the extent the aggregate cash dividend per
share of Common Stock in any fiscal quarter does not exceed the greater of (A)
the amount per share of Common Stock of the next preceding quarterly cash
dividend on the Common Stock to the extent that such preceding quarterly
dividend did not require any adjustment of the Conversion Price pursuant to this
Section 15.5(e) (as adjusted to reflect subdivisions or combinations of the
Common Stock), and (B) 3.75% of the arithmetic average of the Closing Price
(determined as set forth in Section 15.5(h)) during the ten (10) Trading Days
(as defined in Section 15.5(h)) immediately prior to the date of declaration of
such dividend, and (y) any dividend or distribution in connection with the
liquidation, dissolution or winding up of the Company, whether voluntary or
involuntary), then, in such case, the Conversion Price shall be reduced so that
the same shall equal the price determined by multiplying the Conversion Price in
effect immediately prior to the close of business on such Record Date by a
fraction of which the numerator shall be the Current Market Price of the Common
Stock on the Record Date less the amount of cash so distributed (and not
excluded as provided above) applicable to one share of Common Stock and the
denominator shall be such Current Market Price of the Common Stock, such
reduction to be effective immediately prior to the opening of business on the
day following the Record Date; provided, however, that in the event the portion
of the cash so distributed applicable to one share of Common Stock is equal to
or greater than the Current Market Price of the Common Stock on the Record Date,
in lieu of
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the foregoing adjustment, adequate provision shall be made so that each
Debentureholder shall have the right to receive upon conversion the amount of
cash such holder would have received had such holder converted each Debenture on
the Record Date. In the event that such dividend or distribution is not so paid
or made, the Conversion Price shall again be adjusted to be the Conversion Price
which would then be in effect if such dividend or distribution had not been
declared. If any adjustment is required to be made as set forth in this Section
15.5(e) as a result of a distribution that is a quarterly dividend, such
adjustment shall be based upon the amount by which such distribution exceeds the
amount of the quarterly cash dividend permitted to be excluded pursuant hereto.
If an adjustment is required to be made as set forth in this Section 15.5(e)
above as a result of a distribution that is not a quarterly dividend, such
adjustment shall be based upon the full amount of the distribution.
(f) In case a tender or exchange offer made by the Company or
any Subsidiary for all or any portion of the Common Stock (other than tender or
exchange offers for less than fifteen percent (15%) of the outstanding shares of
Common Stock of the Company) shall expire and such tender or exchange offer (as
amended upon the expiration thereof) shall require the payment to stockholders
of consideration per share of Common Stock having a fair market value (as
determined by the Board of Directors, whose determination shall be conclusive
and described in a resolution of the Board of Directors) that as of the last
time (the "Expiration Time") tenders or exchanges may be made pursuant to such
tender or exchange offer (as it may be amended) that exceeds the Current Market
Price of the Common Stock on the Trading Day next succeeding the Expiration
Time, the Conversion Price shall be reduced so that the same shall equal the
price determined by multiplying the Conversion Price in effect immediately prior
to the Expiration Time by a fraction of which the numerator shall be the number
of shares of Common Stock outstanding (including any tendered or exchanged
shares) on the Expiration Time multiplied by the Current Market Price of the
Common Stock on the Trading Day next succeeding the Expiration Time and the
denominator shall be the sum of (x) the fair market value (determined as
aforesaid) of the aggregate consideration payable to stockholders based on the
acceptance (up to any maximum specified in the terms of the tender or exchange
offer) of all shares validly tendered or exchanged and not withdrawn as of the
Expiration Time (the shares deemed so accepted, up to any such maximum, being
referred to as the "Purchased Shares") and (y) the product of the number of
shares of Common Stock outstanding (less any Purchased Shares) on the Expiration
Time and the Current Market Price of the Common Stock on the Trading Day next
succeeding the Expiration Time, such reduction to become effective immediately
prior to the opening of business on the day following the Expiration Time. In
the event that the Company is obligated to purchase shares pursuant to any such
tender or exchange offer, but the Company is permanently prevented by applicable
law from effecting any such purchases or all such purchases are rescinded, the
Conversion Price shall again be adjusted to be the Conversion Price which would
then be in effect if such tender or exchange offer had not been made.
(g) In case of a tender or exchange offer made by a person
other than the Company or any Subsidiary for an amount which increases the
offeror's ownership of Common Stock to more than twenty-five percent (25%) of
the Common Stock outstanding and shall
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involve the payment by such person of consideration per share of Common Stock
having a fair market value (as determined by the Board of Directors, whose
determination shall be conclusive, and described in a resolution of the Board of
Directors) at the last time (the "Offer Expiration Time") tenders or exchanges
may be made pursuant to such tender or exchange offer (as it shall have been
amended) that exceeds the Current Market Price of the Common Stock on the
Trading Day next succeeding the Offer Expiration Time, and in which, as of the
Offer Expiration Time the Board of Directors is not recommending rejection of
the offer, the Conversion Price shall be reduced so that the same shall equal
the price determined by multiplying the Conversion Price in effect immediately
prior to the Offer Expiration Time by a fraction of which the numerator shall be
the number of shares of Common Stock outstanding (including any tendered or
exchanged shares) on the Offer Expiration Time multiplied by the Current Market
Price of the Common Stock on the Trading Day next succeeding the Offer
Expiration Time and the denominator shall be the sum of (x) the fair market
value (determined as aforesaid) of the aggregate consideration payable to
stockholders based on the acceptance (up to any maximum specified in the terms
of the tender or exchange offer) of all shares validly tendered or exchanged and
not withdrawn as of the Offer Expiration Time (the shares deemed so accepted, up
to any such maximum, being referred to as the "Accepted Purchased Shares") and
(y) the product of the number of shares of Common Stock outstanding (less any
Accepted Purchased Shares) on the Offer Expiration Time and the Current Market
Price of the Common Stock on the Trading Day next succeeding the Offer
Expiration Time, such reduction to become effective immediately prior to the
opening of business on the day following the Offer Expiration Time. In the event
that such person is obligated to purchase shares pursuant to any such tender or
exchange offer, but such person is permanently prevented by applicable law from
effecting any such purchases or all such purchases are rescinded, the Conversion
Price shall again be adjusted to be the Conversion Price which would then be in
effect if such tender or exchange offer had not been made. Notwithstanding the
foregoing, the adjustment described in this Section 15.5(g) shall not be made
if, as of the Offer Expiration Time, the offering documents with respect to such
offer disclose a plan or intention to cause the Company to engage in any
transaction described in Article XII; provided, however, that if such
transaction is not consummated within twelve (12) months of the Offer Expiration
time, the adjustment described in this Section 15.5(g) shall be made.
(h) For purposes of this Section 15.5, the following
terms shall have the meaning indicated:
(1) "Closing Price" with respect to any securities on
any day shall mean the closing sale price regular way on such day or,
in case no such sale takes place on such day, the average of the
reported closing bid and asked prices, regular way, in each case on the
New York Stock Exchange, or, if such security is not listed or admitted
to trading on such Exchange, on the principal national security
exchange or quotation system on which such security is quoted or listed
or admitted to trading, or, if not quoted or listed or admitted to
trading on any national securities exchange or quotation system, the
average of the closing bid and asked prices of such security on the
over-the-counter market on the day in question as reported by the
National Quotation Bureau Incorporated, or a similar generally accepted
reporting service, or if not so available, in such manner
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as furnished by any New York Stock Exchange member firm selected from
time to time by the Board of Directors for that purpose, or a price
determined in good faith by the Board of Directors or, to the extent
permitted by applicable law, a duly authorized committee thereof, whose
determination shall be conclusive.
(2) "Current Market Price" shall mean the average of
the daily Closing Prices per share of Common Stock for the ten (10)
consecutive Trading Days immediately prior to the date in question;
provided, however, that (1) if the "ex" date (as hereinafter defined)
for any event (other than the issuance or distribution or Fundamental
Change requiring such computation) that requires an adjustment to the
Conversion Price pursuant to Section 15.5(a), (b), (c), (d), (e), (f)
or (g) occurs during such ten (10) consecutive Trading Days, the
Closing Price for each Trading Day prior to the "ex" date for such
other event shall be adjusted by multiplying such Closing Price by the
same fraction by which the Conversion Price is so required to be
adjusted as a result of such other event, (2) if the "ex" date for any
event (other than the issuance, distribution or Fundamental Change
requiring such computation) that requires an adjustment to the
Conversion Price pursuant to Section 15.5(a), (b), (c), (d), (e), (f)
or (g) occurs on or after the "ex" date for the issuance or
distribution requiring such computation and prior to the day in
question, the Closing Price for each Trading Day on and after the "ex"
date for such other event shall be adjusted by multiplying such Closing
Price by the reciprocal of the fraction by which the Conversion Price
is so required to be adjusted as a result of such other event, and (3)
if the "ex" date for the issuance, distribution or Fundamental Change
requiring such computation is prior to the day in question, after
taking into account any adjustment required pursuant to clause (1) or
(2) of this proviso, the Closing Price for each Trading Day on or after
such "ex" date shall be adjusted by adding thereto the amount of any
cash and the fair market value (as determined by the Board of Directors
or, to the extent permitted by applicable law, a duly authorized
committee thereof in a manner consistent with any determination of such
value for purposes of Section 15.5(d), (f) or (g), whose determination
shall be conclusive and described in a resolution of the Board of
Directors or such duly authorized committee thereof, as the case may
be) of the evidences of indebtedness, shares of capital stock or assets
being distributed applicable to one share of Common Stock as of the
close of business on the day before such "ex" date. For purposes of any
computation under Section 15.5(f) or (g), the Current Market Price of
the Common Stock on any date shall be deemed to be the average of the
daily Closing Prices per share of Common Stock for such day and the
next two succeeding Trading Days; provided, however, that if the "ex"
date for any event (other than the tender or exchange offer requiring
such computation) that requires an adjustment to the Conversion Price
pursuant to Section 15.5(a), (b), (c), (d), (e), (f) or (g) occurs on
or after the Expiration Time or Offer Expiration Time, as the case may
be, for the tender or exchange offer requiring such computation and
prior to the day in question, the Closing Price for. each Trading Day
on and after the "ex" date for such other event shall be adjusted by
multiplying such Closing Price by the reciprocal of the fraction by
which the Conversion Price is so required to be adjusted as a result of
such other event. For purposes of this paragraph, the term "ex" date,
(1) when used with respect to any issuance or distribution,
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means the first date on which the Common Stock trades regular way on
the relevant exchange or in the relevant market from which the Closing
Price was obtained without the right to receive such issuance or
distribution, (2) when used with respect to any subdivision or
combination of shares of Common Stock, means the first date on which
the Common Stock trades regular way on such exchange or in such market
after the time at which such subdivision or combination becomes
effective, and (3) when used with respect to any tender or exchange
offer means the first date on which the Common Stock trades regular way
on such exchange or in such market after the Offer Expiration Time of
such offer.
(3) "fair market value" shall mean the amount which a
willing buyer would pay a willing seller in an arm's length
transaction.
(4) "Record Date" shall mean, with respect to any
dividend, distribution or other transaction or event in which the
holders of Common Stock have the right to receive any cash, securities
or other property or in which the Common Stock (or other applicable
security) is exchanged for or converted into any combination of cash,
securities or other property, the date fixed for determination of
stockholders entitled to receive such cash, securities or other
property (whether such date is fixed by the Board of Directors or by
statute, contract or otherwise).
(5) "Trading Day" shall mean (x) if the applicable
security is listed or admitted for trading on the New York Stock
Exchange or another national security exchange, a day on which the New
York Stock Exchange or another national security exchange is open for
business or (y) if the applicable security is quoted on the Nasdaq
National Market, a day on which trades may be made on thereon or (z) if
the applicable security is not so listed, admitted for trading or
quoted, any day other than a Saturday or Sunday or a day on which
banking institutions in the State of New York are authorized or
obligated by law or executive order to close.
(i) The Company may make such reductions in the
Conversion Price, in addition to those required by Sections 15.5 (a), (b), (c),
(d), (e), (f) or (g) as the Board of Directors considers to be advisable to
avoid or diminish any income tax to holders of Common Stock or rights to
purchase Common Stock resulting from any dividend or distribution of stock (or
rights to acquire stock) or from any event treated as such for income tax
purposes.
To the extent permitted by applicable law, the Company from
time to time may reduce the Conversion Price by any amount for any period of
time if the period is at least twenty (20) days, the reduction is irrevocable
during the period and the Board of Directors shall have made a determination
that such reduction would be in the best interests of the Company, which
determination shall be conclusive. Whenever the Conversion Price is reduced
pursuant to the preceding sentence, the Company shall mail to holders of record
of the Debentures a notice of the reduction at least fifteen (15) days prior to
the date the reduced Conversion Price takes effect,
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and such notice shall state the reduced Conversion Price and the period during
which it will be in effect.
(j) No adjustment in the Conversion Price shall be required
unless such adjustment would require an increase or decrease of at least one
percent (1%) in such price; provided, however, that any adjustments which by
reason of this Section 15.5(j) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All calculations
under this Article XV shall be made by the Company and shall be made to the
nearest cent or to the nearest one-hundredth (1/100) of a share, as the case may
be. No adjustment need be made for rights to purchase Common Stock pursuant to a
Company plan for reinvestment of dividends or interest. To the extent the
Debentures become convertible into cash, assets, property or securities (other
than capital stock of the Company), no adjustment need be made thereafter as to
the cash, assets, property or such securities. Interest will not accrue on the
cash.
(k) Whenever the Conversion Price is adjusted as herein
provided, the Company shall promptly file with the Trustee and any conversion
agent other than the Trustee an Officers' Certificate setting forth the
Conversion Price after such adjustment and setting forth a brief statement of
the facts requiring such adjustment. Promptly after delivery of such
certificate, the Company shall prepare a notice of such adjustment of the
Conversion Price setting forth the adjusted Conversion Price and the date on
which each adjustment becomes effective and shall mail such notice of such
adjustment of the Conversion Price to the holder of each Debenture at his last
address appearing on the Debenture register provided for in Section 2.5 of this
Indenture within twenty (20) days after execution thereof. Failure to deliver
such notice shall not affect the legality or validity of any such adjustment.
(l) In any case in which this Section 15.5 provides that an
adjustment shall become effective immediately after a record date for an event,
the Company may defer until the occurrence of such event (i) issuing to the
holder of any Debenture converted after such record date and before the
occurrence of such event the additional shares of Common Stock issuable upon
such conversion by reason of the adjustment required by such event over and
above the Common Stock issuable upon such conversion before giving effect to
such adjustment and (ii) paying to such holder any amount in cash in lieu of any
fraction pursuant to Section 15.3.
(m) For purposes of this Section 15.5, the number of shares of
Common Stock at any time outstanding shall not include shares held in the
treasury of the Company but shall include shares issuable in respect of scrip
certificates issued in lieu of fractions of shares of Common Stock. The Company
will not pay any dividend or make any distribution on shares of Common Stock
held in the treasury of the Company.
SECTION 15.6. EFFECT OF RECLASSIFICATION, CONSOLIDATION, MERGER OR
SALE. If any of the following events occur, namely (i) any reclassification or
change of the outstanding shares of Common Stock (other than a subdivision or
combination to which Section 15.5(c) applies), (ii) any consolidation, merger or
combination of the Company with another corporation as a result
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of which holders of Common Stock shall be entitled to receive stock, securities
or other property or assets (including cash) with respect to or in exchange for
such Common Stock, or (iii) any sale or conveyance of the properties and assets
of the Company as, or substantially as, an entirety to any other corporation as
a result of which holders of Common Stock shall be entitled to receive stock,
securities or other property or assets (including cash) with respect to or in
exchange for such Common Stock, then the Company or the successor or purchasing
corporation, as the case may be, shall execute with the Trustee a supplemental
indenture (which shall comply with the Trust Indenture Act as in force at the
date of execution of such supplemental indenture) providing that such Debenture
shall be convertible into the kind and amount of shares of stock and other
securities or property or assets (including cash) receivable upon such
reclassification, change, consolidation, merger, combination, sale or conveyance
by a holder of a number of shares of Common Stock issuable upon conversion of
such Debentures (assuming, for such purposes, a sufficient number of authorized
shares of Common Stock available to convert all such Debentures) immediately
prior to such reclassification, change, consolidation, merger, combination, sale
or conveyance assuming such holder of Common Stock did not exercise his rights
of election, if any, as to the kind or amount of securities, cash or other
property receivable upon such consolidation, merger, statutory exchange, sale or
conveyance (provided that, if the kind or amount of securities, cash or other
property receivable upon such consolidation, merger, statutory exchange, sale or
conveyance is not the same for each share of Common Stock in respect of which
such rights of election shall not have been exercised ("nonelecting share")),
then for the purposes of this Section 15.6 the kind and amount of securities,
cash or other property receivable upon such consolidation, merger, statutory
exchange, sale or conveyance for each non-electing share shall be deemed to be
the kind and amount so receivable per share by a plurality of the non-electing
shares. Such supplemental indenture shall provide for adjustments which shall be
as nearly equivalent as may be practicable to the adjustments provided for in
this Article.
The Company shall cause notice of the execution of such
supplemental indenture to be mailed to each holder of Debentures, at its address
appearing on the Debenture register provided for in Section 2.5 of this
Indenture, within twenty (20) days after execution thereof. Failure to deliver
such notice shall not affect the legality or validity of such supplemental
indenture.
The above provisions of this Section shall similarly apply to
successive reclassifications, changes, consolidations, mergers, combinations,
sales and conveyances.
If this Section 15.6 applies to any event or occurrence,
Section 15.5 shall not apply.
SECTION 15.7. TAXES ON SHARES ISSUED. The issue of stock certificates
on conversions of Debentures shall be made without charge to the converting
Debentureholder for any tax in respect of the issue thereof. The Company shall
not, however, be required to pay any tax which may be payable in respect of any
transfer involved in the issue and delivery of stock in any name other than that
of the holder of any Debenture converted, and the Company shall not be required
to issue or deliver any such stock certificate unless and until the person or
persons requesting the
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issue thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been paid.
SECTION 15.8. RESERVATION OF SHARES; SHARES TO BE FULLY PAID;
COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS; LISTING OF COMMON STOCK. The Company
shall provide, free from preemptive rights, out of its authorized but unissued
shares or shares held in treasury, sufficient shares of Common Stock to provide
for the conversion of the Debentures from time to time as such Debentures are
presented for conversion.
Before taking any action which would cause an adjustment
reducing the Conversion Price below the then par value, if any, of the shares of
Common Stock issuable upon conversion of the Debentures, the Company will take
all corporate action which may, in the opinion of its counsel, be necessary in
order that the Company may validly and legally issue shares of such Common Stock
at such adjusted Conversion Price.
The Company covenants that all shares of Common Stock which
may be issued upon conversion of Debentures will upon issue be fully paid and
non-assessable by the Company and free from all taxes, liens and charges with
respect to the issue thereof.
The Company covenants that if any shares of Common Stock to be
provided for the purpose of conversion of Debentures hereunder require
registration with or approval of any governmental authority under any federal or
state law before such shares may be validly issued upon conversion, the Company
will in good faith and as expeditiously as possible endeavor to secure such
registration or approval, as the case may be.
The Company further covenants that if at any time the Common
Stock shall be listed on the Nasdaq National Market or any other national
securities exchange or automated quotation system the Company will, if permitted
by the rules of such exchange or automated quotation system, list and keep
listed, so long as the Common Stock shall be so listed on such exchange or
automated quotation system, all Common Stock issuable upon conversion of the
Debentures; provided, however, that if rules of such exchange or automated
quotation system permit the Company to defer the listing of such Common Stock
until the first conversion of the Debentures into Common Stock in accordance
with the provisions of this Indenture, the Company covenants to list such Common
Stock issuable upon conversion of the Debentures in accordance with the
requirements of such exchange or automated quotation system at such time.
SECTION 15.9. RESPONSIBILITY OF TRUSTEE. The Trustee and any other
conversion agent shall not at any time be under any duty or responsibility to
any holder of Debentures to determine the Conversion Price or whether any facts
exist which may require any adjustment of the Conversion Price, or with respect
to the nature or extent or calculation of any such adjustment when made, or with
respect to the method employed, or herein or in any supplemental indenture
provided to be employed, in making the same. The Trustee and any other
conversion agent shall not be accountable with respect to the validity or value
(or the kind or amount) of any shares of Common Stock, or of any securities or
property, which may at any time be issued or delivered
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upon the conversion of any Debenture; and the Trustee and any other conversion
agent make no representations with respect thereto. Neither the Trustee nor any
conversion agent shall be responsible for any failure of the Company to issue,
transfer or deliver any shares of Common Stock or stock certificates or other
securities or property or cash upon the surrender of any Debenture for the
purpose of conversion or to comply with any of the duties, responsibilities or
covenants of the Company contained in this Article. Without limiting the
generality of the foregoing, neither the Trustee nor any conversion agent shall
be under any responsibility to determine the correctness of any provisions
contained in any supplemental indenture entered into pursuant to Section 15.6
relating either to the kind or amount of shares of stock or securities or
property (including cash) receivable by Debentureholders upon the conversion of
their Debentures after any event referred to in such Section 15.6 or to any
adjustment to be made with respect thereto, but, subject to the provisions of
Section 8.1, may accept as conclusive evidence of the correctness of any such
provisions, and shall be fully protected in relying upon, the Officers'
Certificate (which the Company shall be obligated to file with the Trustee prior
to the execution of any such supplemental indenture) with respect thereto.
SECTION 15.10. NOTICE TO HOLDERS PRIOR TO CERTAIN ACTIONS. In case:
(a) the Company shall declare a dividend (or any other
distribution) on its Common Stock that would require an adjustment in the
Conversion Price pursuant to Section 15.5; or
(b) the Company shall authorize the granting to the holders of
all or substantially all of its Common Stock of rights or warrants to subscribe
for or purchase any share of any class of its capital stock or any other rights
or warrants; or
(c) of any reclassification or reorganization of the Common
Stock of the Company (other than a subdivision or combination of its outstanding
Common Stock, or a change in par value, or from par value to no par value, or
from no par value to par value), or of any consolidation or merger to which the
Company is a party and for which approval of any stockholders of the Company is
required, or of the sale or transfer of all or substantially all of the assets
of the Company or any Significant Subsidiary; or
(d) of the voluntary or involuntary dissolution, liquidation
or winding up of the Company or any Significant Subsidiary;
the Company shall cause to be filed with the Trustee and to be mailed to each
holder of Debentures at his address appearing on the Debenture register provided
for in Section 2.5 of this Indenture, as promptly as possible but in any event
at least fifteen (15) days prior to the applicable date hereinafter specified, a
notice stating (x) the date on which a record is to be taken for the purpose of
such dividend, distribution or rights or warrants, or, if a record is not to be
taken, the date as of which the holders of Common Stock of record to be entitled
to such dividend, distribution or rights are to be determined, or (y) the date
on which such reclassification, consolidation, merger, sale, transfer,
dissolution, liquidation or winding up is
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expected to become effective or occur, and the date as of which it is expected
that holders of Common Stock of record shall be entitled to exchange their
Common Stock for securities or other property deliverable upon such
reclassification, consolidation, merger, sale, transfer, dissolution,
liquidation or winding up. Failure to give such notice, or any defect therein,
shall not affect the legality or validity of such dividend, distribution,
reclassification, consolidation, merger, sale, transfer, dissolution,
liquidation or winding up.
ARTICLE XVI
MISCELLANEOUS PROVISIONS
SECTION 16.1. PROVISIONS BINDING ON COMPANY'S SUCCESSORS. All the
covenants, stipulations, promises and agreements by the Company contained in
this Indenture shall bind its successors and assigns whether so expressed or
not.
SECTION 16.2. OFFICIAL ACTS BY SUCCESSOR CORPORATION. Any act or
proceeding by any provision of this Indenture authorized or required to be done
or performed by any board, committee or officer of the Company shall and may be
done and performed with like force and effect by the like board, committee or
officer of any corporation that shall at the time be the lawful sole successor
of the Company.
SECTION 16.3. ADDRESSES FOR NOTICES, ETC. Any notice or demand which by
any provision of this Indenture is required or permitted to be given or served
by the Trustee or by the holders of Debentures on the Company shall be deemed to
have been sufficiently given or made, for all purposes, if given or served by
being deposited postage prepaid by registered or certified mail in a post office
letter box addressed (until another address is filed by the Company with the
Trustee) to Sepracor Inc., 111 Locke Drive, Marlborough, MA 01752, Attention:
Chief Financial Officer. Any notice, direction, request or demand hereunder to
or upon the Trustee shall be deemed to have been sufficiently given or made, for
all purposes, if given or served by being deposited postage prepaid by
registered or certified mail in a post office letter box addressed to the
Corporate Trust Office, which office is, at the date as of which this Indenture
is dated, located at The Chase Manhattan Bank, 450 West 33rd Street, 15th Floor,
New York, New York 10001-2697, Attention: Global Trust Services.
The Trustee, by notice to the Company, may designate
additional or different addresses for subsequent notices or communications.
Any notice or communication mailed to a Debentureholder shall
be mailed to him by first class mail, postage prepaid, at his address as it
appears on the Debenture register and shall be sufficiently given to him if so
mailed within the time prescribed.
Failure to mail a notice or communication to a Debentureholder
or any defect in it shall not affect its sufficiency with respect to other
Debentureholders. If a notice or
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communication is mailed in the manner provided above, it is duly given, whether
or not the addressee receives it.
SECTION 16.4. GOVERNING LAW. This Indenture and each Debenture shall be
deemed to be a contract made under the laws of The Commonwealth of
Massachusetts, and for all purposes shall be construed in accordance with the
laws of The Commonwealth of Massachusetts.
SECTION 16.5. EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT;
CERTIFICATES TO TRUSTEE. Upon any application or demand by the Company to the
Trustee to take any action under any of the provisions of this Indenture, the
Company shall furnish to the Trustee an Officers' Certificate stating that all
conditions precedent, if any, provided for in this Indenture relating to the
proposed action have been complied with, and an Opinion of Counsel stating that,
in the opinion of such counsel, all such conditions precedent have been complied
with.
Each certificate or opinion provided for in this Indenture and
delivered to the Trustee with respect to compliance with a condition or covenant
provided for in this Indenture shall include (1) a statement that the person
making such certificate or opinion has read such covenant or condition; (2) a
brief statement as to the nature and scope of the examination or investigation
upon which the statement or opinion contained in such certificate or opinion is
based: (3) a statement that, in the opinion of such person, he has made such
examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
complied with; and (4) a statement as to whether or not, in the opinion of such
person, such condition or covenant has been complied with.
SECTION 16.6. LEGAL HOLIDAYS. In any case where the date of maturity of
interest on or principal of the Debentures or the date fixed for redemption of
any Debenture will not be a Business Day, then payment of such interest on or
principal of the Debentures need not be made on such date, but may be made on
the next succeeding Business Day with the same force and effect as if made on
the date of maturity or the date fixed for redemption, and no interest shall
accrue for the period from and after such date.
SECTION 16.7. TRUST INDENTURE ACT. This Indenture is hereby made
subject to, and shall be governed by, the provisions of the Trust Indenture Act
required to be part of and to govern indentures qualified under the Trust
Indenture Act; provided, however, that, unless otherwise required by law,
notwithstanding the foregoing, this Indenture and the Debentures issued
hereunder shall not be subject to the provisions of subsections (a)(1), (a)(2),
and (a)(3) of Section 314 of the Trust Indenture Act as now in effect or as
hereafter amended or modified; provided, further, that this Section 16.7 shall
not require this Indenture or the Trustee to be qualified under the Trust
Indenture Act prior to the time such qualification is in fact required under the
terms of the Trust Indenture Act, nor shall it constitute any admission or
acknowledgment by any party to such supplemental indenture that any such
qualification is required prior to the time such qualification is in fact
required under the terms of the Trust Indenture Act. If any provision hereof
limits, qualifies or conflicts with another provision hereof which is required
to be included in an indenture qualified under the Trust Indenture Act, such
required provision shall control.
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SECTION 16.8. NO SECURITY INTEREST CREATED. Nothing in this Indenture
or in the Debentures, expressed or implied, shall be construed to constitute a
security interest under the Uniform Commercial Code or similar legislation, as
now or hereafter enacted and in effect, in any jurisdiction where property of
the Company or its subsidiaries is located.
SECTION 16.9. BENEFITS OF INDENTURE. Nothing in this Indenture or in
the Debentures, expressed or implied, shall give to any Person, other than the
parties hereto, any paying agent, any authenticating agent, any Debenture
registrar and their successors hereunder, the holders of Debentures and the
holders of Senior Obligations, any benefit or any legal or equitable right,
remedy or claim under this Indenture.
SECTION 16.10. TABLE OF CONTENTS, HEADINGS, ETC. The table of contents
and the titles and headings of the articles and sections of this Indenture have
been inserted for convenience of reference only, are not to be considered a part
hereof, and shall in no way modify or restrict any of the terms or provisions
hereof.
SECTION 16.11. AUTHENTICATING AGENT. The Trustee may appoint an
authenticating agent which shall be authorized to act on its behalf and subject
to its direction in the authentication and delivery of Debentures in connection
with the original issuance thereof and transfers and exchanges of Debentures
hereunder, including under Sections 2.4, 2.5, 2.6, 2.7, 3.3 and 3.5, as fully to
all intents and purposes as though the authenticating agent had been expressly
authorized by this Indenture and those Sections to authenticate and deliver
Debentures. For all purposes of this Indenture, the authentication and delivery
of Debentures by the authenticating agent shall be deemed to be authentication
and delivery of such Debentures "by the Trustee" and a certificate of
authentication executed on behalf of the Trustee by an authenticating agent
shall be deemed to satisfy any requirement hereunder or in the Debentures for
the Trustee's certificate of authentication. Such authenticating agent shall at
all times be a person eligible to serve as trustee hereunder pursuant to Section
8.9.
Any corporation into which any authenticating agent may be
merged or converted or with which it may be consolidated, or any corporation
resulting from any merger, consolidation or conversion to which any
authenticating agent shall be a party, or any corporation succeeding to the
corporate trust business of any authenticating agent, shall be the successor of
the authenticating agent hereunder, if such successor corporation is otherwise
eligible under this Section 16.11, without the execution or filing of any paper
or any further act on the part of the parties hereto or the authenticating agent
or such successor corporation.
Any authenticating agent may at any time resign by giving
written notice of resignation to the Trustee and to the Company. The Trustee may
at any time terminate the agency of any authenticating agent by giving written
notice of termination to such authenticating agent and to the Company. Upon
receiving such a notice of resignation or upon such a termination, or in case at
any time any authenticating agent shall cease to be eligible under this Section,
the Trustee shall either promptly appoint a successor authenticating agent or
itself assume the duties and obligations of the former authenticating agent
under this Indenture, and upon such
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appointment of a successor authenticating agent, if made, shall give written
notice of such appointment of a successor authenticating agent to the Company
and shall mail notice of such appointment of a successor authenticating agent to
all holders of Debentures as the names and addresses of such holders appear on
the Debenture register.
The Trustee agrees to pay to the authenticating agent from
time to time reasonable compensation for its services (to the extent
pre-approved by the Company in writing), and the Trustee shall be entitled to be
reimbursed for such pre-approved payments, subject to Section 8.6.
The provisions of Sections 8.2, 8.3, 8.4, 9.3 and this Section
16.11 shall be applicable to any authenticating agent.
SECTION 16.12. EXECUTION IN COUNTERPARTS. This Indenture may be
executed in any number of counterparts, each of which shall be an original, but
such counterparts shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this indenture to be duly
executed.
SEPRACOR INC.
By: /s/Timothy J. Barberich
------------------------------------------
Name: Timothy J. Barberich
Title: President and Chief
Executive Officer
THE CHASE MANHATTAN BANK,
as Trustee
By: /s/Kathleen Perry
------------------------------------------
Name: Kathleen Perry
Title: Second Vice President
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EXHIBIT A
[For Global Debenture only:
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) (THE
"DEPOSITARY," WHICH TERM INCLUDES ANY SUCCESSOR DEPOSITARY FOR THE CERTIFICATES)
TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT,
AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH
OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DEPOSITARY AND ANY
PAYMENT HEREON IS MADE TO CEDE & CO. (OR TO SUCH OTHER ENTITY AS IS REQUESTED BY
AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY), ANY TRANSFER, PLEDGE, OR OTHER
USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.]
THE DEBENTURE EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS,
AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR
FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING
SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A
"QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES
ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE
501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) ("INSTITUTIONAL ACCREDITED
INVESTOR"); (2) AGREES THAT IT WILL NOT, PRIOR TO EXPIRATION OF THE HOLDING
PERIOD APPLICABLE TO SALES OF THE SECURITY EVIDENCED HEREBY UNDER RULE 144(K)
UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION), RESELL OR OTHERWISE
TRANSFER THE DEBENTURE EVIDENCED HEREBY OR THE COMMON STOCK ISSUABLE UPON
CONVERSION OF SUCH DEBENTURE EXCEPT (A) TO SEPRACOR INC. OR ANY SUBSIDIARY
THEREOF, (B) INSIDE THE UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN
COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES
TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES
TO THE CHASE MANHATTAN BANK, AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE),
A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO
THE RESTRICTIONS ON TRANSFER OF THE DEBENTURE EVIDENCED HEREBY (THE FORM OF
WHICH
<PAGE> 89
LETTER CAN BE OBTAINED FROM SUCH TRUSTEE OR A SUCCESSOR TRUSTEE, AS APPLICABLE),
(D) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES
ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER
THE SECURITIES ACT (IF AVAILABLE) OR (F) PURSUANT TO A REGISTRATION STATEMENT
WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT (AND WHICH CONTINUES
TO BE EFFECTIVE AT THE TIME OF SUCH TRANSFER); (3) PRIOR TO SUCH TRANSFER (OTHER
THAN A TRANSFER PURSUANT TO CLAUSE 2(F) ABOVE), IT WILL FURNISH THE CHASE
MANHATTAN BANK, AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE), SUCH
CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS IT MAY REASONABLY REQUIRE
TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM OR IN
A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT AND (4) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THE DEBENTURE
EVIDENCED HEREBY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS
LEGEND. IN CONNECTION WITH ANY TRANSFER OF THE DEBENTURE EVIDENCED HEREBY PRIOR
TO THE EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF THE DEBENTURE
EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR
PROVISION), THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE
HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO
THE CHASE MANHATTAN BANK, AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE). IF
THE PROPOSED TRANSFEREE IS AN INSTITUTIONAL ACCREDITED INVESTOR OR A PURCHASER
WHO IS NOT A U.S. PERSON, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO
THE FIRST NATIONAL BANK OF CHICAGO, AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS
APPLICABLE), SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS SUCH
TRUSTEE MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE
PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THIS LEGEND WILL BE REMOVED
UPON THE EARLIER OF THE TRANSFER OF THE DEBENTURE EVIDENCED HEREBY PURSUANT TO
CLAUSE 2(F) ABOVE OR UPON ANY TRANSFER OF THE DEBENTURES EVIDENCED HEREBY UNDER
RULE 144(K) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION). AS USED
HEREIN, THE TERMS "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO
THEM BY REGULATION S UNDER THE SECURITIES ACT.
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<PAGE> 90
SEPRACOR INC.
6 1/4% CONVERTIBLE SUBORDINATED DEBENTURE DUE 2005
No: _______ CUSIP: ________
SEPRACOR INC., a corporation duly organized and validly existing under
the laws of the State of Delaware (herein called the "Company"), which term
includes any successor corporation under the Indenture referred to on the
reverse hereof, for value received hereby promises to pay to
___________________________________ or registered assigns, the principal sum of
________________ ($____________) on February 15, 2005, at the office or agency
of the Company maintained for that purpose in accordance with the terms of the
Indenture, or, at the option of the holder of this Debenture, at the Corporate
Trust Office, in such coin or currency of the United States of America as at the
time of payment shall be legal tender for the payment of public and private
debts, and to pay interest, semi-annually on February 15 and August 15, of each
year, commencing August 15, 1998, on said principal sum at said office or
agency, in like coin or currency, at the rate per annum of 6 1/4% from February
10, 1998 and thereafter to maturity from the February 15 or August 15, as the
case may be, next preceding the date of this Debenture to which interest has
been paid or duly provided for, unless the date hereof is a date to which
interest has been paid or duly provided for, in which case from the date of this
Debenture, or unless no interest has been paid or duly provided for on the
Debentures, in which case from February 10, 1998, until payment of said
principal sum has been made or duly provided for. Notwithstanding the foregoing,
if the date hereof is after any January 31 or July 31, as the case may be, and
before the following February 15 or August 15, this Debenture shall bear
interest from such February 15 or August 15; provided, however, that if the
Company shall default in the payment of interest due on such February 15 or
August 15, then this Debenture shall bear interest from the next preceding
February 15 or August 15, to which interest has been paid or duly provided for
or, if no interest has been paid or duly provided for on such Debenture, from
February 10, 1998. The interest payable on the Debenture pursuant to the
Indenture on any February 15 or August 15 will be paid to the person entitled
thereto as it appears in the Debenture register at the close of business on the
record date, which shall be the January 31 or July 31 (whether or not a Business
Day) next preceding such February 15 or August 15, as provided in the Indenture;
provided that any such interest not punctually paid or duly provided for shall
be payable as provided in the Indenture. Interest may, at the option of the
Company, be paid either (i) by check mailed to the registered address of such
person (provided that the holder of Debentures with an aggregate principal
amount in excess of $2,000,000 shall, at the written election of such holder, be
paid by wire transfer in immediately available funds) or (ii) by transfer to an
account maintained by such person located in the United States.
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<PAGE> 91
Reference is made to the further provisions of this Debenture
set forth on the reverse hereof, including, without limitation, provisions
subordinating the payment of principal of and premium, if any, and interest on
the Debentures to the prior payment in full of all Senior Obligations, as
defined in the Indenture, and provisions giving the holder of this Debenture the
right to convert this Debenture into Common Stock of the Company on the terms
and subject to the limitations referred to on the reverse hereof and as more
fully specified in the Indenture. Such further provisions shall for all purposes
have the same effect as though fully set forth at this place.
This Debenture shall be deemed to be a contract made under the
laws of the State of New York, and for all purposes shall be construed in
accordance with and governed by the laws of said State.
This Debenture shall not be valid or become obligatory for any
purpose until the certificate of authentication hereon shall have been manually
signed by the Trustee or a duly authorized authenticating agent under the
Indenture.
IN WITNESS WHEREOF, the Company has caused this Debenture to
be duly executed under its corporate seal to be affixed or imported hereon.
SEPRACOR INC.
BY: ________________________________________
Name:
Title:
Attest: ______________________________________
Name:
Title:
Dated:___________________________
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<PAGE> 92
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Debentures described in the within-named Indenture.
THE CHASE MANHATTAN BANK, as Trustee
By: ___________________________________
Authorized Signatory
By: ___________________________________
As Authenticating Agent
(if different from Trustee)
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<PAGE> 93
[FORM OF REVERSE OF DEBENTURE]
SEPRACOR INC.
6 1/4% CONVERTIBLE SUBORDINATED DEBENTURE DUE 2005
This Debenture is one of a duly authorized issue of Debentures
of the Company, designated as its 6 1/4% Convertible Subordinated Debentures due
2005 (herein called the "Debentures"), limited to the aggregate principal amount
of $____________ all issued or to be issued under and pursuant to an Indenture
dated as of February 10, 1998 (herein called the "Indenture"), between the
Company and The Chase Manhattan Bank as trustee (herein called the "Trustee"),
to which Indenture and all indentures supplemental thereto reference is hereby
made for a description of the rights, limitations of rights, obligations, duties
and immunities thereunder of the Trustee, the Company and the holders of the
Debentures.
In case an Event of Default, as defined in the Indenture,
shall have occurred and be continuing, the principal of, premium, if any, and
accrued interest (including Liquidated Damages, if any) on all Debentures may be
declared, and upon said declaration shall become, due and payable, in the
manner, with the effect and subject to the conditions provided in the Indenture:
The Indenture contains provisions permitting the Company and
the Trustee, with the consent of the holders of not less than a majority in
aggregate principal amount of the Debentures at the time outstanding, evidenced
as in the Indenture provided, to execute supplemental indentures adding any
provisions to or changing in any manner or eliminating any of the provisions of
the Indenture or of any supplemental indenture or modifying in any manner the
rights of the holders of the Debentures; provided, however, that no such
supplemental indenture shall (i) extend the fixed maturity of any Debenture, or
reduce the rate or extend the time of payment of interest thereon, or reduce the
principal amount thereof or premium, if any, thereon, or reduce any amount
payable on redemption thereof, or impair the right of any Debentureholder to
institute suit for the payment thereof, or make the principal thereof or
interest or premium, if any, thereon payable in any coin or currency other than
that provided in the Debenture, or modify the provisions of the Indenture with
respect to the subordination of the Debentures in a manner adverse to the
Debentureholders in any material respect, or change the obligation of the
Company to make redemption of any Debenture upon the happening of a Fundamental
Change in a manner adverse to the holder of the Debentures, or impair the right
to convert the Debentures into Common Stock subject to the terms set forth in
the Indenture, including Section 15.6 thereof, without the consent of the holder
of each Debenture so affected or (ii) reduce the aforesaid percentage of
Debentures, the holders of which are required to consent
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<PAGE> 94
to any such supplemental indenture, without the consent of the holders of all
Debentures then outstanding. It is also provided in the Indenture that, prior to
any declaration accelerating the maturity of the Debentures, the holders of a
majority in aggregate principal amount of the Debentures at the time outstanding
may on behalf of the holders of all of the Debentures waive any past default or
Event of Default under the Indenture and its consequences except a default in
the payment of interest (including Liquidated Damages, if any) or any premium on
or the principal of any of the Debentures, a default in the payment of
redemption price pursuant to Article III or a failure by the Company to convert
any Debentures into Common Stock of the Company. Any such consent or waiver by
the holder of this Debenture (unless revoked as provided in the Indenture) shall
be conclusive and binding upon such holder and upon all future holders and
owners of this Debenture and any Debentures which may be issued in exchange or
substitute hereof, irrespective of whether or not any notation thereof is made
upon this Debenture or such other Debentures.
The indebtedness evidenced by the Debentures is, to the extent
and in the manner provided in the Indenture, expressly subordinate and subject
in right of payment to the prior payment in full of all Senior Obligations of
the Company, as defined in the Indenture, whether outstanding at the date of the
Indenture or thereafter incurred, and this Debenture is issued subject to the
provisions of the Indenture with respect to such subordination. Each holder of
this Debenture, by accepting the same, agrees to and shall be bound by such
provisions and authorizes the Trustee on its behalf to take such action as may
be necessary or appropriate to effectuate the subordination so provided and
appoints the Trustee his attorney-in-fact for such purpose.
No reference herein to the Indenture and no provision of this
Debenture or of the Indenture shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of and any
premium and interest (including Liquidated Damages, if any) on this Debenture at
the place, at the respective times, at the rate and in the coin or currency
herein prescribed.
Interest on the Debentures shall be computed on the basis of a
year of twelve 30-day months.
The Debentures are issuable in registered form without coupons
in denominations of $1,000 and any integral multiple of $1,000. At the office or
agency of the Company referred to on the face hereof, and in the manner and
subject to the limitations provided in the Indenture, without payment of any
service charge but with payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection with any registration or
exchange of Debentures, Debentures may be exchanged for a like aggregate
principal amount of Debentures of other authorized denominations.
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<PAGE> 95
The Debentures will not be redeemable at the option of the
Company prior to February 18, 2001. At any time on or after February 18, 2001,
and prior to maturity, the Debentures may be redeemed at the option of the
Company as a whole, or from time to time in part, upon mailing a notice of such
redemption not less than thirty (30) days before the date fixed for redemption
to the holders of Debentures at their last registered addresses, all as provided
in the Indenture, at the following optional redemption prices (expressed as
percentages of the principal amount), together in each case with accrued
interest (including Liquidated Damages, if any) to, but excluding, the date
fixed for redemption:
If redeemed during the period beginning February 18, 2001 and
ending on February 14, 2002, at a redemption price of 103.571%, and if redeemed
during the 12-month period beginning February 15:
YEAR REDEMPTION PRICE
2002 102.679%
2003 101.786%
2004 100.893%
and 100% at February 15, 2005; provided that if the date fixed for redemption is
on February 15 or August 15, then the interest payable on such date shall be
paid to the holder of record on the next preceding January 31 or July 31,
respectively.
The Debentures are not subject to redemption through the
operation of any sinking fund.
If a Fundamental Change (as defined in the Indenture) occurs
at any time prior to February 15, 2005, the Debentures will be redeemable on the
30th day after notice thereof at the option of the holder at a redemption price
equal to 100% of the principal amount of the Debenture (or portion thereof)
redeemed, together with accrued interest to the date of redemption; provided
that if such Repurchase Date is February 15 or August 15, then the interest
payable on such date shall be paid to the holder of record of the Debenture on
the next preceding July 31 or August 31, respectively. The Company shall mail to
all holders of record of the Debentures a notice of the occurrence of a
Fundamental Change and of the redemption right arising as a result thereof on or
before the 10th day after the occurrence of such Fundamental Change. For a
Debenture to be so repaid at the option of the holder, the Company must receive
at the office or agency of the Company maintained for that purpose in accordance
with the terms of the Indenture, such Debenture with the form entitled "Option
to Elect Repayment Upon a Fundamental Change" on the reverse thereof duly
completed, together with such Debentures duly
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<PAGE> 96
endorsed for transfer, on or before the 30th day after the date of such notice
(or if such 30th day is not a Business Day, the next succeeding Business Day).
Subject to the provisions of the Indenture, the holder hereof
has the right, at its option, at any time after ninety (90) days following the
latest date of original issuance thereof through the close of business on
February 15, 2005, or, as to all or any portion hereof called for redemption,
prior to the close of business on the Business Day immediately preceding the
date fixed for redemption (unless the Company shall default in payment due upon
redemption thereof), to convert the principal hereof or any portion of such
principal which is $1,000 or an integral multiple thereof into that number of
shares of the Company's Common Stock, as said shares shall be constituted at the
date of conversion, obtained by dividing the principal amount of this Debenture
or portion thereof to be converted by the Conversion Price of $47.369 or such
Conversion Price as adjusted from time to time as provided in the Indenture,
upon surrender of this Debenture, together with a conversion notice as provided
in the Indenture, to the Company at the office or agency of the Company
maintained for that purpose in accordance with the terms of the Indenture, or at
the option of such holder, the Corporate Trust Office, and, unless the shares
issuable on conversion are to be issued in the same name as this Debenture, duly
endorsed by, or accompanied by instruments of transfer in form satisfactory to
the Company duly executed by, the holder or by his duly authorized attorney. No
adjustment in respect of interest or dividends will be made upon any conversion;
provided, however, that if this Debenture shall be surrendered for conversion
during the period from (but excluding) a record date for any interest payment
date to (but excluding) such interest payment date, this Debenture (unless it or
the portion being converted shall have been called for redemption during such
period) must be accompanied by an amount, in New York Clearing House funds or
other funds acceptable to the Company, equal to the interest payable on such
interest payment date on the principal amount being converted. No fractional
shares will be issued upon any conversion, but an adjustment in cash will be
made, as provided in the Indenture, in respect of any fraction of a share which
would otherwise be issuable upon the surrender of any Debenture or Debentures
for conversion.
Any Debentures called for redemption, unless surrendered for
conversion on or before the close of business on the date fixed for redemption,
may be deemed to be purchased from the holder of such Debentures at an amount
equal to the applicable redemption price, together with accrued interest
(including Liquidated Damages, if any) to (but excluding) the date fixed for
redemption, by one or more investment bankers or other purchasers who may agree
with the Company to purchase such Debentures from the holders thereof and
convert them into Common Stock of the Company and to make payment for such
Debentures as aforesaid to the Trustee in trust for such holders.
Upon due presentment for registration of transfer of this
Debenture at the office or agency of the Company maintained for that purpose in
accordance with the terms of the
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<PAGE> 97
Indenture, or at the option of the holder of this Debenture, at the Corporate
Trust Office, a new Debenture or Debentures of authorized denominations for an
equal aggregate principal amount will be issued to the transferee in exchange
thereof, subject to the limitations provided in the Indenture, without charge
except for any tax or other governmental charge imposed in connection therewith.
The Company, the Trustee, any authenticating agent, any paying
agent, any conversion agent and any Debenture registrar may deem and treat the
registered holder hereof as the absolute owner of this Debenture (whether or not
this Debenture shall be overdue and notwithstanding any notation of ownership or
other writing hereon made by anyone other than the Company or any Debenture
registrar), for the purpose of receiving payment hereof, or on account hereof,
for the conversion hereof and for all other purposes, and neither the Company
nor the Trustee nor any other authenticating agent nor any paying agent nor any
other conversion agent nor any Debenture registrar shall be affected by any
notice to the contrary. All payments made to or upon the order of such
registered holder shall, to the extent of the sum or sums paid, satisfy and
discharge liability for monies payable on this Debenture.
No recourse for the payment of the principal of or any premium
or interest on this Debenture, or for any claim based hereon or otherwise in
respect hereof, and no recourse under or upon any obligation, covenant or
agreement of the Company in the Indenture or any indenture supplemental thereto
or in any Debenture, or because of the creation of any indebtedness represented
thereby, shall be had against any incorporator, stockholder, employee, agent,
officer or director or subsidiary, as such, past, present or future, of the
Company or of any successor corporation, either directly or through the Company
or any successor corporation, whether by virtue of any constitution, statute or
rule of law or by the enforcement of any assessment or penalty or otherwise, all
such liability being, by the acceptance hereof and as part of the consideration
for the issue hereof, expressly waived and released.
Terms used in this Debenture and defined in the Indenture are
used herein as therein defined.
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<PAGE> 98
ABBREVIATIONS
The following abbreviations, when used in the inscription of the face of this
Debenture, shall be construed as though they were written out in full according
to applicable laws or regulations:
- --------------------------------------------------------------------------------
TEN COM- as tenants in common UNIF GIFT MIN ACT --
Custodian
--------------------
(Cust)
--------------------
(Minor)
- --------------------------------------------------------------------------------
TEN ENT- as tenants by the entireties
- --------------------------------------------------------------------------------
JT TEN- as joint tenants with right of under Uniform Gifts to Minors Act
survivorship and not as tenants in
common --------------------
(State)
- --------------------------------------------------------------------------------
ADDITIONAL ABBREVIATIONS MAY ALSO BE USED
THOUGH NOT IN THE ABOVE LIST.
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<PAGE> 99
CONVERSION NOTICE
To: SEPRACOR INC.
The undersigned registered owner of this Debenture hereby
irrevocably exercises the option to convert this Debenture, or the portion
hereof (which is $1,000 or an integral multiple thereof) below designated, into
shares of Common Stock of Sepracor Inc. in accordance with the terms of the
Indenture referred to in this Debenture, and directs that the shares issuable
and deliverable upon such conversion, together with any check in payment for
fractional shares and any Debentures representing any unconverted principal
amount hereof, be issued and delivered to the registered holder hereof unless a
different name has been indicated below. If shares or any portion of this
Debenture not converted are to be issued in the name of a person other than the
undersigned, the undersigned will check the appropriate box below and pay all
transfer taxes payable with respect thereto. Any amount required to be paid to
the undersigned on account of interest accompanies this Debenture.
Dated:____________________________ ________________________________________
________________________________________
Signature(s)
Signature(s) must be guaranteed by a
commercial bank or trust company or a
member firm of a major stock exchange if
shares of Common Stock are to be issued,
or Debentures to be delivered, other
than to and in the name of the
registered holder.
________________________________________
Signature Guarantee
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<PAGE> 1
Exhibit 10.35
EXECUTION COPY
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement"), dated as of
February 5, 1998 by and among SEPRACOR INC., a Delaware corporation (the
"Company") and MORGAN STANLEY & CO. INCORPORATED, LEHMAN BROTHERS INC., SMITH
BARNEY INC. and VECTOR SECURITIES INTERNATIONAL, INC. (the "Initial Purchasers")
pursuant to the Purchase Agreement, dated as of February 5, 1998 (the "Purchase
Agreement"), between the Company and the Initial Purchasers. In order to induce
the Initial Purchasers to enter into the Purchase Agreement, the Company has
agreed to provide the registration rights set forth in this Agreement. The
execution of this Agreement is a condition to the closing under the Purchase
Agreement.
The Company agrees with the Initial Purchasers, (i) for their
benefit as Initial Purchasers and (ii) for the benefit of the holders from time
to time of the Debentures (including the Initial Purchasers) and the holders
from time to time of the Common Stock issued upon conversion of the Debentures
(each of the foregoing a "Holder" and together the "Holders"), as follows:
1. DEFINITIONS. Capitalized terms used herein without definition shall
have their respective meanings set forth in the Purchase Agreement. As used in
this Agreement, the following terms have the following meanings:
AFFILIATE: "Affiliate" means, with respect to any specified person,
(i) any other person directly or indirectly controlling or controlled by, or
under direct or indirect common control with, such specified person or (ii) any
officer or director of such other person. For purposes of this definition, the
term "control" (including the terms "controlling," "controlled by" and "under
common control with") of a person means the possession, direct or indirect, of
the power (whether or not exercised) to direct or cause the direction of the
management and policies of a person, whether through the ownership of voting
securities, by contract, or otherwise.
BUSINESS DAY: Each Monday, Tuesday, Wednesday, Thursday and Friday
that is not a day on which banking institutions in The City of New York are
authorized or obligated by law or executive order to close.
COMMON STOCK: The shares of common stock, par value $.10 per share,
of the Company and any other shares of stock as may constitute "Common Stock"
for purposes of the Indenture, in each case, as issuable or issued upon
conversion of the Debentures.
<PAGE> 2
DAMAGES ACCRUAL PERIOD: See Section 2(f) hereof.
DAMAGES PAYMENT DATE: Each of the semi-annual interest payment dates
provided in the Indenture.
DEBENTURES: 6 1/4_% Convertible Subordinated Debentures due 2005 of
the Company being issued and sold pursuant to the Purchase Agreement and the
Indenture.
DEFERRAL PERIOD: See Section 2(e) hereof.
EFFECTIVENESS PERIOD: The period commencing with the date hereof and
ending on the date that all Registrable Securities (other than Registerable
Securities held by Affiliates of the Company) have ceased to be Registrable
Securities.
EVENT: See Section 2(f) hereof.
EVENT DATE: See Section 2(f) hereof.
EXCHANGE ACT: The Securities Exchange Act of 1934, as amended, and
the rules and regulations of the SEC promulgated thereunder.
FILING DATE: See Section 2(a) hereof.
HOLDER: See the second paragraph of this Agreement.
INDENTURE: The Indenture, dated as of February 10, 1998, between the
Company and The Chase Manhattan Bank, as Trustee, pursuant to which the
Debentures are being issued, as amended or supplemented from time to time in
accordance with the terms thereof.
INITIAL PURCHASERS: Morgan Stanley & Co. Incorporated, Lehman
Brothers, Inc., Salomon Smith Barney and Vector Securities International, Inc.
INITIAL SHELF REGISTRATION: See Section 2(a) hereof.
LIQUIDATED DAMAGES: See Section 2(f) hereof.
LOSSES: See Section 6 hereof.
MANAGING UNDERWRITERS: The investment banking firm or firms that
shall manage or co-manage an Underwritten Offering.
NOTICE AND QUESTIONNAIRE: A WRITTEN NOTICE DELIVERED TO THE COMPANY
CONTAINING SUBSTANTIALLY THE INFORMATION CALLED FOR BY THE NOTICE AND
QUESTIONNAIRE ATTACHED AS APPENDIX B TO THE OFFERING MEMORANDUM OF THE COMPANY
RELATING TO THE DEBENTURES.
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<PAGE> 3
NOTICE HOLDER: See Section 2(d) hereof.
PROSPECTUS: The prospectus included in any Registration Statement
(including, without limitation, a prospectus that discloses information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A promulgated under the Securities Act), as
amended or supplemented by an amendment or prospectus supplement, including
post-effective amendments, and all material incorporated by reference or deemed
to be incorporated by reference in such Prospectus.
PURCHASE AGREEMENT: See the first paragraph of this Agreement.
RECORD HOLDER: (i) With respect to any Damages Payment Date relating
to any Debenture as to which any such Liquidated Damages have accrued, the
registered holder of such Debenture on the record date with respect to the
interest payment date under the Indenture on which such Damages Payment Date
shall occur and (ii) with respect to any Damages Payment Date relating to any
Common Stock as to which any such Liquidated Damages have accrued, the
registered holder of such Common Stock fifteen (15) days prior to the next
succeeding Damages Payment Date.
REGISTRABLE SECURITIES: (A) The Common Stock of the Company into
which the Debentures are convertible or converted, whether or not such
Debentures have been converted, and any Common Stock issued with respect thereto
upon any stock dividend, split or similar event until, in the case of any such
Common Stock, (i) it is effectively registered under the Securities Act and
resold in accordance with the Registration Statement covering it, (ii) it is
saleable by the holder thereof pursuant to Rule 144(k) (or any successor
provision) or (iii) it is sold to the public pursuant to Rule 144, and, as a
result of the event or circumstance described in any of the foregoing clauses
(i) through (iii), the legends with respect to transfer restrictions required
under the Indenture (other than any such legends required solely as the
consequence of the fact that such Common Stock (or the Debentures, upon the
conversion of which, such Common Stock was issued or is issuable) is owned by,
or was previously owned by, the Company or an Affiliate of the Company) are
removed or removable in accordance with the terms of the Indenture; (B) the
Debentures, until, in the case of such Debenture, (i) it is converted into
shares of Common Stock in accordance with the terms of the Indenture, (ii) it is
effectively registered under the Securities Act and resold in accordance with
the Registration Statement covering it, (iii) it is saleable by the holder
thereof pursuant to Rule 144(k) or (iv) it is sold to the public pursuant to
Rule 144, and, as a result of the event or circumstance described in any of the
foregoing clauses (ii) through (iv), the legends with respect to transfer
restrictions required under the Indenture (other than any such legends required
solely as the consequence of the fact that such Debenture is owned by, or was
previously owned by, the Company or an Affiliate of the Company) are removed or
removable in accordance with the terms of the Indenture.
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<PAGE> 4
REGISTRATION STATEMENT: Any registration statement of the Company
which covers any of the Registrable Securities pursuant to the provisions of
this Agreement, including the Prospectus, amendments and supplements to such
registration statement, including post-effective amendments, all exhibits, and
all material incorporated by reference or deemed to be incorporated by reference
in such registration statement.
RULE 144: Rule 144 under the Securities Act, as such Rule may be
amended from time to time, or any similar rule or regulation hereafter adopted
by the SEC.
RULE 144A: Rule 144A under the Securities Act, as such Rule may be
amended from time to time, or any similar rule or regulation hereafter adopted
by the SEC.
SEC: The Securities and Exchange Commission.
SECURITIES ACT: The Securities Act of 1933, as amended, and the
rules and regulations promulgated by the SEC thereunder.
SHELF REGISTRATION: See Section 2(a) hereof.
SPECIAL COUNSEL: Ropes & Gray, or such successor counsel as shall be
specified by the Holders of a majority of the Registrable Securities, the fees
and expenses of which will be paid by the Company pursuant to Section 5 hereof.
SUBSEQUENT SHELF REGISTRATION: See Section 2(b) hereof.
TIA: The Trust Indenture Act of 1939, as amended.
TRUSTEE: The Trustee under the Indenture.
UNDERWRITTEN REGISTRATION OR UNDERWRITTEN OFFERING: A registration
in which securities of the Company are sold to an underwriter for reoffering to
the public.
2. SHELF REGISTRATION.
(a) SHELF REGISTRATION. The Company shall prepare and file with the SEC,
as soon as practicable but in any event on or prior to the date ninety (90) days
following the Closing Date of the original issuance of the Debentures (without
effect to the exercise of any over-allotment option) (the "Filing Date"), a
Registration Statement for an offering to be made on a continuous basis pursuant
to Rule 415 of the Securities Act (a "Shelf Registration") registering the
resale from time to time by Holders thereof of all of the Registrable Securities
(the "Initial Shelf Registration"). The Initial Shelf Registration shall be on
Form S-1, Form S-3 or another appropriate form permitting registration of such
Registrable Securities for resale by the Holders in the manner or manners
designated by them. If the Holders of Registrable Securities so elect, an
offering of Registrable
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<PAGE> 5
Securities pursuant to the Shelf Registration may be effected in the form of an
Underwritten Offering; provided, however, that the Company shall not be
obligated to arrange for more than one (1) such Underwritten Offering. In any
Underwritten Offering, the Holders of a majority of the Registrable Securities
requested to be sold shall select the Managing Underwriter (subject to the
consent of the Company, which consent shall not be unreasonably withheld) of
such Underwritten Offering. The Company shall use reasonable best efforts to
cause the Initial Shelf Registration to be declared effective under the
Securities Act as promptly as practicable and to keep the Initial Shelf
Registration continuously effective under the Securities Act until the earlier
of the expiration of the Effectiveness Period or the date a Subsequent Shelf
Registration, as defined below, covering all of the Registrable Securities has
been declared effective under the Securities Act.
(b) If the Initial Shelf Registration or any Subsequent Shelf
Registration, as defined below, ceases to be effective for any reason as a
result of the issuance of a stop order by the SEC at any time during the
Effectiveness Period, the Company shall use its reasonable best efforts to
obtain the prompt withdrawal of any order suspending the effectiveness thereof,
and in any event shall within thirty (30) days of such cessation of
effectiveness amend the Shelf Registration in a manner reasonably expected to
obtain the withdrawal of the order suspending the effectiveness thereof, or file
an additional Shelf Registration covering all of the Registrable Securities (a
"Subsequent Shelf Registration"). If a Subsequent Shelf Registration is filed,
the Company shall use its reasonable best efforts to cause the Subsequent Shelf
Registration to be declared effective as soon as practicable after such filing
and to keep such Registration Statement continuously effective until the end of
the Effectiveness Period.
(c) The Company shall supplement and amend the Shelf Registration if
required by the rules, regulations or instructions applicable to the
registration form used by the Company for such Shelf Registration, if required
by the Securities Act, or if reasonably requested by the Initial Purchasers or
by the Trustee on behalf of a majority of the Holders of the Registrable
Securities covered by such Registration Statement or by any Managing Underwriter
of such Registrable Securities in the event of an Underwritten Offering of the
Registrable Securities.
(d) Each Holder of Registrable Securities agrees that if such Holder
wishes to sell its Registrable Securities pursuant to a Shelf Registration and
related Prospectus, it will do so only in accordance with this Section 2(d).
Each Holder of Registrable Securities agrees to deliver a Notice and
Questionnaire to the Company at least three (3) Business Days prior to any
intended distribution of Registrable Securities under the Shelf Registration. As
soon as practicable after the date the Notice and Questionnaire is provided to
the Company, and in any event within two (2) Business Days after such date (or,
if later, the filing of the Initial Shelf Registration), the Company shall (i)
if necessary, prepare and file with the SEC a post-effective amendment to the
Shelf Registration or a supplement to the related Prospectus or a supplement or
amendment to any document
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<PAGE> 6
incorporated therein by reference or file any other required document so that
such Registration Statement will not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading, and so that, as thereafter
delivered to purchasers of the Registrable Securities being sold thereunder,
such Prospectus will not contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading; (ii) provide each Holder who has delivered a completed Notice
and Questionnaire in accordance with this Section 2(d) (each, a "Notice Holder")
copies of any documents filed pursuant to Section 2(d)(i); and (iii) inform each
Notice Holder that the Company has complied with its obligation in Section
2(d)(i) (or that, if the Company has filed a post-effective amendment to the
Shelf Registration which has not yet been declared effective, the Company will
notify the Notice Holder to that effect, will use its reasonable best efforts to
secure the effectiveness of such post-effective amendment and will immediately
notify the Notice Holder when the amendment has become effective). Each Notice
Holder shall furnish such other information with respect to such Holder and the
intended method of distribution as required to amend the Shelf Registration or
supplement the related Prospectus.
(e) In the event, following the initial declaration of effectiveness of
the Initial Shelf Registration filed hereunder, (i) of the happening of any
event of the kind described in Section 3(c)(ii), 3(c)(iii), 3(c)(iv), 3(c)(v) or
3(c)(vi) hereof or (ii) that, in the judgment of the Company, it is advisable to
suspend use of the Prospectus for a discrete period of time due to pending
material corporate developments or similar material events that have not yet
been publicly disclosed and as to which the Company believes public disclosure
will be prejudicial to the Company, the Company shall deliver a certificate in
writing, signed by an authorized executive officer of the Company, to the Notice
Holders (including any Notice Holder providing a Notice and Questionnaire
subsequent to the delivery by the Company of the certificate referenced above),
the Special Counsel and the Managing Underwriters, if any, to the effect of the
foregoing and, upon receipt of such certificate, each such Notice Holder shall
not sell any Registrable Securities and shall not use the Prospectus until such
Notice Holder's receipt of copies of the supplemented or amended Prospectus
provided for in Section 2(d)(i) hereof, or until it is advised in writing by the
Company that the Prospectus may be used and has received copies of any
additional or supplemental filings that are incorporated or deemed incorporated
by reference in such Prospectus. The Company will use its reasonable best
efforts to ensure that the use of the Prospectus may be resumed, and sales of
Registrable Securities can commence or resume, as soon as practicable and, in
the case of a pending development or event referred to in Section 2(e)(ii)
hereof, as soon as the earlier of (x) public disclosure of such pending material
corporate development or similar material event or (y) in the judgment of the
Company, public disclosure of such material corporate development or similar
material event would not be prejudicial to the Company. Notwithstanding any
other provision in this Agreement, the Company shall not under any circumstances
be entitled to exercise its rights under this Section 2(e) to defer sales of
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<PAGE> 7
Registrable Securities except as follows: the Company may defer sales of
Registrable Securities in accordance with this Section 2(e) for a period not to
exceed an aggregate of sixty (60) days in any three hundred sixty five (365) day
period, and the period in which sales of Registrable Securities are suspended
shall not exceed fifteen (15) days unless the Company shall deliver to such
Notice Holders one or more subsequent notices to the effect set forth above,
each of which shall have the effect of extending the period during which sales
of Registrable Securities are deferred by up to an additional fifteen (15) days,
or such shorter period of time as is specified in such subsequent notice (each
such period of deferral, as may be extended, a "Deferral Period").
(f) The parties hereto agree that the Holders of Registrable Securities
will suffer damages, and that it would not be feasible to ascertain the extent
of such damages with precision, if (i) the Initial Shelf Registration had not
been filed on or prior to the Filing Date, (ii) prior to the end of the
Effectiveness Period, the SEC shall have issued a stop order suspending the
effectiveness of the Shelf Registration or proceedings have been initiated with
respect to the Shelf Registration under Section 8(d) or 8(e) of the Securities
Act, or (iii) the aggregate number of days in the Deferral Periods in any three
hundred sixty five (365) day period exceeds the period permitted pursuant to
Section 2(e) hereof (each of the events of a type described in any of the
foregoing clauses (i) through (iii) are individually referred to herein as an
"Event," and the Filing Date in the case of clause (i), the date on which the
effectiveness of the Shelf Registration has been suspended or proceedings with
respect to the Shelf Registration under Section 8(d) or 8(e) of the Securities
Act have been commenced in the case of clause (ii), and the date on which the
duration of the Deferral Periods in any three hundred sixty five (365) day
period exceeds the period permitted by Section 2(e) hereof in the case of clause
(iii) being referred to herein as an "Event Date"). Events shall be deemed to
continue until the date of the termination of such Event, which shall be the
following dates with respect to the respective types of Events: the date the
Initial Registration Statement is filed in the case of an Event of the type
described in clause (i), the date that all stop orders suspending effectiveness
of the Shelf Registration have been removed and the proceedings initiated with
respect to the Shelf Registration under Section 8(d) or 8(e) of the Securities
Act have terminated, as the case may be, in the case of Events of the types
described in clause (ii), and termination of the Deferral Period which caused
the aggregate number of days in the Deferral Periods in any three hundred sixty
five (365) day period to exceed the number permitted by Section 2(e) to be
exceeded in the case of Events of the type described in clause (iii).
Accordingly, upon the occurrence of any Event and until such time as
there are no Events which have occurred and are continuing (a "Damages Accrual
Period"), commencing on the Event Date on which such Damages Accrual Period
began, the Company agrees to pay, as liquidated damages, and not as a penalty,
an additional amount (the "Liquidated Damages"): (A)(i) to each holder of a
Debenture that is a Notice Holder, accruing at an annual rate equal to
one-quarter of one percent per annum (25 basis points) on the aggregate
principal amount of Debentures held by such Notice Holder and (ii) to
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<PAGE> 8
each holder of Common Stock that is a Notice Holder, accruing at an annual rate
equal to one-quarter of one percent per annum (25 basis points) calculated on an
amount equal to the product of (x) the then-applicable Conversion Price (as
defined in the Indenture) or, in the event that each Debenture has been
converted to Common Stock, the Conversion Price applicable to the Debenture last
converted, multiplied by (y) the number of shares of Common Stock held by such
holder; and (B) if the Damages Accrual Period continues for a period in excess
of thirty (30) days from the Event Date, from and after the end of such thirty
(30) days until such time as there are no Events which have occurred and are
continuing, (i) to each holder of a Debenture (whether or not a Notice Holder),
accruing at an annual rate equal to one-half of one percent per annum (50 basis
points) on the aggregate principal amount of Debentures held by such holder and
(ii) to each holder of Common Stock into which Debentures have been converted
(whether or not a Notice Holder), accruing at an annual rate equal to one-half
of one percent per annum (50 basis points) calculated on an amount equal to the
product of (x) the then applicable Conversion Price (as defined in the
Indenture) or, in the event that each Debenture has been converted to Common
Stock, the Conversion Price applicable to the Debenture last converted,
multiplied by (y) the number of shares of Common Stock held by such holder.
Notwithstanding the foregoing, no Liquidated Damages shall accrue under clause
(A) for the preceding sentence during any period for which Liquidated Damages
accrue under clause (B) of the preceding sentence or as to any Registrable
Securities from and after the expiration of the Effectiveness Period. The rate
of accrual of the Liquidated Damages with respect to any period shall not exceed
the rate provided for in this paragraph notwithstanding the occurrence of
multiple concurrent Events.
The Company shall pay the Liquidated Damages due on any Debentures
or Common Stock by depositing with the Trustee under the Indenture, in trust,
for the benefit of the holders of Debentures or Common Stock or Notice Holders,
as the case may be, entitled thereto, at least one (1) Business Day prior to the
applicable Damages Payment Date, sums sufficient to pay the Liquidated Damages
accrued or accruing since the last preceding Damages Payment Date through such
Damages Payment Date. The Liquidated Damages shall be paid by the Trustee at the
direction and on behalf of the Company to the Record Holders on each Damages
Payment Date by wire transfer of immediately available funds to the accounts
specified by them or by mailing checks to their registered addresses as they
appear in the Debenture register (as defined in the Indenture), in the case of
the Debentures, and in the register of the Company for the Common Stock, in the
case of the Common Stock, if no such accounts have been specified on or before
the Damages Payment Date; provided, however, that any Liquidated Damages accrued
with respect to any Debenture or portion thereof called for redemption on a
redemption date, redeemed or repurchased in connection with a Fundamental Change
(as defined in the Indenture) on a repurchase date, or converted into Common
Stock on a conversion date prior to the Damages Payment Date, shall, in any such
event, be paid instead to the holder who submitted such Debenture or portion
thereof for redemption, repurchase or conversion on the applicable redemption
date, repurchase date or conversion date, as the case may be, on such date (or
promptly following the conversion date, in the
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<PAGE> 9
case of conversion of a Debenture). The Trustee shall be entitled, on behalf of
the holders of Debentures, holders of Common Stock and Notice Holders, to seek
any available remedy for the enforcement of this Agreement, including for the
payment of such Liquidated Damages. Notwithstanding the foregoing, the parties
agree that the sole damages payable for a violation of the terms of this
Agreement with respect to which Liquidated Damages are expressly provided shall
be such Liquidated Damages. Nothing shall preclude a Notice Holder or Holder of
Registrable Securities from pursuing or obtaining specific performance or other
equitable relief with respect to this Agreement, in addition to the payment of
Liquidated Damages.
All of the Company's obligations set forth in this Section 2(f)
which are outstanding with respect to any Registrable Securities at the time
such security ceases to be a Registrable Security shall survive until such time
as all such obligations with respect to such security have been satisfied in
full (notwithstanding termination of the Agreement pursuant to Section 8(o)).
The parties hereto agree that the Liquidated Damages provided for in
this Section 2(f) constitute a reasonable estimate of the damages that may be
incurred by Holders of Registrable Securities (other than the Initial
Purchasers) by reason of the failure of the Shelf Registration to be filed or
declared effective or unavailable (absolutely or as a practical matter) for
effecting resales of Registrable Securities, as the case may be, in accordance
with the provisions hereof.
3. REGISTRATION PROCEDURES. In connection with the Company's registration
obligations under Section 2 hereof, the Company shall effect such registrations
to permit the sale of the Registrable Securities in accordance with the intended
method or methods of disposition thereof, and pursuant thereto the Company
shall:
(a) Prepare and file with the SEC a Registration Statement or
Registration Statements on any appropriate form under the Securities Act
available for the sale of the Registrable Securities by the Holders thereof in
accordance with the intended method or methods of distribution thereof, and use
its reasonable best efforts to cause each such Registration Statement to become
effective and remain effective as provided herein; provided that, before filing
any such Registration Statement or Prospectus or any amendments or supplements
thereto (other than documents that would be incorporated or deemed to be
incorporated therein by reference and that the Company is required by applicable
securities laws or stock exchange requirements to file), the Company shall
furnish to the Initial Purchasers, the Special Counsel and the Managing
Underwriters of such offering, if any, copies of all such documents proposed to
be filed, which documents will be subject to the review of the Initial
Purchasers, the Special Counsel and such Managing Underwriters, and the Company
shall not file any such Registration Statement or amendment thereto or any
Prospectus or any supplement thereto (other than such documents which, upon
filing, would be incorporated or deemed to be incorporated by reference therein
and that the Company is required by applicable securities laws or stock exchange
requirements to file) to which the Holders of a majority of the Registrable
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<PAGE> 10
Securities covered by such Registration Statement, the Managing Underwriters,
the Initial Purchasers or the Special Counsel shall reasonably object in writing
within five (5) full days after receipt of such materials in the case of the
Initial Shelf Registration Statement and two (2) full Business Days in every
other case.
(b) Subject to Section 2(e), prepare and file with the SEC such
amendments and post-effective amendments to each Registration Statement as may
be necessary to keep such Registration Statement continuously effective for the
Effectiveness Period; cause the related Prospectus to be supplemented by any
required Prospectus supplement, and as so supplemented to be filed pursuant to
Rule 424 (or any similar provisions then in force) under the Securities Act; and
comply with the provisions of the Securities Act with respect to the disposition
of all securities covered by such Registration Statement and Prospectus during
the applicable period in accordance with the intended methods of disposition by
the sellers thereof set forth in such Registration Statement as so amended or
such Prospectus as so supplemented.
(c) Notify all Notice Holders, the Initial Purchasers, the Special
Counsel and the Managing Underwriters, if any, promptly, and (if requested by
any such person) confirm such notice in writing, (i) when a Prospectus, any
Prospectus supplement, a Registration Statement or a post-effective amendment to
a Registration Statement has been filed with the SEC, and, with respect to a
Registration Statement or any post-effective amendment, when the same has become
effective, (ii) of any request by the SEC or any other federal or state
governmental authority for amendments or supplements to a Registration Statement
or related Prospectus or for additional information, (iii) of the issuance by
the SEC or any other federal or state governmental authority of any stop order
suspending the effectiveness of a Registration Statement or the initiation or
threatening of any proceedings for that purpose, (iv) of the receipt by the
Company of any notification with respect to the suspension of the qualification
or exemption from qualification of any of the Registrable Securities for sale in
any jurisdiction or the initiation or threatening of any proceeding for such
purpose, (v) of the existence of any fact or happening of any event which makes
any statement of a material fact in such Registration Statement or related
Prospectus or any document incorporated or deemed to be incorporated therein by
reference untrue or which would require the making of any changes in the
Registration Statement or Prospectus in order that, in the case of the
Registration Statement, it will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and that in the case of
the Prospectus, it will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading and (vi) of the Company's determination that a
post-effective amendment to a Registration Statement or a supplement to a
Prospectus would be required. Notice of the filing and effectiveness of the
Initial Shelf Registration and any Subsequent Registration shall be made by the
Company by release made to Reuters Economic Services and Bloomberg Business
News.
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<PAGE> 11
(d) Use its reasonable best efforts to obtain the withdrawal of any
order suspending the effectiveness of a Registration Statement, or the lifting
of any suspension of the qualification (or exemption from qualification) of any
of the Registrable Securities for sale in any jurisdiction, at the earliest
possible moment.
(e) If reasonably requested by the Initial Purchasers or the Managing
Underwriters, if any, or the Holders of a majority of the Registrable Securities
being sold, (i) promptly incorporate in a Prospectus supplement or
post-effective amendment to a Registration Statement such information as the
Initial Purchasers, the Special Counsel, the Managing Underwriters, if any, or
such Holders, in connection with any offering of Registrable Securities, agree
should be included therein as required by applicable law and (ii) make all
required filings of such Prospectus supplement or such post-effective amendment
as soon as reasonably practicable after the Company has received notification of
the matters to be incorporated in such Prospectus supplement or post-effective
amendment; provided, however, that the Company shall not be required to take any
actions under this Section 3(e) that are not, in the reasonable opinion of
counsel for the Company, in compliance with applicable law.
(f) Furnish to each Notice Holder, the Special Counsel, the Initial
Purchasers and each Managing Underwriter, if any, without charge, at least one
conformed copy of the Registration Statement or Statements and any amendment
thereto, including financial statements but excluding schedules, all documents
incorporated or deemed to be incorporated therein by reference and all exhibits
(unless requested in writing by any such Notice Holder, Special Counsel, the
Initial Purchasers or Managing Underwriter).
(g) Deliver to each Notice Holder, the Special Counsel, the Initial
Purchasers and each Managing Underwriter, if any, in connection with any
offering of Registrable Securities, without charge, as many copies of the
Prospectus or Prospectuses relating to such Registrable Securities (including
each preliminary prospectus) and any amendment or supplement thereto as such
persons may reasonably request; and the Company hereby consents to the use of
such Prospectus or each amendment or supplement thereto by each of the Notice
Holders of Registrable Securities and the underwriters, if any, in connection
with any offering and sale of the Registrable Securities covered by such
Prospectus or any amendment or supplement thereto.
(h) Prior to any public offering of Registrable Securities, to register
or qualify or cooperate with the Notice Holders, the Managing Underwriters, if
any, and the Special Counsel in connection with the registration or
qualification (or exemption from such registration or qualification) of such
Registrable Securities for offer and sale under the securities or Blue Sky laws
of such jurisdictions within the United States as any Notice Holder or Managing
Underwriter reasonably requests in writing; keep each such registration or
qualification (or exemption therefrom) effective during the period such
Registration Statement is required to be kept effective and do any all other
acts or things necessary or advisable to enable the disposition in such
jurisdictions of the Registrable Securities covered by the applicable
Registration Statement; provided, however, that the
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<PAGE> 12
Company will not be required to (i) qualify generally to do business in any
jurisdiction where it is not then so qualified or (ii) take any action that
would subject it to general service of process in suits or to taxation in any
such jurisdiction where it is not then so subject.
(i) If required, cause the Registrable Securities covered by the
applicable Registration Statement to be registered with or approved by such
other governmental agencies or authorities within the United States, except as
may be required solely as a consequence of the nature of such Notice Holder, in
which case the Company will cooperate in all reasonable respects with the filing
of such Registration Statement and the granting of such approvals, as may be
necessary to enable the Notice Holder or Holders thereof or the Managing
Underwriters, if any, to consummate the disposition of such Registrable
Securities.
(j) Other than during a Deferral Period, immediately upon the existence
of any fact or the occurrence of any event as a result of which a Registration
Statement shall contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading, or a Prospectus shall contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, promptly prepare and
file (subject to the proviso in Section 3(a)) a post-effective amendment to each
Registration Statement or a supplement to the related Prospectus or any document
incorporated therein by reference or file any other required document (such as a
Current Report on Form 8-K) that would be incorporated by reference into the
Registration Statement so that the Registration Statement shall not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading,
and so that the Prospectus will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, as thereafter delivered to the
purchasers of the Registrable Securities being sold thereunder, and, in the case
of a post-effective amendment to a Registration Statement, use its reasonable
best efforts to cause it to become effective as soon as practicable.
(k) Enter into such agreements (including, in the event of an
Underwritten Offering, an underwriting agreement in form, scope and substance as
is customary in Underwritten Offerings) and take all such other actions in
connection therewith (including, in the event of an Underwritten Offering, those
reasonably requested by the Managing Underwriters, if any, or the Holders of a
majority of the Registrable Securities being sold) in order to expedite or
facilitate the disposition of such Registrable Securities and in such
connection, whether or not an underwriting agreement is entered into, and if the
registration is an underwritten registration, (i) make such representations and
warranties, subject to the Company's ability to do so, to the Holders of such
Registrable Securities
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<PAGE> 13
and the underwriters with respect to the business of the Company and its
subsidiaries, the Registration Statement, Prospectus and documents incorporated
by reference or deemed incorporated by reference, if any, in each case, in form,
substance and scope as are customarily made by issuers to underwriters in
underwritten offerings (provided that the scope and substance shall not be
materially different than those contained in the Purchase Agreement) and confirm
the same if and when requested; (ii) use its reasonable best efforts to obtain
opinions of counsel to the Company and updates thereof (which counsel and
opinions (in form, scope and substance) shall be reasonably satisfactory to the
Managing Underwriters, if any, and Special Counsel) addressed to each of the
underwriters covering the matters customarily covered in opinions requested in
underwritten offerings; (iii) use its reasonable best efforts to obtain "cold
comfort" letters and updates thereof from the independent certified public
accountants of the Company (and, if necessary, any other certified public
accountants of any business acquired or to be acquired by the Company for which
financial statements and financial data are, or are required to be, included in
the Registration Statement), addressed to each of the Managing Underwriters, if
any, such letters to be in customary form and covering matters of the type
customarily covered in "cold comfort" letters in connection with underwritten
offerings; and (iv) deliver such documents and certificates as may be reasonably
requested by the Special Counsel and the Managing Underwriters, if any, to
evidence the continued validity of the representations and warranties of the
Company and its subsidiaries made pursuant to clause (i) above and to evidence
compliance with any customary conditions contained in the underwriting agreement
or other agreement entered into by the Company. The above shall be done at each
closing under such underwriting or similar agreement as and to the extent
required thereunder.
(l) If requested in connection with a disposition of Registrable
Securities pursuant to a Registration Statement, make available for inspection
by a representative of the Holders of Registrable Securities being sold, any
Managing Underwriter participating in any disposition of Registrable Securities,
if any, and any attorney or accountant retained by such Notice Holders or
underwriter, financial and other records, pertinent corporate documents and
properties of the Company and its subsidiaries, and cause the executive
officers, directors and employees of the Company and its subsidiaries, to supply
all information reasonably requested by any such representative, Managing
Underwriter, attorney or accountant in connection with such disposition, subject
to reasonable assurances by each such person that such information will only be
used in connection with matters relating to such Registration Statement;
provided, however, that such persons shall first agree in writing with the
Company that any information that is reasonably and in good faith designated by
the Company in writing as confidential at the time of delivery of such
information shall be kept confidential by such persons and shall be used solely
for the purposes of exercising rights under this Agreement, unless (i)
disclosure of such information is required by court or administrative order or
is necessary to respond to inquiries of regulatory authorities, (ii) disclosure
of such information is required by law, (iii) such information becomes generally
available to the public other than as a result of a disclosure or failure to
safeguard by any such person or (iv) such
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<PAGE> 14
information becomes available to any such person from a source other than the
Company and such source is not bound by a confidentiality agreement.
(m) Comply with all applicable rules and regulations of the SEC and make
generally available to its securityholders earning statements (which need not be
audited) satisfying the provisions of Section 11(a) of the Securities Act and
Rule 158 thereunder (or any similar rule promulgated under the Securities Act)
no later than forty-five (45) days after the end of any twelve (12) month period
(or ninety (90) days after the end of any twelve (12) month period if such
period is a fiscal year) (i) commencing at the end of any fiscal quarter in
which Registrable Securities are sold to underwriters in a firm commitment or
best efforts underwritten offering and (ii) if not sold to underwriters in such
an offering, commencing on the first day of the first fiscal quarter of the
Company commencing after the effective date of a Registration Statement, which
statements shall cover said twelve (12) month period.
(n) Cooperate with the Notice Holders of Registrable Securities to
facilitate the timely preparation and delivery of certificates representing
Registrable Securities to be sold and not bearing any restrictive legends; and
enable such Registrable Securities to be in such denominations and registered in
such names as such Holders may request.
(o) Provide the Trustee under the Indenture and the transfer agent for
the Common Stock with printed certificates for the Registrable Securities which
are in a form eligible for deposit with The Depositary Trust Company.
(p) Cause the Common Stock covered by the Registration Statement to be
listed on each securities exchange (or quoted on each automated quotation system
on which any of the Company's "Common Stock," as that term is defined in the
Indenture, is then listed or quoted) no later than the date the Registration
Statement is declared effective and, in connection therewith, to the extent
applicable, to make such filings under the Exchange Act (e.g., the filing of a
Registration Statement on Form 8-A) and to have such filings declared effective
thereunder.
(q) Cooperate and assist in any filings required to be made with the
National Association of Securities Dealers, Inc.
4. HOLDER'S OBLIGATIONS. Each Holder agrees, by acquisition of the
Debentures and Registrable Securities, that no Holder of Registrable Securities
shall be entitled to sell any of such Registrable Securities pursuant to a
Registration Statement or to receive a Prospectus relating thereto, unless such
Holder has furnished the Company with the Notice and Questionnaire required
pursuant to Section 2(d) hereof and such other information regarding such Holder
and the distribution of such Registrable Securities as may be required to be
included in the Registration Statement or the Prospectus or as the Company may
from time to time reasonably request. The Company may exclude from such
registration the Registrable Securities of any Holder who does not furnish such
information provided above for so long as such information is not so furnished.
Each
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<PAGE> 15
Holder of Registrable Securities as to which any Registration Statement is being
effected agrees promptly to furnish to the Company all information required to
be disclosed in order to make the information previously furnished to the
Company by such Holder not misleading. Any sale of any Registrable Securities by
any Holder shall constitute a representation and warranty by such Holder that
the information relating to such Holder and its plan of distribution is as set
forth in the Prospectus delivered by such Holder in connection with such
disposition, that such Prospectus does not as of the time of such sale contain
any untrue statement of a material fact relating to such Holder or its plan of
distribution and that such Prospectus does not as of the time of such sale omit
to state any material fact relating to such Holder or its plan of distribution
necessary to make the statements in such Prospectus, in light of the
circumstances under which they were made, not misleading.
5. REGISTRATION EXPENSES. All fees and expenses incident to the Company's
performance of or compliance with this Agreement shall be borne by the Company
whether or not any of the Registration Statements become effective. Such fees
and expenses shall include, without limitation, (i) all registration and filing
fees (including, without limitation, fees and expenses (x) with respect to
filings required to be made with the SEC or the National Association of
Securities Dealers, Inc. and (y) relating to compliance with federal securities
or Blue Sky laws (including, without limitation, reasonable fees and
disbursements of Special Counsel in connection with Blue Sky qualifications of
the Registrable Securities under the laws of such jurisdictions as the Managing
Underwriters, if any, or Holders of a majority of the Registrable Securities
being sold may designate)), (ii) printing expenses (including, without
limitation, expenses of printing certificates for Registrable Securities in a
form eligible for deposit with The Depository Trust Company and of printing
prospectuses if the printing of prospectuses is requested by the Special Counsel
or the Holders of a majority of the Registrable Securities included in any
Registration Statement), (iii) the reasonable fees and disbursements of the
Trustee and its counsel and of the registrar and transfer agent for the Common
Stock, (iv) reasonable fees and disbursements of counsel for the Company and the
Special Counsel in connection with the Shelf Registration (provided that the
Company shall not be liable for the fees and expenses of more than one separate
firm, in addition to counsel for the Company, for all parties participating in
any transaction hereunder), (v) fees and disbursements of all independent
certified public accountants referred to in Section 3(k)(iii) hereof (including
the expenses of any special audit and "cold comfort" letters required by or
incident to such performance) and (vi) Securities Act liability insurance, to
the extent obtained by the Company in its sole discretion. In addition, the
Company shall pay its internal expenses (including, without limitation, all
salaries and expenses of its officers and employees performing legal or
accounting duties), the expense of any annual audit, the fees and expenses
incurred in connection with the listing of the securities to be registered on
any securities exchange on which similar securities issued by the Company are
then listed and the fees and expenses of any person, including special experts,
retained by the Company. Notwithstanding the provisions of this Section 5, each
seller of Registrable Securities shall pay all underwriting discounts, selling
commissions
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<PAGE> 16
and stock transfer taxes applicable to the Registrable Securities, all selling
expenses and all registration expenses to the extent that the Company is
prohibited by applicable Blue Sky laws from paying such expenses for or on
behalf of such seller of Registrable Securities.
6. INDEMNIFICATION.
(a) INDEMNIFICATION BY THE COMPANY. The Company shall indemnify and hold
harmless the Initial Purchasers, each Holder and each person, if any, who
controls the Initial Purchasers or any Holder (within the meaning of either
Section 15 of the Securities Act or Section 20(a) of the Exchange Act) from and
against all losses, liabilities, damages and expenses (including, without
limitation, any reasonable legal or other expenses reasonably incurred in
connection with defending or investigating any such action or claim)
(collectively, "Losses"), arising out of or based upon any untrue statement or
alleged untrue statement of a material fact contained in any Registration
Statement or Prospectus or in any amendment or supplement thereto or in any
preliminary prospectus, or arising out of or based upon any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
Losses arise out of or are based upon the information relating to the Initial
Purchasers or any Holder furnished to the Company in writing by the Initial
Purchasers or such Holder expressly for use therein (including, without
limitation, any information relating to the plan of distribution of Registrable
Securities furnished by such person); provided that the Company shall not be
liable to any Holder of Registrable Securities (or any person controlling such
Holder) to the extent that any such Losses arise out of or are based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in any preliminary prospectus if either (A)(i) such Holder failed to send
or deliver a copy of the Prospectus with or prior to the delivery of written
confirmation of the sale by such Holder to the person asserting the claims from
which such Losses arise and (ii) the Prospectus would have corrected such untrue
statement or alleged untrue statement or such omission or alleged omission, or
(B)(x) such untrue statement or alleged untrue statement, omission or alleged
omission is corrected in an amendment or supplement to the Prospectus and (y)
having previously been furnished by or on behalf of the Company with copies of
the Prospectus as so amended or supplemented, such Holder thereafter fails to
deliver such Prospectus as so amended or supplemented, with or prior to the
delivery of written confirmation of the sale of a Registrable Security to the
person asserting the claim from which Losses arise. The Company shall also
indemnify each underwriter and each person who controls such person (within the
meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange
Act) to the same extent and with the same limitations as provided above with
respect to the indemnification of the Initial Purchasers or the Holders of
Registrable Securities.
(b) INDEMNIFICATION BY HOLDER OF REGISTRABLE SECURITIES. Each Holder
agrees, and such agreement shall be evidenced by the Holder delivering the
Notice and
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Questionnaire described in Section 2(d) hereof, severally and not jointly to
indemnify and hold harmless the Initial Purchasers, the other Holders, the
Company, its directors, its officers who sign a Registration Statement, and each
person, if any, who controls the Company, the Initial Purchasers and any other
Holder (within the meaning of either Section 15 of the Securities Act or Section
20 of the Exchange Act), from and against all losses arising out of or based
upon any untrue statement of a material fact contained in any Registration
Statement, Prospectus or preliminary prospectus or arising out of or based upon
any omission of a material fact required to be stated therein or necessary to
make the statements therein not misleading, to the extent, but only to the
extent, that such untrue statement or omission is contained in any information
relating to such Holder so furnished in writing by such Holder to the Company
expressly for use in such Registration Statement or Prospectus. In no event
shall the liability of any Holder of Registrable Securities hereunder be greater
in amount than the dollar amount of the proceeds received by such Holder upon
the sale of the Registrable Securities giving rise to such indemnification
obligation.
(c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. In case any proceeding
(including any governmental investigation) shall be instituted involving any
person in respect of which indemnity may be sought pursuant to either of the two
preceding paragraphs, such person (the "indemnified party") shall promptly
notify the person against whom such indemnity may be sought (the "indemnifying
party") in writing and the indemnifying party, shall have the right to assume
the defense of such proceeding and to retain counsel reasonably satisfactory to
the indemnified party to represent the indemnified party and any others the
indemnifying party may designate in such proceeding and shall pay the fees and
disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate because there may be one or
more legal defenses available to the indemnified party that conflicts with those
available to the indemnifying party. It is understood that the indemnifying
party shall not, in respect of the legal expenses of any indemnified party in
connection with any proceeding or related proceedings in the same jurisdiction,
be liable for (a) the fees and expenses of more than one separate firm (in
addition to any local counsel) for the Initial Purchasers and all persons, if
any, who control the Initial Purchasers within the meaning of either Section 15
of the Securities Act or Section 20 of the Exchange Act, (b) the fees and
expenses of more than one separate firm (in addition to any local counsel) for
all Holders and all persons, if any, who control any Holder within the meaning
of either Section 15 of the Securities Act or Section 20 of the Exchange Act,
and (c) the fees and expenses of more than one separate firm (in addition to any
local counsel) for the Company, its directors, its officers who sign a
Registration Statement and each person, if any, who controls the Company within
the
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<PAGE> 18
meaning of either such Section, and that all such fees and expenses shall be
reimbursed as they are incurred. In the case of any such separate firm for the
Company, and such directors, officers and the control persons of the Company,
such firm shall be designated in writing by the Company. In such case involving
the Initial Purchasers and persons who control the Initial Purchasers, such firm
shall be designated in writing by Morgan Stanley & Co. Incorporated. In such
case involving the Holders and such persons who control Holders, such firm shall
be designated in writing by the Holders of the majority of Registrable
Securities sold pursuant to the Registration Statement. The indemnifying party
shall not be liable for any settlement of any proceeding effected without its
written consent, but if settled with such consent or if there be a final
judgment for the plaintiff, the indemnifying party agrees to indemnify the
indemnified party from and against any loss or liability by reason of such
settlement or judgment. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement of any pending or
threatened proceeding in respect of which any indemnified party is or could have
been a party and indemnity could have been sought hereunder by such indemnified
party, unless such settlement includes an unconditional release of such
indemnified party from all liability or claims that are the subject matter of
such proceeding.
(d) CONTRIBUTION. If the indemnification provided for in this Section 6
is unavailable to an indemnified party under Section 6(a) or 6(b) hereof in
respect of any Losses or is insufficient to hold such indemnified party
harmless, then each applicable indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such Losses, (i) in such proportion as is
appropriate to reflect the relative benefits received by the indemnifying party
or parties on the one hand and the indemnified party or parties on the other
hand or (ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the indemnifying party or parties on the one hand and of the indemnified party
or parties on the other hand in connection with the statements or omissions that
resulted in such Losses, as well as any other relevant equitable considerations.
Benefits received by the Company shall be deemed to be equal to the total net
proceeds from the initial placement (before deducting expenses) of the
Debentures pursuant to the Purchase Agreement. Benefits received by the Initial
Purchasers shall be deemed to be equal to the total purchase discounts and
commissions received by them pursuant to the Purchase Agreement and benefits
received by any other Holders shall be deemed to be equal to the value of
receiving Debentures registered under the Securities Act. Benefits received by
any underwriter shall be deemed to be equal to the total discounts and
commissions, as set forth on the cover page of the Prospectus forming a part of
the Registration Statement which resulted in such Losses. The relative fault of
the Holders on the one hand and the Company on the other hand shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Holders or by the Company
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such
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<PAGE> 19
statement or omission. The Holders' respective obligations to contribute
pursuant to this paragraph are several in proportion to the respective number of
Registrable Securities they have sold pursuant to a Registration Statement, and
not joint.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 6(d) were determined by pro rata
allocation or by any other method or allocation that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
The amount paid or payable by an indemnified party as a result of the Losses
referred to in the immediately preceding paragraph shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding this Section 6(d), an
indemnifying party that is a Holder of Registrable Securities shall not be
required to contribute any amount in excess of the amount by which the total
price at which the Registrable Securities sold by such indemnifying party and
distributed to the public were offered to the public exceeds the amount of any
damages which such indemnifying party has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.
The indemnity, contribution and expense reimbursement obligations of
the Company hereunder shall be in addition to any liability the Company may
otherwise have hereunder, under the Purchase Agreement or otherwise. The
provisions of this Section 6 shall survive so long as Registrable Securities
remain outstanding, notwithstanding any transfer of the Registrable Securities
by any Holder or any termination of this Agreement.
The indemnity and contribution provisions contained in this Section
6 shall remain operative and in full force and effect regardless of (i) any
termination of this Agreement, (ii) any investigation made by or on behalf of
the Initial Purchasers, any Holder or any person controlling any Initial
Purchaser or any Holder and (iii) the sale of any Registrable Securities by any
Holder.
7. INFORMATION REQUIREMENTS.
(a) The Company shall file the reports required to be filed by it under
the Securities Act and the Exchange Act, and if at any time the Company is not
required to file such reports, it will, upon the request of any Holder of
Registrable Securities, make publicly available other information so long as
necessary to permit sales pursuant to Rule 144 and Rule 144A under the
Securities Act. The Company further covenants that it will cooperate with any
Holder of Registrable Securities and take such further reasonable action as any
Holder of Registrable Securities may reasonably request (including, without
limitation, making such reasonable representations as any such Holder may
reasonably request), all to the extent required from time to time to enable such
Holder to sell Registrable Securities without registration under the Securities
Act within the limitation
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<PAGE> 20
of the exemptions provided by Rule 144 and Rule 144A under the Securities Act.
Upon the request of any Holder of Registrable Securities, the Company shall
deliver to such Holder a written statement as to whether it has complied with
such filing requirements. Notwithstanding the foregoing, nothing in this Section
7 shall be deemed to require the Company to register any of its securities under
any such section of the Exchange Act.
(b) The Company shall file the reports required to be filed by it under
the Exchange Act and shall comply with all other requirements set forth in the
instructions to Form S-3 in order to allow the Company to be eligible to file
registration statements on Form S-3.
8. MISCELLANEOUS.
(a) REMEDIES. In the event of a breach by the Company of its obligations
under this Agreement, each Holder of Registrable Securities, in addition to
being entitled to exercise all rights granted by law, including recovery of
damages, will be entitled to specific performance of its rights under this
Agreement, provided that the sole damages payable for a violation of the terms
of this Agreement for which Liquidated Damages are expressly provided pursuant
to Section 2(e) hereof shall be such Liquidated Damages. The Company agrees that
monetary damages would not be adequate compensation for any loss incurred by
reason of a breach by it of any of the provisions of this Agreement and hereby
further agrees that, in the event of any action for specific performance in
respect of such breach, it shall waive the defense that a remedy at law would be
adequate.
(b) NO CONFLICTING AGREEMENTS. The Company has not, as of the date
hereof, and shall not, on or after the date of this Agreement, enter into any
agreement with respect to its securities which conflicts with the rights granted
to the Holders of Registrable Securities in this Agreement. The Company
represents and warrants that the rights granted to the Holders or Registrable
Securities hereunder do not in any way conflict with the rights granted to the
holders of the Company's securities under any other agreements.
(c) AMENDMENTS AND WAIVERS. The provisions of this Agreement, including
the provisions of this sentence, may not be amended, modified or supplemented,
and waivers or consents to departures from the provisions hereof may not be
given, unless the Company has obtained the written consent of Holders of a
majority of the then outstanding Common Stock constituting Registrable
Securities (with Holders of Debentures deemed to be the Holders, for purposes of
this Section, of the number of outstanding shares of Common Stock into which
such Debentures are convertible as of such date of determination).
Notwithstanding the foregoing, a waiver or consent to depart from the provisions
hereof with respect to a matter that relates exclusively to the rights of
Holders of Registrable Securities whose securities are being sold pursuant to a
Registration Statement and that does not directly or indirectly affect the
rights of other Holders of Registrable Securities may be given by Holders of at
least a majority of the Registrable Securities being sold by such Holders;
provided that the provisions of this
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<PAGE> 21
statement may not be amended, modified or supplemented except in accordance with
the provisions of the immediately preceding sentence.
(d) NOTICES. All notices and other communications provided for or
permitted hereunder shall be made in writing and shall be deemed given (i) when
made, if made by hand delivery, (ii) upon confirmation, if made by telecopier or
(ii) one (1) business day after being deposited with a reputable next-day
courier, postage prepaid, to the parties as follows:
(i) if to a Holder of Registrable Securities, at the most current
address given by such Holder to the Company in accordance with the provisions of
Sections 8(e):
(ii) if to the Company, to:
Sepracor Inc.
33 Locke Drive
Marlborough, MA 01752
Attention: Chief Financial Officer
Telecopy No: (508) 481-6700
with a copy to:
Hale and Dorr LLP
60 State Street
Boston, MA 02109
Attention: Mark G. Borden
Telecopy No: (617) 526-5000
and
(iii) if to the Initial Purchasers or Special Counsel to:
Ropes & Gray
One International Place
Boston, MA 02110
Attention: Keith F. Higgins, Esq.
Telecopy No: (617) 951-7050
or to such other address as such person may have furnished to the other persons
identified in this Section 8(d) in writing in accordance herewith.
(e) OWNER OF REGISTRABLE SECURITIES. The Company will maintain, or will
cause its registrar and transfer agent to maintain, a register with respect to
the Registrable Securities in which all transfers of Registrable Securities of
which the Company has received notice will be recorded. The Company may deem and
treat the person in whose
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<PAGE> 22
name Registrable Securities are registered in such register of the Company as
the owner thereof for all purposes, including without limitation, the giving of
notices under this Agreement.
(f) APPROVAL OF HOLDERS. Whenever the consent or approval of Holders of
a specified percentage of Registrable Securities is required hereunder, (i)
Holders of Debentures shall be deemed to be Holders, for such purposes, of the
number of outstanding shares of Common Stock into which such Debentures are
convertible and (ii) Registrable Securities held by the Company or its
affiliates (as such term is defined in Rule 405 under the Securities Act) (other
than the Initial Purchasers or subsequent Holders of Registrable Securities if
such subsequent Holders are deemed to be such affiliates solely by reason of
their holdings of such Registrable Securities) shall not be counted in
determining whether such consent or approval was given by the Holders of such
required percentage.
(g) SUCCESSORS AND ASSIGNS. Any person who purchases any Registrable
Securities from an Initial Purchaser shall be deemed, for purposes of this
Agreement, to be an assignee of such Initial Purchaser. This Agreement shall
inure to the benefit of and be binding upon the successors and assigns of each
of the parties and shall inure to the benefit of and be binding upon each Holder
of any Registrable Securities.
(h) COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be original and all of which taken together
shall constitute one and the same agreement.
(i) HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(j) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK AS APPLIED TO CONTRACTS MADE
AND PERFORMED WITHIN THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF
CONFLICT OF LAWS.
(k) SEVERABILITY. If any term, provision, covenant or restriction of
this Agreement is held to be invalid, illegal, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions set forth herein
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated thereby, and the parties hereto shall use their best efforts to
find and employ an alternative means to achieve the same or substantially the
same result as that contemplated by such term, provision, covenant or
restriction. It is hereby stipulated and declared to be in the intention of the
parties that they would have executed the remaining terms, provisions, covenants
and
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<PAGE> 23
restrictions without including any of such which may be hereafter declared
invalid, illegal, void or unenforceable.
(l) ENTIRE AGREEMENT. This Agreement is intended by the parties as a
final expression of their agreement and is intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein and the registration rights
granted by the Company with respect to the Registrable Securities. Except as
provided in the Purchase Agreement, there are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein,
with respect to the registration rights granted by the Company with respect to
the Registrable Securities. This Agreement supersedes all prior agreements and
undertakings among the parties with respect to such registration rights.
(m) ATTORNEYS' FEES. In any action or proceeding brought to enforce any
provision of this Agreement, or where any provision hereof is validly asserted
as a defense, the prevailing party, as determined by the court, shall be
entitled to recover reasonable attorneys' fees in addition to any other
available remedy.
(n) FURTHER ASSURANCES. Each of the parties hereto shall use all
reasonable efforts to take, or cause to be taken, all appropriate action, do or
cause to be done all things reasonably necessary, proper or advisable under
applicable law, and execute and deliver such documents and other papers, as may
be required to carry out the provisions of this Agreement and the other
documents contemplated hereby and consummate and make effective the transactions
contemplated hereby.
(o) TERMINATION. This Agreement and the obligations of the parties
hereunder shall terminate upon the end of the Effectiveness Period, except for
any liabilities or obligations under Section 4, 5 or 6 hereof and the
obligations to make payments of and provide for Liquidated Damages under Section
2(e) hereof to the extent such damages accrue prior to the end of the
Effectiveness Period, each of which shall remain in effect in accordance with
their terms.
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<PAGE> 24
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first written above.
SEPRACOR INC.
By: /s/David P. Southwell
-----------------------------------
Name: David P. Southwell
Title: Executive Vice President and
Chief Financial Officer
Accepted as of the date first above written:
MORGAN STANLEY & CO. INCORPORATED
LEHMAN BROTHERS INC.
SMITH BARNEY INC.
VECTOR SECURITIES INTERNATIONAL, INC.
By: MORGAN STANLEY & CO. INCORPORATED
By: /s/William H. Wright II
-----------------------------------
Name: William H. Wright II
Title: Managing Director
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<PAGE> 1
Exhibit 10.36
SEPRACOR INC.
1997 STOCK OPTION PLAN
1. Purpose
The purpose of this 1997 Stock Option Plan (the "Plan") of Sepracor
Inc., a Delaware corporation (the "Company"), is to advance the interests of the
Company's stockholders by enhancing the Company's ability to attract, retain and
motivate persons who make (or are expected to make) important contributions to
the Company by providing such persons with equity ownership opportunities and
thereby better aligning the interests of such persons with those of the
Company's stockholders. Except where the context otherwise requires, the term
"Company" shall include any present or future subsidiary corporations of
Sepracor Inc. defined in Section 424(f) of the Internal Revenue Code of 1986, as
amended, and any regulations promulgated thereunder (the "Code").
2. Eligibility
All of the Company's employees (other than officers and directors who
are employees), consultants and advisors are eligible to be granted options
(each, an "Option") under the Plan. Any person who has been granted an Option
under the Plan shall be deemed a "Participant". Neither officers nor directors
of the Company are eligible to be granted Options under the Plan.
3. Administration, Delegation
(a) Administration by Board of Directors. The Plan will be administered
by the Board of Directors of the Company (the "Board"). The Board shall have
authority to grant Options and to adopt, amend and repeal such administrative
rules, guidelines and practices relating to the Plan as it shall deem advisable.
The Board may correct any defect, supply any omission or reconcile any
inconsistency in the Plan or any Option 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. All decisions by the Board shall be made in the
Board's sole discretion and shall be final and binding on all persons having or
claiming any interest in the Plan or in any Option. No director or person acting
pursuant to the authority delegated by the Board shall be liable for any action
or determination relating to or under the Plan made in good faith.
(b) Delegation to Executive Officers. To the extent permitted by
applicable law, the Board may delegate to one or more executive officers of the
Company the power to make Options and exercise such other powers under the Plan
as the Board may determine, provided that the Board shall fix the maximum number
of shares subject to Options and the maximum number of shares for any one
Participant to be
<PAGE> 2
made by such executive officers.
(c) Appointment of Committees. To the extent permitted by applicable
law, the Board may delegate any or all of its powers under the Plan to one or
more committees or subcommittees of the Board (a "Committee"). To the extent
required by the Code or the Securities Exchange Act of 1934 (the "Exchange
Act"), the Board shall appoint one such Committee of not less than two members,
each member of which shall be an "outside director" within the meaning of
Section 162(m) of the Code and a "non-employee director" as defined in Rule
16b-3 promulgated under the Exchange Act." All references in the Plan to the
"Board" shall mean the Board or a Committee of the Board or the executive
officer referred to in Section 3(b) to the extent that the Board's powers or
authority under the Plan have been delegated to such Committee or executive
officer.
4. Stock Available for Options
(a) Number of Shares. Subject to adjustment under Section 4(c), Options
may be made under the Plan for up to 500,000 shares of Common Stock. If any
Option expires or is terminated, surrendered or canceled without having been
fully exercised or is forfeited in whole or in part or results in any Common
Stock not being issued, the unused Common Stock covered by such Option shall
again be available for the grant of Options under the Plan. Shares issued under
the Plan may consist in whole or in part of authorized but unissued shares or
treasury shares.
(b) Per-Participant Limit. Subject to adjustment under Section 4(c),
the maximum number of shares with respect to which an Option may be granted to
any Participant under the Plan shall be 250,000 per calendar year. The
per-participant limit described in this Section 4(b) shall be construed and
applied consistently with Section 162(m) of the Code.
(c) Adjustment to Common Stock. In the event of any stock split, stock
dividend, recapitalization, reorganization, merger, consolidation, combination,
exchange of shares, liquidation, spin-off or other similar change in
capitalization or event, or any distribution to holders of Common Stock other
than a normal cash dividend, (i) the number and class of securities available
under this Plan, (ii) the number and class of security and exercise price per
share subject to each outstanding Option, (or substituted Options may be made,
if applicable) to the extent the Board shall determine, in good faith, that such
an adjustment (or substitution) is necessary and appropriate. If this Section
4(c) applies and Section 8(e)(1) also applies to any event, Section 8(e)(1)
shall be applicable to such event, and this Section 4(c) shall not be
applicable.
2
<PAGE> 3
5. Stock Options
(a) General. The Board may grant Options to purchase Common Stock and
determine the number of shares of Common Stock to be covered by each Option, the
exercise price of each Option and the conditions and limitations applicable to
the exercise of each Option, including conditions relating to applicable federal
or state securities laws, as it considers necessary or advisable. Unless
permitted under the Code, options granted hereunder shall not be Incentive Stock
Options (as defined in Section 422 of the Code) and shall be designated
"Nonstatutory Stock Options".
(b) Exercise Price. The Board shall establish the exercise price at
the time each Option is granted and specify it in the applicable option
agreement.
(c) Duration of Options. Each Option shall be exercisable at such times
and subject to such terms and conditions as the Board may specify in the
applicable Option agreement. No Option will be granted for a term in excess of
10 years.
(d) Exercise of Option. Options may be exercised only by delivery to
the Company of a written notice of exercise signed by the proper person together
with payment in full as specified in Section 5(e) for the number of shares for
which the Option is exercised.
(e) Payment Upon Exercise. Common Stock purchased upon the exercise of
an Option granted under the Plan shall be paid for as follows:
(1) in cash or by check, payable to the order of the Company;
(2) except as the Board may otherwise provide in an Option
agreement, delivery of an irrevocable and unconditional undertaking by a
creditworthy broker to deliver promptly to the Company sufficient funds to pay
the exercise price, or delivery by the Participant to the Company of a copy of
irrevocable and unconditional instructions to a creditworthy broker to deliver
promptly to the Company cash or a check sufficient to pay the exercise price or
by delivery of shares of Common Stock owned by the Participant valued at their
fair market value as determined by the Board in good faith ("Fair Market
Value"), which Common Stock was owned by the Participant at least six months
prior to such delivery;
(3) to the extent permitted by the Board and explicitly
provided in an Option agreement (i) by delivery of a promissory note of the
Participant to the Company on terms determined by the Board (provided that the
Participant pay cash equal to the par value of the shares purchased), or (ii) by
payment of such other lawful consideration as the Board may determine; or
(4) any combination of the above permitted forms of payment.
3
<PAGE> 4
6. General Provisions Applicable to Options
(a) Transferability of Options. Except as the Board may otherwise
determine or provide in an Option, Options shall not be sold, assigned,
transferred, pledged or otherwise encumbered by the person 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 Participant, shall be
exercisable only by the Participant. References to a Participant, to the extent
relevant in the context, shall include references to authorized transferees.
(b) Documentation. Each Option under the Plan shall be evidenced by a
written instrument in such form as the Board shall determine. Each Option may
contain terms and conditions in addition to those set forth in the Plan.
(c) Board Discretion. Except as otherwise provided by the Plan, each
type of Option may be made alone or in addition or in relation to any other type
of Option. The terms of each type of Option need not be identical, and the Board
need not treat Participants uniformly.
(d) Termination of Status. The Board shall determine the effect on an
Option of the disability, death, retirement, authorized leave of absence or
other change in the employment or other status of a Participant and the extent
to which, and the period during which, the Participant, the Participant's legal
representative, conservator, guardian or Designated Beneficiary may exercise
rights under the Option.
(e) Acquisition Events
(1) Consequences of Acquisition Events. Subject to Section 6
(e)(2), upon the occurrence of an Acquisition Event (as defined below), or the
execution by the Company of any agreement with respect to an Acquisition Event,
the Board shall take any one or more of the following actions with respect to
then outstanding Options: (i) provide that outstanding Options shall be assumed,
or equivalent Options shall be substituted, by the acquiring or succeeding
corporation (or an affiliate thereof); (ii) upon written notice to the
Participants, provide that all then unexercised Options will become exercisable
in full as of a specified time (the "Acceleration Time") prior to the
Acquisition Event and will terminate immediately prior to the consummation of
such Acquisition Event, except to the extent exercised by the Participants
between the Acceleration Time and the consummation of such Acquisition Event;
and (iii) in the event of an Acquisition Event under the terms of which holders
of Common Stock will receive upon consummation thereof a cash payment for each
share of Common Stock surrendered pursuant to such Acquisition Event (the
"Acquisition Price"), provide that all outstanding Options shall terminate upon
consummation of such Acquisition Event and each Participant shall receive, in
4
<PAGE> 5
exchange therefor, a cash payment equal to the amount (if any) by which (A) the
Acquisition Price multiplied by the number of shares of Common Stock subject to
such outstanding Options (whether or not then exercisable), exceeds (B) the
aggregate exercise price of such Options.
An "Acquisition Event" shall mean: (a) any merger or consolidation
which results in the voting securities of the Company outstanding immediately
prior thereto representing immediately thereafter (either by remaining
outstanding or by being converted into voting securities of the surviving or
acquiring entity) less than 50% of the combined voting power of the voting
securities of the Company or such surviving or acquiring entity outstanding
immediately after such merger or consolidation; (b) any sale of all or
substantially all of the assets of the Company; or (c) the complete liquidation
of the Company.
(2) Except to the extent otherwise provided in the instrument
evidencing an Option or in any other agreement between a Participant and the
Company, (i) upon the occurrence of a Change of Control Event, all Options then
outstanding shall automatically be deemed waived only if and to the extent, if
any, specified (whether at the time of grant or otherwise) by the Board.
A "Change of Control Event" shall have occurred in the event that (i)
an individual, entity or group (within the meaning of Section 13(d)(3) of
14(d)(2) of the Exchange Act) becomes the beneficial owner (as such term is
defined in Rule 13d-3 under the Securities Exchange Act of 1934) of 50% or more
of the outstanding voting securities of the Company, (ii) the Company is merged
or consolidated with or into another corporation where, upon effectiveness of
such merger or consolidation, the stockholders of the Company immediately prior
to such merger or consolidation hold 50% or less of the voting securities of the
corporation surviving such merger or consolidation, (iii) all or substantially
all of the assets of the Company are sold in a single transaction or series of
related transactions, or (iv) the Company is liquidated (each of such events
described in clause (i) through (iv) being referred to herein as a "Triggering
Event"), then, as of the date which is one business day prior to the date of
such Triggering Event, the vesting schedule of this Option shall be accelerated
so that all unvested options shall become immediately vested and exercisable.
(3) Assumption of Options Upon Certain Events. The Board may
grant Options under the Plan in substitution for stock and stock-based options
held by employees of another corporation who become employees of the Company as
a result of a merger or consolidation of the employing corporation with the
Company or the acquisition by the Company of property or stock of the employing
corporation. The Substitute Options shall be granted on such terms and
conditions as the Board considers appropriate in the circumstances.
(f) Withholding. Each Participant shall pay to the Company, or make
5
<PAGE> 6
provision satisfactory to the Board for payment of, any taxes required by law to
be withheld in connection with Options to such Participant no later than the
date of the event creating the tax liability. The Board may allow Participants
to satisfy such tax obligations in whole or in part in shares of Common Stock,
including shares retained from the Option creating the tax obligation, valued at
their Fair Market Value. The Company may, to the extent permitted by law, deduct
any such tax obligations from any payment of any kind otherwise due to a
Participant.
(g) Amendment of Option. The Board may amend, modify or terminate any
outstanding Option, including but not limited to, substituting therefor another
Option of the same or a different type and changing the date of exercise or
realization, provided that the Participant's consent to such action shall be
required unless the Board determines that the action, taking into account any
related action, would not materially and adversely affect the Participant.
(h) Conditions on Delivery of Stock. The Company will not be obligated
to deliver any shares of Common Stock pursuant to the Plan or to remove
restrictions from shares previously delivered under the Plan until (i) all
conditions of the Option have been met or removed to the satisfaction of the
Company, (ii) in the opinion of the Company's counsel, all other legal matters
in connection with the issuance and delivery of such shares have been satisfied,
including any applicable securities laws and any applicable stock exchange or
stock market rules and regulations, and (iii) the Participant has executed and
delivered to the Company such representations or agreements as the Company may
consider appropriate to satisfy the requirements of any applicable laws, rules
or regulations.
(i) Acceleration. The Board may at any time provide that any Options
shall become immediately exercisable in full or in part, Options shall be free
of all restrictions or that any other stock-based Options may become exercisable
in full or in part or free of some or all restrictions or conditions, or
otherwise realizable in full or in part, as the case may be.
7. Miscellaneous
(a) No Right To Employment or Other Status. No person shall have any
claim or right to be granted an Option, and the grant of an Option shall not be
construed as giving a Participant the right to continued employment or any other
relationship with the Company. The Company expressly reserves the right at any
time to dismiss or otherwise terminate its relationship with a Participant free
from any liability or claim under the Plan, except as expressly provided in the
applicable Option.
(b) No Rights As Stockholder. Subject to the provisions of the
applicable Option, no Participant or Designated Beneficiary shall have any
rights as a
6
<PAGE> 7
stockholder with respect to any shares of Common Stock to be distributed with
respect to an Option until becoming the record holder of such shares.
(c) Effective Date and Term of Plan. The Plan shall become effective on
the date on which it is adopted by the Board. No Options shall be granted under
the Plan after the completion of ten years from the date on which the Plan was
adopted by the Board, but Options previously granted may extend beyond that
date.
(d) Amendment of Plan. The Board may amend, suspend or terminate the
Plan or any portion thereof at any time.
(e) Governing Law. The provisions of the Plan and all Options made
hereunder shall be governed by and interpreted in accordance with the laws of
the State of Delaware, without regard to any applicable conflicts of law.
Adopted by the Board of
Directors on October 16, 1997
7
<PAGE> 1
EXHIBIT 13
[SEPRACOR LOGO]
Sepracor Inc., 111 Locke Drive, Marlborough, Massachusetts 01752
<PAGE> 2
Feeling Better
[FEELING BETTER PHOTO]
Is Our Business
[IS OUR BUSINESS PHOTO]
1997 Annual Report
[SEPRACOR LOGO]
<PAGE> 3
SEPRACOR is a specialty pharmaceutical company that develops
and commercializes potentially improved versions of widely-prescribed drugs.
Referred to as Improved Chemical Entities ("ICEs"), Sepracor's ICE(TM)
Pharmaceuticals are being developed as proprietary, single-isomer or
active-metabolite versions of these leading drugs. ICE Pharmaceuticals are
designed to offer meaningful improvements in patient outcome through reduced
side effects, increased therapeutic efficacy, or improved dosage forms. In some
cases, our ICE Pharmaceuticals may provide an opportunity for additional
indications. - Sepracor plans to market its ICE Pharmaceuticals directly where
its specialty sales force can significantly penetrate target markets. For drugs
and markets requiring substantial field sales support and extensive marketing
resources, Sepracor seeks co-promotion, co-development, and licensing
arrangements with
[SEPRACOR PRODUCT CHART]
<TABLE>
<CAPTION>
SEPRACOR PRODUCT Parent Drug NDA TARGET
CHEMISTRY PRECLINICAL PHASE I/II PHASE III REVIEW LAUNCH
<S> <C>
FEXOFENADINE ALLEGRA(R) - Seldane(R) `96
LEVALBUTEROL - Ventolin(R) /Proventil(R) `98
NORASTEMIZOLE - Hismanal(R) `00
(R,R)-FORMOTEROL - Foradil(R)/Atock(R) `01
(S)-OXYBUTYNIN - Ditropan(R) `00
(S)-FLUOXETINE - Prozac(R)
(R)-KETOPROFEN - Orudis(R)/Actron(R)
DESCARBOETHOXYLORATADINE - Claritin(R)
(S)-DOXAZOSIN - Cardura(R)
(2R, 4S)-ITRACONAZOLE - Sporanox(R)
(R)-KETOROLAC - Toradol(R)
(R)-BUPROPION - Zyban(TM)
(-)-CERTIRIZINE - Zyrtec(R)
(R)-FLUOXETINE - Prozac(R)
(S)-LANSOPRAZOLE - Prevacid(R)
NORCISAPRIDE - Propulsid(R)
(R)-ONDANSETRON - Zofran(R)
(-)-PANTOPRAZOLE - Pantozol(TM)
(S)-SIBUTRAMINE - Meridia(R)
(S)-ZOPICLONE - Imovane(R)
</TABLE>
<PAGE> 4
leading pharmaceutical companies. These partners provide the development and
marketing resources to expand market penetration. - In 1993, Sepracor licensed
its U.S. patents covering fexofenadine to Hoechst Marion Roussel, Inc. ("HMRI"),
which developed and launched the drug. Marketed as Allegra(R) by HMRI, the drug
is indicated for allergic conditions, but avoids the cardiovascular side effects
associated with its parent drug, terfenadine (Seldane(R)). - Currently,
Sepracor's New Drug Application (NDA) for levalbuterol HCl inhalation solution,
the single-isomer version of the widely-sold bronchodilator, racemic albuterol,
is being reviewed by the FDA. Racemic albuterol is marketed as Ventolin(R) by
Glaxo-Wellcome and as Proventil(R) by Schering-Plough. -Sepracor recently
completed a large-scale clinical trial for norastemizole, an active-metabolite
of astemizole, marketed as Hismanal(R) by Johnson & Johnson. This study included
750 patients, and was conducted in 30 U.S. sites. Phase I and Phase II clinical
trials indicate that norastemizole is a potentially safe and efficacious
non-sedating antihistamine. - Sepracor has six ICE Pharmaceuticals in human
clinical trials and thirteen additional active-metabolite or single-isomer drugs
are undergoing preclinical investigation.
[BACKGROUND PHOTO]
<PAGE> 5
TO OUR SHAREHOLDERS: Nineteen ninety-seven was a year of considerable
accomplishments for Sepracor. Our Annual Report describes the Company's progress
in building a leading specialty pharmaceutical company based on our strategy of
developing and commercializing ICETM Pharmaceuticals. ICEs are potentially
improved single-isomer or active-metabolite versions of existing drugs. The
estimated worldwide sales of the parent compounds of Sepracor's product pipeline
exceeded $12 billion in 1997. - SEPRACOR ACHIEVED SIGNIFICANT CLINICAL AND
COMMERCIAL MILESTONES IN 1997. A New Drug Application for levalbuterol was
submitted to the U.S. Food and Drug Administration. We also completed a
750-patient, Phase II/III study for norastemizole, a potential third generation
nonsedating antihistamine. In addition, we initiated clinical trials of both our
long-acting beta agonist (R,R)-formoterol, for the treatment of asthma, and our
urinary incontinence compound, (S)-oxybutynin. - WE HAVE SUBSTANTIALLY INCREASED
THE VALUE OF OUR ANTIHISTAMINE PORTFOLIO THROUGH TWO MAJOR CORPORATE
COLLABORATIONS IN 1997 AND EARLY 1998. Sepracor signed a licensing agreement in
the fourth quarter of 1997 with Schering-Plough Corporation for the development
of DCL, an active metabolite of the leading antihistamine Claritin(R). Pursuant
to that agreement, Sepracor will be entitled to receive royalties beginning upon
product launch. Under this agreement, Schering-Plough is developing DCL and
intends to market the product worldwide. This potentially more potent
antihistamine may serve as a new platform for extending the lifecycle of the
Claritin(R) franchise. In addition, in the first quarter of 1998, we announced a
collaboration with Janssen Pharmaceutica, N.V., a wholly-owned subsidiary of
Johnson & Johnson, for the development and marketing of norastemizole. - THIS
YEAR, WE HAVE SEEN A CONTINUED VALIDATION OF SEPRACOR'S ICE PHARMACEUTICAL
STRATEGY. While Sepracor is leading the emerging industry trend to develop
single-isomer or active-metabolite versions of existing compounds, major
pharmaceutical companies have also validated this strategy. For example, Johnson
& Johnson successfully launched Levaquin(R), the single-isomer of the quinolone
antibiotic ofloxacin, which has a broader spectrum of activity than its parent
drug.
SEPRACOR SALES FORCE GROWTH
[SEPRACOR SALES FORCE GROWTH CHART]
PLANNED ICE PHARMACEUTICAL INTRODUCTION SCHEDULE AND SEPRACOR RESPIRATORY SALES
FORCE BUILD
<TABLE>
<CAPTION>
SEPRACOR
SALES
FORCE (R,R)-formoterol
Dry Powder Inhaler
200 Levalbuterol (R,R)-formoterol
Dry Powder Inhaler
Norastemizole Norastemizole
with Decongestant
150 Levalbuterol
Metered Dose Inhaler
Levalbuterol
Sustained Release
100 Levalbuterol
Oral
Levalbuterol
0 Nebule
<S> <C> <C> <C> <C> <C> <C>
YEAR 1998 1999 2000 2001 2002 2003
</TABLE>
2
<PAGE> 6
Marketed by Daiichi, this new anti-infective is already one of the largest
pharmaceutical products in Japan. Astra announced its intention to develop the
single-isomer version of Prilosec(R), the world's largest selling drug in 1997,
which may offer improved efficacy. In addition, Hoechst Marion Roussel
successfully completed its market conversion of the Seldane(R) franchise to
Allegra(R), which does not exhibit the cardiovascular side effects associated
with the parent drug. - OUR ICE PHARMACEUTICALS ARE NOW PROGRESSING FROM THE
CLINICAL TRIAL PHASE TO FDA REVIEW, AND FINALLY, TO THE MARKETPLACE. The
Company's strategy for commercializing its ICE Pharmaceuticals includes
licensing agreements, co-promotion collaborations with major pharmaceutical
companies, and direct marketing through one or more specialty sales forces. -
Levalbuterol, under review by the FDA, would be the first drug to be sold by our
respiratory sales force. Sepracor plans to launch levalbuterol in the second
half of 1998. In the future, Sepracor plans to introduce other drugs to be sold
by the Company's respiratory sales force, such as norastemizole and
(R,R)-formoterol. - Sepracor's agreement with Janssen illustrates our
co-promotion strategy. In February 1998, the companies announced an agreement
for the joint development and marketing of norastemizole. Sepracor has retained
the right to co-promote the product in the United States. - OUR DRUG DISCOVERY
EFFORTS ALSO HAVE BEGUN TO SHOW RESULTS. We are combining Sepracor's
combinatorial chemistry and high-throughput screening expertise with known
biological and new genomic-identified drug targets. Sepracor has discovered lead
compounds that when further developed, could complement our ICE Pharmaceutical
pipeline in the years to come. - Sepracor's consolidated cash position has never
been stronger. For the year ended December 31, 1997, the Company had $92.6
million in consolidated cash and marketable securities. In February 1998,
Sepracor completed a $189 million offering of convertible subordinated
debentures. With approximately $275 million in cash and marketable securities
following our recent financing, Sepracor is well positioned to continue
developing and marketing its respiratory product line. In addition to these
products, we are initiating development of several candidates in the fields of
psychiatry/neurology and urology/gastroenterology. - We congratulate Sepracor's
shareholders, partners, and employees on an excellent year. We look forward to
sharing Sepracor's clinical and commercial successes with you throughout the
coming year.
[PHOTO of Timothy J. Barberich]
Sincerely,
/s/ Timothy J. Barberich
Timothy J. Barberich
President and Chief Executive Officer
3
<PAGE> 7
Sepracor's
ICE(TM) Strategy
CHIRAL CHEMISTRY FORMS THE BASIS OF OUR ICE(TM)STRATEGY. 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 United States Food and Drug Administration's
1992 published stereoisomer policy guidelines have 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.
[MOLECULE GRAPHIC]
4
<PAGE> 8
SEPRACOR'S ICE(TM) PHARMACEUTICALS HAVE THE POTENTIAL TO BE PURER, SAFER, OR
MORE POTENT VERSIONS OF THEIR PARENT DRUG COMPOUNDS. Since the parent drugs have
well-known efficacy and safety profiles, ICE Pharmaceuticals generally can be
developed significantly faster, at lower cost, and with decreased regulatory
risk than new chemical entities. In addition, established franchises of the
parent compounds, combined with long-term patent protection, provide a strong
indicator of the market potential for ICE Pharmaceuticals. - SINGLE-ISOMER ICE
PHARMACEUTICALS. Racemic drugs exist in mirror-image forms called isomers,
designated as (R) and (S). Often only one isomer of a racemic drug is
therapeutically active. The other isomer may be inert or may cause undesirable
side effects. Racemic albuterol, a widely-prescribed asthma bronchodilator,
consists of equal amounts of two isomers, (R)-albuterol and (S)-albuterol. -
Sepracor's development of the single-isomer version of racemic albuterol
illustrates the potential benefits of purification. Based on preclinical and
clinical research, Sepracor has demonstrated that racemic albuterol's
therapeutic effect resides exclusively in the (R)-isomer. Scientific data have
suggested the (S)-isomer may cause detrimental airway hyperreactivity. Sepracor
is developing levalbuterol ((R)-albuterol) as a pure and potentially more
efficacious single-isomer version of the racemic bronchodilator. -
ACTIVE-METABOLITE ICE PHARMACEUTICALS. An active metabolite is a therapeutically
active compound produced when a drug is metabolized in the body. Most drugs
administered to treat diseases are transformed (metabolized) within the body
into a variety of related forms (metabolites), some of which have therapeutic
activity. - For example, fexofenadine is an active metabolite of the former
best-selling nonsedating antihistamine Seldane(R) (terfenadine). Toxic levels of
terfenadine can accumulate in the body when certain other medications interfere
with its metabolism. Fexofenadine is marketed as Allegra(R) by HMRI under a
patent licensing agreement with Sepracor. Allegra does not exhibit the rare but
serious cardiac toxicity associated with its parent drug. - The following pages
in this report discuss the clinical and commercial progress of Sepracor's ICE
Pharmaceuticals.
5
<PAGE> 9
Respiratory Therapy [DOG WALK PHOTO]
Allergy
ICE PHARMACEUTICALS FOR ALLERGY
<TABLE>
<CAPTION>
ICE PHARMACEUTICALS PARENT DRUG EXPECTED DEVELOPMENT
Potential Benefit of Sepracor Candidate Current Marketer INDICATION STAGE
<S> <C> <C> <C>
FEXOFENADINE (ALLEGRA(R)) Seldane(R) Allergy Launched
nonsedating antihistamine with HMRI
reduced cardiovascular side effects
NORASTEMIZOLE HISMANAL(R) Allergy Phase II/III
nonsedating antihistamine with J & J
improved potency, rapid onset,
longer duration, reduced cardiovascular
side effects
DESCARBOETHOXYLORATADINE (DCL) CLARITIN(R) Allergy Preclinical
nonsedating antihistamine with Schering-Plough
improved potency
(-)-CERTIRIZINE ZYRTEC(R) Allergy Preclinical
antihistamine without sedation Pfizer/UCB
</TABLE>
1997 WORLDWIDE SALES TO TREAT ALLERGIES WERE APPROXIMATELY $3 BILLION*
[PIE CHART]
ALLEGRA(R)
(SELDANE(R))
$400 MILLION
HISMANAL(R)
$150 MILLION
CLARITIN(R)
$1.7 BILLION
ZYRTEC(R)
$550 MILLION
* INCLUDES RELATED BRANDS
6
<PAGE> 10
OVER 40 MILLION AMERICANS SUFFER FROM SEASONAL ALLERGIC RHINITIS (HAY FEVER), AN
ALLERGY TO AIRBORNE POLLENS. Symptoms include runny nose, watery eyes, and
scratchy throat. Nonsedating antihistamines, such as Claritin(R) and Allegra(R),
provide relief to allergy sufferers without causing drowsiness. Worldwide sales
of nonsedating antihistamines were approximately $3 billion in 1997. Sales are
forecasted to double to $6 billion in the next five years. - ALLEGRA...IMPROVED
SELDANE(R) WITHOUT CARDIOTOXICITY. In 1993, Sepracor licensed its U.S. patents
covering fexofenadine to HMRI, which developed the drug and launched it in late
1996 as Allegra, a nonsedating antihistamine. While Sepracor is entitled to
receive royalty payments upon the expected expiration in 2001 of HMRI's
composition-of-matter patent covering fexofenadine, the right to receive
royalties is subject to successful resolution of a pending patent interference
action. (See Sepracor Inc. Notes to Consolidated Financial Statements,
N-Litigation). - NORASTEMIZOLE...A POTENTIALLY SAFER AND MORE POTENT THIRD
GENERATION NONSEDATING ANTIHISTAMINE. Janssen Pharmaceutica N.V.'s product,
Hismanal(R) (astemizole), has a "black box" warning in its product labeling
alerting physicians to serious cardiac side effects and the drug-drug
interactions. In February 1998, Sepracor and Janssen, a wholly-owned subsidiary
of Johnson & Johnson, announced an agreement under which the companies will
jointly fund the development of Sepracor's ICE Pharmaceutical, norastemizole,
one of the major metabolites of Hismanal. This development and commercialization
agreement gives Janssen an option to acquire certain rights in the U.S. and
abroad. Sepracor retains the right to co-promote norastemizole in the U.S.
Sepracor's first 750-patient, 30-center, Phase III seasonal allergic rhinitis
clinical trial has been completed. - DCL... METABOLITE OF CLARITIN WITH THE
POTENTIAL FOR GREATER POTENCY. Loratadine, marketed by Schering Corporation as
Claritin, is the world's largest-selling nonsedating antihistamine. Claritan
sales rose 50% in 1997 to total $1.7 billion worlwide. Loratadine's active
metabolite, DCL (descarboethoxyloratadine), has been shown in preclinical
studies to offer the potential for greater potency than other commercial
antihistamines. - In December 1997, Sepracor and Schering-Plough entered into an
agreement which gives Schering-Plough exclusive worldwide rights to Sepracor's
patents covering DCL. Under this agreement, Schering-Plough is developing DCL
and intends to market the product worldwide. Based on its potential as a more
potent antihistamine, DCL could serve as a platform for the evolution of the
Claritin franchise. Sepracor is entitled to royalty payments upon the initial
sale of the product.
7
<PAGE> 11
Respiratory Therapy [KID IN POOL PHOTO]
Asthma
ICE PHARMACEUTICALS FOR ASTHMA
<TABLE>
<CAPTION>
ICE PHARMACEUTICALS PARENT DRUG EXPECTED DEVELOPMENT
<S> <C> <C> <C>
Potential Benefit of Sepracor Candidate Current Marketer INDICATION STAGE
LEVALBUTEROL VENTOLIN(R)/ Asthma NDA filed
bronchodilator with improved PROVENTIL(R)
safety and efficacy Glaxo-Wellcome,
Schering-Plough
and generics
(R,R) - FORMOTEROL FORADIL(R)/ Asthma Phase I/II
bronchodilator with rapid onset ATOCK(R)
and longer duration Novartis/
Yamanouchi
</TABLE>
1997 WORLDWIDE SALES OF SHORT-ACTING AND LONG-ACTING BRONCHODILATORS FOR ASTHMA
THERAPY WERE $2.5 BILLION
[PIE CHART]
LONG-ACTING
BRONCHODILATORS
(SEREVENT(R)/
FORADIL(R)/Atock(R))
$.7 BILLION
SHORT-ACTING
BRONCHODILATORS
(VENTOLIN(R)/Proventil(R))
AND OTHERS
$1.8 BILLION
8
<PAGE> 12
ASTHMA AFFECTS ABOUT 15 MILLION AMERICANS, INCLUDING 5 MILLION CHILDREN. THE
INCIDENCE OF ASTHMA IS INCREASING IN AMERICA. People are twice as likely to
suffer from asthma as compared to 1980. Approximately 5,000 deaths occur as a
result of asthma in the U.S. each year. - Bronchodilators are the primary
treatment for acute and chronic asthma attacks and are necessary complements to
other asthma therapies, such as steroids or leukotriene antagonists.
Short-acting and long-acting bronchodilators prescribed for the treatment of
asthma had worldwide sales of over $2.5 billion in 1997. Sepracor's levalbuterol
is a single-isomer form of the current market-leading bronchodilator, racemic
albuterol. In 1997, racemic albuterol sales exceeded $1.4 billion. - In addition
to levalbuterol, Sepracor is developing (R,R)-formoterol as a long-acting
bronchodilator. This ICE Pharmaceutical is being investigated to determine onset
and duration of action as a prophylactic asthma therapy. -
LEVALBUTEROL...ADVANCING ASTHMA THERAPY THROUGH PURER MEDICINE. On July 1, 1997,
Sepracor announced that it had submitted a New Drug Application (NDA) to the
U.S. Food and Drug Administration (FDA) for levalbuterol HCl nebulizer solution.
The NDA submission came approximately two years after the drug entered U.S.
clinical trials, confirming Sepracor's ability to rapidly develop its ICE
Pharmaceuticals. If the FDA approves the NDA, Sepracor plans to launch
levalbuterol using its own specialty respiratory sales force during the second
half of 1998. - In addition to the nebulized dosage form, Sepracor will be
initiating clinical trials with several other formulations and pulmonary drug
delivery systems for levalbuterol, including syrup, controlled release tablet,
metered-dose inhaler, and dry-powder inhaler versions. - (R,R)-FORMOTEROL
...POTENTIAL FOR RAPID ONSET OF ACTION COUPLED WITH LONG DURATION OF THERAPY.
Sepracor is studying (R,R)-formoterol, a single-isomer ICE Pharmaceutical, for
the dual benefits of rapid onset of action and long duration of therapy.
Worldwide sales of long-acting bronchodilators exceeded $700 million in 1997
(Norvartis' Foradil(R), Yamanouchi's Atock(R), Astra's Oxis(TM) Turbuhaler(R),
and Glaxo-Wellcome's Serevent(R)). - As Sepracor continues to strengthen and
expand its commercial capabilities, the Company is building a specialty
respiratory sales force to market the portfolio of respiratory drugs under
development. The sales force will sell directly to high-prescribing respiratory
specialists, pediatricians, and primary care physicians in leading hospitals and
clinics in the U.S.
9
<PAGE> 13
Urology/
Gastroenterology [BACKPACKING PHOTO]
ICE PHARMACEUTICALS FOR UROLOGICAL DISORDERS AND GASTROENTEROLOGY
<TABLE>
<CAPTION>
ICE PHARMACEUTICALS PARENT DRUG EXPECTED DEVELOPMENT
Potential Benefit of Sepracor Candidate Current Marketer INDICATION STAGE
<S> <C> <C> <C>
(S) - OXYBUTYNIN DITROPAN(R) Urinary Phase I/II
reduced anticholinergic side effects HMRI Incontinence
including dry mouth, restlessness,
nausea and palpitations
(S) - DOXAZOSIN CARDURA(R) Benign Prostatic Preclinical
reduced orthostatic hypotension Pfizer Hyperplasia (BPH)
and improved potency
NORCISAPRIDE PROPULSID(R) Emesis Preclinical
improved potency without the J & J (nausea,
adverse side effect of cardiac toxicity vomiting)
(S) - LANSOPRAZOLE PREVACID(R) Gastroesophageal Preclinical
improved dosing consistency TAP Reflux Disease
and efficacy Pharmaceuticals (GERD)
(-) - PANTOPRAZOLE PANTOZOL(TM) Gastroesophageal Preclinical
GERD treatment with more consistent Byk/AHP Reflux Disease
plasma levels that may lead to better (GERD)
efficacy and safety
</TABLE>
1997 WORLDWIDE SALES FOR URINARY INCONTINENCE PRODUCTS,
ADULT DIAPERS AND DEVICES WERE $2.1 BILLION
[PIE CHART]
DITROPAN(R)*
$134 MILLION
DIAPERS
AND DEVICES
$2 BILLION
* INCLUDES RELATED BRANDS
10
<PAGE> 14
URINARY INCONTINENCE (UI) AFFECTS A BROAD RANGE OF ADULTS. THE CONDITION AFFECTS
APPROXIMATELY 10 MILLION WOMEN AND 3 MILLION MEN IN THE UNITED STATES, with
estimated annual treatment costs of $16 billion. The incidence of urinary
incontinence increases progressively with age; approximately 15-30% of older
adults have experienced problems with bladder control. Additionally, more than
50% of nursing home residents have been diagnosed with UI. - Drug therapy is
rarely used to treat urinary incontinence due to the severe side effects of the
existing compounds. A majority of patients use adult diapers or incontinence
devices. U.S. sales of these alternatives exceed $2 billion annually.
Ditropan(R) (racemic oxybutynin), the most widely used drug to treat urinary
incontinence, is associated with unpleasant side effects including dry mouth,
nausea, restlessness, and heart palpitations. As a result, pharmaceutical
products capture only about 5% of the domestic UI market. - (S)-OXYBUTYNIN...A
POTENTIAL TREATMENT FOR URINARY INCONTINENCE WITHOUT THE UNPLEASANT SIDE EFFECTS
OF DITROPAN. Sepracor is developing (S)-oxybutynin as a treatment primarily for
urge urinary incontinence, a disorder characterized by sudden and involuntary
bladder contractions. Racemic oxybutynin is marketed as Ditropan by HMRI. While
Ditropan is effective in blocking contractions, it is linked to undesirable
anticholinergic side effects that limit the drug's usefulness. - Phase II
clinical trials of (S)-oxybutynin are underway. The clinical trials are designed
to investigate the drug's efficacy as well as its tolerability. -
(S)-DOXAZOSIN...A POTENTIAL BPH TREATMENT WITH DECREASED ORTHOSTATIC HYPOTENSION
COMPARED TO CARDURA(R). Sepracor is developing its proprietary (S)-doxazosin as
a potentially improved single-isomer version of Cardura, Pfizer's treatment for
benign prostatic hyperplasia (BPH). A primary side effect of treatment with
alpha-blockers is orthostatic hypotension, which is a lowering of blood pressure
that can cause severe dizziness and fainting. This side effect often requires
prescribing physicians to titrate to effective dose levels, which necessitates
multiple visits to the physician's office. - Sepracor's preclinical studies
indicate that (S)-doxazosin may combine a significantly lower incidence of
orthostatic hypotension with greater potency than the racemic parent drug. -
Other Sepracor ICE Pharmaceuticals under development for the treatment of
gastrointestinal and urological disorders include: norcisapride as anantiemetic
to treat nausea and vomiting; (S)-lansoprazole and pantoprazole as treatments
for gastroesophageal reflux disease (GERD).
11
<PAGE> 15
Psychiatry/Neurology
ICE PHARMACEUTICALS FOR PSYCHIATRY AND NEUROLOGY [HAPPY LADY PHOTO]
<TABLE>
<CAPTION>
ICE PHARMACEUTICALS PARENT DRUG EXPECTED DEVELOPMENT
Potential Benefit of Sepracor Candidate Current Marketer INDICATION STAGE
<S> <C> <C> <C>
(R) - FLUOXETINE PROZAC(R) Depression Preclinical
increase in flexibility in treating Eli Lilly
depression
(S) - FLUOXETINE PROZAC(R) Migraine Phase I/II
prevention of migraine headaches Eli Lilly
(S) - ZOPICLONE IMOVANE(R) Sleep Preclinical
reduced anticholinergic side effects Rhone-Poulenc Disorder
including dry mouth Rorer
(S) - SIBUTRAMINE MERIDIA(R) Obesity Preclinical
reduced anticholinergic side effects Knoll
including dry mouth and constipation Pharmaceutical
(R) - BUPROPION ZYBAN(TM) Smoking Preclinical
reduced incidence of seizures, Glaxo-Wellcome Cessation
dry mouth and insomnia
</TABLE>
1997 WORLDWIDE SALES FOR THE SSRI MARKET WERE $6.5 BILLION, WHICH DOMINATED THE
ANTIDEPRESSANT MARKET*
[PIE CHART]
PROZAC(R)
$2.6 BILLION
PAXIL(TM)
$1.4 BILLION
WELLBUTRIN(R)
$.3 BILLION
OTHER
$.8 BILLION
ZOLOFT(R)
$1.4 BILLION
* INCLUDES RELATED BRANDS
12
<PAGE> 16
DEPRESSION IS A PSYCHIATRIC DISORDER THAT AFFECTS APPROXIMATELY 17 MILLION
PEOPLE IN THE UNITED STATES ANNUALLY. Selective Serotonin Reuptake Inhibitors
(SSRIs), such as racemic fluoxetine, are prescribed as first-line therapy for
the treatment of depression. In 1997, worldwide sales of SSRIs reached $6.5
billion. In addition to SSRIs, other central nervous system (CNS) drugs are
available to treat conditions such as sleep disorders, obesity, and smoking
cessation. - (R)-FLUOXETINE...POTENTIALLY INCREASED FLEXIBILITY IN THE TREATMENT
OF DEPRESSION. Racemic fluoxetine is marketed as the antidepressant Prozac(R) by
Eli Lilly & Co. Sepracor is conducting preclinical studies of the (R)-isomer of
fluoxetine to treat depression. The Company is planning to initiate full-scale
clinical trials during 1998. The use of (R)-fluoxetine may provide greater
treatment flexibility by reducing the half-life, which would lead to an
expedited washout period and the ability to switch drug therapies more rapidly.
The single-isomer version of the drug may also increase the suitability of
fluoxetine to treat the elderly, as well as other patient groups that have
difficulty metabolizing certain drugs. - (S)-ZOPICLONE...A POTENTIAL TREATMENT
FOR SLEEP DISORDERS WITH REDUCED ANTICHOLINERGIC SIDE EFFECTS. Sleep disorders
affect 56 million people in the U.S. Zopiclone is marketed as Imovane(R) in
Europe by Rhone-Poulenc Rorer Inc. Imovane is a non-benzodiazepine, short-acting
hypnotic sedative for the treatment of sleep disorders. In 1997, worldwide sales
of Imovane were approximately $144 million. Imovane was not developed for the
U.S. market, which is served primarily by zolpidem tartrate, marketed as
Ambien(R) by Searle. Ambien is a rapid onset, non-benzodiazepine hypnotic. U.S.
sales of Ambien in 1997 were approximately $500 million. Preclinical studies
show that the use of (S)-zopliclone has the potential to reduce anticholinergic
side effects, particularly dry mouth. -(S)-SIBUTRAMINE...SINGLE-ISOMER FORM OF
MERIDIA(R). Knoll Pharmaceutical Co., a division of BASF AG, markets racemic
sibutramine as Meridia for the treatment of obesity. Sepracor has initiated an
exploratory program to determine whether (S)-sibutramine may reduce
anticholinergic side effects associated with Meridia. - Other ICE
Pharmaceuticals in preclinical development for treatment of central nervous
system disorders or for pain management include: (S)-fluoxetine for migraine
prophylaxis; norcisapride as an anti-anxiety drug; (R)-ketoprofen and
(R)-ketorolac for pain management; and (R)-bupropion for smoking cessation.
13
<PAGE> 17
Drug Discovery [LAB PHOTO]
SEPRACOR'S NEW CHEMICAL ENTITIES
SEPRACOR LEAD COMPOUND DISEASE RECEPTOR/ENZYME
Adenosine
SEP - 89,068 Pain, Anxiety A2A
SEP - 42,960 Asthma A3
Phosphatase
SEP - 121,788 Diabetes, Cancer P1B
Opiate
SEP - 130,551 Pain, Respiratory mm
SEP - 130,169 kappa
SEP - 119,249 Inflammation Glucocorticoid
SEP - 119,244 Osteoporosis, Cancer Estrogen
SEP - 132,613 Bacterial Infection Infectious Disease
SEP - 119,255 narrow spectrum, resistant
gram-positive infection
THE DRUG DISCOVERY PROCESS
[FLOW CHART]
COMBINATORIAL
CHEMISTRY
MANY COMPOUNDS
FUNCTIONAL
GENOMICS
DISEASE TARGETS
BIOINFORMATICS
COMPUTER CONTROL
HIGH-THROUGHPUT
SCREENING
"HITS"
LEAD COMPOUNDS
PRECLINICAL AND
CLINICAL TRIALS
14
<PAGE> 18
SEPRACOR'S DISCOVERY STRATEGY IS CLOSELY ALIGNED WITH THE ICE PHARMACEUTICAL
STRATEGY. BOTH PROGRAMS FOCUS ON RELATED THERAPEUTIC AREAS, such as
inflammation, pain, and urological diseases. While the ICE Pharmaceutical
strategy potentially improves existing drugs, the Discovery approach creates new
chemical entities, which may lead to breakthrough compounds. By focusing drug
discovery efforts on synthetic, medicinal, and combinatorial chemistries,
Sepracor has developed a proprietary and highly diverse corporate file of small,
drug-like molecules with potential therapeutic advantages over compounds
currently used for treatment. - COMBINATORIAL CHEMISTRY TECHNIQUES ARE
USED TO PRODUCE LIBRARIES OF NOVEL COMPOUNDS FOR SCREENING. For both known
biological and new genomic-identified drug targets, relevant assays are designed
and implemented in high-throughput screening formats. Sepracor's unique method
of leveraging combinatorial chemistry combined with high-throughput screening
provides for competitive advantages in the drug discovery arena. The Company's
propriety chemistry allows Sepracor to create specifically shaped molecules that
will target receptors in a highly precise manner. This process is generating
more selective and potent lead compounds, which complement Sepracor's current
therapeutic focus. - Sepracor's collaborative relationships with select
biotechnology partners give the Company access to proprietary molecular targets
that are within Sepracor's therapeutic areas of interest and are suitable for
high-throughput screening formats. The relationship between high-throughput
screening and combinatorial chemistry dramatically shortens the time to discover
lead compounds and develop drug candidates. - THE POTENCY, SELECTIVITY,
AND STRUCTURE OF A LEAD COMPOUND, COMBINED WITH ITS PHYSICAL PROPERTIES AND
BIOAVAILABILITY, INCREASE THE PROBABILITY THAT THE SUBSTANCE WILL BECOME A DRUG.
When a lead is discovered, focused libraries are designed and synthesized
utilizing directed combinatorial chemistry techniques. Using this technology,
Sepracor has generated a number of lead compounds in less than one year. For
example, Sepracor has identified SEP-132,613 as a promising lead anti-infective
compound with "in vitro" potency against a wide range of resistant organisms.
Sepracor has also identified SEP-42,960 and SEP-89,068 as unique, drug-like
molecules with "in vitro" activity against the adenosine receptor subtypes.
Other lead compounds that have shown high potency and selectivity against the
opiate receptor subtypes "in vitro" are SEP-130,551 and SEP-130,169. - IN
THE FUTURE, SEPRACOR EXPECTS THESE DRUG DISCOVERY ACTIVITIES TO COMPLEMENT THE
COMPANY'S ICE PHARMACEUTICAL PIPELINE.
15
<PAGE> 19
SEPRACOR INC. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended December 31, (in thousands, except per share data) 1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Product sales $ 9,636 $ 13,784 $ 14,271 $ 12,382 $ 9,862
Collaborative research and development 58 25 1,036 303 2,209
License fees and royalties 5,643 1,232 900 5,425 1,359
----------------------------------------------------------------
Total revenues 15,337 15,041 16,207 18,110 13,430
----------------------------------------------------------------
Costs and expenses:
Cost of products sold 5,992 6,784 10,410 6,919 6,786
Research and development 43,055 35,828 21,707 17,723 13,301
Purchase of in-process research and development (1) -- -- -- 3,500 --
Selling, general, administrative and patent costs 17,254 16,312 20,411 16,212 12,494
Restructuring and impairment charges (2) 4,179 -- 4,144 -- 2,015
----------------------------------------------------------------
Total costs and expenses 70,480 58,924 56,672 44,354 34,596
----------------------------------------------------------------
Loss from operations (55,143) (43,883) (40,465) (26,244) (21,166)
----------------------------------------------------------------
Other income (expense):
Equity in investee losses (3) (2,755) (17,539) (808) -- --
Interest income 5,766 6,713 3,228 1,390 1,096
Interest expense (5,976) (6,140) (2,077) (832) (751)
Gain on Sale of ChiRex, Inc. 30,069 -- -- -- --
Other (4) 547 (107) (1,171) (213) (86)
----------------------------------------------------------------
Net loss before minority interests (27,492) (60,956) (41,293) (25,899) (20,907)
Minority interests in subsidiaries 1,369 846 7,881 5,556 --
----------------------------------------------------------------
Net loss $(26,123) $(60,110) $(33,412) $(20,343) $(20,907)
----------------------------------------------------------------
Net loss applicable to common shares (5) $(26,723) $(60,710) $(33,412) $(20,343) $(20,907)
----------------------------------------------------------------
Basic and diluted net loss per common share $ (0.97) $ (2.25) $ (1.54) $ (1.09) $ (1.16)
Basic and diluted weighted average number of common
shares outstanding 27,599 27,032 21,637 18,644 18,038
BALANCE SHEET DATA (IN THOUSANDS):
Cash and marketable securities $ 92,560 $103,650 $143,250 $ 27,590 $ 20,677
Total assets 128,507 146,689 202,713 73,419 46,681
Long-term debt 84,268 85,267 85,818 5,929 5,676
Stockholders' equity 12,032 30,392 89,227 30,485 33,152
</TABLE>
(1) Represents a charge in connection with an acquisition by BioSepra Inc.
(2) Represents restructuring and impairment charges taken by BioSepra in
December 1997 and 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 transactions 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.
16
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS 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 Inc.
("BioSepra"), Sepracor Canada Limited, HemaSure Inc. ("HemaSure") (from January
1994 to September 1995), SepraChem Inc. (from January 1996 to March 1996), New
England Pharmaceuticals, Inc. (from June 1995 to June 1996 when it was merged
into Sepracor), and Versicor (from May 1995 to December 1997).
In September 1995, 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. At
December 31, 1997, the Company's investment in HemaSure was recorded to zero.
In March 1996, ChiRex Inc. ("ChiRex"), a newly formed corporation that is a
combination of Sterling Organics Limited, a United Kingdom 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 of its common stock 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 owned 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. From March 11, 1996 until March 31, 1997, Sepracor carried 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 and $383,000 as its share of ChiRex's income for the quarter ended
March 31, 1997. On March 31, 1997, Sepracor received net proceeds of
approximately $31,125,000 from the public sale of all of its shares of ChiRex
common stock. As a result of this transaction, Sepracor recognized a gain of
$30,069,000, which was recorded as other income.
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 prime plus 3/4%. The loans, including any interest
thereon, were convertible into 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 and 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.
Versicor was formed in May 1995 to develop novel drug candidates principally for
the treatment of infectious diseases.
In 1995, Versicor entered into a Convertible Subordinated Note Agreement ("the
Note Agreement") with Sepracor. Under this Note Agreement, Sepracor agreed to
loan to Versicor until October 2, 1998, up to an aggregate of $4,700,000.
Amounts outstanding accrued interest at the prime rate plus 1/2% not to exceed
9.5%. Amounts outstanding were convertible, at the option of Sepracor, into
Versicor Series B Convertible Preferred Stock by dividing the amount
outstanding, including principal and interest, by $0.7833.
In 1996, Versicor entered into a loan agreement with Sepracor. Under this
agreement, Sepracor agreed to loan to Versicor until October 2, 1998 up to an
aggregate of $7,500,000. As of June 23, 1997, this agreement was amended to
provide that principal and interest payments due to Sepracor, would be
convertible, at the option of Sepracor, into Versicor Series B Convertible
Preferred Stock, by dividing the amount outstanding, including principal and
interest, by $0.7833. The loan accrued interest equal to the prime rate minus
1/4%, adjusted under certain circumstances.
On December 10, 1997, Versicor completed a private equity financing for
approximately $22,000,000 and issued Series C Preferred Stock. As part of the
transaction, Sepracor exercised its conversion option on the Versicor
Convertible Subordinated Notes (the "Notes") in the amount of $9,530,000. The
remaining $6,034,000, which was outstanding under the Notes at the time, was
repaid to Sepracor before the end of 1997. Sepracor recognized a gain of
approximately $5,688,000 on the transaction, which was recorded as an increase
to additional paid-in capital. At December 31, 1997, Sepracor had an investment
in Versicor of $3,971,000 and there were no amounts outstanding under the Notes.
Sepracor's ownership as of December 31, 1997 was approximately 22%, thereby
making Versicor an affiliate and reportable under the equity method. Sepracor
recorded $75,000 as its share of Versicor losses for the period December 10
though December 31, 1997.
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
REVENUE Product sales were $9,636,000 in 1997, $13,784,000 in 1996 and
$14,271,000 in 1995. Product sales are primarily attributable to BioSepra's
sales of bioprocessing media, supplies and equipment. The decrease in revenue
from 1995 to 1996 was primarily due to only consolidating the results of
SepraChem through March 11, 1996. The decrease in revenue from 1996 to 1997 is
attributable to fluctuations in the timing of large production scale media
orders and to the absence of one-time stocking orders from a major distributor
of research instruments, which occurred in 1996. In addition, the Company
believes that the sales of HyperD media have historically been adversely
affected by the now settled patent litigation with PerSeptive Biosystems Inc.
BioSepra's future success is dependent, in part, on its ability to generate
increased sales of its HyperD media products and research devices.
Collaborative research and development revenues were $58,000, $25,000 and
$1,036,000, in 1997, 1996 and 1995, respectively. The decrease from 1995 to 1996
was primarily related to a milestone
17
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
payment recorded in 1995 from Bayer Corporation. This contract was subsequently
terminated by Bayer.
License fees and royalties were $5,643,000 in 1997, $1,232,000 in 1996 and
$900,000 in 1995. The increase from 1995 to 1996 was due to revenue recognized
by BioSepra under an agreement with Beckman Instruments Inc. ("Beckman") in
1996. The increase from 1996 to 1997 was due to a $1,875,000 milestone payment
from Hoechst Marion Roussel Inc. ("HMRI") under the patent license agreement on
terfenadine carboxylate, marketed by HMRI as AllegraTM, and $3,600,000
recognized by BioSepra under the agreement with Beckman, that was revised in
December 1997. The increases in 1996 and 1997 were offset by decreases in
royalties received by Tanabe Seiyake Co. Ltd. ("Tanabe") relating to Tanabe's
licensing and use of Sepracor's technology in the manufacture of the chiral
intermediate of diltiazem: $168,000 in 1997, $333,000 in 1996 and $675,000 in
1995. Beginning in March 1996, Sepracor splits the royalty revenue from Tanabe
with ChiRex on a 50/50 basis.
In December 1997, Sepracor signed a licensing agreement with Schering-Plough
Corporation ("Schering") giving Schering exclusive worldwide rights to
Sepracor's patents covering descarboethoxyloratadine ("DCL"), an active
metabolite of loratadine. Under the terms of the agreement, Sepracor has
exclusively licensed its DCL rights to Schering, which expects to develop and
market the DCL product worldwide. Schering will pay Sepracor an upfront license
fee of $5,000,000 and royalties on DCL sales, if any, beginning at first product
launch. Any such royalties paid to Sepracor will escalate over time and upon the
achievement of sales volume and other milestones. As of December 31, 1997, the
agreement was still pending clearance under the Hart Scott Rodino Act. In
January 1998, Sepracor and Schering were notified that no objection would be
raised under the Hart Scott Rodino Act with respect to the license agreement.
Shortly thereafter, Sepracor received the $5,000,000 upfront license payment
from Schering and recorded the payment as license revenue in the first quarter
of 1998. The upfront license fee will be offset against future royalty payments.
On February 4, 1998, Sepracor signed a collaboration and license agreement with
Janssen Pharmaceutica, N.V. ("Janssen"), a wholly-owned subsidiary of Johnson &
Johnson, relating to the development and marketing of norastemizole, a third
generation nonsedating antihistamine. Under the terms of the agreement, the
companies will jointly fund the development of norastemizole, and Janssen has an
option to acquire certain rights regarding the product in the U.S. and abroad.
When exercised, Janssen and Sepracor will equally share the costs and profits
associated with the further development, marketing and sales of norastemizole in
the U.S. Sepracor will also retain the right to co-promote the product in the
U.S. Alternatively, Sepracor can elect to receive royalties, if any, on Janssen
sales of norastemizole in the U.S., in the event it decides not to co-promote
the product. Outside of the U.S., Janssen has the right to develop and market
norastemizole, and Sepracor will earn royalties on product sales, if any. In
addition, Janssen has worldwide OTC rights to norastemizole.
Cost of products sold, as a percentage of product sales, was 57% in 1997, 49% in
1996 and 73% in 1995. Cost of products sold decreased in 1996 as compared with
1995 primarily as a result of the elimination of sales of Biopass S.A.
("Biopass") products, a wholly owned subsidiary of BioSepra, which was sold in
July 1995. To a lesser extent, cost of products sold decreased in 1996 compared
to 1995 as a result of overall reductions in manufacturing costs at BioSepra.
The increase in 1997 from 1996 was primarily due to product mix changes and
fluctuations in timing of production-scale customer orders of BioSepra. In
addition, the increase is also attributable to the transition of BioSepra
resources from product development to production support, in association with
the commercialization of new media and instrument products. A payment of
$469,000 was made to a third party in connection with the HMRI milestone payment
and is included in cost of products sold in 1997.
Research and development expenses were $43,055,000 in 1997, $35,828,000 in 1996
and $21,707,000 in 1995. Research and development spending was primarily focused
on preclinical and clinical trials in Sepracor's pharmaceutical program and on
discovery initiatives at Versicor. The increase in 1996 compared to 1995 was due
to the costs associated with the progression of Sepracor's drug candidates into
later and more costly stages of development. In 1996, levalbuterol and
(S)-ketoprofen progressed into Phase III clinical trials, and norastemizole
progressed into Phase II clinical trials, and the Company initiated Phase I
clinical trials on (S)-oxybutynin and preclinical trials on (R,R)-formoterol. In
addition, costs increased in 1996 compared to 1995 due to the full-scale
operation of discovery capabilities at Versicor. Costs increased in 1997 as
compared to 1996 as levalbuterol Phase III clinical trials were completed, a new
drug application ("NDA") was submitted for levalbuterol to the Food and Drug
Administration ("FDA"), Phase III clinical trials began for norastemizole, and
Phase I clinical trials were initiated for (R,R)-formoterol.
Selling, general and administrative expenses were $15,594,000, $15,245,000 and
$19,037,000, in 1997, 1996 and 1995, respectively. The decrease in expenses in
1996 as compared to 1995 was primarily due to the hiring of certain management
personnel at Sepracor and BioSepra in 1995, increased legal expenses in 1995,
related to the recently settled lawsuits filed by and against PerSeptive, and
increased marketing expenses for HemaSure's LeukoNet Pre-Storage Leukoreduction
Filtration System ("Leukonet"). In addition, in 1996, HemaSure ceased being
consolidated in the results of Sepracor and BioSepra began to realize the
benefits of a cost-reduction program implemented in June 1995. The increase in
1997 as compared with 1996 resulted primarily from market research costs
incurred by Sepracor in determining the positioning of Sepracor's levalbuterol
product in the market and costs related to infrastructure development for a
direct sales force, offset by savings from personnel reductions at BioSepra. The
Company expects selling, general and administrative expenses to increase in 1998
as the Company accelerates the establishment of its direct sales force. Subject
to FDA approval of the Company's NDA, Sepracor is currently planning to commence
sales of the nebulized form of levalbuterol in late 1998.
In December 1997, BioSepra implemented a cost-reduction program that included
the discontinuance of a product line and a reduction in the number of employees.
The purpose of the program was to enable BioSepra to focus on the process
segments of the biopharmaceutical and genomics market. In conjunction
18
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
with the cost-reduction program BioSepra also wrote down intangible assets to
their net realizable value. In total, BioSepra recorded restructuring and
impairment charges totaling $4,179,000 in the fourth quarter of 1997. Of this
amount, $3,328,000 represents the write down of goodwill to its net realizable
value, $690,000 represents the write down of inventory and fixed assets
associated with the discontinued product line and $161,000 represents severance
and benefits related to the reduction in workforce in the U.S. BioSepra
terminated seven employees consisting of marketing/sales, finance and
administrative personnel. BioSepra expects to pay all of the severance and
related benefits in 1998.
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 biopharm aceutical 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 related 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 the remaining severance and
medical payments were paid in 1997.
In July 1995, BioSepra sold Biopass while retaining the chromatography column
technology that it obtained 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.
Legal expenses related to patents were $1,660,000, $1,067,000 and $1,374,000 for
1997, 1996 and 1995, respectively. The decrease in 1996 compared to 1995 was due
to chiral patent costs being transferred to ChiRex, beginning in March 1996. The
increase in 1997 compared with 1996 was due to maintenance fees associated with
the increased volume of patent filings and costs incurred in defending patent
interference claims made against the Company in 1997.
Equity in loss of investees was $2,755,000, $17,539,000 and $808,000 for 1997,
1996 and 1995, respectively. The equity in loss of investees consists of the
Company's portion of the net loss of HemaSure, ChiRex (through March 31, 1997)
and Versicor (beginning December 10, 1997). The increase in 1996 as compared to
1995 was due to one-time write-offs of $11,076,000 from ChiRex's initial public
offering and resulting transactions (Sepracor's portion of this one-time
write-off was $3,544,000). Included in HemaSure's results was $24,748,000
relating to the operations and discontinuation of HemaSure's blood plasma
business (Sepracor's portion of this was $9,157,000). The decrease in 1997
compared to 1996 was primarily related to the absence of any one-time
write-offs, ChiRex having net income for the period in 1997 during which
Sepracor maintained an interest and recording of HemaSure losses for only 11
months of 1997 as the investment was written down to zero.
Interest income was $5,766,000, $6,713,000 and $3,228,000 for 1997, 1996, and
1995, respectively. The increase in 1996 was primarily due to a larger average
cash balance available for investment, while the decrease in 1997 is principally
the result of a lower average cash balance available for investment.
Interest expense was $5,976,000, $6,140,000 and $2,077,000 in 1997, 1996 and
1995, respectively. The increase in interest expense in 1996 compared to 1995
were due to the $80,880,000 subordinated convertible debenture offering
completed in November and December of 1995. The decrease in 1997 was a result of
reduced borrowings by BioSepra and more favorable interest rates on the
remaining borrowings.
Net other income (expense) was $547,000, $(107,000), $(1,171,000) for 1997, 1996
and 1995, respectively. The decrease in expense in 1996 was primarily due to the
one-time write-off of approximately $800,000 of certain deferred financing costs
by Sepracor related to SepraChem in 1995. Income in 1997 related to the receipt
of a Canadian tax refund and favorable foreign exchange transactions associated
with BioSepra.
Minority interests in subsidiaries resulted in a reduction of consolidated net
loss of $1,369,000, $846,000, and $7,881,000 for 1997, 1996 and 1995,
respectively. The decrease in 1996 compared to 1995 resulted from smaller losses
at BioSepra and from HemaSure no longer being consolidated into the results of
operations of Sepracor. The increase in 1997 compared to 1996 related to larger
losses at BioSepra, offset by a reduction in the percentage of minority
interest, as Sepracor's ownership increased to 64% in June 1996.
OTHER The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standard No. 130 "Reporting Comprehensive Income" ("SFAS
130"). SFAS 130 requires that changes in comprehensive income be shown in a
financial statement that is displayed with the same prominence as other
financial statements. SFAS 130 will become effective for fiscal years beginning
in the first quarter of the fiscal year ending December 31, 1998. The Company
does not believe that the adoption will have a material effect on results from
operations.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"). SFAS 131 specifies new
guidelines for determining a company's operating segments and related
requirements for disclosure. Sepracor is in the process of evaluating the impact
of the new
19
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
standard on the presentation of the financial statements and the disclosure
therein. SFAS 131 will become effective for fiscal years beginning after
December 31, 1998.
LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents plus marketable
securities of Sepracor and its subsidiaries, including BioSepra, totaled
$92,560,000 at December 31, 1997, compared to $103,650,000 at December 31, 1996.
Cash and cash equivalents plus marketable securities of Sepracor, excluding
BioSepra, at December 31, 1997 were $90,044,000.
The net cash used in operating activities for the twelve months ended December
31, 1997 was $43,763,000. The net cash used in operating activities includes a
net loss of $26,123,000 adjusted by non-cash charges of $11,561,000. Non-cash
charges include a restructuring and impairment charge of $4,018,000 relating to
BioSepra. This was offset by the gain on sale of ChiRex of $30,069,000 and the
minority interest in subsidiary portion of the net loss of $1,369,000. The
accounts payable and accrued expense balances increased a total of $5,470,000
from the December 31, 1996 balances, primarily due to increased research and
development accruals at Sepracor. The deferred revenue decreased a total of
$3,620,000 due to BioSepra's recognition of license revenue relating to the
Beckman contract.
In 1994, Sepracor, BioSepra and HemaSure entered into an equipment leasing
arrangement that provides for a total of up to $2,000,000 of financing to
Sepracor and its subsidiaries for the purpose of financing capital equipment in
the United States. All outstanding amounts are collateralized by the assets so
financed and are guaranteed by Sepracor. At December 31, 1997, there was
$355,000 outstanding under this credit facility relating to Sepracor and
BioSepra, of which $205,000 represented Sepracor's portion.
At December 31, 1997, Sepracor had guaranteed $624,000 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, 1997, Sepracor Canada Limited had received approximately
$2,960,000 of such term debt, of which $2,295,000 was outstanding.
In 1995 and in 1997, Versicor entered into Convertible Subordinated Note
Agreements ("the Note Agreements") with Sepracor. Under these Note Agreements,
Sepracor agreed to loan to Versicor amounts as required for operating purposes.
The amounts outstanding under the 1995 note accrued interest at the prime rate
plus 1/2% not to exceed 9.5%. The amounts outstanding under the 1997 note
accrued interest at the prime rate minus 1/4%, adjusted under certain
circumstances. The Note Agreements were convertible, at the option of Sepracor,
into Versicor Series B Convertible Preferred Stock by dividing the amount
outstanding, including principal and interest, by $0.7833.
On December 9, 1997, Sepracor converted an aggregate of $9,530,000 of the
foregoing Note Agreements into 12,166,667 shares of Versicor Series B Preferred
Stock (1,095,000 shares on a common equivalent basis after giving effect to a
9-for-1 reverse common stock split declared by Versicor in December 1997). On
December 31, 1997, Versicor repaid Sepracor the remaining $6,034,000 due under
the Note Agreements.
In 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 (the "Revolving Credit Agreement"), pursuant to which
BioSepra and Versicor could borrow up to $3,000,000 each. All borrowings are
collateralized by certain assets of the companies. On December 30, 1997, the
Revolving Credit Agreement was amended to remove Versicor as a party thereto.
The Revolving 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, 1997, there were no amounts outstanding
under this agreement. The annual interest rate on such borrowings is at the
lower of the prime rate or LIBOR plus 175 basis points.
On December 30, 1997, Sepracor entered into a put agreement with a commercial
bank pursuant to which Sepracor agreed to purchase $2,000,000 of indebtedness of
Versicor, a former wholly owned subsidiary, in the event of a default by
Versicor under its loan agreement with the bank. In the event that the put right
is exercised by the bank, the bank will assign its security interest in the
fixed assets of Versicor to Sepracor.
On February 10, 1998, Sepracor issued $189,475,000 of 6 1/4% Convertible
Subordinated Debentures due 2005 (the "6 1/4% Debentures"). The 6 1/4%
Debentures are convertible into Sepracor common stock, at the option of the
holder, at a price of $47.369 per share. The 6 1/4% Debentures bear interest at
6 1/4% payable semi-annually, commencing on August 15, 1998. The 6 1/4%
Debentures are not redeemable by the Company prior to February 18, 2001. The
Company may be required to repurchase the 6 1/4% Debentures at the option of the
holders in certain circumstances. As part of the sale of the 6 1/4% Debentures,
Sepracor incurred approximately $5,915,000 of offering costs, which will be
recorded as other assets and amortized over seven years, the term of the 6 1/4%
Debentures. The net proceeds to the Company after offering costs was
$183,560,000. The Company intends to use the proceeds from the sale of the 6
1/4% Debentures for the establishment of the Company's respiratory sales force,
marketing of certain ICEs, ongoing preclinical and clinical trials, funding of
other research and development programs, and working capital and other general
corporate purposes.
On March 26, 1998, Sepracor and Beckman terminated their Stock Purchase
Agreement under which Beckman acquired 312,500 shares of Sepracor Series B
Redeemable Preferred Stock. Sepracor paid Beckman the original purchase price of
the stock plus accrued dividends totalling $6,850,000. As a result of this
termination, subsequent to year-end, Sepracor has reclassed its convertible
redeemable preferred stock as a current liability at December 31, 1997. In
addition, BioSepra and Beckman amended their distribution agreement whereby
BioSepra granted a non-exclusive right to manufacture instruments to Beckman,
20
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
removed its obligation to manufacture instruments for Beckman, and sold the
discontinued instrument product inventory to Beckman for $250,000.
LEGAL PROCEEDINGS In July 1997, the United States Patent and Trademark Office
(the "PTO") informed Sepracor that it had declared an interference between
Sepracor's previously issued method-of-use patent on fexofenadine to treat
allergic rhinitis and another similar patent application of Sepracor, and HMRI's
method-of-use patent application on the anti-histaminic effects of fexofenadine
on hepatically impaired patents. The primary objective of a patent interference,
which can only be declared by the PTO, is to determine the first to invent any
overlapping subject matter claimed by more than one party. In the course of an
interference, the parties typically present evidence relating to their inventive
activities as to the overlapping subject matter. The PTO then reviews the
evidence to determine which party has the earliest legally sufficient inventive
date, and, therefore, is entitled to a patent claiming the overlapping subject
matter.
If Sepracor prevails in the interference, Sepracor will retain all of its claims
in its issued patent. If, however, Sepracor loses the interference, HMRI will be
issued a U.S. patent containing its claims involved in the interference and may
not be obligated to pay Sepracor milestone or royalty payments pursuant to the
terms of the license agreement whereby Sepracor licensed its U.S. patent rights
covering fexofenadine to HMRI in 1993.
In December 1997, The Company and its subsidiary, BioSepra, settled their long
standing patent lawsuit with PerSeptive Biosystems, Inc. ("PerSeptive"), a
competitor of BioSepra. Under the terms of the settlement, PerSeptive received
an unspecified amount and BioSepra obtained a limited, non-exclusive license
under PerSeptive's Perfusion Chromatography R patents to make, use and sell its
HyperD R product line free of claims of infringements by PerSeptive.
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 (the "'321 patent"), HemaSure filed
for summary judgment of noninfringement. Pall filed a cross motion for summary
judgment of infringement at the same time. In October 1997, the U.S. District
Court of the Eastern District of New York granted in part Pall's summary
judgment motion relating to the '321 patent. The court has not yet ruled on the
validity of Pall's '321 patent claims, which HemaSure has asserted are invalid
and unenforceable. The court now will need to review and determine the validity
of this patent prior to any further action. No date has been set for these
proceedings.
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 unenforceability 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
HemaSures's future business and operations.
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 Improved Chemical Entities
("ICE(TM)s") under development and the scope of patent protection with respect
to these products and information with respect to the other plans and strategy
for the Company's business and the business of the subsidiaries and certain
affiliates of the Company, consists of forward-looking statements. Important
factors that could cause actual results to differ materially from the
forward-looking statements include the following:
Since substantially all of Sepracor's ICEs 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 parent drugs or that research efforts undertaken by Sepracor will
lead to the discovery of future 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 successful development and
commercialization. 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.
Sepracor has filed patent applications covering compositions containing, and
methods of using, single isomer or active-metabolite forms of various compounds
for specific applications. The ability to commercialize successfully any ICE
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. Most of the ICEs for which Sepracor has obtained use
patents or filed applications therefor are claimed by composition of matter or
other patents or patent applications held by third parties. In each such case,
unless subject to an existing license agreement, the ICE may not be
commercialized until the expiration of corresponding third party
composition-of-matter or other patents. 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 product 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
21
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
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. Certain of the technology that may be used in the products of
Sepracor is not covered by any patent or patent application. In the absence of
patent protection, the business of Sepracor may be adversely affected by
competitors who independently develop substantially equivalent technology.
In July 1997, the PTO informed Sepracor that it had declared an interference
between Sepracor's previously issued use patent on fexofenadine to treat
allergic rhinitis and another similar patent application of Sepracor, and the
use patent application of HMRI on the anti-histaminic effects of fexofenadine on
hepatically impaired patients. The primary objective of a patent interference,
which can only be declared by the PTO, is to determine which party was the first
to invent any overlapping subject matter claimed by more than one party. In the
course of an interference, the parties typically present evidence relating to
their invention of the overlapping subject matter. The PTO then reviews the
evidence to determine which party has the earliest legally sufficient date of
invention, and, therefore, is entitled to a patent claiming the overlapping
subject matter. If Sepracor prevails in the interference, Sepracor will retain
all of its claims in its issued patent. If, however, Sepracor loses the
interference, HMRI will be issued a U.S. patent containing its claims involved
in the interference and may not be obligated to pay Sepracor milestone or
royalty payments pursuant to the terms of the license agreement whereby Sepracor
licensed its U.S. patent rights covering fexofenadine to HMRI in 1993. Sepracor
and HMRI have agreed to resolve the interference by arbitration. Selection of
the arbitrator and initiation of the arbitration proceeding is expected to occur
in the first half of 1998. While it is possible that the arbitrator's decision
may be rendered during 1998, there can be no assurance that the arbitrator's
decision will be rendered at that time. Once rendered, the arbitrator's decision
must be submitted to the PTO for final approval. The interference is in its
early stages and the Company is unable to predict its outcome.
The marketing and sale of pharmaceutical products developed by Sepracor or its
development partners will require FDA approvals as well as similar approvals in
foreign countries. To obtain such approvals, the safety and efficacy of such
products must be demonstrated through clinical trials. 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 or that regulatory approval for any such products will be obtained
on a timely basis, if at all. The clinical trial and regulatory approval process
can take a number of years and require the expenditure of substantial resources.
With respect to certain of the Company's ICEs, the Company has been able to
shorten the regulatory approval process of its ICEs by relying on preclinical
and clinical toxicology data already on file with the FDA with respect to the
parent drug. Although Sepracor has to date been successful in employing this
strategy in connection with the approval process of certain of its proposed
products, there can be no assurance that the FDA will permit the Company to
utilize this strategy in the future. Accordingly, the Company may be required to
expend significant resources to complete such preclinical and clinical studies
for its other ICEs, thereby significantly delaying the regulatory approval
process. The failure of the Company to obtain regulatory approval on a timely
basis and unanticipated significant expenditures on preclinical and clinical
studies could adversely affect the financial condition of the Company. While the
Company expects FDA approval of its NDA for the nebulized form of levalbuterol
in late 1998, there can be no assurance that the FDA will approve such NDA by
such date, if at all.
The Company currently has very limited sales and marketing experience. If the
Company is successful in developing and obtaining regulatory approval for its
products under development, it expects to license certain products to large
pharmaceutical companies and market and sell certain other products through its
direct specialty sales forces or through other arrangements, including
co-promotion arrangements. In anticipation of expected FDA approval of the
nebulized form of levalbuterol later this year, the Company is beginning to
establish a direct sales force to market the inhalation solution of
levalbuterol. Further, as the Company begins to enter into co-promotion
arrangements or market and sell additional products directly, the Company will
need to significantly expand its sales force. It is expected that the Company
will incur significant expense in establishing its direct sales force. The
ability of the Company to realize significant revenues from its direct marketing
and sales activities is dependent on its ability to attract and retain qualified
sales personnel in the pharmaceutical industry. There can be no assurance,
however, that the Company will be able to attract and retain such qualified
sales personnel, that it will successfully expand its marketing and direct sales
force in the future on a timely basis, that the cost of establishing such
marketing or sales force will not exceed any product revenues, that its sales
and marketing efforts will be successful, or that the need to comply with FDA
limits on drug product marketing, including limits on claims of comparative
safety or efficacy, will not inhibit the effectiveness of such marketing. In
addition, the Company will need to enter into co-promotion arrangements with
third parties where its own direct sales force is neither well situated nor
large enough to achieve maximum penetration in the market. There can be no
assurance that the Company will be successful in entering into any such
arrangements or that the terms of any such arrangements will be favorable to the
Company.
Sepracor's ability to commercialize certain drugs that it develops is likely to
depend in significant part on its ability to enter into collaborative agreements
with pharmaceutical companies to fund all or part of the costs to complete the
development of such drugs and to manufacture and/or market such drugs. To date,
the Company has entered into three such collaborative agreements. The Company
has licensed its U.S. patent rights to Allegra (fexofenadine) to HMRI and is
entitled to receive royalties on all U.S. sales of Allegra when the patent on
the parent drug expires. The Company, however, is currently party to an
interference involving Allegra which, if decided adversely to the Company, could
result in the loss of all or substantially all of the royalties to which the
Company is entitled under the license agreement on future sales of Allegra. The
Company has also licensed its worldwide patent
22
<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
rights in DCL to Schering-Plough, pursuant to which the Company is entitled to
receive royalties from Schering-Plough upon the initial sale of the product. The
Company has entered into an agreement with Janssen with respect to the joint
development and co-promotion of norastemizole. In each of these collaborative
arrangements and, to the extent the Company enters into additional collaborative
arrangements, the Company is dependent upon the efforts of the collaboration
partners and there can be no assurance that such efforts will be successful. If
any collaborators were to breach or terminate their agreements with the Company
or fail to perform their obligations thereunder in a timely manner, the
development and commercialization of the products could be delayed or
terminated. Any such delay or termination could have a material, adverse effect
on the Company's financial condition and results of operation. Sepracor's
failure or inability to perform certain of its obligations under a collaborative
agreement could result in a reduction or loss of the benefits to which Sepracor
is otherwise entitled under such agreement. There can be no assurance that
Sepracor will be able to enter into any such agreements for ICEs in the future
or that such collaborative agreements, if any, will be entered into on terms
favorable to the Company.
The Company currently operates a current Good Manufacturing Practices ("cGMP")
compliant manufacturing plant which the Company believes has sufficient capacity
to support the production of its drugs in quantities required for its clinical
trials. While the Company believes it has the capability to scale up its
manufacturing processes and manufacture sufficient quantities of certain of the
products which may be approved for sale, without additional expansion, the
Company will not have the capability to manufacture in sufficient quantities all
of the products which may be approved for sale. Accordingly, the Company may be
required to expend additional resources to expand its current facility,
construct an additional facility or contract the production of these drugs to
third party manufacturers. There can be no assurance that the Company will have
the resources to expand its existing or develop additional facilities or
contract with manufacturers to produce its products in commercial quantities or
that any contract with third party manufacturers will be on favorable terms to
the Company. There can be no assurance that the Company will succeed in scaling
up its manufacturing processes or maintaining cGMP compliance. Failure in either
respect can lead to refusal by the FDA to approve marketing applications.
Failure to maintain cGMP compliance may also be the basis for action by the FDA
to withdraw approvals that have been granted and for other regulatory action.
The testing, marketing and sale of human health care products entails an
inherent risk of product liability and there can be no assurance that product
liability claims will not be asserted against Sepracor. Sepracor and its
subsidiaries maintain limited product liability insurance coverage for both the
clinical trials and commercialization of its products. There can be no assurance
that Sepracor will be able to obtain further product liability insurance on
acceptable terms, if at all, or that any current insurance subsequently obtained
will provide adequate coverage against all potential claims.
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 financing,
collaborative or other arrangements with corporate partners or from other
sources, may not be available when needed or 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
2000, 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 Sepracor Canada Limited, and other factors.
The Company is currently evaluating the potential impact of the year 2000 on the
processing of date-sensitive information by the Company's computerized
information systems. The year 2000 problem is the result of computer programs
being written using two digits (rather than four) to define the applicable year.
Any of the Company's programs that have time-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000, which could result
in miscalculation or system failures. Based on preliminary information, costs of
addressing potential problems are not currently expected to have a material
adverse impact on the Company's financial position, results of operations or
cash flows in the future periods. However, if the Company, its customers or
vendors are unable to resolve such processing issues in a timely manner, it
could result in a material financial risk. Accordingly, the Company plans to
devote the necessary resources to resolve all significant year 2000 issues in a
timely manner.
Other factors that may affect the Company's future operating results include the
Company's fluctuations in quarterly operating results, its ability to meet its
debt service requirements and to compete successfully in the market.
Factors that may affect the future operating results of Sepracor include the
ability of BioSepra to obtain additional financing, the dependence on BioSepra
sales of HyperD media, which was introduced in 1993, and BioSepra's ability to
sell its products to customers at the early stage of their product development
cycles.
Factors that may affect the future operating results of Sepracor include the
ability of HemaSure to develop commercially viable products and HemaSure's
limited number of customers.
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.
23
<PAGE> 27
SUPPLEMENTAL STOCKHOLDER INFORMATION
PRICE RANGE OF COMMON STOCK
The Common Stock of Sepracor Inc. is traded on the Nasdaq National Market under
the symbol SEPR. Prior to September 20, 1991, the Company's Common Stock was not
publicly traded. On March 13, 1998, the closing price of the Company's Common
Stock, as reported on the Nasdaq National Market, was $39 13/16 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 National Market.
<TABLE>
<CAPTION>
1997 HIGH LOW
- ---------------------------------------------------------------------------------
<S> <C> <C>
FIRST QUARTER 27 1/8 16
SECOND QUARTER 27 1/8 18
THIRD QUARTER 42 3/4 19
FOURTH QUARTER 42 3/4 28 3/8
1996 High Low
- ---------------------------------------------------------------------------------
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
</TABLE>
On March 13, 1998, Sepracor had approximately 479 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:
BankBoston, N.A.
c/o Boston EquiServe, L.P.
P.O. Box 8040
Boston, MA 02266-8040
Phone: (781) 575-3120
FORM 10-K
A copy of the Company's Annual Report on Form 10-K for the year ended December
31, 1997 is available without charge upon written request to:
Investor Relations
Sepracor Inc.
111 Locke Drive
Marlborough, MA 01752
24
<PAGE> 28
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. as
of December 31, 1997 and 1996, and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the three years in
the period ended December 31, 1997. 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
1997 and 1996 financial statements of BioSepra Inc., a majority-owned
subsidiary, whose statements constitute 12% and 16% of total assets and 87% and
95% of total revenues of the related 1997 and 1996 consolidated totals,
respectively.
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 provide a reasonable basis for our opinion.
In our opinion, based on our audits and the 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, 1997 and 1996 and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31, 1997
in conformity with generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
Boston, Massachusetts
February 19, 1998, except as to the information in Note W for which the date is
March 26, 1998.
25
<PAGE> 29
SEPRACOR INC. CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31 (in thousands, except par value amounts) 1997 1996
- ----------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents (Note B) $ 82,579 $ 83,344
Marketable securities (Note B) 9,981 20,306
Accounts receivable (Note E) 2,415 3,129
Inventories (Note F) 2,722 3,481
Other assets 1,543 1,588
-------------------------
Total current assets 99,240 111,848
-------------------------
Property and equipment, net (Note G) 15,126 17,045
Investment in affiliates (Note D) 3,971 3,100
Excess of investment over net assets acquired, net (Notes B, H and T) 5,288 9,254
Other assets (Note L) 4,882 5,442
-------------------------
Total assets 128,507 146,689
-------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,018 $ 4,300
Accrued expenses (Note I) 17,670 12,174
Deferred revenue (Note B and J) 21 3,646
Notes payable and current portion of capital lease obligation and
long-term debt (Notes K and M) 861 804
Convertible redeemable preferred stock (Notes O and W) 6,700 --
-------------------------
Total current liabilities 29,270 20,924
-------------------------
Long-term debt and capital lease obligation (Notes K and M) 3,388 4,387
Convertible subordinated debentures (Note L) 80,880 80,880
-------------------------
Total liabilities 113,538 106,191
-------------------------
Convertible redeemable preferred stock (Notes O and W) -- 6,100
Minority interest (Note C) 2,937 4,006
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 1997 and 1996, issued and
outstanding 27,853 in 1997 and 27,271 in 1996 2,785 2,727
Additional paid-in capital 222,504 214,399
Unearned compensation, net (Note O) (94) (234)
Accumulated deficit (213,028) (186,905)
Equity adjustments (135) 405
-------------------------
Total stockholders' equity 12,032 30,392
-------------------------
Total liabilities and stockholders' equity $ 128,507 $ 146,689
-------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
26
<PAGE> 30
SEPRACOR INC. CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31, (in thousands, except per share amounts) 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Product sales $ 9,636 $ 13,784 $ 14,271
Collaborative research and development 58 25 1,036
License fees and royalties (Note R) 5,643 1,232 900
--------------------------------------
Total revenues 15,337 15,041 16,207
--------------------------------------
Costs and expenses:
Cost of products sold 5,992 6,784 10,410
Research and development 43,055 35,828 21,707
Selling, general and administrative 15,594 15,245 19,037
Legal expense related to patents 1,660 1,067 1,374
Restructuring and impairment charges (Note H) 4,179 -- 4,144
--------------------------------------
Total costs and expenses 70,480 58,924 56,672
--------------------------------------
Loss from operations (55,143) (43,883) (40,465)
--------------------------------------
Other income (expense):
Equity in investee losses (Note D) (2,755) (17,539) (808)
Interest income 5,766 6,713 3,228
Interest expense (5,976) (6,140) (2,077)
Gain on sale of ChiRex Inc. 30,069 -- --
Other income (expense) 547 (107) (1,171)
--------------------------------------
Net loss before minority interests (27,492) (60,956) (41,293)
Minority interests in subsidiaries (Note C) 1,369 846 7,881
--------------------------------------
Net loss $(26,123) $(60,110) $(33,412)
--------------------------------------
Net loss applicable to common shares (Note B) $(26,723) $(60,710) $(33,412)
--------------------------------------
Basic and diluted net loss per common share (Note B) $ (0.97) $ (2.25) $ (1.54)
--------------------------------------
Basic and diluted weighted average number of common shares
outstanding (Note B) 27,599 27,032 21,637
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
27
<PAGE> 31
SEPRACOR INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional
Preferred Stock Common Stock Paid-In
Year ended December 31, 1997, 1996 and 1995 (in thousands) Shares Amount Shares Amount Capital
- -------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 79 $ 79 18,681 $1,868 $122,048
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Issuance of common stock to employees
under stock plans 430 43 1,141
Gain on issuance of subsidiary's stock 15,235
Issuance of common stock in public
follow-on offering and warrant exercises 5,620 562 68,110
Issuance of common stock for acquisition 102 11 1,399
Issuance of common stock from conversion
of subordinated convertible notes 1,189 119 5,381
Issuance of common stock from conversion
of preferred stock (79) (79) 794 79
Accrued dividends from preferred stock (500)
Net loss
Equity adjustments
-------------------------------------------------------------
Balance at December 31, 1995 -- -- 26,816 $2,682 212,814
-------------------------------------------------------------
Issuance of common stock to employees
under stock plans 455 45 2,185
Accrued dividends from preferred stock (600)
Unearned compensation, net
Net loss
Equity adjustments
-------------------------------------------------------------
Balance at December 31, 1996 -- -- 27,271 $2,727 214,399
-------------------------------------------------------------
Issuance of common stock to employees
under stock plans 582 58 3,017
Unearned compensation, net
Accrued dividends from preferred stock (600)
Gain on issuance of subsidiary's stock 5,688
Net loss
Equity adjustments
-------------------------------------------------------------
Balance at December 31, 1997 -- $-- $27,853 $2,785 $222,504
-------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Total
Unearned Accumulated Equity Stockholders'
Year ended December 31, 1997, 1996 and 1995 (in thousands) Compensation Deficit Adjustments Equity
- ------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 $ -- $ (93,383) $(127) $ 30,485
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Issuance of common stock to employees
under stock plans 1,184
Gain on issuance of subsidiary's stock 15,235
Issuance of common stock in public
follow-on offering and warrant exercises 68,672
Issuance of common stock for acquisition 1,410
Issuance of common stock from conversion
of subordinated convertible notes 5,500
Issuance of common stock from conversion
of preferred stock
Accrued dividends from preferred stock (500)
Net loss (33,412) (33,412)
Equity adjustments 653 653
-------------------------------------------------------------
Balance at December 31, 1995 -- (126,795) 526 89,227
-------------------------------------------------------------
Issuance of common stock to employees
under stock plans 2,230
Accrued dividends from preferred stock (600)
Unearned compensation, net $(234) (234)
Net loss (60,110) (60,110)
Equity adjustments (121) (121)
-------------------------------------------------------------
Balance at December 31, 1996 (234) (186,905) 405 30,392
-------------------------------------------------------------
Issuance of common stock to employees
under stock plans 3,075
Unearned compensation, net 140 140
Accrued dividends from preferred stock (600)
Gain on issuance of subsidiary's stock 5,688
Net loss (26,123) (26,123)
Equity adjustments (540) (540)
-------------------------------------------------------------
Balance at December 31, 1997 $ (94) $(213,028) $(135) $(12,032)
-------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
28
<PAGE> 32
SEPRACOR INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31, (in thousands) 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (26,123) $ (60,110) $ (33,412)
Adjustments to reconcile net loss to net cash used in operating activities:
Minority interests in subsidiaries (1,369) (846) (7,881)
Depreciation and amortization 4,614 4,400 2,785
Provision for doubtful accounts 150 142 286
Equity in investee losses 2,755 17,539 808
Loss on disposal of property and equipment 24 125 10
Restructuring and impairment charges 4,018 -- 2,629
Gain on sale of equity investee (30,069) -- --
Changes in operating assets and liabilities, net of effects of acquired
business:
Accounts receivable 383 2,069 4,272
Inventories (46) (72) 1,727
Other current assets 50 (796) (313)
Accounts payable (136) 1,115 (3,315)
Accrued expenses 5,606 6,176 1,424
Deferred revenue (3,620) 147 2,757
-----------------------------------------
Net cash used in operating activities (43,763) (30,111) (28,223)
-----------------------------------------
Cash flows from investing activities:
Purchases of marketable securities (60,961) (93,328) (24,584)
Sales and maturities of marketable securities 71,285 80,454 19,350
Additions to property and equipment (2,653) (10,121) (3,184)
Proceeds from sale of equipment 7 147 34
Investment in subsidiary -- -- (6,639)
Investment in affiliate (4,046) -- --
Net proceeds from sale of equity investee 30,625 -- --
Proceeds from affiliate's repayment of long-term note 6,034 -- --
(Increase) decrease in other assets 449 1,560 (1,203)
-----------------------------------------
Net cash provided by (used in) investing activities 40,740 (21,288) (16,226)
-----------------------------------------
Cash flows from financing activities:
Net proceeds from issuance of stock 3,203 2,047 74,904
Proceeds from sale of convertible subordinated debentures -- -- 78,268
Borrowings under long-term debt 174 -- 3,778
Repayments of long-term debt (962) (826) (439)
Repayments under line of credit agreements (11) (2,299) (1,701)
-----------------------------------------
Net cash provided by (used in) financing activities 2,404 (1,078) 154,810
-----------------------------------------
Effect of exchange rate changes on cash and cash equivalents (146) 3 60
-----------------------------------------
Net increase (decrease) in cash and cash equivalents (765) (52,474) 110,421
Cash and cash equivalents at beginning of year 83,344 135,818 25,397
-----------------------------------------
Cash and cash equivalents at end of year 82,579 $ 83,344 $ 135,818
-----------------------------------------
Supplemental schedule of cash flow information:
Cash paid during the year for interest $ 5,980 $ 6,337 $ 1,666
Capital lease obligations incurred $ -- $ 61 $ 915
-----------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
29
<PAGE> 33
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 top-selling drugs called ICE(TM) 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 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 (See Note H). Sepracor's 37% owned subsidiary, HemaSure Inc., is
dedicated to making blood safer through blood filtration devices. Sepracor's 22%
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 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. Versicor had been a consolidated entity until December 10, 1997
and was included in Sepracor's consolidated financial statements for the years
ended December 31, 1996 and December 31, 1995. Versicor's financial results were
consolidated for the period January 1, 1997 through December 10, 1997. See Notes
C and D for further discussion.
The Company accounts for the sale of subsidiary stock in different manners,
depending on the life-cycle of the entity. The Company will offset any gains or
losses against additional paid-in capital for early development stage
subsidiaries. For later stage subsidiaries, the Company records gains or losses
as other income or expense.
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.
TRANSLATION OF FOREIGN CURRENCIES: The assets and liabilities of Sepracor's
international subsidiaries are translated into U.S. dollars 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 equity adjustments 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, 1997 and 1996, cash equivalents primarily
consist of $1,165,000 and $4,511,000 in repurchase agreements, $61,011,000 and
$70,215,000 in high quality corporate and government commercial paper and
$19,530,000 and $8,403,000 of money market instruments which invest primarily in
U.S. Treasury securities, respectively.
CONCENTRATION OF CREDIT RISK: The Company has no significant off-balance-sheet
concentration of credit risk such as foreign exchange contracts, option
contracts or other foreign hedging arrangements. The Company maintains the
majority of its cash balances with financial institutions. Financial instruments
that potentially subject the Company to concentrations of credit risk primarily
consist of the cash and cash equivalents. The Company places its cash, temporary
cash investments and marketable securities with high credit quality financial
institutions. Financial instruments that subject the Company to credit risk
consist primarily of trade accounts receivable. Customers with amounts due to
the Company that represent greater than 10% of the accounts receivable balance
are as follows:
<TABLE>
<CAPTION>
Year Ended December 31: 1997 1996
- --------------------------------------------------
<S> <C> <C>
Customer A 16% 25%
Customer B -- 15%
Customer C 11% --
Customer D -- --
Customer E 24% --
</TABLE>
Revenues from significant customers are as follows:
<TABLE>
<CAPTION>
Year Ended December 31: 1997 1996 1995
- ---------------------------------------------------------------
<S> <C> <C> <C>
Customer A 33% 24% --
Customer B -- 12% --
Customer C 10% -- --
Customer D 12% -- --
Customer E -- -- --
</TABLE>
For financial information by geographic area see Note V.
MARKETABLE SECURITIES: Sepracor has classified 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
30
<PAGE> 34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
specific identification cost basis. The market value of Sepracor's marketable
securities at December 31, 1997 and 1996, was not materially different from
cost.
Marketable securities consist of the following at December 31:
<TABLE>
<CAPTION>
(in thousands) 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
Government Security $ -- $ 5,000
Corporate commercial paper 9,981 15,306
--------------------------------
$9,981 $20,306
================================
</TABLE>
There were no gross realized gains or losses on the sale of marketable
securities for the years ended December 31, 1997, 1996 and 1995, respectively.
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 DEVELOPMENT COSTS: In accordance with the provision of Statement of
Financial Accounting Standards No. 86 "Accounting for the Costs of Computer
Software to be Sold, Leased or Otherwise Marketed," the Company capitalized
$199,000 of software costs in 1995. These costs are being amortized over the
expected number of units to be shipped. Amortization of $157,000, $311,000 and
$165,000 was charged to cost of sales in 1997, 1996 and 1995, respectively.
There were no capitalizable software costs in 1997 and 1996.
INTANGIBLE ASSETS: The excess of investment over net assets acquired is
amortized using the straight-line method over 20 years. Accumulated amortization
was $7,476,000 and $3,510,000 at December 31, 1997 and 1996, 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 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, completed
in 1995, are amortized over seven years.
Long-lived assets are reviewed for impairment by comparing the fair value of the
assets with their carrying amount. Any write-downs are 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
revenues represent 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 the
equipment contracts is required prior to beginning work on the contract.
INCOME TAXES: The Company recognizes 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.
BASIC AND DILUTED NET LOSS PER COMMON SHARE: The Company adopted Statement of
Financial Accounting Standard No. 128, "Earnings Per Share", which modifies the
way in which earnings per share ("EPS") is calculated and disclosed in the
quarter ended December 31, 1997. 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. Diluted EPS is based upon the
weighted-average number of common shares outstanding during the period plus the
additional weighted-average common equivalent shares during the period. Common
equivalent shares are not included in the per share calculations where the
effect of their inclusion would be antidilutive. Common equivalent shares result
from the assumed conversion of preferred stock and the assumed exercises of
outstanding stock options, the proceeds of which are then assumed to have been
used to repurchase outstanding stock options using the treasury stock method. At
December 31, 1997, had the result not been antidilutive, the Company would have
shown 34,137,001 shares as the diluted weighted average number of shares
outstanding. Included in the 1997 and 1996 basic and diluted 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 recently issued Statement of
Financial Accounting Standard No. 130 "Reporting Comprehensive Income"("SFAS
130") which requires that changes in comprehensive income be shown in a
financial statement that is displayed with the same prominence as other
financial statements. SFAS 130 will become effective for fiscal years beginning
in the first quarter of the fiscal year ending December 31, 1998. The Company
does not expect this standard to have a material effect on the results from
operations.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"). SFAS 131 specifies new
guidelines for determining a company's operating segments and related
requirements for disclosure. Sepracor is in the process of evaluating the impact
of the new standard on
31
<PAGE> 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
the presentation of the financial statements and the disclosure therein. SFAS
131 will become effective for fiscal years beginning after December 31, 1998.
C - SEPRACOR SUBSIDIARIES
In 1993, Sepracor formed two wholly-owned subsidiaries, BioSepra and HemaSure.
Sepracor transferred to BioSepra its chromatography business, including all of
the outstanding shares of Sepracor S.A., a French company. 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 March 1994, BioSepra and
HemaSure each completed its initial public offering.
In November 1994, SepraChem, Inc. ("SepraChem") 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 stockholders, 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 was
convertible, at the option of Sepracor, into common on a one-for-one basis.
In June 1995, Sepracor purchased New England Pharmaceuticals ("NEP"). NEP was a
manufacturer of a breath activated inhaler for asthma patients and has patents
relating to this technology. The acquisition was accounted for under the
purchase method of accounting. In June 1996, NEP was merged into Sepracor.
In October 1995, Versicor entered into a Convertible Subordinated Note Agreement
("Note") with Sepracor. Under this Note, Sepracor agreed to loan to Versicor
until October 2, 1998, up to an aggregate of $4,700,000. The Note accrued
interest at prime plus 1/2% not to exceed 9.5%. The Note was convertible, at the
option of Sepracor, into Versicor Series B Convertible Preferred Stock by
dividing the amount outstanding, including principal and interest, by $0.7833.
The amount outstanding was $0 and $5,066,000 at December 31, 1997 and December
31, 1996, respectively. Total interest expense charged to Versicor under this
agreement was $60,000, $349,000 and $17,000 in 1997, 1996 and 1995,
respectively.
In 1996, Versicor also entered into a loan agreement with Sepracor. Under this
agreement Sepracor agreed to loan to Versicor up to an aggregate of $7,500,000.
The loan accrued interest equal to the prime rate minus 1/4, adjusted under
certain circumstances. The total amount outstanding under this loan agreement
was $0 and $2,705,000 at December 31, 1997 and December 31, 1996, respectively.
Total interest expense charged to Versicor under this agreement was $120,000 and
$68,000 in 1997 and 1996, respectively. As of June 23, 1997, this agreement was
amended to provide that the accumulated principal and interest payments due to
Sepracor, was convertible, at the option of Sepracor, into Versicor Series B
Convertible Preferred Stock, by dividing the amount outstanding, including
principal and interest, by $0.7833.
In December 1997, Versicor received private equity financing of approximately
$22,000,000. In exchange for the funding, Versicor issued Series C Preferred
Stock. As part of the transaction, Sepracor exercised its conversion option on
the Versicor Convertible Subordinated Notes in the amount of $9,530,000. The
remaining $6,034,000 outstanding under the Notes was repaid to Sepracor by the
end of 1997. Sepracor recognized a gain of approximately $5,688,000 on the
transaction which was recorded as an increase to additional paid-in capital. At
December 31, 1997, Sepracor had an investment in Versicor of $3,971,000 and
there were no amounts outstanding under either Note. Sepracor's ownership as of
December 31, 1997 was approximately 22%, thereby making Versicor an affiliate
and reportable under the equity method. (See Note D)
In January 1996, BioSepra signed a Promissory Note for $350,000, or so much of
such sum as shall have been advanced by Sepracor (the "Promissory Note"). This
amount is payable over sixty installments and does not bear interest. BioSepra
used the funds for leasehold improvements in its new office space. As of
December 31, 1997, BioSepra had received $350,000 under the Promissory Note and
$245,000 remained outstanding.
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 common 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
$2,927,000, $15,021,000 and $808,000 of equity investee losses in 1997, 1996 and
1995, respectively. HemaSure's loss in 1996 included $24,748,000 relating to its
one-time operating loss and loss on disposal of its discontinued blood plasma
business. (Sepracor's portion of this was $9,157,000). At December 31, 1997,
Sepracor's investment in HemaSure was zero.
In March 1996, ChiRex Inc. ("ChiRex"), a newly formed corporation that is a
combination of Sterling Organics Limited, and the chiral chemistry business of
Sepracor, 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 owned 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
32
<PAGE> 36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 11, 1996, Sepracor
carried its investment in ChiRex using the equity method of accounting and,
accordingly, recorded $383,000 and $2,518,000 as its share of ChiRex's losses
for the years ended December 31, 1997 (through March 31) and December 31, 1996,
respectively. Included in ChiRex's 1996 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.
In March 1997, the Securities and Exchange Commission declared effective a
registration statement for the offering to the public of the 3,489,301 shares of
ChiRex common stock held by Sepracor. On March 31, 1997, Sepracor received net
proceeds of approximately $31,125,000. As a result of this transaction, Sepracor
recognized a gain of $30,069,000, which was recorded as other income.
In December 1997, upon the completion of the private equity financing, Versicor,
a former subsidiary, became an affiliate of Sepracor and accordingly, Sepracor
recorded $75,000 as its share of Versicor's losses for the year ended December
31,1997.
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 $369,000 and $233,000 at December 31, 1997 and 1996, respectively.
F - INVENTORIES
Inventories consist of the following at December 31:
<TABLE>
<CAPTION>
(in thousands) 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
Raw materials $ 600 $1,155
Work in progress 129 310
Finished goods 1,993 2,016
---------------------
$2,722 $3,481
---------------------
</TABLE>
G - PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31:
<TABLE>
<CAPTION>
(in thousands) 1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C>
Land $ 74 $ 74
Building 1,993 1,932
Laboratory and manufacturing equipment 10,407 11,233
Office equipment 4,450 4,844
Leasehold improvements 5,411 5,493
---------------------------
22,335 23,576
Accumulated depreciation and amortization (7,761) (6,724)
---------------------------
14,574 16,852
Construction in progress 552 193
---------------------------
$ 15,126 $ 17,045
---------------------------
</TABLE>
Depreciation expense was $3,129,000, $2,189,000 and $1,477,000 for the years
ended December 31, 1997, 1996 and 1995, respectively.
H - RESTRUCTURING AND IMPAIRMENT CHARGES
In December 1997, BioSepra recorded restructuring and impairment charges
totaling $4,179,000. Of this amount, $851,000 relates to a cost-reduction
program and $3,328,000 relates to the writedown of intangible assets to their
net realizable value.
The purpose of the cost-reduction program was to enable BioSepra to focus on the
process segments of the biopharmaceutical and genomics market. The program
involved the discontinuance of the instrument product line and a reduction in
the number of employees. As part of the cost-reduction program, $690,000
represents the write down of inventory and fixed assets associated with the
discontinued product line and $161,000 represents severance and benefits related
to the reduction in workforce in the U.S. BioSepra terminated seven employees
consisting of marketing/sales, finance and administrative personnel. BioSepra
expects to pay all of the severance and benefits associated with this workforce
reduction in the first half of 1998. There can be no assurances that this
program will not result in the loss of customers or temporary sales or
production disruptions that could have a materially adverse effect on BioSepra's
business, financial condition or results of operations.
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 Q). 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
33
<PAGE> 37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 had paid all of the costs, relating to
the employee reductions made as part of the 1995 restructuring, as of December
31, 1997.
I - ACCRUED EXPENSES
Included in accrued expenses is $9,754,000 and $5,828,000 of accrued research
and development expenses and $1,427,000 and $1,000,000 of accrued compensation
as of December 1997 and 1996, 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 entered into an agreement
with Sepracor to purchase 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.
In 1997, the agreement was amended, due to the settlement of the PerSeptive
lawsuit (see Note N), eliminating BioSepra's obligation to repay to Beckman part
of such payments made by Beckman under the agreement if BioSepra failed 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. As a result of the
amendment, BioSepra recognized $2,700,000 of license fee revenue in December
1997, rather than over the next three years. Under the agreement, Beckman made
payments of $1,400,000 and $3,500,000 in 1996 and 1995, respectively. BioSepra
recognized $3,600,000, $900,000 and $400,000, of revenue under the agreement in
1997, 1996 and 1995, respectively and $3,600,000 was recorded as deferred
revenue as of December 31, 1996. There was no deferred revenue under this
agreement as of December 31, 1997. See Note W for subsequent event.
K - NOTES PAYABLE TO BANK AND LONG-TERM DEBT
Notes payable and long-term debt consist of the following at December 31:
<TABLE>
<CAPTION>
(in thousands) 1997 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C>
PIBOR plus .08% French Franc Loan Payable in
quarterly installments through 2000 $ 624 $ 1,012
PIBOR plus 1.8%, French Franc Loan
Payable in quarterly installments through 2001 138 --
Variable rate, 6.45% - 6.57%,
French Franc Line of Credit 1 --
Variable rate, 4.89% - 5.08%,
French Franc Line of Credit -- 13
8.05% French Franc Term Loan, payable in monthly
installments through 1997 -- 7
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 with a final payment of $20 in June 2005 1,925 2,183
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 816 992
Obligations under Capital Lease Obligations
(See Note M) 375 614
-------------------------
4,249 5,191
Less current portion (861) (804)
-------------------------
Total $ 3,388 $ 4,387
-------------------------
</TABLE>
At December 31, 1997, BioSepra's wholly-owned French subsidiary ("BioSepra
S.A.") had two available credit facilities aggregating 3,000,000 French Francs
from two French commercial banks, of which $1,000 and $13,000 was outstanding at
December 31, 1997 and 1996, respectively. The amount available under the 4.89% -
5.08% 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 $624,000 and $1,012,000 as of December
31, 1997 and 1996, respectively. The interest rate on this loan at December 31,
1997 and 1996 was 4.50% and 4.23%, respectively.
In December 1996, Sepracor, BioSepra and Versicor entered into a revolving
credit agreement with a commercial bank that provides for borrowing of up to
$10,000,000. This agreement was amended in
34
<PAGE> 38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 1997 to remove Versicor as a party thereto. BioSepra can borrow up to
$3,000,000. 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, 1997, there was no amount outstanding
under this agreement. The annual interest rate on such borrowings is 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 provided for borrowing of up to $3,000,000 for the purpose of
financing capital equipment purchases. No term loan could be less than $500,000
and should 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. The annual
interest rate on such borrowings was at the lower of the prime rate or the
bank's Fixed Quoted Rate plus 1/2%. This agreement was terminated in December
1997 and replaced with two term loans, one for $4,034,000 and another for
$2,000,000. Sepracor entered into a put agreement with the commercial bank
pursuant to which Sepracor agreed to purchase $2,000,000 of indebtedness of
Versicor, in the event of a default by Versicor under its loan agreement with
the commercial bank. In the event that the put right is exercised by the bank,
the bank will assign its security interest in the fixed assets of Versicor to
Sepracor.
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: 1998-$603,000, 1999-$623,000,
2000-$501,000, 2001-$343,000, 2002-$332,000.
L - CONVERTIBLE SUBORDINATED DEBENTURES
In November and December, 1995, Sepracor issued $80,880,000 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. The Debentures are not redeemable by the Company until
December 1, 1998. 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 are being amortized over the life of the Debentures, which is seven
years.
On February 10, 1998, Sepracor issued $189,475,000 of 6 1/4% Convertible
Subordinated Debentures due 2005 (the "6 1/4% Debentures"). The 6 1/4%
Debentures are convertible into Sepracor Common Stock, at the option of the
holder, at a price of $47.369 per share. The 6 1/4% Debentures bear interest at
6 1/4% payable semi-annually, commencing on August 15, 1998. The 6 1/4%
Debentures are not redeemable by the Company prior to February 18, 2001. The
Company may be required to repurchase the 6 1/4% Debentures at the option of the
holders in certain circumstances. As part of the sale of the 6 1/4% Debentures,
Sepracor incurred approximately $5,915,000 of offering costs, which will be
recorded as other assets and amortized over seven years, the term of the 6 1/4%
Debentures. The net proceeds to the Company after offering costs was
$183,560,000. The Company intends to use the proceeds from the sale of the
6 1/4% Debentures for the establishment of the Company's respiratory sales
force, marketing of certain ICEs, ongoing preclinical and clinical trials,
funding of other research and development programs, and working capital and
other general corporate purposes.
M - COMMITMENTS
In 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. There was a total of $355,000 and $565,000, relating to
Sepracor and BioSepra, outstanding under this agreement at December 31, 1997 and
1996, respectively.
Future minimum lease payments under all noncancelable leases in effect at
December 31, 1997, are as follows: (in thousands)
<TABLE>
<CAPTION>
Year Operating Leases Capital Leases
- --------------------------------------------------------------------------------------
<S> <C> <C>
1998 $1,017 $294
1999 865 118
2000 736 --
2001 735 --
2002 766 --
Thereafter 3,634 --
------------------------------
Total minimum lease payments $7,753 $412
Less amount representing interest (37)
------------------------------
Present value of minimum lease payments $375
------------------------------
</TABLE>
Future minimum lease payments under operating leases relate to Sepracor's and
BioSepra'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
$1,687,000, $1,240,000 and $1,003,000 for the years ended December 31, 1997,
1996 and 1995, respectively.
N - LITIGATION
In July 1997, the United States Patent and Trademark Office (the "PTO") informed
Sepracor that it had declared an interference between Sepracor's previously
issued method-of-use patent on fexofenadine to treat allergic rhinitis and
another similar patent application of Sepracor, and the method-of-use patent
application held by Hoechst Marion Roussel Inc. ("HMRI") on the anti-histaminic
effects of fexofenadine on hepatically impaired patents. The primary objective
of a patent interference, which can only be declared by the PTO, is to determine
the first to invent any overlapping subject matter claimed by more
35
<PAGE> 39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
than one party. In the course of an interference, the parties typically present
evidence relating to their inventive activities as to the overlapping subject
matter. The PTO then reviews the evidence to determine which party has the
earliest legally sufficient inventive date, and, therefore, is entitled to a
patent claiming the overlapping subject matter. (See Note R for further
discussion.)
If Sepracor prevails in the interference, Sepracor will retain all of its claims
in its issued patent. If, however, Sepracor loses the interference, HMRI will be
issued a U.S. patent containing its claims involved in the interference and may
not be obligated to pay Sepracor milestone or royalty payments pursuant to the
terms of the license agreement whereby Sepracor licensed its U.S. patent rights
covering fexofenadine to HMRI in 1993.
In December 1997, the Company and its subsidiary, BioSepra, settled their
longstanding patent lawsuit with PerSeptive Biosystems, Inc. ("PerSeptive"), a
competitor of BioSepra. Under the terms of the settlement, PerSeptive received
an unspecified amount and BioSepra obtained a limited, non-exclusive license
under PerSeptive's Perfusion Chromatography R patents to make, use and sell its
HyperD R product line free of claims of infringements by PerSeptive.
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 Pre-Storage
Leukoreduction Filtration System 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 (the "'321 patent"), HemaSure filed for summary
judgment of noninfringement. Pall filed a cross motion for summary judgment of
infringement at the same time. In October 1997, the U.S. District Court for the
Eastern District of New York granted in part Pall's summary judgment motion
relating to the '321 patent. The court has not yet ruled on the validity of
Pall's '321 patent claims, which HemaSure has asserted are invalid and
unenforceable. The court now will need to review and determine the validity of
this patent prior to any further action. No date has been set for these
proceedings.
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 unenforceability 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 actions, and an adverse
outcome in a patent infringement action would have a material adverse effect on
HemaSure's future business and operations.
O - STOCKHOLDERS' EQUITY
In October 1995, all 79,365 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 the date of issuance.
The dividends are payable at the mandatory redemption date of February 2000. As
of December 31, 1997, Sepracor had accrued $1,700,000 of dividends payable. See
Note W for subsequent event.
In August 1995, Sepracor received approximately $62,336,000 of net proceeds from
the sale of 4,600,000 shares of its Common Stock in a follow-on public offering.
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 to certain consultants. As a result,
$248,000 was initially recorded as unearned compensation. In 1997, an adjustment
of $107,000 was made for cancelled options and $28,000 and $14,000 were recorded
in related amortization in 1997 and 1996, respectively.
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 or fair value, or provide pro forma
disclosure of net income and earnings per share in the notes to the financial
statements. The Company adopted disclosure provisions of SFAS 123 in 1996 and
has applied APB Opinion 25 and related interpretations in accounting for its
plans. Had compensation expense for the Company's stock-based compensation plans
been determined based on the fair value at the grant dates, as calculated in
accordance with SFAS 123, the Company's net loss and basic and
36
<PAGE> 40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
diluted loss per share for the years ended December 31, 1997 and 1996 would have
been increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1997 1996
NET BASIC AND DILUTED Net Basic and Diluted
(in thousands) LOSS LOSS PER SHARE Loss Loss Per Share
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
As Reported $(26,723) $(0.97) $(60,710) $(2.25)
Pro forma $(30,745) $(1.11) $(63,398) $(2.35)
</TABLE>
The effects of applying SFAS 123 in this pro forma disclosure are not indicative
of future amounts, since SFAS 123 does not apply to awards prior to 1995 and
additional awards in future years are not anticipated.
The fair value of each stock option is estimated on the date of grant using
Black-Scholes option-pricing model with the following weighted average
assumptions: an expected life of 7 years, expected volatility of 60%, a
risk-free interest rate of 5.0% to 7.8% and no dividends.
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 and 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 stockholders approved an
amendment to the Plan increasing the number of shares of common stock, which may
be granted to 5,000,000. Stock option activity related to this plan is
summarized below.
In January 1995, Sepracor adopted a Stock Option Exchange Program. Upon employee
consent, the program provides 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, will become exercisable for a
number of shares of common stock equal to the number of shares covered by the
old stock option.
The 1991 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
and 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 Directors' Plan increasing the number of shares of
common stock, which may be granted to 275,000.
On October 1997, the Board of Directors approved the Company's 1997 Stock Option
Plan. The 1997 Stock Option Plan permits Sepracor to grant ISOs and NSOs to
purchase up to 500,000 shares of common stock to employees and consultants of
the Company. Executive officers are not entitled to receive stock options under
the 1997 Stock Option Plan. ISOs and NSOs granted under the Plan have a maximum
term of ten years from the date of grant and ISOs may not be granted at an
exercise price less than fair market value.
The following tables summarize information about stock options outstanding at
December 31, 1997 (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Price Per Share Outstanding Life Price Exercisable Price
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 1.50 - 3.50 27 2.52 $ 2.75 27 $ 2.75
5.00 - 5.00 365 6.57 5.00 200 5.00
5.25 - 5.75 351 6.96 5.71 190 5.70
6.00 - 6.56 379 6.59 6.12 202 6.07
6.63 - 12.63 506 7.15 10.08 206 9.03
14.13 - 14.13 99 8.09 14.13 22 14.13
14.62 - 14.62 736 7.79 14.62 292 14.62
14.75 - 22.50 371 8.84 17.65 101 15.40
24.13 - 24.13 56 9.37 24.13 -- --
24.25 - 41.00 595 9.51 24.37 -- --
- ---------------------------------------------------------------------------------------------------------
$ 1.50 - 41.00 3,485 7.75 $13.16 1,240 $ 9.18
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1997 1996 1995
AVERAGE Average Average
PRICE PER Price Per Price Per
NUMBER SHARE Number Share Number Share
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1 3,277 $ 9.55 3,225 $ 7.77 2,468 $ 5.47
Granted 757 24.10 651 13.77 1,760 10.22
Exercised (433) 6.00 (429) 3.88 (340) 3.00
Cancelled (116) 9.84 (170) 6.37 (663) 8.14
- ------------------------------------------------------------------------------------------------------------------
Balance at December 31 3,485 $13.16 3,277 $ 9.55 3,225 $ 7.77
- ------------------------------------------------------------------------------------------------------------------
Options exercisable at
December 31 1,240 1,088 948
Weighted average fair
value of options granted
during the year $15.88 $ 9.46 $ 6.99
</TABLE>
There were 537,000 options available for future grant as of December 31, 1997.
37
<PAGE> 41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In 1996, the shareholders approved the 1996 Employee Stock Purchase Plan ("1996
Plan"), which succeeded the 1994 Employee Stock Purchase Plan. Under the 1996
plan, an aggregate of 120,000 shares of common stock maybe purchased by
employees at 85% of market value on the first or last day of each six month
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 31,423, 23,977, and 39,820
shares for a total of $556,111, $296,016, and $229,506, during the years ended
December 31, 1997, 1996 and 1995, respectively. At December 31, 1997, there were
86,844 shares of authorized but unissued common stock reserved for future
issuance under the 1996 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 per share. Warrants to purchase 10,520 shares are
outstanding at December 31, 1997. 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 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, 1997, warrants to purchase 23,000 shares remain
outstanding, all of which 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
the years 1997, 1996 and 1995. The effective tax rate was 0% due net operating
losses and nonrecognition of any deferred tax asset. At December 31, 1997,
Sepracor had federal and state tax net operating loss carryforwards ("NOL") of
approximately $115,000,000 and $75,000,000, which will expire through 2012 and
2002, 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
$13,000,000. Approximately $12,000,000 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 $3,600,000 which may be carried forward
indefinitely. At December 31, 1997, Sepracor had federal and state research and
experimentation credit carryforwards of approximately $3,900,000 and $2,900,000,
respectively, which will expire through the year 2012. Sepracor also had
Canadian research and experimentation credits of $1,100,000 which will expire
through 2007.
The components of Sepracor's net deferred taxes were as follows at December 31:
<TABLE>
<CAPTION>
(in thousands) 1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C>
Assets
NOL Carryforwards $ 50,213 $ 50,596
Reserves 226 306
Tax Credit Carryforward 7,989 5,287
Patent 489 389
Accrued Expenses 5,434 3,735
Research and development
capitalization 9,827 9,217
Equity in loss of investees 7,638 7,981
Other 1,605 2,657
- ------------------------------------------------------------------------------
Liabilities
Basis difference of subsidiaries (13,628) (12,005)
Property and Equipment -- (237)
Valuation allowance $(69,793) $(67,926)
- ------------------------------------------------------------------------------
Net deferred taxes $ -- $ --
- ------------------------------------------------------------------------------
</TABLE>
R - AGREEMENTS
In December 1997, Sepracor signed a licensing agreement with Schering-Plough
Corporation ("Schering") giving Schering exclusive worldwide rights to
Sepracor's patents covering descarboethoxyloratadine ("DCL"), an active
metabolite of loratadine. Under the terms of the agreement, Sepracor has
exclusively licensed its DCL rights to Schering, which expects to develop and
market the DCL product worldwide. Schering will pay Sepracor an upfront license
fee of $5,000,000 and royalties on DCL sales, if any, beginning at first product
launch. Any such royalties paid to Sepracor would escalate over time and upon
the achievement of sales volume and other milestones. As of December 31, 1997,
the agreement was still pending clearance under the Hart Scott Rodino Act.
In January 1998, Sepracor and Schering were notified that no objection would be
raised under the Hart Scott Rodino Act with respect to their license agreement.
Shortly thereafter, Sepracor received the $5,000,000 upfront license payment
from Schering and recorded the payment as license revenue in the first quarter
of 1998. The upfront license fee will be offset against future royalty payments.
On February 4, 1998, Sepracor signed a collaboration and license agreement with
Janssen Pharmaceutica, N.V. ("Janssen"), a wholly-owned subsidiary of Johnson &
Johnson, relating to the development and mar-
38
<PAGE> 42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
keting of norastemizole, a third generation nonsedating antihistamine. Under the
terms of the agreement, the companies will jointly fund the development of
norastemizole, and Janssen has an option to acquire certain rights regarding the
product in the U.S. and abroad. When exercised, Janssen and Sepracor will
equally share the costs and profits associated with the further development,
marketing and sales of norastemizole in the United States. Sepracor will also
retain the right to co-promote the product in the U.S. Alternatively, Sepracor
can elect to receive royalties, if any, on Janssen sales of norastemizole in the
U.S. in the event it decides not to co-promote the product. Outside of the U.S.,
Janssen has the right to develop and market norastemizole, and Sepracor will
earn royalties on product sales, if any. In addition, Janssen has worldwide OTC
rights to norastemizole.
In June 1993, Sepracor licensed to MMD (now Hoescht 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 sales if and when they occur. As of December 31,
1997, Sepracor had received the first milestone payment of $1,875,000 and
recorded $469,000 in sub-license expense payable to a third party for the year
ended December 31, 1997. See Note N for discussion of patent interference.
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. Under the terms of the agreement, Sepracor received
research and development funding and license fees. 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 (the "401K Plan") for all domestic employees.
Under the provisions of the 401K Plan, employees may voluntarily contribute up
to 15% 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 during
1996. In June 1997, this match was raised to 50% of the first $3,000. This match
amounted to $119,000 and $49,000 in 1997 and 1996, respectively. There were no
Company matches in 1995.
T - DISPOSAL OF BIOPASS
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 was reserved pending the buyer's payment and was
recognized as payments were received. In 1995, one payment of $100,000 was
received. No payments were received in 1996 or 1997. 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 1995 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 charges 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
The following is the summarized financial information for Versicor, HemaSure and
ChiRex:
<TABLE>
<CAPTION>
1997 1996
(in thousands) VERSICOR HEMASURE ChiRex HemaSure
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Current assets $19,610 $ 9,097 $40,853 $ 18,263
Non-current assets 7,300 1,510 89,953 2,297
Current liabilities 1,308 3,026 25,405 3,419
Non-current liabilities 6,034 9,048 15,333 9,212
Net sales -- 2,357 74,615 779
Gross profit (loss) -- (1,326) 18,107 (3,006)
Net income (loss) $(6,203) $(9,884) $(8,309) $(40,598)
</TABLE>
Summarized financial information for ChiRex is not presented in 1997, as
Sepracor sold its investment on March 31, 1997 (see Footnote D).
V - SEGMENT INFORMATION
Sepracor, through BioSepra, develops, manufactures and markets processes and
products for the synthesis, separation and purification of pharmaceutical and
biopharmaceutical compounds. BioSepra 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:
39
<PAGE> 43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
(in thousands) 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues
United States:
Unaffiliated customers $ 9,810 $ 11,651 $ 8,883
Transfer to other geographic areas (16) 3,050 1,195
------------------------------------
Total 9,794 14,701 10,078
------------------------------------
Europe:
Unaffiliated customers 5,527 6,187 7,324
Transfer to other geographic areas 1,571 2,999 1,703
------------------------------------
Total 7,098 9,186 9,027
------------------------------------
Eliminations and adjustments (1,555) (8,846) (2,898)
------------------------------------
Total Revenues $ 15,337 $15,041 $ 16,207
------------------------------------
Operating Loss
United States $(55,666) $(45,638) $(33,865)
Europe 942 1,752 (6,049)
Eliminations and adjustments (419) 3 (551)
------------------------------------
Total Operating Loss $(55,143) $(43,883) $(40,465)
------------------------------------
Total Assets
United States $203,806 $165,871 $292,236
Europe 5,802 6,343 6,713
Canada 7,427 7,088 7,744
Eliminations and adjustments (88,528) (32,613) (103,980)
------------------------------------
Total Assets $128,507 $146,689 $202,713
------------------------------------
</TABLE>
Of the $9,810,000, $11,651,000 and $8,883,000 U.S. sales to unaffiliated
customers for the years ended December 31, 1997, 1996 and 1995, respectively,
$168,000, $630,000, and $1,822,000, respectively, were export sales to the Far
East.
W - SUBSEQUENT EVENT
On March 26, 1998, Sepracor and Beckman terminated their Stock Purchase
Agreement under which Beckman acquired 312,500 shares of Sepracor Series B
Redeemable Exchangeable Preferred Stock. Sepracor paid Beckman the original
purchase price of the stock plus accrued dividends totalling $6,850,000. As a
result of this termination subsequent to year-end, Sepracor has reclassed its
convertible redeemable preferred stock as a current liability at December 31,
1997. In addition, BioSepra and Beckman amended their distribution agreement
whereby BioSepra granted a non-exclusive right to manufacture instruments to
Beckman, removed its obligation to manufacture instruments for Beckman, and sold
the discontinued instrument product inventory to Beckman for $250,000.
ANNUAL MEETING INFORMATION
The Annual Meeting of Shareholders will be held at 9:00 a.m. on May 27, 1998 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 is a trademark,
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
registered 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 and Sporanox are registered
trademarks of Johnson & Johnson. Toradol is a registered trademark of Syntex
USA. Levaquin is a trademark of Daiichi Pharmaceutical Company LTD. POROS is a
registered trademark of PerSeptive BioSystems, Inc. Prilosec is a registered
trademark of Astra Aktiebolag. Prevacid is a registered trademark of TAP
Holdings Inc. Imovane is a registered trademark of Rhone-Poulenc Sante. Meridia
is a registered trademark of Knoll Pharmaceutical Company. Zyban is a trademark
of Glaxo Group Limited. Ambien is a registered trademark of Synthelabo. Paxil is
a trademark of Smithkline Beecham Corp. Zoloft is a registered trademark of
Pfizer Inc. Wellbutrin is a registered trademark of Glaxo Wellcome Inc. Oxis is
a trademark and Turbuhaler is a registered trademark of Akiebolaget Astra.
Pantozol is a trademark of Byk Gulden Lomberg Chemische Fabrik GMBH.
40
<PAGE> 44
<TABLE>
<CAPTION>
DIRECTORS OFFICERS
<S> <C>
James G. Andress Timothy J. Barberich
Former Chairman, Beecham Pharmaceuticals, President and Chief Executive Officer
Former President and COO, Sterling Drug Inc.
David S. Barlow
Timothy J. Barberich Executive Vice President and President, Pharmaceuticals
President and Chief Executive Officer, Sepracor Inc.
David P. Southwell
Digby W. Barrios Executive Vice President; Chief Financial Officer and
Secretary
Former President and CEO, Boehringer Ingelheim
Corporation James R. Hauske, Ph.D.
Senior Vice President, Discovery
Robert J. Cresci
Managing Director, Pecks Management Partners Ltd. Douglas E. Reedich, Ph.D., J.D.
Chief Patent Counsel
Robert F. Johnston
Managing Director, Johnston Associates Paul D. Rubin, M.D.
Senior Vice President, Drug Development
Keith Mansford, Ph.D.
Former Chairman, R&D, SmithKline Beecham plc Robert F. Scumaci
Senior Vice President, Finance & Administration,
James F. Mrazek and Treasurer
Former Vice President and General Manager,
Healthcare Division of Johnson & Stephen A. Wald
Johnson Products Inc. Vice President, Chemical R&D
Alan A. Steigrod
Former Executive Vice President, Glaxo Holdings plc
</TABLE>
[PICTURE OF DIRECTORS/OFFICERS]
Pictured left to right, front row: Paul D. Rubin, M.D., Timothy J. Barberich
and David S. Barlow. Middle row: James R. Hauske, Ph.D. and David P. Southwell.
Back row: Robert F. Scumaci, Stephen A. Wald and Douglas E. Reedich, Ph.D.
Design: MediaConcepts Corporation
<PAGE> 1
EXHIBIT 13
[SEPRACOR LOGO]
Sepracor Inc., 111 Locke Drive, Marlborough, Massachusetts 01752
<PAGE> 2
Feeling Better
[FEELING BETTER PHOTO]
Is Our Business
[IS OUR BUSINESS PHOTO]
1997 Annual Report
[SEPRACOR LOGO]
<PAGE> 3
SEPRACOR is a specialty pharmaceutical company that develops
and commercializes potentially improved versions of widely-prescribed drugs.
Referred to as Improved Chemical Entities ("ICEs"), Sepracor's ICE(TM)
Pharmaceuticals are being developed as proprietary, single-isomer or
active-metabolite versions of these leading drugs. ICE Pharmaceuticals are
designed to offer meaningful improvements in patient outcome through reduced
side effects, increased therapeutic efficacy, or improved dosage forms. In some
cases, our ICE Pharmaceuticals may provide an opportunity for additional
indications. - Sepracor plans to market its ICE Pharmaceuticals directly where
its specialty sales force can significantly penetrate target markets. For drugs
and markets requiring substantial field sales support and extensive marketing
resources, Sepracor seeks co-promotion, co-development, and licensing
arrangements with
[SEPRACOR PRODUCT CHART]
<TABLE>
<CAPTION>
SEPRACOR PRODUCT Parent Drug NDA TARGET
CHEMISTRY PRECLINICAL PHASE I/II PHASE III REVIEW LAUNCH
<S> <C>
FEXOFENADINE ALLEGRA(R) - Seldane(R) `96
LEVALBUTEROL - Ventolin(R) /Proventil(R) `98
NORASTEMIZOLE - Hismanal(R) `00
(R,R)-FORMOTEROL - Foradil(R)/Atock(R) `01
(S)-OXYBUTYNIN - Ditropan(R) `00
(S)-FLUOXETINE - Prozac(R)
(R)-KETOPROFEN - Orudis(R)/Actron(R)
DESCARBOETHOXYLORATADINE - Claritin(R)
(S)-DOXAZOSIN - Cardura(R)
(2R, 4S)-ITRACONAZOLE - Sporanox(R)
(R)-KETOROLAC - Toradol(R)
(R)-BUPROPION - Zyban(TM)
(-)-CERTIRIZINE - Zyrtec(R)
(R)-FLUOXETINE - Prozac(R)
(S)-LANSOPRAZOLE - Prevacid(R)
NORCISAPRIDE - Propulsid(R)
(R)-ONDANSETRON - Zofran(R)
(-)-PANTOPRAZOLE - Pantozol(TM)
(S)-SIBUTRAMINE - Meridia(R)
(S)-ZOPICLONE - Imovane(R)
</TABLE>
<PAGE> 4
leading pharmaceutical companies. These partners provide the development and
marketing resources to expand market penetration. - In 1993, Sepracor licensed
its U.S. patents covering fexofenadine to Hoechst Marion Roussel, Inc. ("HMRI"),
which developed and launched the drug. Marketed as Allegra(R) by HMRI, the drug
is indicated for allergic conditions, but avoids the cardiovascular side effects
associated with its parent drug, terfenadine (Seldane(R)). - Currently,
Sepracor's New Drug Application (NDA) for levalbuterol HCl inhalation solution,
the single-isomer version of the widely-sold bronchodilator, racemic albuterol,
is being reviewed by the FDA. Racemic albuterol is marketed as Ventolin(R) by
Glaxo-Wellcome and as Proventil(R) by Schering-Plough. -Sepracor recently
completed a large-scale clinical trial for norastemizole, an active-metabolite
of astemizole, marketed as Hismanal(R) by Johnson & Johnson. This study included
750 patients, and was conducted in 30 U.S. sites. Phase I and Phase II clinical
trials indicate that norastemizole is a potentially safe and efficacious
non-sedating antihistamine. - Sepracor has six ICE Pharmaceuticals in human
clinical trials and thirteen additional active-metabolite or single-isomer drugs
are undergoing preclinical investigation.
[BACKGROUND PHOTO]
<PAGE> 5
TO OUR SHAREHOLDERS: Nineteen ninety-seven was a year of considerable
accomplishments for Sepracor. Our Annual Report describes the Company's progress
in building a leading specialty pharmaceutical company based on our strategy of
developing and commercializing ICETM Pharmaceuticals. ICEs are potentially
improved single-isomer or active-metabolite versions of existing drugs. The
estimated worldwide sales of the parent compounds of Sepracor's product pipeline
exceeded $12 billion in 1997. - SEPRACOR ACHIEVED SIGNIFICANT CLINICAL AND
COMMERCIAL MILESTONES IN 1997. A New Drug Application for levalbuterol was
submitted to the U.S. Food and Drug Administration. We also completed a
750-patient, Phase II/III study for norastemizole, a potential third generation
nonsedating antihistamine. In addition, we initiated clinical trials of both our
long-acting beta agonist (R,R)-formoterol, for the treatment of asthma, and our
urinary incontinence compound, (S)-oxybutynin. - WE HAVE SUBSTANTIALLY INCREASED
THE VALUE OF OUR ANTIHISTAMINE PORTFOLIO THROUGH TWO MAJOR CORPORATE
COLLABORATIONS IN 1997 AND EARLY 1998. Sepracor signed a licensing agreement in
the fourth quarter of 1997 with Schering-Plough Corporation for the development
of DCL, an active metabolite of the leading antihistamine Claritin(R). Pursuant
to that agreement, Sepracor will be entitled to receive royalties beginning upon
product launch. Under this agreement, Schering-Plough is developing DCL and
intends to market the product worldwide. This potentially more potent
antihistamine may serve as a new platform for extending the lifecycle of the
Claritin(R) franchise. In addition, in the first quarter of 1998, we announced a
collaboration with Janssen Pharmaceutica, N.V., a wholly-owned subsidiary of
Johnson & Johnson, for the development and marketing of norastemizole. - THIS
YEAR, WE HAVE SEEN A CONTINUED VALIDATION OF SEPRACOR'S ICE PHARMACEUTICAL
STRATEGY. While Sepracor is leading the emerging industry trend to develop
single-isomer or active-metabolite versions of existing compounds, major
pharmaceutical companies have also validated this strategy. For example, Johnson
& Johnson successfully launched Levaquin(R), the single-isomer of the quinolone
antibiotic ofloxacin, which has a broader spectrum of activity than its parent
drug.
SEPRACOR SALES FORCE GROWTH
[SEPRACOR SALES FORCE GROWTH CHART]
PLANNED ICE PHARMACEUTICAL INTRODUCTION SCHEDULE AND SEPRACOR RESPIRATORY SALES
FORCE BUILD
<TABLE>
<CAPTION>
SEPRACOR
SALES
FORCE (R,R)-formoterol
Dry Powder Inhaler
200 Levalbuterol (R,R)-formoterol
Dry Powder Inhaler
Norastemizole Norastemizole
with Decongestant
150 Levalbuterol
Metered Dose Inhaler
Levalbuterol
Sustained Release
100 Levalbuterol
Oral
Levalbuterol
0 Nebule
<S> <C> <C> <C> <C> <C> <C>
YEAR 1998 1999 2000 2001 2002 2003
</TABLE>
2
<PAGE> 6
Marketed by Daiichi, this new anti-infective is already one of the largest
pharmaceutical products in Japan. Astra announced its intention to develop the
single-isomer version of Prilosec(R), the world's largest selling drug in 1997,
which may offer improved efficacy. In addition, Hoechst Marion Roussel
successfully completed its market conversion of the Seldane(R) franchise to
Allegra(R), which does not exhibit the cardiovascular side effects associated
with the parent drug. - OUR ICE PHARMACEUTICALS ARE NOW PROGRESSING FROM THE
CLINICAL TRIAL PHASE TO FDA REVIEW, AND FINALLY, TO THE MARKETPLACE. The
Company's strategy for commercializing its ICE Pharmaceuticals includes
licensing agreements, co-promotion collaborations with major pharmaceutical
companies, and direct marketing through one or more specialty sales forces. -
Levalbuterol, under review by the FDA, would be the first drug to be sold by our
respiratory sales force. Sepracor plans to launch levalbuterol in the second
half of 1998. In the future, Sepracor plans to introduce other drugs to be sold
by the Company's respiratory sales force, such as norastemizole and
(R,R)-formoterol. - Sepracor's agreement with Janssen illustrates our
co-promotion strategy. In February 1998, the companies announced an agreement
for the joint development and marketing of norastemizole. Sepracor has retained
the right to co-promote the product in the United States. - OUR DRUG DISCOVERY
EFFORTS ALSO HAVE BEGUN TO SHOW RESULTS. We are combining Sepracor's
combinatorial chemistry and high-throughput screening expertise with known
biological and new genomic-identified drug targets. Sepracor has discovered lead
compounds that when further developed, could complement our ICE Pharmaceutical
pipeline in the years to come. - Sepracor's consolidated cash position has never
been stronger. For the year ended December 31, 1997, the Company had $92.6
million in consolidated cash and marketable securities. In February 1998,
Sepracor completed a $189 million offering of convertible subordinated
debentures. With approximately $275 million in cash and marketable securities
following our recent financing, Sepracor is well positioned to continue
developing and marketing its respiratory product line. In addition to these
products, we are initiating development of several candidates in the fields of
psychiatry/neurology and urology/gastroenterology. - We congratulate Sepracor's
shareholders, partners, and employees on an excellent year. We look forward to
sharing Sepracor's clinical and commercial successes with you throughout the
coming year.
[PHOTO of Timothy J. Barberich]
Sincerely,
/s/ Timothy J. Barberich
Timothy J. Barberich
President and Chief Executive Officer
3
<PAGE> 7
Sepracor's
ICE(TM) Strategy
CHIRAL CHEMISTRY FORMS THE BASIS OF OUR ICE(TM)STRATEGY. 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 United States Food and Drug Administration's
1992 published stereoisomer policy guidelines have 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.
[MOLECULE GRAPHIC]
4
<PAGE> 8
SEPRACOR'S ICE(TM) PHARMACEUTICALS HAVE THE POTENTIAL TO BE PURER, SAFER, OR
MORE POTENT VERSIONS OF THEIR PARENT DRUG COMPOUNDS. Since the parent drugs have
well-known efficacy and safety profiles, ICE Pharmaceuticals generally can be
developed significantly faster, at lower cost, and with decreased regulatory
risk than new chemical entities. In addition, established franchises of the
parent compounds, combined with long-term patent protection, provide a strong
indicator of the market potential for ICE Pharmaceuticals. - SINGLE-ISOMER ICE
PHARMACEUTICALS. Racemic drugs exist in mirror-image forms called isomers,
designated as (R) and (S). Often only one isomer of a racemic drug is
therapeutically active. The other isomer may be inert or may cause undesirable
side effects. Racemic albuterol, a widely-prescribed asthma bronchodilator,
consists of equal amounts of two isomers, (R)-albuterol and (S)-albuterol. -
Sepracor's development of the single-isomer version of racemic albuterol
illustrates the potential benefits of purification. Based on preclinical and
clinical research, Sepracor has demonstrated that racemic albuterol's
therapeutic effect resides exclusively in the (R)-isomer. Scientific data have
suggested the (S)-isomer may cause detrimental airway hyperreactivity. Sepracor
is developing levalbuterol ((R)-albuterol) as a pure and potentially more
efficacious single-isomer version of the racemic bronchodilator. -
ACTIVE-METABOLITE ICE PHARMACEUTICALS. An active metabolite is a therapeutically
active compound produced when a drug is metabolized in the body. Most drugs
administered to treat diseases are transformed (metabolized) within the body
into a variety of related forms (metabolites), some of which have therapeutic
activity. - For example, fexofenadine is an active metabolite of the former
best-selling nonsedating antihistamine Seldane(R) (terfenadine). Toxic levels of
terfenadine can accumulate in the body when certain other medications interfere
with its metabolism. Fexofenadine is marketed as Allegra(R) by HMRI under a
patent licensing agreement with Sepracor. Allegra does not exhibit the rare but
serious cardiac toxicity associated with its parent drug. - The following pages
in this report discuss the clinical and commercial progress of Sepracor's ICE
Pharmaceuticals.
5
<PAGE> 9
Respiratory Therapy [DOG WALK PHOTO]
Allergy
ICE PHARMACEUTICALS FOR ALLERGY
<TABLE>
<CAPTION>
ICE PHARMACEUTICALS PARENT DRUG EXPECTED DEVELOPMENT
Potential Benefit of Sepracor Candidate Current Marketer INDICATION STAGE
<S> <C> <C> <C>
FEXOFENADINE (ALLEGRA(R)) Seldane(R) Allergy Launched
nonsedating antihistamine with HMRI
reduced cardiovascular side effects
NORASTEMIZOLE HISMANAL(R) Allergy Phase II/III
nonsedating antihistamine with J & J
improved potency, rapid onset,
longer duration, reduced cardiovascular
side effects
DESCARBOETHOXYLORATADINE (DCL) CLARITIN(R) Allergy Preclinical
nonsedating antihistamine with Schering-Plough
improved potency
(-)-CERTIRIZINE ZYRTEC(R) Allergy Preclinical
antihistamine without sedation Pfizer/UCB
</TABLE>
1997 WORLDWIDE SALES TO TREAT ALLERGIES WERE APPROXIMATELY $3 BILLION*
[PIE CHART]
ALLEGRA(R)
(SELDANE(R))
$400 MILLION
HISMANAL(R)
$150 MILLION
CLARITIN(R)
$1.7 BILLION
ZYRTEC(R)
$550 MILLION
* INCLUDES RELATED BRANDS
6
<PAGE> 10
OVER 40 MILLION AMERICANS SUFFER FROM SEASONAL ALLERGIC RHINITIS (HAY FEVER), AN
ALLERGY TO AIRBORNE POLLENS. Symptoms include runny nose, watery eyes, and
scratchy throat. Nonsedating antihistamines, such as Claritin(R) and Allegra(R),
provide relief to allergy sufferers without causing drowsiness. Worldwide sales
of nonsedating antihistamines were approximately $3 billion in 1997. Sales are
forecasted to double to $6 billion in the next five years. - ALLEGRA...IMPROVED
SELDANE(R) WITHOUT CARDIOTOXICITY. In 1993, Sepracor licensed its U.S. patents
covering fexofenadine to HMRI, which developed the drug and launched it in late
1996 as Allegra, a nonsedating antihistamine. While Sepracor is entitled to
receive royalty payments upon the expected expiration in 2001 of HMRI's
composition-of-matter patent covering fexofenadine, the right to receive
royalties is subject to successful resolution of a pending patent interference
action. (See Sepracor Inc. Notes to Consolidated Financial Statements,
N-Litigation). - NORASTEMIZOLE...A POTENTIALLY SAFER AND MORE POTENT THIRD
GENERATION NONSEDATING ANTIHISTAMINE. Janssen Pharmaceutica N.V.'s product,
Hismanal(R) (astemizole), has a "black box" warning in its product labeling
alerting physicians to serious cardiac side effects and the drug-drug
interactions. In February 1998, Sepracor and Janssen, a wholly-owned subsidiary
of Johnson & Johnson, announced an agreement under which the companies will
jointly fund the development of Sepracor's ICE Pharmaceutical, norastemizole,
one of the major metabolites of Hismanal. This development and commercialization
agreement gives Janssen an option to acquire certain rights in the U.S. and
abroad. Sepracor retains the right to co-promote norastemizole in the U.S.
Sepracor's first 750-patient, 30-center, Phase III seasonal allergic rhinitis
clinical trial has been completed. - DCL... METABOLITE OF CLARITIN WITH THE
POTENTIAL FOR GREATER POTENCY. Loratadine, marketed by Schering Corporation as
Claritin, is the world's largest-selling nonsedating antihistamine. Claritan
sales rose 50% in 1997 to total $1.7 billion worlwide. Loratadine's active
metabolite, DCL (descarboethoxyloratadine), has been shown in preclinical
studies to offer the potential for greater potency than other commercial
antihistamines. - In December 1997, Sepracor and Schering-Plough entered into an
agreement which gives Schering-Plough exclusive worldwide rights to Sepracor's
patents covering DCL. Under this agreement, Schering-Plough is developing DCL
and intends to market the product worldwide. Based on its potential as a more
potent antihistamine, DCL could serve as a platform for the evolution of the
Claritin franchise. Sepracor is entitled to royalty payments upon the initial
sale of the product.
7
<PAGE> 11
Respiratory Therapy [KID IN POOL PHOTO]
Asthma
ICE PHARMACEUTICALS FOR ASTHMA
<TABLE>
<CAPTION>
ICE PHARMACEUTICALS PARENT DRUG EXPECTED DEVELOPMENT
<S> <C> <C> <C>
Potential Benefit of Sepracor Candidate Current Marketer INDICATION STAGE
LEVALBUTEROL VENTOLIN(R)/ Asthma NDA filed
bronchodilator with improved PROVENTIL(R)
safety and efficacy Glaxo-Wellcome,
Schering-Plough
and generics
(R,R) - FORMOTEROL FORADIL(R)/ Asthma Phase I/II
bronchodilator with rapid onset ATOCK(R)
and longer duration Novartis/
Yamanouchi
</TABLE>
1997 WORLDWIDE SALES OF SHORT-ACTING AND LONG-ACTING BRONCHODILATORS FOR ASTHMA
THERAPY WERE $2.5 BILLION
[PIE CHART]
LONG-ACTING
BRONCHODILATORS
(SEREVENT(R)/
FORADIL(R)/Atock(R))
$.7 BILLION
SHORT-ACTING
BRONCHODILATORS
(VENTOLIN(R)/Proventil(R))
AND OTHERS
$1.8 BILLION
8
<PAGE> 12
ASTHMA AFFECTS ABOUT 15 MILLION AMERICANS, INCLUDING 5 MILLION CHILDREN. THE
INCIDENCE OF ASTHMA IS INCREASING IN AMERICA. People are twice as likely to
suffer from asthma as compared to 1980. Approximately 5,000 deaths occur as a
result of asthma in the U.S. each year. - Bronchodilators are the primary
treatment for acute and chronic asthma attacks and are necessary complements to
other asthma therapies, such as steroids or leukotriene antagonists.
Short-acting and long-acting bronchodilators prescribed for the treatment of
asthma had worldwide sales of over $2.5 billion in 1997. Sepracor's levalbuterol
is a single-isomer form of the current market-leading bronchodilator, racemic
albuterol. In 1997, racemic albuterol sales exceeded $1.4 billion. - In addition
to levalbuterol, Sepracor is developing (R,R)-formoterol as a long-acting
bronchodilator. This ICE Pharmaceutical is being investigated to determine onset
and duration of action as a prophylactic asthma therapy. -
LEVALBUTEROL...ADVANCING ASTHMA THERAPY THROUGH PURER MEDICINE. On July 1, 1997,
Sepracor announced that it had submitted a New Drug Application (NDA) to the
U.S. Food and Drug Administration (FDA) for levalbuterol HCl nebulizer solution.
The NDA submission came approximately two years after the drug entered U.S.
clinical trials, confirming Sepracor's ability to rapidly develop its ICE
Pharmaceuticals. If the FDA approves the NDA, Sepracor plans to launch
levalbuterol using its own specialty respiratory sales force during the second
half of 1998. - In addition to the nebulized dosage form, Sepracor will be
initiating clinical trials with several other formulations and pulmonary drug
delivery systems for levalbuterol, including syrup, controlled release tablet,
metered-dose inhaler, and dry-powder inhaler versions. - (R,R)-FORMOTEROL
...POTENTIAL FOR RAPID ONSET OF ACTION COUPLED WITH LONG DURATION OF THERAPY.
Sepracor is studying (R,R)-formoterol, a single-isomer ICE Pharmaceutical, for
the dual benefits of rapid onset of action and long duration of therapy.
Worldwide sales of long-acting bronchodilators exceeded $700 million in 1997
(Norvartis' Foradil(R), Yamanouchi's Atock(R), Astra's Oxis(TM) Turbuhaler(R),
and Glaxo-Wellcome's Serevent(R)). - As Sepracor continues to strengthen and
expand its commercial capabilities, the Company is building a specialty
respiratory sales force to market the portfolio of respiratory drugs under
development. The sales force will sell directly to high-prescribing respiratory
specialists, pediatricians, and primary care physicians in leading hospitals and
clinics in the U.S.
9
<PAGE> 13
Urology/
Gastroenterology [BACKPACKING PHOTO]
ICE PHARMACEUTICALS FOR UROLOGICAL DISORDERS AND GASTROENTEROLOGY
<TABLE>
<CAPTION>
ICE PHARMACEUTICALS PARENT DRUG EXPECTED DEVELOPMENT
Potential Benefit of Sepracor Candidate Current Marketer INDICATION STAGE
<S> <C> <C> <C>
(S) - OXYBUTYNIN DITROPAN(R) Urinary Phase I/II
reduced anticholinergic side effects HMRI Incontinence
including dry mouth, restlessness,
nausea and palpitations
(S) - DOXAZOSIN CARDURA(R) Benign Prostatic Preclinical
reduced orthostatic hypotension Pfizer Hyperplasia (BPH)
and improved potency
NORCISAPRIDE PROPULSID(R) Emesis Preclinical
improved potency without the J & J (nausea,
adverse side effect of cardiac toxicity vomiting)
(S) - LANSOPRAZOLE PREVACID(R) Gastroesophageal Preclinical
improved dosing consistency TAP Reflux Disease
and efficacy Pharmaceuticals (GERD)
(-) - PANTOPRAZOLE PANTOZOL(TM) Gastroesophageal Preclinical
GERD treatment with more consistent Byk/AHP Reflux Disease
plasma levels that may lead to better (GERD)
efficacy and safety
</TABLE>
1997 WORLDWIDE SALES FOR URINARY INCONTINENCE PRODUCTS,
ADULT DIAPERS AND DEVICES WERE $2.1 BILLION
[PIE CHART]
DITROPAN(R)*
$134 MILLION
DIAPERS
AND DEVICES
$2 BILLION
* INCLUDES RELATED BRANDS
10
<PAGE> 14
URINARY INCONTINENCE (UI) AFFECTS A BROAD RANGE OF ADULTS. THE CONDITION AFFECTS
APPROXIMATELY 10 MILLION WOMEN AND 3 MILLION MEN IN THE UNITED STATES, with
estimated annual treatment costs of $16 billion. The incidence of urinary
incontinence increases progressively with age; approximately 15-30% of older
adults have experienced problems with bladder control. Additionally, more than
50% of nursing home residents have been diagnosed with UI. - Drug therapy is
rarely used to treat urinary incontinence due to the severe side effects of the
existing compounds. A majority of patients use adult diapers or incontinence
devices. U.S. sales of these alternatives exceed $2 billion annually.
Ditropan(R) (racemic oxybutynin), the most widely used drug to treat urinary
incontinence, is associated with unpleasant side effects including dry mouth,
nausea, restlessness, and heart palpitations. As a result, pharmaceutical
products capture only about 5% of the domestic UI market. - (S)-OXYBUTYNIN...A
POTENTIAL TREATMENT FOR URINARY INCONTINENCE WITHOUT THE UNPLEASANT SIDE EFFECTS
OF DITROPAN. Sepracor is developing (S)-oxybutynin as a treatment primarily for
urge urinary incontinence, a disorder characterized by sudden and involuntary
bladder contractions. Racemic oxybutynin is marketed as Ditropan by HMRI. While
Ditropan is effective in blocking contractions, it is linked to undesirable
anticholinergic side effects that limit the drug's usefulness. - Phase II
clinical trials of (S)-oxybutynin are underway. The clinical trials are designed
to investigate the drug's efficacy as well as its tolerability. -
(S)-DOXAZOSIN...A POTENTIAL BPH TREATMENT WITH DECREASED ORTHOSTATIC HYPOTENSION
COMPARED TO CARDURA(R). Sepracor is developing its proprietary (S)-doxazosin as
a potentially improved single-isomer version of Cardura, Pfizer's treatment for
benign prostatic hyperplasia (BPH). A primary side effect of treatment with
alpha-blockers is orthostatic hypotension, which is a lowering of blood pressure
that can cause severe dizziness and fainting. This side effect often requires
prescribing physicians to titrate to effective dose levels, which necessitates
multiple visits to the physician's office. - Sepracor's preclinical studies
indicate that (S)-doxazosin may combine a significantly lower incidence of
orthostatic hypotension with greater potency than the racemic parent drug. -
Other Sepracor ICE Pharmaceuticals under development for the treatment of
gastrointestinal and urological disorders include: norcisapride as anantiemetic
to treat nausea and vomiting; (S)-lansoprazole and pantoprazole as treatments
for gastroesophageal reflux disease (GERD).
11
<PAGE> 15
Psychiatry/Neurology
ICE PHARMACEUTICALS FOR PSYCHIATRY AND NEUROLOGY [HAPPY LADY PHOTO]
<TABLE>
<CAPTION>
ICE PHARMACEUTICALS PARENT DRUG EXPECTED DEVELOPMENT
Potential Benefit of Sepracor Candidate Current Marketer INDICATION STAGE
<S> <C> <C> <C>
(R) - FLUOXETINE PROZAC(R) Depression Preclinical
increase in flexibility in treating Eli Lilly
depression
(S) - FLUOXETINE PROZAC(R) Migraine Phase I/II
prevention of migraine headaches Eli Lilly
(S) - ZOPICLONE IMOVANE(R) Sleep Preclinical
reduced anticholinergic side effects Rhone-Poulenc Disorder
including dry mouth Rorer
(S) - SIBUTRAMINE MERIDIA(R) Obesity Preclinical
reduced anticholinergic side effects Knoll
including dry mouth and constipation Pharmaceutical
(R) - BUPROPION ZYBAN(TM) Smoking Preclinical
reduced incidence of seizures, Glaxo-Wellcome Cessation
dry mouth and insomnia
</TABLE>
1997 WORLDWIDE SALES FOR THE SSRI MARKET WERE $6.5 BILLION, WHICH DOMINATED THE
ANTIDEPRESSANT MARKET*
[PIE CHART]
PROZAC(R)
$2.6 BILLION
PAXIL(TM)
$1.4 BILLION
WELLBUTRIN(R)
$.3 BILLION
OTHER
$.8 BILLION
ZOLOFT(R)
$1.4 BILLION
* INCLUDES RELATED BRANDS
12
<PAGE> 16
DEPRESSION IS A PSYCHIATRIC DISORDER THAT AFFECTS APPROXIMATELY 17 MILLION
PEOPLE IN THE UNITED STATES ANNUALLY. Selective Serotonin Reuptake Inhibitors
(SSRIs), such as racemic fluoxetine, are prescribed as first-line therapy for
the treatment of depression. In 1997, worldwide sales of SSRIs reached $6.5
billion. In addition to SSRIs, other central nervous system (CNS) drugs are
available to treat conditions such as sleep disorders, obesity, and smoking
cessation. - (R)-FLUOXETINE...POTENTIALLY INCREASED FLEXIBILITY IN THE TREATMENT
OF DEPRESSION. Racemic fluoxetine is marketed as the antidepressant Prozac(R) by
Eli Lilly & Co. Sepracor is conducting preclinical studies of the (R)-isomer of
fluoxetine to treat depression. The Company is planning to initiate full-scale
clinical trials during 1998. The use of (R)-fluoxetine may provide greater
treatment flexibility by reducing the half-life, which would lead to an
expedited washout period and the ability to switch drug therapies more rapidly.
The single-isomer version of the drug may also increase the suitability of
fluoxetine to treat the elderly, as well as other patient groups that have
difficulty metabolizing certain drugs. - (S)-ZOPICLONE...A POTENTIAL TREATMENT
FOR SLEEP DISORDERS WITH REDUCED ANTICHOLINERGIC SIDE EFFECTS. Sleep disorders
affect 56 million people in the U.S. Zopiclone is marketed as Imovane(R) in
Europe by Rhone-Poulenc Rorer Inc. Imovane is a non-benzodiazepine, short-acting
hypnotic sedative for the treatment of sleep disorders. In 1997, worldwide sales
of Imovane were approximately $144 million. Imovane was not developed for the
U.S. market, which is served primarily by zolpidem tartrate, marketed as
Ambien(R) by Searle. Ambien is a rapid onset, non-benzodiazepine hypnotic. U.S.
sales of Ambien in 1997 were approximately $500 million. Preclinical studies
show that the use of (S)-zopliclone has the potential to reduce anticholinergic
side effects, particularly dry mouth. -(S)-SIBUTRAMINE...SINGLE-ISOMER FORM OF
MERIDIA(R). Knoll Pharmaceutical Co., a division of BASF AG, markets racemic
sibutramine as Meridia for the treatment of obesity. Sepracor has initiated an
exploratory program to determine whether (S)-sibutramine may reduce
anticholinergic side effects associated with Meridia. - Other ICE
Pharmaceuticals in preclinical development for treatment of central nervous
system disorders or for pain management include: (S)-fluoxetine for migraine
prophylaxis; norcisapride as an anti-anxiety drug; (R)-ketoprofen and
(R)-ketorolac for pain management; and (R)-bupropion for smoking cessation.
13
<PAGE> 17
Drug Discovery [LAB PHOTO]
SEPRACOR'S NEW CHEMICAL ENTITIES
SEPRACOR LEAD COMPOUND DISEASE RECEPTOR/ENZYME
Adenosine
SEP - 89,068 Pain, Anxiety A2A
SEP - 42,960 Asthma A3
Phosphatase
SEP - 121,788 Diabetes, Cancer P1B
Opiate
SEP - 130,551 Pain, Respiratory mm
SEP - 130,169 kappa
SEP - 119,249 Inflammation Glucocorticoid
SEP - 119,244 Osteoporosis, Cancer Estrogen
SEP - 132,613 Bacterial Infection Infectious Disease
SEP - 119,255 narrow spectrum, resistant
gram-positive infection
THE DRUG DISCOVERY PROCESS
[FLOW CHART]
COMBINATORIAL
CHEMISTRY
MANY COMPOUNDS
FUNCTIONAL
GENOMICS
DISEASE TARGETS
BIOINFORMATICS
COMPUTER CONTROL
HIGH-THROUGHPUT
SCREENING
"HITS"
LEAD COMPOUNDS
PRECLINICAL AND
CLINICAL TRIALS
14
<PAGE> 18
SEPRACOR'S DISCOVERY STRATEGY IS CLOSELY ALIGNED WITH THE ICE PHARMACEUTICAL
STRATEGY. BOTH PROGRAMS FOCUS ON RELATED THERAPEUTIC AREAS, such as
inflammation, pain, and urological diseases. While the ICE Pharmaceutical
strategy potentially improves existing drugs, the Discovery approach creates new
chemical entities, which may lead to breakthrough compounds. By focusing drug
discovery efforts on synthetic, medicinal, and combinatorial chemistries,
Sepracor has developed a proprietary and highly diverse corporate file of small,
drug-like molecules with potential therapeutic advantages over compounds
currently used for treatment. - COMBINATORIAL CHEMISTRY TECHNIQUES ARE
USED TO PRODUCE LIBRARIES OF NOVEL COMPOUNDS FOR SCREENING. For both known
biological and new genomic-identified drug targets, relevant assays are designed
and implemented in high-throughput screening formats. Sepracor's unique method
of leveraging combinatorial chemistry combined with high-throughput screening
provides for competitive advantages in the drug discovery arena. The Company's
propriety chemistry allows Sepracor to create specifically shaped molecules that
will target receptors in a highly precise manner. This process is generating
more selective and potent lead compounds, which complement Sepracor's current
therapeutic focus. - Sepracor's collaborative relationships with select
biotechnology partners give the Company access to proprietary molecular targets
that are within Sepracor's therapeutic areas of interest and are suitable for
high-throughput screening formats. The relationship between high-throughput
screening and combinatorial chemistry dramatically shortens the time to discover
lead compounds and develop drug candidates. - THE POTENCY, SELECTIVITY,
AND STRUCTURE OF A LEAD COMPOUND, COMBINED WITH ITS PHYSICAL PROPERTIES AND
BIOAVAILABILITY, INCREASE THE PROBABILITY THAT THE SUBSTANCE WILL BECOME A DRUG.
When a lead is discovered, focused libraries are designed and synthesized
utilizing directed combinatorial chemistry techniques. Using this technology,
Sepracor has generated a number of lead compounds in less than one year. For
example, Sepracor has identified SEP-132,613 as a promising lead anti-infective
compound with "in vitro" potency against a wide range of resistant organisms.
Sepracor has also identified SEP-42,960 and SEP-89,068 as unique, drug-like
molecules with "in vitro" activity against the adenosine receptor subtypes.
Other lead compounds that have shown high potency and selectivity against the
opiate receptor subtypes "in vitro" are SEP-130,551 and SEP-130,169. - IN
THE FUTURE, SEPRACOR EXPECTS THESE DRUG DISCOVERY ACTIVITIES TO COMPLEMENT THE
COMPANY'S ICE PHARMACEUTICAL PIPELINE.
15
<PAGE> 19
SEPRACOR INC. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended December 31, (in thousands, except per share data) 1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Product sales $ 9,636 $ 13,784 $ 14,271 $ 12,382 $ 9,862
Collaborative research and development 58 25 1,036 303 2,209
License fees and royalties 5,643 1,232 900 5,425 1,359
----------------------------------------------------------------
Total revenues 15,337 15,041 16,207 18,110 13,430
----------------------------------------------------------------
Costs and expenses:
Cost of products sold 5,992 6,784 10,410 6,919 6,786
Research and development 43,055 35,828 21,707 17,723 13,301
Purchase of in-process research and development (1) -- -- -- 3,500 --
Selling, general, administrative and patent costs 17,254 16,312 20,411 16,212 12,494
Restructuring and impairment charges (2) 4,179 -- 4,144 -- 2,015
----------------------------------------------------------------
Total costs and expenses 70,480 58,924 56,672 44,354 34,596
----------------------------------------------------------------
Loss from operations (55,143) (43,883) (40,465) (26,244) (21,166)
----------------------------------------------------------------
Other income (expense):
Equity in investee losses (3) (2,755) (17,539) (808) -- --
Interest income 5,766 6,713 3,228 1,390 1,096
Interest expense (5,976) (6,140) (2,077) (832) (751)
Gain on Sale of ChiRex, Inc. 30,069 -- -- -- --
Other (4) 547 (107) (1,171) (213) (86)
----------------------------------------------------------------
Net loss before minority interests (27,492) (60,956) (41,293) (25,899) (20,907)
Minority interests in subsidiaries 1,369 846 7,881 5,556 --
----------------------------------------------------------------
Net loss $(26,123) $(60,110) $(33,412) $(20,343) $(20,907)
----------------------------------------------------------------
Net loss applicable to common shares (5) $(26,723) $(60,710) $(33,412) $(20,343) $(20,907)
----------------------------------------------------------------
Basic and diluted net loss per common share $ (0.97) $ (2.25) $ (1.54) $ (1.09) $ (1.16)
Basic and diluted weighted average number of common
shares outstanding 27,599 27,032 21,637 18,644 18,038
BALANCE SHEET DATA (IN THOUSANDS):
Cash and marketable securities $ 92,560 $103,650 $143,250 $ 27,590 $ 20,677
Total assets 128,507 146,689 202,713 73,419 46,681
Long-term debt 84,268 85,267 85,818 5,929 5,676
Stockholders' equity 12,032 30,392 89,227 30,485 33,152
</TABLE>
(1) Represents a charge in connection with an acquisition by BioSepra Inc.
(2) Represents restructuring and impairment charges taken by BioSepra in
December 1997 and 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 transactions 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.
16
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS 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 Inc.
("BioSepra"), Sepracor Canada Limited, HemaSure Inc. ("HemaSure") (from January
1994 to September 1995), SepraChem Inc. (from January 1996 to March 1996), New
England Pharmaceuticals, Inc. (from June 1995 to June 1996 when it was merged
into Sepracor), and Versicor (from May 1995 to December 1997).
In September 1995, 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. At
December 31, 1997, the Company's investment in HemaSure was recorded to zero.
In March 1996, ChiRex Inc. ("ChiRex"), a newly formed corporation that is a
combination of Sterling Organics Limited, a United Kingdom 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 of its common stock 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 owned 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. From March 11, 1996 until March 31, 1997, Sepracor carried 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 and $383,000 as its share of ChiRex's income for the quarter ended
March 31, 1997. On March 31, 1997, Sepracor received net proceeds of
approximately $31,125,000 from the public sale of all of its shares of ChiRex
common stock. As a result of this transaction, Sepracor recognized a gain of
$30,069,000, which was recorded as other income.
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 prime plus 3/4%. The loans, including any interest
thereon, were convertible into 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 and 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.
Versicor was formed in May 1995 to develop novel drug candidates principally for
the treatment of infectious diseases.
In 1995, Versicor entered into a Convertible Subordinated Note Agreement ("the
Note Agreement") with Sepracor. Under this Note Agreement, Sepracor agreed to
loan to Versicor until October 2, 1998, up to an aggregate of $4,700,000.
Amounts outstanding accrued interest at the prime rate plus 1/2% not to exceed
9.5%. Amounts outstanding were convertible, at the option of Sepracor, into
Versicor Series B Convertible Preferred Stock by dividing the amount
outstanding, including principal and interest, by $0.7833.
In 1996, Versicor entered into a loan agreement with Sepracor. Under this
agreement, Sepracor agreed to loan to Versicor until October 2, 1998 up to an
aggregate of $7,500,000. As of June 23, 1997, this agreement was amended to
provide that principal and interest payments due to Sepracor, would be
convertible, at the option of Sepracor, into Versicor Series B Convertible
Preferred Stock, by dividing the amount outstanding, including principal and
interest, by $0.7833. The loan accrued interest equal to the prime rate minus
1/4%, adjusted under certain circumstances.
On December 10, 1997, Versicor completed a private equity financing for
approximately $22,000,000 and issued Series C Preferred Stock. As part of the
transaction, Sepracor exercised its conversion option on the Versicor
Convertible Subordinated Notes (the "Notes") in the amount of $9,530,000. The
remaining $6,034,000, which was outstanding under the Notes at the time, was
repaid to Sepracor before the end of 1997. Sepracor recognized a gain of
approximately $5,688,000 on the transaction, which was recorded as an increase
to additional paid-in capital. At December 31, 1997, Sepracor had an investment
in Versicor of $3,971,000 and there were no amounts outstanding under the Notes.
Sepracor's ownership as of December 31, 1997 was approximately 22%, thereby
making Versicor an affiliate and reportable under the equity method. Sepracor
recorded $75,000 as its share of Versicor losses for the period December 10
though December 31, 1997.
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
REVENUE Product sales were $9,636,000 in 1997, $13,784,000 in 1996 and
$14,271,000 in 1995. Product sales are primarily attributable to BioSepra's
sales of bioprocessing media, supplies and equipment. The decrease in revenue
from 1995 to 1996 was primarily due to only consolidating the results of
SepraChem through March 11, 1996. The decrease in revenue from 1996 to 1997 is
attributable to fluctuations in the timing of large production scale media
orders and to the absence of one-time stocking orders from a major distributor
of research instruments, which occurred in 1996. In addition, the Company
believes that the sales of HyperD media have historically been adversely
affected by the now settled patent litigation with PerSeptive Biosystems Inc.
BioSepra's future success is dependent, in part, on its ability to generate
increased sales of its HyperD media products and research devices.
Collaborative research and development revenues were $58,000, $25,000 and
$1,036,000, in 1997, 1996 and 1995, respectively. The decrease from 1995 to 1996
was primarily related to a milestone
17
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
payment recorded in 1995 from Bayer Corporation. This contract was subsequently
terminated by Bayer.
License fees and royalties were $5,643,000 in 1997, $1,232,000 in 1996 and
$900,000 in 1995. The increase from 1995 to 1996 was due to revenue recognized
by BioSepra under an agreement with Beckman Instruments Inc. ("Beckman") in
1996. The increase from 1996 to 1997 was due to a $1,875,000 milestone payment
from Hoechst Marion Roussel Inc. ("HMRI") under the patent license agreement on
terfenadine carboxylate, marketed by HMRI as AllegraTM, and $3,600,000
recognized by BioSepra under the agreement with Beckman, that was revised in
December 1997. The increases in 1996 and 1997 were offset by decreases in
royalties received by Tanabe Seiyake Co. Ltd. ("Tanabe") relating to Tanabe's
licensing and use of Sepracor's technology in the manufacture of the chiral
intermediate of diltiazem: $168,000 in 1997, $333,000 in 1996 and $675,000 in
1995. Beginning in March 1996, Sepracor splits the royalty revenue from Tanabe
with ChiRex on a 50/50 basis.
In December 1997, Sepracor signed a licensing agreement with Schering-Plough
Corporation ("Schering") giving Schering exclusive worldwide rights to
Sepracor's patents covering descarboethoxyloratadine ("DCL"), an active
metabolite of loratadine. Under the terms of the agreement, Sepracor has
exclusively licensed its DCL rights to Schering, which expects to develop and
market the DCL product worldwide. Schering will pay Sepracor an upfront license
fee of $5,000,000 and royalties on DCL sales, if any, beginning at first product
launch. Any such royalties paid to Sepracor will escalate over time and upon the
achievement of sales volume and other milestones. As of December 31, 1997, the
agreement was still pending clearance under the Hart Scott Rodino Act. In
January 1998, Sepracor and Schering were notified that no objection would be
raised under the Hart Scott Rodino Act with respect to the license agreement.
Shortly thereafter, Sepracor received the $5,000,000 upfront license payment
from Schering and recorded the payment as license revenue in the first quarter
of 1998. The upfront license fee will be offset against future royalty payments.
On February 4, 1998, Sepracor signed a collaboration and license agreement with
Janssen Pharmaceutica, N.V. ("Janssen"), a wholly-owned subsidiary of Johnson &
Johnson, relating to the development and marketing of norastemizole, a third
generation nonsedating antihistamine. Under the terms of the agreement, the
companies will jointly fund the development of norastemizole, and Janssen has an
option to acquire certain rights regarding the product in the U.S. and abroad.
When exercised, Janssen and Sepracor will equally share the costs and profits
associated with the further development, marketing and sales of norastemizole in
the U.S. Sepracor will also retain the right to co-promote the product in the
U.S. Alternatively, Sepracor can elect to receive royalties, if any, on Janssen
sales of norastemizole in the U.S., in the event it decides not to co-promote
the product. Outside of the U.S., Janssen has the right to develop and market
norastemizole, and Sepracor will earn royalties on product sales, if any. In
addition, Janssen has worldwide OTC rights to norastemizole.
Cost of products sold, as a percentage of product sales, was 57% in 1997, 49% in
1996 and 73% in 1995. Cost of products sold decreased in 1996 as compared with
1995 primarily as a result of the elimination of sales of Biopass S.A.
("Biopass") products, a wholly owned subsidiary of BioSepra, which was sold in
July 1995. To a lesser extent, cost of products sold decreased in 1996 compared
to 1995 as a result of overall reductions in manufacturing costs at BioSepra.
The increase in 1997 from 1996 was primarily due to product mix changes and
fluctuations in timing of production-scale customer orders of BioSepra. In
addition, the increase is also attributable to the transition of BioSepra
resources from product development to production support, in association with
the commercialization of new media and instrument products. A payment of
$469,000 was made to a third party in connection with the HMRI milestone payment
and is included in cost of products sold in 1997.
Research and development expenses were $43,055,000 in 1997, $35,828,000 in 1996
and $21,707,000 in 1995. Research and development spending was primarily focused
on preclinical and clinical trials in Sepracor's pharmaceutical program and on
discovery initiatives at Versicor. The increase in 1996 compared to 1995 was due
to the costs associated with the progression of Sepracor's drug candidates into
later and more costly stages of development. In 1996, levalbuterol and
(S)-ketoprofen progressed into Phase III clinical trials, and norastemizole
progressed into Phase II clinical trials, and the Company initiated Phase I
clinical trials on (S)-oxybutynin and preclinical trials on (R,R)-formoterol. In
addition, costs increased in 1996 compared to 1995 due to the full-scale
operation of discovery capabilities at Versicor. Costs increased in 1997 as
compared to 1996 as levalbuterol Phase III clinical trials were completed, a new
drug application ("NDA") was submitted for levalbuterol to the Food and Drug
Administration ("FDA"), Phase III clinical trials began for norastemizole, and
Phase I clinical trials were initiated for (R,R)-formoterol.
Selling, general and administrative expenses were $15,594,000, $15,245,000 and
$19,037,000, in 1997, 1996 and 1995, respectively. The decrease in expenses in
1996 as compared to 1995 was primarily due to the hiring of certain management
personnel at Sepracor and BioSepra in 1995, increased legal expenses in 1995,
related to the recently settled lawsuits filed by and against PerSeptive, and
increased marketing expenses for HemaSure's LeukoNet Pre-Storage Leukoreduction
Filtration System ("Leukonet"). In addition, in 1996, HemaSure ceased being
consolidated in the results of Sepracor and BioSepra began to realize the
benefits of a cost-reduction program implemented in June 1995. The increase in
1997 as compared with 1996 resulted primarily from market research costs
incurred by Sepracor in determining the positioning of Sepracor's levalbuterol
product in the market and costs related to infrastructure development for a
direct sales force, offset by savings from personnel reductions at BioSepra. The
Company expects selling, general and administrative expenses to increase in 1998
as the Company accelerates the establishment of its direct sales force. Subject
to FDA approval of the Company's NDA, Sepracor is currently planning to commence
sales of the nebulized form of levalbuterol in late 1998.
In December 1997, BioSepra implemented a cost-reduction program that included
the discontinuance of a product line and a reduction in the number of employees.
The purpose of the program was to enable BioSepra to focus on the process
segments of the biopharmaceutical and genomics market. In conjunction
18
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
with the cost-reduction program BioSepra also wrote down intangible assets to
their net realizable value. In total, BioSepra recorded restructuring and
impairment charges totaling $4,179,000 in the fourth quarter of 1997. Of this
amount, $3,328,000 represents the write down of goodwill to its net realizable
value, $690,000 represents the write down of inventory and fixed assets
associated with the discontinued product line and $161,000 represents severance
and benefits related to the reduction in workforce in the U.S. BioSepra
terminated seven employees consisting of marketing/sales, finance and
administrative personnel. BioSepra expects to pay all of the severance and
related benefits in 1998.
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 biopharm aceutical 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 related 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 the remaining severance and
medical payments were paid in 1997.
In July 1995, BioSepra sold Biopass while retaining the chromatography column
technology that it obtained 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.
Legal expenses related to patents were $1,660,000, $1,067,000 and $1,374,000 for
1997, 1996 and 1995, respectively. The decrease in 1996 compared to 1995 was due
to chiral patent costs being transferred to ChiRex, beginning in March 1996. The
increase in 1997 compared with 1996 was due to maintenance fees associated with
the increased volume of patent filings and costs incurred in defending patent
interference claims made against the Company in 1997.
Equity in loss of investees was $2,755,000, $17,539,000 and $808,000 for 1997,
1996 and 1995, respectively. The equity in loss of investees consists of the
Company's portion of the net loss of HemaSure, ChiRex (through March 31, 1997)
and Versicor (beginning December 10, 1997). The increase in 1996 as compared to
1995 was due to one-time write-offs of $11,076,000 from ChiRex's initial public
offering and resulting transactions (Sepracor's portion of this one-time
write-off was $3,544,000). Included in HemaSure's results was $24,748,000
relating to the operations and discontinuation of HemaSure's blood plasma
business (Sepracor's portion of this was $9,157,000). The decrease in 1997
compared to 1996 was primarily related to the absence of any one-time
write-offs, ChiRex having net income for the period in 1997 during which
Sepracor maintained an interest and recording of HemaSure losses for only 11
months of 1997 as the investment was written down to zero.
Interest income was $5,766,000, $6,713,000 and $3,228,000 for 1997, 1996, and
1995, respectively. The increase in 1996 was primarily due to a larger average
cash balance available for investment, while the decrease in 1997 is principally
the result of a lower average cash balance available for investment.
Interest expense was $5,976,000, $6,140,000 and $2,077,000 in 1997, 1996 and
1995, respectively. The increase in interest expense in 1996 compared to 1995
were due to the $80,880,000 subordinated convertible debenture offering
completed in November and December of 1995. The decrease in 1997 was a result of
reduced borrowings by BioSepra and more favorable interest rates on the
remaining borrowings.
Net other income (expense) was $547,000, $(107,000), $(1,171,000) for 1997, 1996
and 1995, respectively. The decrease in expense in 1996 was primarily due to the
one-time write-off of approximately $800,000 of certain deferred financing costs
by Sepracor related to SepraChem in 1995. Income in 1997 related to the receipt
of a Canadian tax refund and favorable foreign exchange transactions associated
with BioSepra.
Minority interests in subsidiaries resulted in a reduction of consolidated net
loss of $1,369,000, $846,000, and $7,881,000 for 1997, 1996 and 1995,
respectively. The decrease in 1996 compared to 1995 resulted from smaller losses
at BioSepra and from HemaSure no longer being consolidated into the results of
operations of Sepracor. The increase in 1997 compared to 1996 related to larger
losses at BioSepra, offset by a reduction in the percentage of minority
interest, as Sepracor's ownership increased to 64% in June 1996.
OTHER The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standard No. 130 "Reporting Comprehensive Income" ("SFAS
130"). SFAS 130 requires that changes in comprehensive income be shown in a
financial statement that is displayed with the same prominence as other
financial statements. SFAS 130 will become effective for fiscal years beginning
in the first quarter of the fiscal year ending December 31, 1998. The Company
does not believe that the adoption will have a material effect on results from
operations.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"). SFAS 131 specifies new
guidelines for determining a company's operating segments and related
requirements for disclosure. Sepracor is in the process of evaluating the impact
of the new
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
standard on the presentation of the financial statements and the disclosure
therein. SFAS 131 will become effective for fiscal years beginning after
December 31, 1998.
LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents plus marketable
securities of Sepracor and its subsidiaries, including BioSepra, totaled
$92,560,000 at December 31, 1997, compared to $103,650,000 at December 31, 1996.
Cash and cash equivalents plus marketable securities of Sepracor, excluding
BioSepra, at December 31, 1997 were $90,044,000.
The net cash used in operating activities for the twelve months ended December
31, 1997 was $43,763,000. The net cash used in operating activities includes a
net loss of $26,123,000 adjusted by non-cash charges of $11,561,000. Non-cash
charges include a restructuring and impairment charge of $4,018,000 relating to
BioSepra. This was offset by the gain on sale of ChiRex of $30,069,000 and the
minority interest in subsidiary portion of the net loss of $1,369,000. The
accounts payable and accrued expense balances increased a total of $5,470,000
from the December 31, 1996 balances, primarily due to increased research and
development accruals at Sepracor. The deferred revenue decreased a total of
$3,620,000 due to BioSepra's recognition of license revenue relating to the
Beckman contract.
In 1994, Sepracor, BioSepra and HemaSure entered into an equipment leasing
arrangement that provides for a total of up to $2,000,000 of financing to
Sepracor and its subsidiaries for the purpose of financing capital equipment in
the United States. All outstanding amounts are collateralized by the assets so
financed and are guaranteed by Sepracor. At December 31, 1997, there was
$355,000 outstanding under this credit facility relating to Sepracor and
BioSepra, of which $205,000 represented Sepracor's portion.
At December 31, 1997, Sepracor had guaranteed $624,000 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, 1997, Sepracor Canada Limited had received approximately
$2,960,000 of such term debt, of which $2,295,000 was outstanding.
In 1995 and in 1997, Versicor entered into Convertible Subordinated Note
Agreements ("the Note Agreements") with Sepracor. Under these Note Agreements,
Sepracor agreed to loan to Versicor amounts as required for operating purposes.
The amounts outstanding under the 1995 note accrued interest at the prime rate
plus 1/2% not to exceed 9.5%. The amounts outstanding under the 1997 note
accrued interest at the prime rate minus 1/4%, adjusted under certain
circumstances. The Note Agreements were convertible, at the option of Sepracor,
into Versicor Series B Convertible Preferred Stock by dividing the amount
outstanding, including principal and interest, by $0.7833.
On December 9, 1997, Sepracor converted an aggregate of $9,530,000 of the
foregoing Note Agreements into 12,166,667 shares of Versicor Series B Preferred
Stock (1,095,000 shares on a common equivalent basis after giving effect to a
9-for-1 reverse common stock split declared by Versicor in December 1997). On
December 31, 1997, Versicor repaid Sepracor the remaining $6,034,000 due under
the Note Agreements.
In 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 (the "Revolving Credit Agreement"), pursuant to which
BioSepra and Versicor could borrow up to $3,000,000 each. All borrowings are
collateralized by certain assets of the companies. On December 30, 1997, the
Revolving Credit Agreement was amended to remove Versicor as a party thereto.
The Revolving 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, 1997, there were no amounts outstanding
under this agreement. The annual interest rate on such borrowings is at the
lower of the prime rate or LIBOR plus 175 basis points.
On December 30, 1997, Sepracor entered into a put agreement with a commercial
bank pursuant to which Sepracor agreed to purchase $2,000,000 of indebtedness of
Versicor, a former wholly owned subsidiary, in the event of a default by
Versicor under its loan agreement with the bank. In the event that the put right
is exercised by the bank, the bank will assign its security interest in the
fixed assets of Versicor to Sepracor.
On February 10, 1998, Sepracor issued $189,475,000 of 6 1/4% Convertible
Subordinated Debentures due 2005 (the "6 1/4% Debentures"). The 6 1/4%
Debentures are convertible into Sepracor common stock, at the option of the
holder, at a price of $47.369 per share. The 6 1/4% Debentures bear interest at
6 1/4% payable semi-annually, commencing on August 15, 1998. The 6 1/4%
Debentures are not redeemable by the Company prior to February 18, 2001. The
Company may be required to repurchase the 6 1/4% Debentures at the option of the
holders in certain circumstances. As part of the sale of the 6 1/4% Debentures,
Sepracor incurred approximately $5,915,000 of offering costs, which will be
recorded as other assets and amortized over seven years, the term of the 6 1/4%
Debentures. The net proceeds to the Company after offering costs was
$183,560,000. The Company intends to use the proceeds from the sale of the 6
1/4% Debentures for the establishment of the Company's respiratory sales force,
marketing of certain ICEs, ongoing preclinical and clinical trials, funding of
other research and development programs, and working capital and other general
corporate purposes.
On March 26, 1998, Sepracor and Beckman terminated their Stock Purchase
Agreement under which Beckman acquired 312,500 shares of Sepracor Series B
Redeemable Preferred Stock. Sepracor paid Beckman the original purchase price of
the stock plus accrued dividends totalling $6,850,000. As a result of this
termination, subsequent to year-end, Sepracor has reclassed its convertible
redeemable preferred stock as a current liability at December 31, 1997. In
addition, BioSepra and Beckman amended their distribution agreement whereby
BioSepra granted a non-exclusive right to manufacture instruments to Beckman,
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
removed its obligation to manufacture instruments for Beckman, and sold the
discontinued instrument product inventory to Beckman for $250,000.
LEGAL PROCEEDINGS In July 1997, the United States Patent and Trademark Office
(the "PTO") informed Sepracor that it had declared an interference between
Sepracor's previously issued method-of-use patent on fexofenadine to treat
allergic rhinitis and another similar patent application of Sepracor, and HMRI's
method-of-use patent application on the anti-histaminic effects of fexofenadine
on hepatically impaired patents. The primary objective of a patent interference,
which can only be declared by the PTO, is to determine the first to invent any
overlapping subject matter claimed by more than one party. In the course of an
interference, the parties typically present evidence relating to their inventive
activities as to the overlapping subject matter. The PTO then reviews the
evidence to determine which party has the earliest legally sufficient inventive
date, and, therefore, is entitled to a patent claiming the overlapping subject
matter.
If Sepracor prevails in the interference, Sepracor will retain all of its claims
in its issued patent. If, however, Sepracor loses the interference, HMRI will be
issued a U.S. patent containing its claims involved in the interference and may
not be obligated to pay Sepracor milestone or royalty payments pursuant to the
terms of the license agreement whereby Sepracor licensed its U.S. patent rights
covering fexofenadine to HMRI in 1993.
In December 1997, The Company and its subsidiary, BioSepra, settled their long
standing patent lawsuit with PerSeptive Biosystems, Inc. ("PerSeptive"), a
competitor of BioSepra. Under the terms of the settlement, PerSeptive received
an unspecified amount and BioSepra obtained a limited, non-exclusive license
under PerSeptive's Perfusion Chromatography R patents to make, use and sell its
HyperD R product line free of claims of infringements by PerSeptive.
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 (the "'321 patent"), HemaSure filed
for summary judgment of noninfringement. Pall filed a cross motion for summary
judgment of infringement at the same time. In October 1997, the U.S. District
Court of the Eastern District of New York granted in part Pall's summary
judgment motion relating to the '321 patent. The court has not yet ruled on the
validity of Pall's '321 patent claims, which HemaSure has asserted are invalid
and unenforceable. The court now will need to review and determine the validity
of this patent prior to any further action. No date has been set for these
proceedings.
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 unenforceability 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
HemaSures's future business and operations.
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 Improved Chemical Entities
("ICE(TM)s") under development and the scope of patent protection with respect
to these products and information with respect to the other plans and strategy
for the Company's business and the business of the subsidiaries and certain
affiliates of the Company, consists of forward-looking statements. Important
factors that could cause actual results to differ materially from the
forward-looking statements include the following:
Since substantially all of Sepracor's ICEs 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 parent drugs or that research efforts undertaken by Sepracor will
lead to the discovery of future 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 successful development and
commercialization. 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.
Sepracor has filed patent applications covering compositions containing, and
methods of using, single isomer or active-metabolite forms of various compounds
for specific applications. The ability to commercialize successfully any ICE
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. Most of the ICEs for which Sepracor has obtained use
patents or filed applications therefor are claimed by composition of matter or
other patents or patent applications held by third parties. In each such case,
unless subject to an existing license agreement, the ICE may not be
commercialized until the expiration of corresponding third party
composition-of-matter or other patents. 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 product 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
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
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. Certain of the technology that may be used in the products of
Sepracor is not covered by any patent or patent application. In the absence of
patent protection, the business of Sepracor may be adversely affected by
competitors who independently develop substantially equivalent technology.
In July 1997, the PTO informed Sepracor that it had declared an interference
between Sepracor's previously issued use patent on fexofenadine to treat
allergic rhinitis and another similar patent application of Sepracor, and the
use patent application of HMRI on the anti-histaminic effects of fexofenadine on
hepatically impaired patients. The primary objective of a patent interference,
which can only be declared by the PTO, is to determine which party was the first
to invent any overlapping subject matter claimed by more than one party. In the
course of an interference, the parties typically present evidence relating to
their invention of the overlapping subject matter. The PTO then reviews the
evidence to determine which party has the earliest legally sufficient date of
invention, and, therefore, is entitled to a patent claiming the overlapping
subject matter. If Sepracor prevails in the interference, Sepracor will retain
all of its claims in its issued patent. If, however, Sepracor loses the
interference, HMRI will be issued a U.S. patent containing its claims involved
in the interference and may not be obligated to pay Sepracor milestone or
royalty payments pursuant to the terms of the license agreement whereby Sepracor
licensed its U.S. patent rights covering fexofenadine to HMRI in 1993. Sepracor
and HMRI have agreed to resolve the interference by arbitration. Selection of
the arbitrator and initiation of the arbitration proceeding is expected to occur
in the first half of 1998. While it is possible that the arbitrator's decision
may be rendered during 1998, there can be no assurance that the arbitrator's
decision will be rendered at that time. Once rendered, the arbitrator's decision
must be submitted to the PTO for final approval. The interference is in its
early stages and the Company is unable to predict its outcome.
The marketing and sale of pharmaceutical products developed by Sepracor or its
development partners will require FDA approvals as well as similar approvals in
foreign countries. To obtain such approvals, the safety and efficacy of such
products must be demonstrated through clinical trials. 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 or that regulatory approval for any such products will be obtained
on a timely basis, if at all. The clinical trial and regulatory approval process
can take a number of years and require the expenditure of substantial resources.
With respect to certain of the Company's ICEs, the Company has been able to
shorten the regulatory approval process of its ICEs by relying on preclinical
and clinical toxicology data already on file with the FDA with respect to the
parent drug. Although Sepracor has to date been successful in employing this
strategy in connection with the approval process of certain of its proposed
products, there can be no assurance that the FDA will permit the Company to
utilize this strategy in the future. Accordingly, the Company may be required to
expend significant resources to complete such preclinical and clinical studies
for its other ICEs, thereby significantly delaying the regulatory approval
process. The failure of the Company to obtain regulatory approval on a timely
basis and unanticipated significant expenditures on preclinical and clinical
studies could adversely affect the financial condition of the Company. While the
Company expects FDA approval of its NDA for the nebulized form of levalbuterol
in late 1998, there can be no assurance that the FDA will approve such NDA by
such date, if at all.
The Company currently has very limited sales and marketing experience. If the
Company is successful in developing and obtaining regulatory approval for its
products under development, it expects to license certain products to large
pharmaceutical companies and market and sell certain other products through its
direct specialty sales forces or through other arrangements, including
co-promotion arrangements. In anticipation of expected FDA approval of the
nebulized form of levalbuterol later this year, the Company is beginning to
establish a direct sales force to market the inhalation solution of
levalbuterol. Further, as the Company begins to enter into co-promotion
arrangements or market and sell additional products directly, the Company will
need to significantly expand its sales force. It is expected that the Company
will incur significant expense in establishing its direct sales force. The
ability of the Company to realize significant revenues from its direct marketing
and sales activities is dependent on its ability to attract and retain qualified
sales personnel in the pharmaceutical industry. There can be no assurance,
however, that the Company will be able to attract and retain such qualified
sales personnel, that it will successfully expand its marketing and direct sales
force in the future on a timely basis, that the cost of establishing such
marketing or sales force will not exceed any product revenues, that its sales
and marketing efforts will be successful, or that the need to comply with FDA
limits on drug product marketing, including limits on claims of comparative
safety or efficacy, will not inhibit the effectiveness of such marketing. In
addition, the Company will need to enter into co-promotion arrangements with
third parties where its own direct sales force is neither well situated nor
large enough to achieve maximum penetration in the market. There can be no
assurance that the Company will be successful in entering into any such
arrangements or that the terms of any such arrangements will be favorable to the
Company.
Sepracor's ability to commercialize certain drugs that it develops is likely to
depend in significant part on its ability to enter into collaborative agreements
with pharmaceutical companies to fund all or part of the costs to complete the
development of such drugs and to manufacture and/or market such drugs. To date,
the Company has entered into three such collaborative agreements. The Company
has licensed its U.S. patent rights to Allegra (fexofenadine) to HMRI and is
entitled to receive royalties on all U.S. sales of Allegra when the patent on
the parent drug expires. The Company, however, is currently party to an
interference involving Allegra which, if decided adversely to the Company, could
result in the loss of all or substantially all of the royalties to which the
Company is entitled under the license agreement on future sales of Allegra. The
Company has also licensed its worldwide patent
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
rights in DCL to Schering-Plough, pursuant to which the Company is entitled to
receive royalties from Schering-Plough upon the initial sale of the product. The
Company has entered into an agreement with Janssen with respect to the joint
development and co-promotion of norastemizole. In each of these collaborative
arrangements and, to the extent the Company enters into additional collaborative
arrangements, the Company is dependent upon the efforts of the collaboration
partners and there can be no assurance that such efforts will be successful. If
any collaborators were to breach or terminate their agreements with the Company
or fail to perform their obligations thereunder in a timely manner, the
development and commercialization of the products could be delayed or
terminated. Any such delay or termination could have a material, adverse effect
on the Company's financial condition and results of operation. Sepracor's
failure or inability to perform certain of its obligations under a collaborative
agreement could result in a reduction or loss of the benefits to which Sepracor
is otherwise entitled under such agreement. There can be no assurance that
Sepracor will be able to enter into any such agreements for ICEs in the future
or that such collaborative agreements, if any, will be entered into on terms
favorable to the Company.
The Company currently operates a current Good Manufacturing Practices ("cGMP")
compliant manufacturing plant which the Company believes has sufficient capacity
to support the production of its drugs in quantities required for its clinical
trials. While the Company believes it has the capability to scale up its
manufacturing processes and manufacture sufficient quantities of certain of the
products which may be approved for sale, without additional expansion, the
Company will not have the capability to manufacture in sufficient quantities all
of the products which may be approved for sale. Accordingly, the Company may be
required to expend additional resources to expand its current facility,
construct an additional facility or contract the production of these drugs to
third party manufacturers. There can be no assurance that the Company will have
the resources to expand its existing or develop additional facilities or
contract with manufacturers to produce its products in commercial quantities or
that any contract with third party manufacturers will be on favorable terms to
the Company. There can be no assurance that the Company will succeed in scaling
up its manufacturing processes or maintaining cGMP compliance. Failure in either
respect can lead to refusal by the FDA to approve marketing applications.
Failure to maintain cGMP compliance may also be the basis for action by the FDA
to withdraw approvals that have been granted and for other regulatory action.
The testing, marketing and sale of human health care products entails an
inherent risk of product liability and there can be no assurance that product
liability claims will not be asserted against Sepracor. Sepracor and its
subsidiaries maintain limited product liability insurance coverage for both the
clinical trials and commercialization of its products. There can be no assurance
that Sepracor will be able to obtain further product liability insurance on
acceptable terms, if at all, or that any current insurance subsequently obtained
will provide adequate coverage against all potential claims.
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 financing,
collaborative or other arrangements with corporate partners or from other
sources, may not be available when needed or 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
2000, 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 Sepracor Canada Limited, and other factors.
The Company is currently evaluating the potential impact of the year 2000 on the
processing of date-sensitive information by the Company's computerized
information systems. The year 2000 problem is the result of computer programs
being written using two digits (rather than four) to define the applicable year.
Any of the Company's programs that have time-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000, which could result
in miscalculation or system failures. Based on preliminary information, costs of
addressing potential problems are not currently expected to have a material
adverse impact on the Company's financial position, results of operations or
cash flows in the future periods. However, if the Company, its customers or
vendors are unable to resolve such processing issues in a timely manner, it
could result in a material financial risk. Accordingly, the Company plans to
devote the necessary resources to resolve all significant year 2000 issues in a
timely manner.
Other factors that may affect the Company's future operating results include the
Company's fluctuations in quarterly operating results, its ability to meet its
debt service requirements and to compete successfully in the market.
Factors that may affect the future operating results of Sepracor include the
ability of BioSepra to obtain additional financing, the dependence on BioSepra
sales of HyperD media, which was introduced in 1993, and BioSepra's ability to
sell its products to customers at the early stage of their product development
cycles.
Factors that may affect the future operating results of Sepracor include the
ability of HemaSure to develop commercially viable products and HemaSure's
limited number of customers.
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.
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SUPPLEMENTAL STOCKHOLDER INFORMATION
PRICE RANGE OF COMMON STOCK
The Common Stock of Sepracor Inc. is traded on the Nasdaq National Market under
the symbol SEPR. Prior to September 20, 1991, the Company's Common Stock was not
publicly traded. On March 13, 1998, the closing price of the Company's Common
Stock, as reported on the Nasdaq National Market, was $39 13/16 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 National Market.
<TABLE>
<CAPTION>
1997 HIGH LOW
- ---------------------------------------------------------------------------------
<S> <C> <C>
FIRST QUARTER 27 1/8 16
SECOND QUARTER 27 1/8 18
THIRD QUARTER 42 3/4 19
FOURTH QUARTER 42 3/4 28 3/8
1996 High Low
- ---------------------------------------------------------------------------------
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
</TABLE>
On March 13, 1998, Sepracor had approximately 479 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:
BankBoston, N.A.
c/o Boston EquiServe, L.P.
P.O. Box 8040
Boston, MA 02266-8040
Phone: (781) 575-3120
FORM 10-K
A copy of the Company's Annual Report on Form 10-K for the year ended December
31, 1997 is available without charge upon written request to:
Investor Relations
Sepracor Inc.
111 Locke Drive
Marlborough, MA 01752
24
<PAGE> 28
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. as
of December 31, 1997 and 1996, and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the three years in
the period ended December 31, 1997. 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
1997 and 1996 financial statements of BioSepra Inc., a majority-owned
subsidiary, whose statements constitute 12% and 16% of total assets and 87% and
95% of total revenues of the related 1997 and 1996 consolidated totals,
respectively.
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 provide a reasonable basis for our opinion.
In our opinion, based on our audits and the 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, 1997 and 1996 and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31, 1997
in conformity with generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
Boston, Massachusetts
February 19, 1998, except as to the information in Note W for which the date is
March 26, 1998.
25
<PAGE> 29
SEPRACOR INC. CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31 (in thousands, except par value amounts) 1997 1996
- ----------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents (Note B) $ 82,579 $ 83,344
Marketable securities (Note B) 9,981 20,306
Accounts receivable (Note E) 2,415 3,129
Inventories (Note F) 2,722 3,481
Other assets 1,543 1,588
-------------------------
Total current assets 99,240 111,848
-------------------------
Property and equipment, net (Note G) 15,126 17,045
Investment in affiliates (Note D) 3,971 3,100
Excess of investment over net assets acquired, net (Notes B, H and T) 5,288 9,254
Other assets (Note L) 4,882 5,442
-------------------------
Total assets 128,507 146,689
-------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,018 $ 4,300
Accrued expenses (Note I) 17,670 12,174
Deferred revenue (Note B and J) 21 3,646
Notes payable and current portion of capital lease obligation and
long-term debt (Notes K and M) 861 804
Convertible redeemable preferred stock (Notes O and W) 6,700 --
-------------------------
Total current liabilities 29,270 20,924
-------------------------
Long-term debt and capital lease obligation (Notes K and M) 3,388 4,387
Convertible subordinated debentures (Note L) 80,880 80,880
-------------------------
Total liabilities 113,538 106,191
-------------------------
Convertible redeemable preferred stock (Notes O and W) -- 6,100
Minority interest (Note C) 2,937 4,006
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 1997 and 1996, issued and
outstanding 27,853 in 1997 and 27,271 in 1996 2,785 2,727
Additional paid-in capital 222,504 214,399
Unearned compensation, net (Note O) (94) (234)
Accumulated deficit (213,028) (186,905)
Equity adjustments (135) 405
-------------------------
Total stockholders' equity 12,032 30,392
-------------------------
Total liabilities and stockholders' equity $ 128,507 $ 146,689
-------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
26
<PAGE> 30
SEPRACOR INC. CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31, (in thousands, except per share amounts) 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Product sales $ 9,636 $ 13,784 $ 14,271
Collaborative research and development 58 25 1,036
License fees and royalties (Note R) 5,643 1,232 900
--------------------------------------
Total revenues 15,337 15,041 16,207
--------------------------------------
Costs and expenses:
Cost of products sold 5,992 6,784 10,410
Research and development 43,055 35,828 21,707
Selling, general and administrative 15,594 15,245 19,037
Legal expense related to patents 1,660 1,067 1,374
Restructuring and impairment charges (Note H) 4,179 -- 4,144
--------------------------------------
Total costs and expenses 70,480 58,924 56,672
--------------------------------------
Loss from operations (55,143) (43,883) (40,465)
--------------------------------------
Other income (expense):
Equity in investee losses (Note D) (2,755) (17,539) (808)
Interest income 5,766 6,713 3,228
Interest expense (5,976) (6,140) (2,077)
Gain on sale of ChiRex Inc. 30,069 -- --
Other income (expense) 547 (107) (1,171)
--------------------------------------
Net loss before minority interests (27,492) (60,956) (41,293)
Minority interests in subsidiaries (Note C) 1,369 846 7,881
--------------------------------------
Net loss $(26,123) $(60,110) $(33,412)
--------------------------------------
Net loss applicable to common shares (Note B) $(26,723) $(60,710) $(33,412)
--------------------------------------
Basic and diluted net loss per common share (Note B) $ (0.97) $ (2.25) $ (1.54)
--------------------------------------
Basic and diluted weighted average number of common shares
outstanding (Note B) 27,599 27,032 21,637
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
27
<PAGE> 31
SEPRACOR INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional
Preferred Stock Common Stock Paid-In
Year ended December 31, 1997, 1996 and 1995 (in thousands) Shares Amount Shares Amount Capital
- -------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 79 $ 79 18,681 $1,868 $122,048
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Issuance of common stock to employees
under stock plans 430 43 1,141
Gain on issuance of subsidiary's stock 15,235
Issuance of common stock in public
follow-on offering and warrant exercises 5,620 562 68,110
Issuance of common stock for acquisition 102 11 1,399
Issuance of common stock from conversion
of subordinated convertible notes 1,189 119 5,381
Issuance of common stock from conversion
of preferred stock (79) (79) 794 79
Accrued dividends from preferred stock (500)
Net loss
Equity adjustments
-------------------------------------------------------------
Balance at December 31, 1995 -- -- 26,816 $2,682 212,814
-------------------------------------------------------------
Issuance of common stock to employees
under stock plans 455 45 2,185
Accrued dividends from preferred stock (600)
Unearned compensation, net
Net loss
Equity adjustments
-------------------------------------------------------------
Balance at December 31, 1996 -- -- 27,271 $2,727 214,399
-------------------------------------------------------------
Issuance of common stock to employees
under stock plans 582 58 3,017
Unearned compensation, net
Accrued dividends from preferred stock (600)
Gain on issuance of subsidiary's stock 5,688
Net loss
Equity adjustments
-------------------------------------------------------------
Balance at December 31, 1997 -- $-- $27,853 $2,785 $222,504
-------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Total
Unearned Accumulated Equity Stockholders'
Year ended December 31, 1997, 1996 and 1995 (in thousands) Compensation Deficit Adjustments Equity
- ------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 $ -- $ (93,383) $(127) $ 30,485
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Issuance of common stock to employees
under stock plans 1,184
Gain on issuance of subsidiary's stock 15,235
Issuance of common stock in public
follow-on offering and warrant exercises 68,672
Issuance of common stock for acquisition 1,410
Issuance of common stock from conversion
of subordinated convertible notes 5,500
Issuance of common stock from conversion
of preferred stock
Accrued dividends from preferred stock (500)
Net loss (33,412) (33,412)
Equity adjustments 653 653
-------------------------------------------------------------
Balance at December 31, 1995 -- (126,795) 526 89,227
-------------------------------------------------------------
Issuance of common stock to employees
under stock plans 2,230
Accrued dividends from preferred stock (600)
Unearned compensation, net $(234) (234)
Net loss (60,110) (60,110)
Equity adjustments (121) (121)
-------------------------------------------------------------
Balance at December 31, 1996 (234) (186,905) 405 30,392
-------------------------------------------------------------
Issuance of common stock to employees
under stock plans 3,075
Unearned compensation, net 140 140
Accrued dividends from preferred stock (600)
Gain on issuance of subsidiary's stock 5,688
Net loss (26,123) (26,123)
Equity adjustments (540) (540)
-------------------------------------------------------------
Balance at December 31, 1997 $ (94) $(213,028) $(135) $(12,032)
-------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
28
<PAGE> 32
SEPRACOR INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31, (in thousands) 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (26,123) $ (60,110) $ (33,412)
Adjustments to reconcile net loss to net cash used in operating activities:
Minority interests in subsidiaries (1,369) (846) (7,881)
Depreciation and amortization 4,614 4,400 2,785
Provision for doubtful accounts 150 142 286
Equity in investee losses 2,755 17,539 808
Loss on disposal of property and equipment 24 125 10
Restructuring and impairment charges 4,018 -- 2,629
Gain on sale of equity investee (30,069) -- --
Changes in operating assets and liabilities, net of effects of acquired
business:
Accounts receivable 383 2,069 4,272
Inventories (46) (72) 1,727
Other current assets 50 (796) (313)
Accounts payable (136) 1,115 (3,315)
Accrued expenses 5,606 6,176 1,424
Deferred revenue (3,620) 147 2,757
-----------------------------------------
Net cash used in operating activities (43,763) (30,111) (28,223)
-----------------------------------------
Cash flows from investing activities:
Purchases of marketable securities (60,961) (93,328) (24,584)
Sales and maturities of marketable securities 71,285 80,454 19,350
Additions to property and equipment (2,653) (10,121) (3,184)
Proceeds from sale of equipment 7 147 34
Investment in subsidiary -- -- (6,639)
Investment in affiliate (4,046) -- --
Net proceeds from sale of equity investee 30,625 -- --
Proceeds from affiliate's repayment of long-term note 6,034 -- --
(Increase) decrease in other assets 449 1,560 (1,203)
-----------------------------------------
Net cash provided by (used in) investing activities 40,740 (21,288) (16,226)
-----------------------------------------
Cash flows from financing activities:
Net proceeds from issuance of stock 3,203 2,047 74,904
Proceeds from sale of convertible subordinated debentures -- -- 78,268
Borrowings under long-term debt 174 -- 3,778
Repayments of long-term debt (962) (826) (439)
Repayments under line of credit agreements (11) (2,299) (1,701)
-----------------------------------------
Net cash provided by (used in) financing activities 2,404 (1,078) 154,810
-----------------------------------------
Effect of exchange rate changes on cash and cash equivalents (146) 3 60
-----------------------------------------
Net increase (decrease) in cash and cash equivalents (765) (52,474) 110,421
Cash and cash equivalents at beginning of year 83,344 135,818 25,397
-----------------------------------------
Cash and cash equivalents at end of year 82,579 $ 83,344 $ 135,818
-----------------------------------------
Supplemental schedule of cash flow information:
Cash paid during the year for interest $ 5,980 $ 6,337 $ 1,666
Capital lease obligations incurred $ -- $ 61 $ 915
-----------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
29
<PAGE> 33
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 top-selling drugs called ICE(TM) 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 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 (See Note H). Sepracor's 37% owned subsidiary, HemaSure Inc., is
dedicated to making blood safer through blood filtration devices. Sepracor's 22%
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 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. Versicor had been a consolidated entity until December 10, 1997
and was included in Sepracor's consolidated financial statements for the years
ended December 31, 1996 and December 31, 1995. Versicor's financial results were
consolidated for the period January 1, 1997 through December 10, 1997. See Notes
C and D for further discussion.
The Company accounts for the sale of subsidiary stock in different manners,
depending on the life-cycle of the entity. The Company will offset any gains or
losses against additional paid-in capital for early development stage
subsidiaries. For later stage subsidiaries, the Company records gains or losses
as other income or expense.
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.
TRANSLATION OF FOREIGN CURRENCIES: The assets and liabilities of Sepracor's
international subsidiaries are translated into U.S. dollars 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 equity adjustments 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, 1997 and 1996, cash equivalents primarily
consist of $1,165,000 and $4,511,000 in repurchase agreements, $61,011,000 and
$70,215,000 in high quality corporate and government commercial paper and
$19,530,000 and $8,403,000 of money market instruments which invest primarily in
U.S. Treasury securities, respectively.
CONCENTRATION OF CREDIT RISK: The Company has no significant off-balance-sheet
concentration of credit risk such as foreign exchange contracts, option
contracts or other foreign hedging arrangements. The Company maintains the
majority of its cash balances with financial institutions. Financial instruments
that potentially subject the Company to concentrations of credit risk primarily
consist of the cash and cash equivalents. The Company places its cash, temporary
cash investments and marketable securities with high credit quality financial
institutions. Financial instruments that subject the Company to credit risk
consist primarily of trade accounts receivable. Customers with amounts due to
the Company that represent greater than 10% of the accounts receivable balance
are as follows:
<TABLE>
<CAPTION>
Year Ended December 31: 1997 1996
- --------------------------------------------------
<S> <C> <C>
Customer A 16% 25%
Customer B -- 15%
Customer C 11% --
Customer D -- --
Customer E 24% --
</TABLE>
Revenues from significant customers are as follows:
<TABLE>
<CAPTION>
Year Ended December 31: 1997 1996 1995
- ---------------------------------------------------------------
<S> <C> <C> <C>
Customer A 33% 24% --
Customer B -- 12% --
Customer C 10% -- --
Customer D 12% -- --
Customer E -- -- --
</TABLE>
For financial information by geographic area see Note V.
MARKETABLE SECURITIES: Sepracor has classified 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
30
<PAGE> 34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
specific identification cost basis. The market value of Sepracor's marketable
securities at December 31, 1997 and 1996, was not materially different from
cost.
Marketable securities consist of the following at December 31:
<TABLE>
<CAPTION>
(in thousands) 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
Government Security $ -- $ 5,000
Corporate commercial paper 9,981 15,306
--------------------------------
$9,981 $20,306
================================
</TABLE>
There were no gross realized gains or losses on the sale of marketable
securities for the years ended December 31, 1997, 1996 and 1995, respectively.
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 DEVELOPMENT COSTS: In accordance with the provision of Statement of
Financial Accounting Standards No. 86 "Accounting for the Costs of Computer
Software to be Sold, Leased or Otherwise Marketed," the Company capitalized
$199,000 of software costs in 1995. These costs are being amortized over the
expected number of units to be shipped. Amortization of $157,000, $311,000 and
$165,000 was charged to cost of sales in 1997, 1996 and 1995, respectively.
There were no capitalizable software costs in 1997 and 1996.
INTANGIBLE ASSETS: The excess of investment over net assets acquired is
amortized using the straight-line method over 20 years. Accumulated amortization
was $7,476,000 and $3,510,000 at December 31, 1997 and 1996, 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 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, completed
in 1995, are amortized over seven years.
Long-lived assets are reviewed for impairment by comparing the fair value of the
assets with their carrying amount. Any write-downs are 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
revenues represent 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 the
equipment contracts is required prior to beginning work on the contract.
INCOME TAXES: The Company recognizes 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.
BASIC AND DILUTED NET LOSS PER COMMON SHARE: The Company adopted Statement of
Financial Accounting Standard No. 128, "Earnings Per Share", which modifies the
way in which earnings per share ("EPS") is calculated and disclosed in the
quarter ended December 31, 1997. 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. Diluted EPS is based upon the
weighted-average number of common shares outstanding during the period plus the
additional weighted-average common equivalent shares during the period. Common
equivalent shares are not included in the per share calculations where the
effect of their inclusion would be antidilutive. Common equivalent shares result
from the assumed conversion of preferred stock and the assumed exercises of
outstanding stock options, the proceeds of which are then assumed to have been
used to repurchase outstanding stock options using the treasury stock method. At
December 31, 1997, had the result not been antidilutive, the Company would have
shown 34,137,001 shares as the diluted weighted average number of shares
outstanding. Included in the 1997 and 1996 basic and diluted 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 recently issued Statement of
Financial Accounting Standard No. 130 "Reporting Comprehensive Income"("SFAS
130") which requires that changes in comprehensive income be shown in a
financial statement that is displayed with the same prominence as other
financial statements. SFAS 130 will become effective for fiscal years beginning
in the first quarter of the fiscal year ending December 31, 1998. The Company
does not expect this standard to have a material effect on the results from
operations.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"). SFAS 131 specifies new
guidelines for determining a company's operating segments and related
requirements for disclosure. Sepracor is in the process of evaluating the impact
of the new standard on
31
<PAGE> 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
the presentation of the financial statements and the disclosure therein. SFAS
131 will become effective for fiscal years beginning after December 31, 1998.
C - SEPRACOR SUBSIDIARIES
In 1993, Sepracor formed two wholly-owned subsidiaries, BioSepra and HemaSure.
Sepracor transferred to BioSepra its chromatography business, including all of
the outstanding shares of Sepracor S.A., a French company. 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 March 1994, BioSepra and
HemaSure each completed its initial public offering.
In November 1994, SepraChem, Inc. ("SepraChem") 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 stockholders, 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 was
convertible, at the option of Sepracor, into common on a one-for-one basis.
In June 1995, Sepracor purchased New England Pharmaceuticals ("NEP"). NEP was a
manufacturer of a breath activated inhaler for asthma patients and has patents
relating to this technology. The acquisition was accounted for under the
purchase method of accounting. In June 1996, NEP was merged into Sepracor.
In October 1995, Versicor entered into a Convertible Subordinated Note Agreement
("Note") with Sepracor. Under this Note, Sepracor agreed to loan to Versicor
until October 2, 1998, up to an aggregate of $4,700,000. The Note accrued
interest at prime plus 1/2% not to exceed 9.5%. The Note was convertible, at the
option of Sepracor, into Versicor Series B Convertible Preferred Stock by
dividing the amount outstanding, including principal and interest, by $0.7833.
The amount outstanding was $0 and $5,066,000 at December 31, 1997 and December
31, 1996, respectively. Total interest expense charged to Versicor under this
agreement was $60,000, $349,000 and $17,000 in 1997, 1996 and 1995,
respectively.
In 1996, Versicor also entered into a loan agreement with Sepracor. Under this
agreement Sepracor agreed to loan to Versicor up to an aggregate of $7,500,000.
The loan accrued interest equal to the prime rate minus 1/4, adjusted under
certain circumstances. The total amount outstanding under this loan agreement
was $0 and $2,705,000 at December 31, 1997 and December 31, 1996, respectively.
Total interest expense charged to Versicor under this agreement was $120,000 and
$68,000 in 1997 and 1996, respectively. As of June 23, 1997, this agreement was
amended to provide that the accumulated principal and interest payments due to
Sepracor, was convertible, at the option of Sepracor, into Versicor Series B
Convertible Preferred Stock, by dividing the amount outstanding, including
principal and interest, by $0.7833.
In December 1997, Versicor received private equity financing of approximately
$22,000,000. In exchange for the funding, Versicor issued Series C Preferred
Stock. As part of the transaction, Sepracor exercised its conversion option on
the Versicor Convertible Subordinated Notes in the amount of $9,530,000. The
remaining $6,034,000 outstanding under the Notes was repaid to Sepracor by the
end of 1997. Sepracor recognized a gain of approximately $5,688,000 on the
transaction which was recorded as an increase to additional paid-in capital. At
December 31, 1997, Sepracor had an investment in Versicor of $3,971,000 and
there were no amounts outstanding under either Note. Sepracor's ownership as of
December 31, 1997 was approximately 22%, thereby making Versicor an affiliate
and reportable under the equity method. (See Note D)
In January 1996, BioSepra signed a Promissory Note for $350,000, or so much of
such sum as shall have been advanced by Sepracor (the "Promissory Note"). This
amount is payable over sixty installments and does not bear interest. BioSepra
used the funds for leasehold improvements in its new office space. As of
December 31, 1997, BioSepra had received $350,000 under the Promissory Note and
$245,000 remained outstanding.
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 common 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
$2,927,000, $15,021,000 and $808,000 of equity investee losses in 1997, 1996 and
1995, respectively. HemaSure's loss in 1996 included $24,748,000 relating to its
one-time operating loss and loss on disposal of its discontinued blood plasma
business. (Sepracor's portion of this was $9,157,000). At December 31, 1997,
Sepracor's investment in HemaSure was zero.
In March 1996, ChiRex Inc. ("ChiRex"), a newly formed corporation that is a
combination of Sterling Organics Limited, and the chiral chemistry business of
Sepracor, 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 owned 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
32
<PAGE> 36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 11, 1996, Sepracor
carried its investment in ChiRex using the equity method of accounting and,
accordingly, recorded $383,000 and $2,518,000 as its share of ChiRex's losses
for the years ended December 31, 1997 (through March 31) and December 31, 1996,
respectively. Included in ChiRex's 1996 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.
In March 1997, the Securities and Exchange Commission declared effective a
registration statement for the offering to the public of the 3,489,301 shares of
ChiRex common stock held by Sepracor. On March 31, 1997, Sepracor received net
proceeds of approximately $31,125,000. As a result of this transaction, Sepracor
recognized a gain of $30,069,000, which was recorded as other income.
In December 1997, upon the completion of the private equity financing, Versicor,
a former subsidiary, became an affiliate of Sepracor and accordingly, Sepracor
recorded $75,000 as its share of Versicor's losses for the year ended December
31,1997.
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 $369,000 and $233,000 at December 31, 1997 and 1996, respectively.
F - INVENTORIES
Inventories consist of the following at December 31:
<TABLE>
<CAPTION>
(in thousands) 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
Raw materials $ 600 $1,155
Work in progress 129 310
Finished goods 1,993 2,016
---------------------
$2,722 $3,481
---------------------
</TABLE>
G - PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31:
<TABLE>
<CAPTION>
(in thousands) 1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C>
Land $ 74 $ 74
Building 1,993 1,932
Laboratory and manufacturing equipment 10,407 11,233
Office equipment 4,450 4,844
Leasehold improvements 5,411 5,493
---------------------------
22,335 23,576
Accumulated depreciation and amortization (7,761) (6,724)
---------------------------
14,574 16,852
Construction in progress 552 193
---------------------------
$ 15,126 $ 17,045
---------------------------
</TABLE>
Depreciation expense was $3,129,000, $2,189,000 and $1,477,000 for the years
ended December 31, 1997, 1996 and 1995, respectively.
H - RESTRUCTURING AND IMPAIRMENT CHARGES
In December 1997, BioSepra recorded restructuring and impairment charges
totaling $4,179,000. Of this amount, $851,000 relates to a cost-reduction
program and $3,328,000 relates to the writedown of intangible assets to their
net realizable value.
The purpose of the cost-reduction program was to enable BioSepra to focus on the
process segments of the biopharmaceutical and genomics market. The program
involved the discontinuance of the instrument product line and a reduction in
the number of employees. As part of the cost-reduction program, $690,000
represents the write down of inventory and fixed assets associated with the
discontinued product line and $161,000 represents severance and benefits related
to the reduction in workforce in the U.S. BioSepra terminated seven employees
consisting of marketing/sales, finance and administrative personnel. BioSepra
expects to pay all of the severance and benefits associated with this workforce
reduction in the first half of 1998. There can be no assurances that this
program will not result in the loss of customers or temporary sales or
production disruptions that could have a materially adverse effect on BioSepra's
business, financial condition or results of operations.
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 Q). 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
33
<PAGE> 37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 had paid all of the costs, relating to
the employee reductions made as part of the 1995 restructuring, as of December
31, 1997.
I - ACCRUED EXPENSES
Included in accrued expenses is $9,754,000 and $5,828,000 of accrued research
and development expenses and $1,427,000 and $1,000,000 of accrued compensation
as of December 1997 and 1996, 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 entered into an agreement
with Sepracor to purchase 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.
In 1997, the agreement was amended, due to the settlement of the PerSeptive
lawsuit (see Note N), eliminating BioSepra's obligation to repay to Beckman part
of such payments made by Beckman under the agreement if BioSepra failed 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. As a result of the
amendment, BioSepra recognized $2,700,000 of license fee revenue in December
1997, rather than over the next three years. Under the agreement, Beckman made
payments of $1,400,000 and $3,500,000 in 1996 and 1995, respectively. BioSepra
recognized $3,600,000, $900,000 and $400,000, of revenue under the agreement in
1997, 1996 and 1995, respectively and $3,600,000 was recorded as deferred
revenue as of December 31, 1996. There was no deferred revenue under this
agreement as of December 31, 1997. See Note W for subsequent event.
K - NOTES PAYABLE TO BANK AND LONG-TERM DEBT
Notes payable and long-term debt consist of the following at December 31:
<TABLE>
<CAPTION>
(in thousands) 1997 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C>
PIBOR plus .08% French Franc Loan Payable in
quarterly installments through 2000 $ 624 $ 1,012
PIBOR plus 1.8%, French Franc Loan
Payable in quarterly installments through 2001 138 --
Variable rate, 6.45% - 6.57%,
French Franc Line of Credit 1 --
Variable rate, 4.89% - 5.08%,
French Franc Line of Credit -- 13
8.05% French Franc Term Loan, payable in monthly
installments through 1997 -- 7
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 with a final payment of $20 in June 2005 1,925 2,183
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 816 992
Obligations under Capital Lease Obligations
(See Note M) 375 614
-------------------------
4,249 5,191
Less current portion (861) (804)
-------------------------
Total $ 3,388 $ 4,387
-------------------------
</TABLE>
At December 31, 1997, BioSepra's wholly-owned French subsidiary ("BioSepra
S.A.") had two available credit facilities aggregating 3,000,000 French Francs
from two French commercial banks, of which $1,000 and $13,000 was outstanding at
December 31, 1997 and 1996, respectively. The amount available under the 4.89% -
5.08% 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 $624,000 and $1,012,000 as of December
31, 1997 and 1996, respectively. The interest rate on this loan at December 31,
1997 and 1996 was 4.50% and 4.23%, respectively.
In December 1996, Sepracor, BioSepra and Versicor entered into a revolving
credit agreement with a commercial bank that provides for borrowing of up to
$10,000,000. This agreement was amended in
34
<PAGE> 38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 1997 to remove Versicor as a party thereto. BioSepra can borrow up to
$3,000,000. 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, 1997, there was no amount outstanding
under this agreement. The annual interest rate on such borrowings is 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 provided for borrowing of up to $3,000,000 for the purpose of
financing capital equipment purchases. No term loan could be less than $500,000
and should 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. The annual
interest rate on such borrowings was at the lower of the prime rate or the
bank's Fixed Quoted Rate plus 1/2%. This agreement was terminated in December
1997 and replaced with two term loans, one for $4,034,000 and another for
$2,000,000. Sepracor entered into a put agreement with the commercial bank
pursuant to which Sepracor agreed to purchase $2,000,000 of indebtedness of
Versicor, in the event of a default by Versicor under its loan agreement with
the commercial bank. In the event that the put right is exercised by the bank,
the bank will assign its security interest in the fixed assets of Versicor to
Sepracor.
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: 1998-$603,000, 1999-$623,000,
2000-$501,000, 2001-$343,000, 2002-$332,000.
L - CONVERTIBLE SUBORDINATED DEBENTURES
In November and December, 1995, Sepracor issued $80,880,000 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. The Debentures are not redeemable by the Company until
December 1, 1998. 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 are being amortized over the life of the Debentures, which is seven
years.
On February 10, 1998, Sepracor issued $189,475,000 of 6 1/4% Convertible
Subordinated Debentures due 2005 (the "6 1/4% Debentures"). The 6 1/4%
Debentures are convertible into Sepracor Common Stock, at the option of the
holder, at a price of $47.369 per share. The 6 1/4% Debentures bear interest at
6 1/4% payable semi-annually, commencing on August 15, 1998. The 6 1/4%
Debentures are not redeemable by the Company prior to February 18, 2001. The
Company may be required to repurchase the 6 1/4% Debentures at the option of the
holders in certain circumstances. As part of the sale of the 6 1/4% Debentures,
Sepracor incurred approximately $5,915,000 of offering costs, which will be
recorded as other assets and amortized over seven years, the term of the 6 1/4%
Debentures. The net proceeds to the Company after offering costs was
$183,560,000. The Company intends to use the proceeds from the sale of the
6 1/4% Debentures for the establishment of the Company's respiratory sales
force, marketing of certain ICEs, ongoing preclinical and clinical trials,
funding of other research and development programs, and working capital and
other general corporate purposes.
M - COMMITMENTS
In 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. There was a total of $355,000 and $565,000, relating to
Sepracor and BioSepra, outstanding under this agreement at December 31, 1997 and
1996, respectively.
Future minimum lease payments under all noncancelable leases in effect at
December 31, 1997, are as follows: (in thousands)
<TABLE>
<CAPTION>
Year Operating Leases Capital Leases
- --------------------------------------------------------------------------------------
<S> <C> <C>
1998 $1,017 $294
1999 865 118
2000 736 --
2001 735 --
2002 766 --
Thereafter 3,634 --
------------------------------
Total minimum lease payments $7,753 $412
Less amount representing interest (37)
------------------------------
Present value of minimum lease payments $375
------------------------------
</TABLE>
Future minimum lease payments under operating leases relate to Sepracor's and
BioSepra'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
$1,687,000, $1,240,000 and $1,003,000 for the years ended December 31, 1997,
1996 and 1995, respectively.
N - LITIGATION
In July 1997, the United States Patent and Trademark Office (the "PTO") informed
Sepracor that it had declared an interference between Sepracor's previously
issued method-of-use patent on fexofenadine to treat allergic rhinitis and
another similar patent application of Sepracor, and the method-of-use patent
application held by Hoechst Marion Roussel Inc. ("HMRI") on the anti-histaminic
effects of fexofenadine on hepatically impaired patents. The primary objective
of a patent interference, which can only be declared by the PTO, is to determine
the first to invent any overlapping subject matter claimed by more
35
<PAGE> 39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
than one party. In the course of an interference, the parties typically present
evidence relating to their inventive activities as to the overlapping subject
matter. The PTO then reviews the evidence to determine which party has the
earliest legally sufficient inventive date, and, therefore, is entitled to a
patent claiming the overlapping subject matter. (See Note R for further
discussion.)
If Sepracor prevails in the interference, Sepracor will retain all of its claims
in its issued patent. If, however, Sepracor loses the interference, HMRI will be
issued a U.S. patent containing its claims involved in the interference and may
not be obligated to pay Sepracor milestone or royalty payments pursuant to the
terms of the license agreement whereby Sepracor licensed its U.S. patent rights
covering fexofenadine to HMRI in 1993.
In December 1997, the Company and its subsidiary, BioSepra, settled their
longstanding patent lawsuit with PerSeptive Biosystems, Inc. ("PerSeptive"), a
competitor of BioSepra. Under the terms of the settlement, PerSeptive received
an unspecified amount and BioSepra obtained a limited, non-exclusive license
under PerSeptive's Perfusion Chromatography R patents to make, use and sell its
HyperD R product line free of claims of infringements by PerSeptive.
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 Pre-Storage
Leukoreduction Filtration System 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 (the "'321 patent"), HemaSure filed for summary
judgment of noninfringement. Pall filed a cross motion for summary judgment of
infringement at the same time. In October 1997, the U.S. District Court for the
Eastern District of New York granted in part Pall's summary judgment motion
relating to the '321 patent. The court has not yet ruled on the validity of
Pall's '321 patent claims, which HemaSure has asserted are invalid and
unenforceable. The court now will need to review and determine the validity of
this patent prior to any further action. No date has been set for these
proceedings.
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 unenforceability 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 actions, and an adverse
outcome in a patent infringement action would have a material adverse effect on
HemaSure's future business and operations.
O - STOCKHOLDERS' EQUITY
In October 1995, all 79,365 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 the date of issuance.
The dividends are payable at the mandatory redemption date of February 2000. As
of December 31, 1997, Sepracor had accrued $1,700,000 of dividends payable. See
Note W for subsequent event.
In August 1995, Sepracor received approximately $62,336,000 of net proceeds from
the sale of 4,600,000 shares of its Common Stock in a follow-on public offering.
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 to certain consultants. As a result,
$248,000 was initially recorded as unearned compensation. In 1997, an adjustment
of $107,000 was made for cancelled options and $28,000 and $14,000 were recorded
in related amortization in 1997 and 1996, respectively.
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 or fair value, or provide pro forma
disclosure of net income and earnings per share in the notes to the financial
statements. The Company adopted disclosure provisions of SFAS 123 in 1996 and
has applied APB Opinion 25 and related interpretations in accounting for its
plans. Had compensation expense for the Company's stock-based compensation plans
been determined based on the fair value at the grant dates, as calculated in
accordance with SFAS 123, the Company's net loss and basic and
36
<PAGE> 40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
diluted loss per share for the years ended December 31, 1997 and 1996 would have
been increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1997 1996
NET BASIC AND DILUTED Net Basic and Diluted
(in thousands) LOSS LOSS PER SHARE Loss Loss Per Share
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
As Reported $(26,723) $(0.97) $(60,710) $(2.25)
Pro forma $(30,745) $(1.11) $(63,398) $(2.35)
</TABLE>
The effects of applying SFAS 123 in this pro forma disclosure are not indicative
of future amounts, since SFAS 123 does not apply to awards prior to 1995 and
additional awards in future years are not anticipated.
The fair value of each stock option is estimated on the date of grant using
Black-Scholes option-pricing model with the following weighted average
assumptions: an expected life of 7 years, expected volatility of 60%, a
risk-free interest rate of 5.0% to 7.8% and no dividends.
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 and 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 stockholders approved an
amendment to the Plan increasing the number of shares of common stock, which may
be granted to 5,000,000. Stock option activity related to this plan is
summarized below.
In January 1995, Sepracor adopted a Stock Option Exchange Program. Upon employee
consent, the program provides 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, will become exercisable for a
number of shares of common stock equal to the number of shares covered by the
old stock option.
The 1991 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
and 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 Directors' Plan increasing the number of shares of
common stock, which may be granted to 275,000.
On October 1997, the Board of Directors approved the Company's 1997 Stock Option
Plan. The 1997 Stock Option Plan permits Sepracor to grant ISOs and NSOs to
purchase up to 500,000 shares of common stock to employees and consultants of
the Company. Executive officers are not entitled to receive stock options under
the 1997 Stock Option Plan. ISOs and NSOs granted under the Plan have a maximum
term of ten years from the date of grant and ISOs may not be granted at an
exercise price less than fair market value.
The following tables summarize information about stock options outstanding at
December 31, 1997 (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Price Per Share Outstanding Life Price Exercisable Price
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 1.50 - 3.50 27 2.52 $ 2.75 27 $ 2.75
5.00 - 5.00 365 6.57 5.00 200 5.00
5.25 - 5.75 351 6.96 5.71 190 5.70
6.00 - 6.56 379 6.59 6.12 202 6.07
6.63 - 12.63 506 7.15 10.08 206 9.03
14.13 - 14.13 99 8.09 14.13 22 14.13
14.62 - 14.62 736 7.79 14.62 292 14.62
14.75 - 22.50 371 8.84 17.65 101 15.40
24.13 - 24.13 56 9.37 24.13 -- --
24.25 - 41.00 595 9.51 24.37 -- --
- ---------------------------------------------------------------------------------------------------------
$ 1.50 - 41.00 3,485 7.75 $13.16 1,240 $ 9.18
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1997 1996 1995
AVERAGE Average Average
PRICE PER Price Per Price Per
NUMBER SHARE Number Share Number Share
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1 3,277 $ 9.55 3,225 $ 7.77 2,468 $ 5.47
Granted 757 24.10 651 13.77 1,760 10.22
Exercised (433) 6.00 (429) 3.88 (340) 3.00
Cancelled (116) 9.84 (170) 6.37 (663) 8.14
- ------------------------------------------------------------------------------------------------------------------
Balance at December 31 3,485 $13.16 3,277 $ 9.55 3,225 $ 7.77
- ------------------------------------------------------------------------------------------------------------------
Options exercisable at
December 31 1,240 1,088 948
Weighted average fair
value of options granted
during the year $15.88 $ 9.46 $ 6.99
</TABLE>
There were 537,000 options available for future grant as of December 31, 1997.
37
<PAGE> 41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In 1996, the shareholders approved the 1996 Employee Stock Purchase Plan ("1996
Plan"), which succeeded the 1994 Employee Stock Purchase Plan. Under the 1996
plan, an aggregate of 120,000 shares of common stock maybe purchased by
employees at 85% of market value on the first or last day of each six month
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 31,423, 23,977, and 39,820
shares for a total of $556,111, $296,016, and $229,506, during the years ended
December 31, 1997, 1996 and 1995, respectively. At December 31, 1997, there were
86,844 shares of authorized but unissued common stock reserved for future
issuance under the 1996 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 per share. Warrants to purchase 10,520 shares are
outstanding at December 31, 1997. 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 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, 1997, warrants to purchase 23,000 shares remain
outstanding, all of which 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
the years 1997, 1996 and 1995. The effective tax rate was 0% due net operating
losses and nonrecognition of any deferred tax asset. At December 31, 1997,
Sepracor had federal and state tax net operating loss carryforwards ("NOL") of
approximately $115,000,000 and $75,000,000, which will expire through 2012 and
2002, 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
$13,000,000. Approximately $12,000,000 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 $3,600,000 which may be carried forward
indefinitely. At December 31, 1997, Sepracor had federal and state research and
experimentation credit carryforwards of approximately $3,900,000 and $2,900,000,
respectively, which will expire through the year 2012. Sepracor also had
Canadian research and experimentation credits of $1,100,000 which will expire
through 2007.
The components of Sepracor's net deferred taxes were as follows at December 31:
<TABLE>
<CAPTION>
(in thousands) 1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C>
Assets
NOL Carryforwards $ 50,213 $ 50,596
Reserves 226 306
Tax Credit Carryforward 7,989 5,287
Patent 489 389
Accrued Expenses 5,434 3,735
Research and development
capitalization 9,827 9,217
Equity in loss of investees 7,638 7,981
Other 1,605 2,657
- ------------------------------------------------------------------------------
Liabilities
Basis difference of subsidiaries (13,628) (12,005)
Property and Equipment -- (237)
Valuation allowance $(69,793) $(67,926)
- ------------------------------------------------------------------------------
Net deferred taxes $ -- $ --
- ------------------------------------------------------------------------------
</TABLE>
R - AGREEMENTS
In December 1997, Sepracor signed a licensing agreement with Schering-Plough
Corporation ("Schering") giving Schering exclusive worldwide rights to
Sepracor's patents covering descarboethoxyloratadine ("DCL"), an active
metabolite of loratadine. Under the terms of the agreement, Sepracor has
exclusively licensed its DCL rights to Schering, which expects to develop and
market the DCL product worldwide. Schering will pay Sepracor an upfront license
fee of $5,000,000 and royalties on DCL sales, if any, beginning at first product
launch. Any such royalties paid to Sepracor would escalate over time and upon
the achievement of sales volume and other milestones. As of December 31, 1997,
the agreement was still pending clearance under the Hart Scott Rodino Act.
In January 1998, Sepracor and Schering were notified that no objection would be
raised under the Hart Scott Rodino Act with respect to their license agreement.
Shortly thereafter, Sepracor received the $5,000,000 upfront license payment
from Schering and recorded the payment as license revenue in the first quarter
of 1998. The upfront license fee will be offset against future royalty payments.
On February 4, 1998, Sepracor signed a collaboration and license agreement with
Janssen Pharmaceutica, N.V. ("Janssen"), a wholly-owned subsidiary of Johnson &
Johnson, relating to the development and mar-
38
<PAGE> 42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
keting of norastemizole, a third generation nonsedating antihistamine. Under the
terms of the agreement, the companies will jointly fund the development of
norastemizole, and Janssen has an option to acquire certain rights regarding the
product in the U.S. and abroad. When exercised, Janssen and Sepracor will
equally share the costs and profits associated with the further development,
marketing and sales of norastemizole in the United States. Sepracor will also
retain the right to co-promote the product in the U.S. Alternatively, Sepracor
can elect to receive royalties, if any, on Janssen sales of norastemizole in the
U.S. in the event it decides not to co-promote the product. Outside of the U.S.,
Janssen has the right to develop and market norastemizole, and Sepracor will
earn royalties on product sales, if any. In addition, Janssen has worldwide OTC
rights to norastemizole.
In June 1993, Sepracor licensed to MMD (now Hoescht 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 sales if and when they occur. As of December 31,
1997, Sepracor had received the first milestone payment of $1,875,000 and
recorded $469,000 in sub-license expense payable to a third party for the year
ended December 31, 1997. See Note N for discussion of patent interference.
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. Under the terms of the agreement, Sepracor received
research and development funding and license fees. 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 (the "401K Plan") for all domestic employees.
Under the provisions of the 401K Plan, employees may voluntarily contribute up
to 15% 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 during
1996. In June 1997, this match was raised to 50% of the first $3,000. This match
amounted to $119,000 and $49,000 in 1997 and 1996, respectively. There were no
Company matches in 1995.
T - DISPOSAL OF BIOPASS
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 was reserved pending the buyer's payment and was
recognized as payments were received. In 1995, one payment of $100,000 was
received. No payments were received in 1996 or 1997. 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 1995 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 charges 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
The following is the summarized financial information for Versicor, HemaSure and
ChiRex:
<TABLE>
<CAPTION>
1997 1996
(in thousands) VERSICOR HEMASURE ChiRex HemaSure
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Current assets $19,610 $ 9,097 $40,853 $ 18,263
Non-current assets 7,300 1,510 89,953 2,297
Current liabilities 1,308 3,026 25,405 3,419
Non-current liabilities 6,034 9,048 15,333 9,212
Net sales -- 2,357 74,615 779
Gross profit (loss) -- (1,326) 18,107 (3,006)
Net income (loss) $(6,203) $(9,884) $(8,309) $(40,598)
</TABLE>
Summarized financial information for ChiRex is not presented in 1997, as
Sepracor sold its investment on March 31, 1997 (see Footnote D).
V - SEGMENT INFORMATION
Sepracor, through BioSepra, develops, manufactures and markets processes and
products for the synthesis, separation and purification of pharmaceutical and
biopharmaceutical compounds. BioSepra 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:
39
<PAGE> 43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
(in thousands) 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues
United States:
Unaffiliated customers $ 9,810 $ 11,651 $ 8,883
Transfer to other geographic areas (16) 3,050 1,195
------------------------------------
Total 9,794 14,701 10,078
------------------------------------
Europe:
Unaffiliated customers 5,527 6,187 7,324
Transfer to other geographic areas 1,571 2,999 1,703
------------------------------------
Total 7,098 9,186 9,027
------------------------------------
Eliminations and adjustments (1,555) (8,846) (2,898)
------------------------------------
Total Revenues $ 15,337 $15,041 $ 16,207
------------------------------------
Operating Loss
United States $(55,666) $(45,638) $(33,865)
Europe 942 1,752 (6,049)
Eliminations and adjustments (419) 3 (551)
------------------------------------
Total Operating Loss $(55,143) $(43,883) $(40,465)
------------------------------------
Total Assets
United States $203,806 $165,871 $292,236
Europe 5,802 6,343 6,713
Canada 7,427 7,088 7,744
Eliminations and adjustments (88,528) (32,613) (103,980)
------------------------------------
Total Assets $128,507 $146,689 $202,713
------------------------------------
</TABLE>
Of the $9,810,000, $11,651,000 and $8,883,000 U.S. sales to unaffiliated
customers for the years ended December 31, 1997, 1996 and 1995, respectively,
$168,000, $630,000, and $1,822,000, respectively, were export sales to the Far
East.
W - SUBSEQUENT EVENT
On March 26, 1998, Sepracor and Beckman terminated their Stock Purchase
Agreement under which Beckman acquired 312,500 shares of Sepracor Series B
Redeemable Exchangeable Preferred Stock. Sepracor paid Beckman the original
purchase price of the stock plus accrued dividends totalling $6,850,000. As a
result of this termination subsequent to year-end, Sepracor has reclassed its
convertible redeemable preferred stock as a current liability at December 31,
1997. In addition, BioSepra and Beckman amended their distribution agreement
whereby BioSepra granted a non-exclusive right to manufacture instruments to
Beckman, removed its obligation to manufacture instruments for Beckman, and sold
the discontinued instrument product inventory to Beckman for $250,000.
ANNUAL MEETING INFORMATION
The Annual Meeting of Shareholders will be held at 9:00 a.m. on May 27, 1998 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 is a trademark,
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
registered 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 and Sporanox are registered
trademarks of Johnson & Johnson. Toradol is a registered trademark of Syntex
USA. Levaquin is a trademark of Daiichi Pharmaceutical Company LTD. POROS is a
registered trademark of PerSeptive BioSystems, Inc. Prilosec is a registered
trademark of Astra Aktiebolag. Prevacid is a registered trademark of TAP
Holdings Inc. Imovane is a registered trademark of Rhone-Poulenc Sante. Meridia
is a registered trademark of Knoll Pharmaceutical Company. Zyban is a trademark
of Glaxo Group Limited. Ambien is a registered trademark of Synthelabo. Paxil is
a trademark of Smithkline Beecham Corp. Zoloft is a registered trademark of
Pfizer Inc. Wellbutrin is a registered trademark of Glaxo Wellcome Inc. Oxis is
a trademark and Turbuhaler is a registered trademark of Akiebolaget Astra.
Pantozol is a trademark of Byk Gulden Lomberg Chemische Fabrik GMBH.
40
<PAGE> 44
<TABLE>
<CAPTION>
DIRECTORS OFFICERS
<S> <C>
James G. Andress Timothy J. Barberich
Former Chairman, Beecham Pharmaceuticals, President and Chief Executive Officer
Former President and COO, Sterling Drug Inc.
David S. Barlow
Timothy J. Barberich Executive Vice President and President, Pharmaceuticals
President and Chief Executive Officer, Sepracor Inc.
David P. Southwell
Digby W. Barrios Executive Vice President; Chief Financial Officer and
Secretary
Former President and CEO, Boehringer Ingelheim
Corporation James R. Hauske, Ph.D.
Senior Vice President, Discovery
Robert J. Cresci
Managing Director, Pecks Management Partners Ltd. Douglas E. Reedich, Ph.D., J.D.
Chief Patent Counsel
Robert F. Johnston
Managing Director, Johnston Associates Paul D. Rubin, M.D.
Senior Vice President, Drug Development
Keith Mansford, Ph.D.
Former Chairman, R&D, SmithKline Beecham plc Robert F. Scumaci
Senior Vice President, Finance & Administration,
James F. Mrazek and Treasurer
Former Vice President and General Manager,
Healthcare Division of Johnson & Stephen A. Wald
Johnson Products Inc. Vice President, Chemical R&D
Alan A. Steigrod
Former Executive Vice President, Glaxo Holdings plc
</TABLE>
[PICTURE OF DIRECTORS/OFFICERS]
Pictured left to right, front row: Paul D. Rubin, M.D., Timothy J. Barberich
and David S. Barlow. Middle row: James R. Hauske, Ph.D. and David P. Southwell.
Back row: Robert F. Scumaci, Stephen A. Wald and Douglas E. Reedich, Ph.D.
Design: MediaConcepts Corporation
<PAGE> 1
EXHIBIT 21
List of Subsidiaries
Name Jurisdiction of Incorporation
BioSepra Inc. (64% 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. (22% 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. 333-48719, 333-05221, 33-44808, 333-05217,
33-43460, 33-48428, 33-94774, 333-05219) of our reports dated February 19,
1998, except as to the information in Note W for which the date is March 26,
1998, on our audits of the consolidated financial statements and the financial
statement schedule of Sepracor Inc. as of December 31, 1997 and 1996, and for
each of the three years in the period ended December 31, 1997, which reports
are included or incorporated by reference in this Annual Report on Form 10-K.
/s/ Coopers & Lybrand L.L.P.
Boston, Massachusetts
March 26, 1998
<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 27, 1998 on the financial statements of BioSepra Inc. and
subsidiaries as of and for the year ended December 31, 1997, included in this
Form 10-K.
/s/ Arthur Andersen LLP
-----------------------
Boston, Massachusetts
March 26, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 82,579,000
<SECURITIES> 9,981,000
<RECEIVABLES> 2,784,000
<ALLOWANCES> 369,000
<INVENTORY> 2,722,000
<CURRENT-ASSETS> 99,240,000
<PP&E> 22,887,000
<DEPRECIATION> 7,761,000
<TOTAL-ASSETS> 128,507,000
<CURRENT-LIABILITIES> 29,276,000
<BONDS> 80,880,000
6,700,000
0
<COMMON> 2,785,000
<OTHER-SE> 9,247,000
<TOTAL-LIABILITY-AND-EQUITY> 128,507,000
<SALES> 9,636,000
<TOTAL-REVENUES> 15,337,000
<CGS> 5,992,000
<TOTAL-COSTS> 64,488,000
<OTHER-EXPENSES> 2,208,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,976,000
<INCOME-PRETAX> (26,723,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (26,723,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (26,723,000)
<EPS-PRIMARY> (0.97)
<EPS-DILUTED> (0.97)
</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 sheets of BioSepra Inc. (a
Delaware corporation) and subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statement of operations, shareholders' equity and cash
flows for the years 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 audits.
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 provide 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, 1997 and 1996, and the results of their operations and their
cash flows for the years then ended in conformity with generally accepted
accounting principles.
/s/ Arthur Andersen LLP
Boston, Massachusetts
January 27, 1998 (except
for the matter discussed
in Note Q as to which
the date is March 26, 1998)
