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, 1998
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.
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(Exact Name of Registrant as Specified in its Charter)
Delaware 22-2536587
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization Identification No.)
111 Locke Drive, Marlborough, Massachusetts 01752
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (508) 481-6700
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.10 par value
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(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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to the
Form 10-K. [ ]
The aggregate market value of voting Common Stock held by nonaffiliates of the
registrant was approximately $4,061,988,000 based on the last reported sale
price of the Common Stock on the Nasdaq consolidated transaction reporting
system on March 15, 1999.
Number of shares outstanding of the registrant's class of Common Stock as of
March 15, 1999: 32,739,935 shares.
DOCUMENTS INCORPORATED BY REFERENCE
1998 Annual Report to Stockholders - Part II
Proxy Statement for the 1999 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 ("ICEs")
are patented, single-isomer or active-metabolite forms of the parent compound.
The Company selects for development widely-sold parent drugs with potential for
improved efficacy, side-effect profile, or both. The Company develops these
drugs by leveraging its broad patent position, expertise in chiral chemistry and
pharmacology, and experience in conducting clinical trials and seeking
regulatory approvals for new drugs. Sepracor's drug development program has
yielded an extensive portfolio of drug candidates intended to treat a broad
range of indications. To date, certain of these candidates are being developed
at lower cost and in less time than the new chemical entities ("NCEs") that
characterize traditional drug development. In addition, the Company believes
that the probability of U.S. Food and Drug Administration ("FDA") approval of
its ICE(TM) drug candidates may be increased because the parent drugs have
previously been approved.
Recent Corporate Collaborations
The Company's strategy for commercializing its ICEs includes
licensing and co-promotion collaborations with major pharmaceutical companies
and direct marketing through one or more specialty sales forces.
On December 7, 1998, Sepracor announced an exclusive license
agreement with Eli Lilly and Company ("Lilly") relating to development and
commercialization of (R)-fluoxetine, an isomer of fluoxetine, which is marketed
as Prozac(R) by Lilly. (R)-fluoxetine is currently in Phase I clinical
development in the U.S. Under the terms of the agreement, Lilly will have the
worldwide, exclusive right to develop and market products containing
(R)-fluoxetine. Lilly will be responsible for all subsequent development,
regulatory submissions, product manufacturing, marketing and sales relating to
(R)-fluoxetine. Upon the effective date of the agreement, Sepracor is entitled
to receive a milestone payment and license fee totaling $20 million. Sepracor
also may receive up to $70 million in milestone payments based on the
progression of (R)-fluoxetine through development. In addition, Sepracor is
entitled to royalties, if any, on worldwide sales of (R)-fluoxetine beginning
upon first commercial sale. Effectiveness of the agreement is subject to the
expiration or earlier termination of the notice and waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended ("HSR Act").
Under the HSR Act, Sepracor has received a request from the Federal Trade
Commission for additional information in connection with the R-fluoxetine
agreement. Sepracor plans to fully respond to the request and
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expects the agreement to become effective as soon as the Federal Trade
Commission completes its review.
In July 1998, Sepracor entered into a development and license
agreement with Janssen Pharmaceutica, N.V., a wholly-owned subsidiary of Johnson
& Johnson ("Janssen"), relating to (+)-norcisapride, an isomer of the active
metabolite of cisapride, which is marketed by Janssen as Propulsid(R). Propulsid
is indicated for the symptomatic treatment of patients with nocturnal heartburn
due to gastroesophageal reflux disease. Under the terms of the agreement,
Janssen will have worldwide exclusive rights to develop and market products
containing norcisapride enantiomers. Sepracor is entitled to royalties, if any,
on product sales beginning upon the first commercial sale and the royalty rate
will escalate upon achievement of sales volume milestones. Under certain
circumstances, Sepracor may co-promote the product in the pediatric market.
In February 1998, Sepracor announced a collaboration and license
agreement with Janssen relating to the development and marketing of
norastemizole. Under the terms of the agreement, Sepracor and Janssen 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. Upon
exercise of such option, Janssen and Sepracor will share equally the costs and
profits associated with the further development, marketing and sale of
norastemizole in the U.S. and Sepracor will have the right to co-promote the
product in the U.S. Alternatively, in the event Sepracor decides not to
co-promote the product, it is entitled to royalties, if any, on Janssen's sales
of the product in the U.S. Outside of the U.S., Janssen has the right to develop
and market norastemizole subject to the payment of royalties to Sepracor. In
addition, Janssen has exclusive worldwide rights to sell over-the-counter forms
of norastemizole subject to the payment of royalties to Sepracor. In each
country in which Janssen does not exercise its option to complete the
development of, and market and sell, norastemizole, Sepracor will have a license
to all patent rights relating to norastemizole held by Janssen.
In December 1997, Sepracor licensed to Schering-Plough Ltd.
("Schering-Plough") worldwide rights to develop and market desloratadine, an
active-metabolite form of loratadine. Currently, Schering Corporation, a wholly
owned subsidiary of Schering-Plough ("Schering Corporation"), markets loratadine
as Claritin(R).
In July 1997, the Company filed a new drug application ("NDA") with
the FDA for the nebulized form of Xopenex(R), the Company's single-isomer form
of albuterol, for the treatment of asthma. The Company's NDA filing was accepted
by the FDA in September 1997 and the FDA issued to the Company an approvable
letter for the NDA in July 1998. On March 25, 1999, the Company received
marketing approval from the FDA for Xopenex. The Company intends to commence
marketing Xopenex through its direct sales force in the second quarter of 1999.
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Background
Chiral Compounds
Approximately 500 currently available drugs are chiral compounds.
Chiral compounds frequently exist as mixtures of mirror-image molecules known as
isomers. Although these isomers are identical in chemical composition, their
three-dimensional structures differ and, as a result, often interact differently
with cell receptors in a living organism. This interaction between the drug and
the receptor may stimulate or inhibit a biological function of the receptor and
thereby may initiate a therapeutic or toxic effect. In some cases, only one of
the isomers is the desired active ingredient while the other isomer is inactive
or may cause undesirable side effects. When a chiral compound contains equal
amounts of both isomers, it is a racemic mixture. These two isomers are
generally referred to as (S)-isomers (left) and (R)-isomers (right). Typically,
in its product formulation process, Sepracor purifies racemic mixtures of two
isomers into compounds containing only one isomer.
Active Metabolites
A metabolite is a compound resulting from metabolism of a drug by a
living organism. Like the different isomers of a chiral drug, the activity of
metabolites and the isomers of metabolites may vary from the activity of the
parent compound depending upon their interaction with specific cell receptors.
Occasionally, harmful drug interaction may occur when two or more drugs exist
together in an organism. The metabolite of a drug may lessen or eliminate this
harmful interaction. Sepracor and its licensees are developing certain compounds
in active-metabolite form in an effort to improve the parent drug.
ICE Development Program
Sepracor has licensed or is developing the following ICEs intended to
treat a broad range of indications:
Respiratory
Sepracor is or has been involved in the development of
active-metabolite versions of Schering Corporation's Claritin, Hoechst Marion
Roussel, Inc.'s ("HMRI") Seldane(R) and Janssen's Hismanal(R). In addition, the
Company has an issued patent covering the use of a single isomer form of
cetirizine (Pfizer/UCB's Zyrtec(R)) to treat allergic rhinitis. All of these
drugs are known as antihistamines because they block the action of histamine
in the body.
The market for asthma medications is dominated by the bronchodilator
class of drugs. The leading short-acting bronchodilator is albuterol, introduced
in 1969.
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Several long-acting drugs such as formoterol and salmeterol have been introduced
more recently. Sepracor is seeking to develop improved versions of both
short-acting and long-acting bronchodilators.
Norastemizole, an active metabolite of Hismanal. Hismanal is a
non-sedating antihistamine marketed by Janssen. Hismanal 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 preclinical studies suggest 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. The
Company believes that this combination of properties, if substantiated in
additional clinical trials, would be sufficient to give norastemizole an
attractive profile against competing nonsedating antihistamines. Sepracor is
continuing its clinical trial program with norastemizole. The Company has a
method-of-use patent application and several other patent applications pending
covering norastemizole. Sepracor and Janssen have 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.
Desloratadine, an active metabolite of Claritin. Claritin, a
nonsedating antihistamine, is marketed by Schering Corporation. Sepracor's
preclinical studies have shown that desloratadine may be more potent than other
commercially available antihistamines. Sepracor's patent portfolio for
desloratadine includes U.S. patents covering the use of desloratadine to treat
allergic rhinitis and allergic asthma that expire in 2014 and U.S. patent
applications pending covering pharmaceutical formulations and additional uses.
In December 1997, Sepracor and Schering-Plough entered into a license agreement
giving Schering-Plough exclusive worldwide rights to Sepracor's patents covering
desloratadine. Schering-Plough has indicated it intends to develop and market
desloratadine worldwide. Schering-Plough is currently conducting Phase III
clinical trials with desloratadine for the treatment of allergic rhinitis and
Phase II clinical trials for the treatment of urticaria (or hives).
Fexofenadine, an active metabolite of Seldane. Seldane, marketed by
HMRI, was the leading non-sedating antihistamine until the FDA mandated that
Seldane carry a "black box" label warning of its potential cardiovascular side
effects and adverse drug-drug interactions. In July 1993, Sepracor licensed to
HMRI its U.S. patent rights covering fexofenadine. In October 1996, HMRI
introduced Allegra(R) (fexofenadine) as an improved version of Seldane. In
January 1998, HMRI announced its intention to withdraw Seldane from the market
due to the availability of its Allegra product line. Under Sepracor's license to
HMRI, Sepracor would 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 (the "PTO") declared an
interference between Sepracor and HMRI regarding a patent
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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 "Item 3. Legal Proceedings."
Xopenex (Levalbuterol HC1), a single-isomer form of Ventolin(R) and
Proventil(R). Albuterol is marketed by GlaxoWellcome plc ("GlaxoWellcome"),
Schering-Plough and others. In July 1997, two years after initiating clinical
trials, Sepracor submitted an NDA to the FDA for the nebulized form of Xopenex,
Sepracor's levalbuterol HC1, a single isomer form of albuterol. The clinical
portion of Sepracor's NDA is based on nine clinical studies conducted with over
500 patients. In the 362-patient, four-week pivotal study conducted by Sepracor,
patients who received Xopenex were shown to have a greater improvement in lung
function than those who received racemic albuterol. Xopenex taken chronically
showed equivalent or greater changes in forced expiratory volume over one second
(FEV1), compared to the marketed dose of racemic albuterol. At doses
demonstrating equivalent efficacy to albuterol, Xopenex demonstrated decreases
in beta-mediated side effects. These include an increase in pulse rate, muscular
tremor, a decrease in blood potassium levels, and an increase in blood glucose
levels. In addition, the Phase III clinical trials suggested a more long-term
effect on lung function of patients, as compared to albuterol, especially in
those patients not receiving concomitant steroid therapy. In a controlled
double-blind, single-dose study, efficacy and safety were also suggested for
Xopenex over a wide range of doses in children ages three to 11 years old. The
Company's NDA filing was accepted by the FDA in September 1997, and the FDA
issued to the Company an approvable letter for the NDA in July 1998. On March
25, 1999, Sepracor received marketing approval from the FDA for Xopenex. The
Company plans to introduce Xopenex in the U.S. market through its direct sales
force.
In addition to formulating a nebulizer solution, Sepracor is
developing Xopenex 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 four issued U.S. patents for
the use of Xopenex for the treatment of asthma, three of which expire in 2011
and one of which expires in 2013.
(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 pre-clinical and clinical research indicate that
(R,R)-formoterol has the potential to be the first once-a-day long acting
bronchodilator. If successfully developed, the Company
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intends to market (R,R)-formoterol through its direct sales force. Sepracor has
an issued U.S. patent covering the use of (R,R)-formoterol that expires in 2012.
Urology/Gastroenterology
(S)-oxybutynin, a single-isomer form of Ditropan(R). Ditropan is
marketed by HMRI for the treatment of urinary incontinence. Ditropan 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 as dry mouth, nausea, restlessness, and heart palpitations.
Sepracor has recently completed a 186 patient, double blind, placebo controlled
Phase II trial. In this two week trial, Sepracor demonstrated that S-oxybutynin
improved both urinary frequency (18% better than placebo) and urinary
incontinence (30% better than placebo) while being well tolerated (15% incidence
of moderate/severe dry mouth). The Company currently plans to initiate large
scale dose ranging trials in 1999. Sepracor has two issued U.S. patents for
(S)-oxybutynin covering methods of treating urinary incontinence and
pharmaceutical compositions that expire in 2015.
(S)-doxazosin, a single-isomer form of Cardura(R). Cardura is
marketed by Pfizer Inc. primarily to treat benign prostatic hyperplasia ("BPH"),
or enlargement of the prostate, a 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 after standing that can cause severe
dizziness or fainting. 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 believes that an
improved version could reduce the cost of treatment by reducing the number of
required doctor visits. While further extensive studies and clinical work are
needed to determine the efficacy and safety profile of this compound, Sepracor
believes this compound may offer a pharmacoeconomic benefit as compared to the
parent drug. Sepracor is preparing an investigational new drug application
("IND") in order to commence Phase I human clinical trials in 1999. Sepracor has
an issued U.S. patent for the use of (S)-doxazosin to treat BPH that expires in
2013.
Norcisapride, a metabolite of Propulsid. Propulsid is marketed by
Janssen for treatment of gastroesophageal reflux disease ("GERD"). Propulsid
carries a "black box" label warning of the potentional for serious cardiac
arrhythmias when taken with certain other drugs. In preclinical studies,
norcisapride has been found by Sepracor to have the potential to be not only
useful for GERD, but a potent anti-emetic
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without the risk of cardiac arrhythmias. The Company has an issued U.S. patent
for the use of (-)-norcisapride to treat GERD and emesis, which expires in 2015,
as well as pending patent applications for other indications. The Company has an
issued U.S. patent for the use of (+)-norcisapride to treat emesis, which
expires in 2016, as well as pending patent applications for other indications.
In July 1998, the Company exclusively licensed its norcisapride rights to
Janssen, and is entitled to receive royalties on product sales beginning upon
the first commercial sale. Under the agreement, royalties will escalate upon
achievement of sales volume milestones.
(S)-lansoprazole, a single-isomer form of Prevacid(R). Prevacid is
marketed in the U.S. by TAP Pharmaceuticals. This protein pump inhibitor drug is
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.
(-)-pantoprazole, a single-isomer form of Pantozol(R). Pantozol is
marketed by Byk-Gulden for the treatment of GERD. Sepracor's preclinical work
suggests that (-)-pantoprazole has the potential for consistent plasma levels
that may lead to improved safety and efficacy. The Company has a patent
application pending with respect to (-)-pantoprazole.
Psychiatry/Neurology
(R)-fluoxetine, a single-isomer form of Prozac. Prozac, marketed by
Lilly, 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 an 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 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.
Sepracor filed a U.S. IND in October 1998 and is currently conducting single and
multiple dose Phase I clinical trials with (R)-fluoxetine.
On December 7, 1998, Sepracor announced a license agreement with
Lilly relating to development and commercialization of (R)-fluoxetine. Under the
terms of the agreement, Lilly shall have the worldwide exclusive right to
develop and market products containing (R)-fluoxetine. Lilly will be responsible
for all subsequent development work on (R)-fluoxetine, regulatory submissions,
product manufacturing, marketing and sales.
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Under the HSR Act, Sepracor has received a request from the Federal Trade
Commission for additional information in connection with the R-fluoxetine
agreement. Sepracor plans to fully respond to the request and expects the
agreement to become effective as soon as the Federal Trade Commission completes
its review. See "--Recent Corporate Collaborations."
(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 by GlaxoWellcome, is
approved for acute but not prophylactic treatment of migraine and is the leading
anti-migraine 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(R), a single-isomer form of Imovane(R). Imovane is
marketed by Rhone-Poulenc Rorer Inc. Imovane 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 reduction in
anticholinergic side effects, in particular, dry mouth, when compared to
Imovane. The Company has an issued U.S. patent relating to the use of
(S)-zopiclone to treat sleep disorders and other indications which expires in
2015. Sepracor intends to submit an IND and initiate Phase I clinical trials
with (S)-zopiclone in the first half of 1999.
(R)-bupropion, a single-isomer form of Zyban(R). Zyban is marketed by
GlaxoWellcome for smoking cessation. 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.
(+)-desmethylsibutramine, a single-isomer metabolite 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 and its preclinical studies have suggested that (+)-desmethylsibutramine
is a potent seritonin, norepinephrine and dopamine reuptake inhibitor. While
further extensive studies
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and clinical work are needed, this triple mode of action may make (+)-
desmethylsibutramine an antidepressant drug that offers potential benefit in the
treatment of chronic pain syndromes, obesity, attention deficit disorders,
anxiety and stress urinary incontinence. Sepracor intends to submit an IND and
initiate Phase I clinical trials with (+)-desmethylsibutramine in 1999.
(R)-ketoprofen, a single-isomer form of Orudis(R). Orudis is marketed
by American Home Products for pain relief. Sepracor's preclinical studies have
indicated that (R)-ketoprofen has the potential to be a potent analgesic and has
the potential for reduced gastrointestinal side effects. The Company has an
issued U.S. patent covering the use of (R)-ketoprofen as an analgesic agent,
which expires in 2012.
Other
(+)-hydroxyitraconazole, a single-isomer metabolite form of
Sporanox(R). Sporanox is marketed by Janssen for the treatment of yeast and
fungal infections. Sepracor's preclinical studies suggest that
(+)-hydroxyitraconazole has the potential to retain full antifungal activity but
with reduced risk of drug-drug interactions and cardiac side effects. The
Company has a patent application pending with respect to (+)-
hydroxyitraconazole.
Other Indications
The Company is also developing R-ondansetron, a single-isomer form of
Zofran(R), marketed by GlaxoWellcome, for the treatment of emesis.
Drug Discovery
The Company is broadening its development focus to include discovery
and development of NCEs. The accessibility and widespread use of the new
technologies of combinatorial chemistry and ultra high throughput screening
provide an opportunity for Sepracor to participate in the area of NCE discovery.
Sepracor's approach to the discovery of NCEs is identifying novel compounds
which are of strategic interest to Sepracor, with in vitro and in vivo
biological activity in the anti-infective, anti-inflammatory, pain and
behavioral disease therapeutic areas.
Other Matters
The Securities and Exchange Commission has notified the Company that
it is conducting an informal inquiry with respect to the trading activity of
Sepracor Common Stock in the period prior to the Company's announcement on
December 7, 1998 of its agreement with Lilly for the license and development of
(R)-fluoxetine.
Subsidiaries
In 1994, Sepracor established and independently financed BioSepra
Inc. ("BioSepra") as a subsidiary, through an initial public offering of its
common stock. The establishment of this 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, a 64% subsidiary of the Company, develops, manufactures and
sells chromatographic media for use by pharmaceutical companies in the
purification and production of biopharmaceuticals. BioSepra's products enable
pharmaceutical
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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.
On January 5, 1999, BioSepra announced the acquisition of a 51%
interest in Biosphere Medical S.A. ("Biosphere") and completed the acquisition
on February 25, 1999. The principle purpose for the acquisition was to gain
access to product know-how and CE (the European equivalent to the FDA) approval
of Biosphere's product Biospheres(TM), a spherical bead used in three medical
applications within the European medical community. The Company believes that
this technology has applicability for the treatment of uterine fibroids without
intervention.
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 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 established
technologies, including its developed HyperD(R) media, and new in-licensed
technology.
HyperD Media. In March 1993, BioSepra introduced its advanced
HyperDiffusion 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
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market. HyperD media is currently being used by several major pharmaceutical
companies in production and/or development of biopharmaceuticals. BioSepra
currently intends to reinforce its chromatography media product line with the
development of products specifically designed for the purification of various
classes of monoclonal antibodies.
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 technology for the
purification of antibodies.
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.
Other Media Products. BioSepra offers a line of other 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.
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 expects that sales of its historical line of chromatography
bioprocessing products will not increase in 1999 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.
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Affiliates
HemaSure
In 1994, Sepracor established and independently financed HemaSure
Inc. ("HemaSure") as a subsidiary. Through two public offerings of HemaSure's
common stock, HemaSure became a 33%-owned affiliate of the Company. HemaSure 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.
On February 25, 1999, the Company entered into an agreement with
HemaSure pursuant to which the Company invested $2,000,000 in HemaSure in
exchange for 1,333,334 shares of HemaSure common stock and warrants to purchase
667,000 additional shares of HemaSure common stock. Therefore, Sepracor's
ownership of HemaSure increased to 42% as of February 25, 1999.
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 an approximately 22% equity ownership
in Versicor.
Research and Development
Sepracor
The Company's total research and development expenses were
$63,062,000, $43,055,000 and $35,828,000 for 1998, 1997 and 1996, respectively.
Collaborative research and development revenues totaled $5,044,000, $58,000 and
$25,000 in 1998, 1997 and 1996, respectively.
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BioSepra
BioSepra's research and development group consists of 13 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 1998, 1997 and 1996, BioSepra
spent $2,399,000, $1,859,000 and $1,299,000, 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 to
use the partner's marketing expertise. The Company currently has collaborative
agreements with Lilly, 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 has established a direct sales force consisting of
representatives and technical specialists to market its single isomer form of
albuterol, Xopenex, in anticipation of expected FDA approval and commercial
introduction of such drug in 1999. 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.
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 direct sales force which 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.
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In 1998, Sepracor's sales were primarily made up of collaborative
research and development fees and license fees. Sales to Janssen and
Schering-Plough accounted for approximately 48% and 50%, respectively, of
Sepracor's revenues in 1998.
BioSepra
In 1998, BioSepra marketed its products to the biopharmaceutical
industrial market through direct sales efforts in the U.S. and some parts of
Europe and through distributors in other countries. BioSepra markets and sells
its products through field sales representatives and distributors, supported by
application specialists, product managers, and technical support/application
development personnel in BioSepra's research and development department.
Pursuant to BioSepra's agreement with Beckman, Beckman distributes worldwide
certain HyperD media products.
In 1998, 1997 and 1996, 75%, 43% and 47%, respectively, of BioSepra's
sales were outside the U.S. In 1998, 1997 and 1996, media and biochemicals
accounted for 92%, 61% and 69%, respectively, of BioSepra's revenues. The
increase in 1998 for media and biochemicals as a percentage of total revenues,
resulted from the discontinuation of the instrument business at the end of 1997.
In 1998, sales to two major biopharmaceutical companies accounted for
approximately 22% and 11% of BioSepra's revenues, respectively. The loss of
either or both of these customers could have a material adverse effect on the
results of operations of BioSepra.
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
32,400 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 market and sell directly, 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 Inc., a Delaware corporation ("ChiRex"), all of its pharmaceutical
active ingredients (other than commercial quantities of its drugs which Sepracor
is capable of producing at its Nova Scotia
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manufacturing plant) 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 and Louvres, France. In Massachusetts, BioSepra subleases
approximately 15,000 square feet of space from Sepracor, and in France, BioSepra
subleases approximately 28,500 square feet of space in Villeneuve-la-Garenne and
11,000 square feet of space in Louvres. Of the total, approximately 20,440
square feet are used for manufacturing operations.
Competition
Sepracor
Sepracor's principal competitors are generic drug companies that seek
to market the racemic mixture of a compound 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 companies 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 forms 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"), a subsidiary of
Perkin-Elmer Corp. These
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competitors, as well as certain 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. BioSepra competes primarily on the basis of product price and
performance (speed resolution and capacity) and production capability.
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 may require additional FDA approval. 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.
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
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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.
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.
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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 the use of and compositions containing
single isomer or active metabolite compounds, chiral synthesis and separations,
membrane affinity separations and methods of protein purification. 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.
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 forms of drugs currently marketed as racemic mixtures. The
Company is currently pursuing a policy of aggressively seeking patent protection
for the use of 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 as indicated:
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<TABLE>
<CAPTION>
Third Party Expiration of
Composition of Matter or Other Third Party
ICE U.S. Patents Patent
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
(S)-doxazosin doxazosin and pharmaceutical 2000
formulations
fexofenadine fexofenadine 1999
\
substantially pure fexofenadine 2013
(R)-fluoxetine fluoxetine 2001
methods of use 2003
(S)-lansoprazole lansoprazole 2009
pharmaceutical formulations 2008
methods of use 2005
norcisapride norcisapride 2009
(+)-desmethylsibutramine desmethylsibutramine and 2002
methods of treating depression
(+)-hydroxyitraconazole hydroxyitraconazole 2005
(R)-ondansetron ondansetron 2005
methods of use to treat emesis 2006
(-)-pantoprazole pantoprazole and methods of use 2005
(-)-cetirizine cetirizine 2007
</TABLE>
The third party patents claiming fexofenadine may be subject to patent term
extension. In addition, 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 of such third
party patents (unless a license is obtained to the corresponding 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
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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 relating to HemaSure's business). BioSepra holds several
patents and pending patent applications, including a U.S. composition-of-matter
patent (and comparable foreign patent applications) on HyperD media. BioSepra's
additional patents relate primarily to the composition of its other media
products and certain biopharmaceutical production processes.
Employees
At March 1, 1999, Sepracor and its wholly-owned subsidiaries employed
300 persons, of whom 126 were primarily engaged in research, development and
engineering activities, 21 in manufacturing, and the remainder in marketing,
sales, administration, finance and accounting; and BioSepra employed 50 persons.
Factors Affecting Future Operating Results
The Company believes that this document contains "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. These statements are subject to risks and uncertainties and are based
on the beliefs and assumptions of management of the Company, based on
information currently available to the Company's management. Use of words such
as "believes," "expects," "anticipates," "intends," "plans," "estimates,"
"should," "likely" or similar expressions, indicate a forward looking statement.
Forward-looking statements involve risks, uncertainties and assumptions. 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:
Sepracor Has Operating Losses
Sepracor has not been profitable since inception, and it is possible
that it will not achieve profitability. Sepracor incurred net losses applicable
to common shares on a consolidated basis of approximately $93.4 million for the
year ended December 31, 1998 and $26.7 million for the year ended December 31,
1997. These net losses include dividends paid on Sepracor's Series B Preferred
Stock totaling $150,000 for the year ended December 31, 1998 and $600,000 for
the year ended December 31, 1997. Sepracor expects to continue to incur losses
in future periods.
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Many of Sepracor's Products are in the Early Stage of Product
Development and May Not Be Developed Successfully
Sepracor is focused on the development of ICEs. Most of Sepracor's
ICEs are still undergoing clinical trials or are at the early stages of
development. Sepracor's drugs may not provide greater benefits or fewer side
effects than the original versions of these drugs and its research efforts may
not lead to the discovery of new drugs with improved characteristics. All of
Sepracor's drugs under development will require significant additional research,
development, preclinical and/or clinical testing, regulatory approval and a
commitment of significant additional resources prior to their commercialization.
Sepracor's potential products may not:
o be developed successfully;
o be proven safe and efficacious in clinical trials;
o offer therapeutic or other improvements over comparable
drugs;
o meet applicable regulatory standards;
o be capable of being produced in commercial quantities at
acceptable costs; or
o be successfully marketed.
There Are Uncertainties Involved with Patents
Sepracor's success depends in part on its ability to obtain and
maintain patents, protect trade secrets and operate without infringing upon the
proprietary rights of others. Sepracor has filed various patent applications
covering the composition of, and the methods of using, single-isomer or
active-metabolite forms of various compounds for specific applications.
Sepracor may not be issued patents in respect of the patent
applications already filed or that it may file in the future. Moreover, the
patent position of companies in the pharmaceutical industry generally involves
complex legal and factual questions, and recently has been the subject of much
litigation. No consistent policy has emerged from the PTO or the courts
regarding the breadth of claims allowed or the degree of protection afforded
under patents and other proprietary rights. Therefore, any patents Sepracor has
obtained, or obtains in the future, may be challenged, invalidated or
circumvented.
Sepracor's ability to commercialize successfully any ICE will largely
depend upon its ability to obtain and maintain use patents of sufficient scope
to prevent third
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parties from developing similar or competitive products. Third parties,
typically drug companies, hold patents or patent applications covering the
composition of matter for most of the ICEs for which Sepracor has use patents or
patent applications. In each such case, unless Sepracor has or obtains a license
agreement, Sepracor generally may not commercialize the ICE until the expiration
of these third-party patents. Licenses may not be available to Sepracor on
acceptable terms, if at all. In addition, it would be costly to contest the
validity of a third-party patent or defend any claim that Sepracor infringes a
third-party patent. Moreover, litigation involving third-party patents may not
be resolved in Sepracor's favor.
Developing new products and processes is expensive and time
consuming. Therefore, it is important for Sepracor to obtain patent and trade
secret protection for significant new technologies, products and processes.
Protection of Sepracor's proprietary rights from unauthorized third-party use
requires that the rights either be covered by valid and enforceable patents or
be maintained in confidence as trade secrets. Some of the technology that
Sepracor uses in its products is not covered by any patents or patent
applications. In the absence of patent protection, competitors may adversely
affect Sepracor's business by developing independently substantially equivalent
technology. This independent development may circumvent any trade secret
protection applicable to Sepracor's products.
Sepracor is Involved In a Patent Interference
In July 1997, the PTO informed Sepracor that it had declared an
interference between Sepracor's use patent on fexofenadine to treat allergic
rhinitis and another similar use patent application filed by it, and HMRI's use
patent application on the anti-histaminic effects of fexofenadine on hepatically
impaired patients. The primary objective of a patent interference, which only
the PTO can declare, is to determine which party first invented the 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 and issues a
patent in the overlapping subject matter to the party it believes has the
earliest legally sufficient date of invention.
The process to resolve an interference can take many years and the
outcome of interferences varies considerably. If Sepracor loses the
interference, HMRI will be issued a U.S. patent for the overlapping subject
matter. Further, HMRI may not be obligated to pay the milestone or royalty
payments called for in the existing agreement in which Sepracor licenses its
U.S. patent rights covering fexofenadine to HMRI. If Sepracor prevails in the
interference, it will retain all of its claims in Sepracor's issued patent. A
favorable decision, however, does not ensure meaningful protection of Sepracor's
proprietary rights.
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Sepracor is using arbitration to resolve the interference, and the
arbitration proceeding is ongoing. The arbitrator may or may not render a
decision during the first half of 1999. Once rendered, the arbitrator's decision
must be submitted to the PTO for final approval.
There is No Certainty that Sepracor will Obtain Government Approvals;
The Approval Process is Costly and Lengthy
The FDA and similar foreign agencies must approve the marketing and
sale of pharmaceutical products developed by Sepracor or its development
partners. The regulatory process to obtain marketing approval requires clinical
trials of a product to establish its safety and efficacy. Problems that may
arise during clinical trials include:
o results of clinical trials may not be consistent with
pre-clinical study results;
o results from later phases of clinical trials may not be
consistent with the results from earlier phases; and
o products may not be shown to be safe and efficacious.
The clinical trial and regulatory approval process can take many
years and require substantial expenditures. Sepracor may not obtain regulatory
approval for products on a timely basis, if at all. With respect to certain of
Sepracor's ICEs, Sepracor has been able to shorten the regulatory approval
process by relying on the parent drug's preclinical and clinical toxicology data
already on file with the FDA. However, it is possible that the FDA will not
permit Sepracor to use this strategy in the future. Accordingly, Sepracor may be
required to expend significant resources to complete preclinical and clinical
studies for its other ICEs which would significantly delay the regulatory
approval process.
Sepracor's failure to obtain regulatory approval on a timely basis
and any unanticipated significant expenditures on preclinical and clinical
studies could adversely affect Sepracor's financial condition. Even if the FDA
grants Sepracor regulatory approval of a product, such approval may be subject
to limitations on the indicated uses for which the product may be marketed or
contain requirements for costly post-marketing follow-up studies.
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If Sepracor fails to comply with applicable regulatory requirements,
it may be subject to fines, suspension or withdrawal of regulatory approvals,
product recalls, seizure of products, operating restrictions and criminal
prosecutions.
Risks Due to Sepracor's Limited Sales and Marketing Experience
Sepracor currently has very limited sales and marketing experience.
If Sepracor successfully develops and obtains regulatory approval for the
products it is currently developing, Sepracor expects to license some of them to
large pharmaceutical companies and market and sell others through its direct
specialty sales forces or through other arrangements, including co-promotion
arrangements. Sepracor has established a direct sales force to market its single
isomer form of albuterol, Xopenex, in anticipation of commercial introduction of
this drug in 1999. Further, as Sepracor begins to enter into co-promotion
arrangements or market and sell additional products directly, Sepracor will need
to significantly expand its sales force. Sepracor expects to incur significant
expense in expanding its direct sales force.
Sepracor's ability to realize significant revenues from direct
marketing and sales activities depends on its ability to attract and retain
qualified sales personnel in the pharmaceutical industry. If Sepracor is unable
to attract and retain qualified sales personnel, Sepracor will not be able to
successfully expand its marketing and direct sales force on a timely or cost
effective basis. Further, Sepracor's sales and marketing efforts may not be
successful, and the need to comply with FDA limits on drug product marketing,
including limits on claims of comparative safety or efficacy, may inhibit the
effectiveness of such marketing. In addition, Sepracor will need to enter into
co-promotion arrangements with third parties where its direct sales force is
neither well situated nor large enough to achieve maximum penetration in the
market. Sepracor may not be successful in entering into any such arrangements,
and the terms of any such arrangements may not be favorable to it.
Manufacturing Uncertainties
Sepracor currently operates a manufacturing plant that is cGMP
compliant and that it believes can produce commercial quantities of Xopenex and
support the production of its other possible products in amounts needed for its
clinical trials. Sepracor believes it has the capability, without additional
expansion, to scale up its manufacturing processes and manufacture sufficient
amounts of the products which may be approved for sale. However, Sepracor will
not have the capability to manufacture in sufficient quantities all of the
products which may be approved for sale. Accordingly, Sepracor may be required
to spend money to expand its current manufacturing facility, build an additional
manufacturing facility or contract the production of these drugs to third-party
manufacturers.
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Sepracor currently has a supply contract with ChiRex that commits
Sepracor to purchase through December 31, 2001 all of its annual requirements of
those drugs that it will market directly through its specialty sales force,
provided ChiRex meets certain pricing, supply and quality control conditions.
Under this supply agreement, however, Sepracor retains the right to manufacture
commercial quantities of its drugs in its Nova Scotia manufacturing plant.
Sepracor may not successfully scale up its manufacturing processes or
maintain 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 previously granted
and for other regulatory action.
Sepracor Will Be Exposed to Product Liability Claims and Maintain
Product Liability Insurance
Sepracor's business exposes it to the risk of product liability
claims that are inherent in the testing, manufacturing, marketing and sale of
human health care products. Sepracor maintains limited product liability
insurance coverage for both the clinical trials and commercialization of its
products. It is possible that Sepracor will not be able to obtain further
product liability insurance on acceptable terms, if at all, and that insurance
subsequently obtained will not provide adequate coverage against all potential
claims. If Sepracor is unable to obtain insurance at acceptable cost or
otherwise protect against potential product liability claims, Sepracor could be
exposed to significant liabilities. These liabilities could prevent or interfere
with Sepracor's product commercialization efforts.
Sepracor Depends on Collaborative Partners
Sepracor's ability to commercialize certain drugs that Sepracor
develops is likely to depend significantly on its continued 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, Sepracor has entered into five such collaborative
agreements. Sepracor has licensed to HMRI its U.S. patent rights to
fexofenadine, which is marketed by HMRI as Allegra, and is entitled to receive
royalties on all U.S. sales of Allegra when the patent on the parent drug
expires. Sepracor, however, is currently party to an interference involving
Allegra which, if decided against Sepracor, could result in the loss of all or
substantially all of the royalties to which it is entitled under the license
agreement on future sales of Allegra. See " -- Sepracor is Involved in a Patent
Interference." Sepracor has also licensed its worldwide patent rights in
desloratadine to Schering-Plough, pursuant to which it is entitled to receive
royalties from Schering-Plough upon the initial sale of the product. Sepracor
has entered into an agreement with Janssen with respect to the joint development
and co-promotion of
-25-
<PAGE>
norastemizole. Sepracor has exclusively licensed its norcisapride rights to
Janssen, and is entitled to receive royalties on product sales beginning upon
the first commercial sale. These royalties will escalate upon achievement of
sales volume milestones. Sepracor has exclusively licensed its R-fluoxetine
rights to Lilly, and, in addition to initial license and development milestone
payments, is entitled to receive royalties on product sales beginning upon the
first commercial sale. This agreement will be effective on the next business day
following the expiration or earlier termination of the notice and waiting period
under the HSR Act. Under the HSR Act, Sepracor has received a request from the
Federal Trade Commission for additional information in connection with the
R-fluoxetine agreement. Sepracor plans to fully respond to the request and
expects the agreement to become effective as soon as the Federal Trade
Commission completes its review.
In each of these collaborative arrangements and, to the extent that
Sepracor enters into additional collaborative arrangements, Sepracor depends
upon the efforts of its collaboration partners, and these efforts may not be
successful. If any of Sepracor's collaboration partners were to breach or
terminate their agreements with Sepracor or fail to perform their obligations to
Sepracor in a timely manner, the development and commercialization of the
products could be delayed or terminated. Any delay or termination of this type
could have a material, adverse effect on Sepracor's financial condition and
results of operation. Any failure or inability by Sepracor to perform certain of
its obligations under a collaborative agreement could reduce or extinguish the
benefits to which Sepracor is otherwise entitled under the agreement. Sepracor
cannot be assured that it will be able to enter into collaborative agreements
for ICEs in the future or that the terms of the collaborative agreements, if
any, will be favorable to Sepracor.
Sepracor is Highly Leveraged
As of December 31, 1998, Sepracor's total long-term debt was
approximately $492.1 million and its stockholders' equity was $4.4 million.
Neither the 6 1/4% convertible subordinated debentures due 2005 nor the 7%
convertible subordinated debentures due 2005 restrict Sepracor's ability or its
subsidiaries' ability to incur additional indebtedness, including debt that
ranks senior to the 6 1/4% debentures or the 7% debentures. Additional
indebtedness of Sepracor may rank senior to or pari passu with the 6 1/4%
debentures or the 7% debentures in certain circumstances. Sepracor's ability to
satisfy its obligations will depend upon Sepracor's future performance, which is
subject to many factors, including factors beyond its control. It is possible
that Sepracor will be unable to meet its debt service requirements on the 6 1/4%
debentures or the 7% debentures. Moreover, Sepracor may be unable to repay the
6 1/4% debentures or 7% debentures at maturity or otherwise in accordance with
the debt instruments.
-26-
<PAGE>
Sepracor May Need Additional Funds
Sepracor may require additional funds for its research and product
development programs, operating expenses, the pursuit of regulatory approvals
and the expansion of Sepracor's production, sales and marketing capabilities.
Historically Sepracor has satisfied its funding needs through collaborative
arrangements with corporate partners or equity or debt financings. Sepracor
cannot be assured that these funding sources will be available to it when needed
in the future, or, if available, will be on terms acceptable to Sepracor.
Insufficient funds could require Sepracor to delay, scale back or eliminate
certain of its research and product development programs or to license third
parties to commercialize products or technologies that Sepracor would otherwise
develop or commercialize itself. Sepracor's cash requirements may vary
materially from those now planned because of factors including:
o increased research and development expenses;
o patent developments;
o relationships with collaborative partners;
o the FDA regulatory process; and
o Sepracor's capital requirements.
Sepracor Faces Intense Competition
Sepracor expects to encounter intense competition in the sale of its
future products. Sepracor's competitors include pharmaceutical companies,
biotechnology firms, universities and other research institutions. The fields in
which Sepracor competes are subject to rapid and substantial technological
change. Developments by others may render Sepracor's products or technologies
obsolete or noncompetitive. Many of Sepracor's competitors and potential
competitors have substantially greater resources, manufacturing and marketing
capabilities, research and development staff and production facilities than
Sepracor has.
Fluctuation of Sepracor's Quarterly Operating Results
Sepracor's quarterly operating results are likely to fluctuate
significantly. These fluctuations will depend on factors which include:
o the timing of collaborative agreements for Sepracor's
pharmaceutical development candidates and development
costs for those pharmaceuticals;
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<PAGE>
o the timing of product sales and market penetration;
o the timing of operating expenses, including marketing
expenses and the costs of expanding and maintaining a
direct sales force;
o the timing of significant orders for the products of
BioSepra; and
o the losses of HemaSure and Versicor, to the extent
Sepracor is required to recognize these losses.
Sepracor's Operating Results May Be Affected By The Future Operating
Results of Its Subsidiaries And Affiliates
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. Additional factors that may affect the future operating
results of Sepracor include the ability of HemaSure to obtain additional
financing and HemaSure's ability to develop commercially viable products.
Because of the foregoing factors, past financial results should not
be relied upon as an indication of future performance. Sepracor 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.
Year 2000 issue
The year 2000 issue is the result of computer programs being written
using two digits (rather than four) to define the applicable year. Any of
Sepracor'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. In 1996, Sepracor began a comprehensive
project, fully supported by senior management, to determine the risks and
impacts of the Year 2000, or Y2K, computer problem on Sepracor's ability to
operate into the next century. This plan took into account Sepracor's status as
a pharmaceutical research and development company, and its transition to a
fully-developed pharmaceutical company, with research and development,
manufacturing, distribution and sales functions. The project relates to the
following areas: (i) Sepracor's internal systems (including information
technology systems, such as financial systems, and non-information technology
systems, such as telephones and facilities); and (ii) the readiness of
Sepracor's vendors. As an emerging pharmaceutical company, direct customers are
not expected to play a
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<PAGE>
critical role in Sepracor's Y2K analysis. In addition, Sepracor's products under
development will not require Y2K compliance.
Department managers in every business area participate in the
project, under the leadership of a Y2K Project Manager. Sepracor began this
project in 1996 so as to incorporate Y2K readiness into its business strategy,
and to identify and replace non-compliant systems and procedures as part of its
normal operating plan and budget.
Sepracor's goal is to be fully Y2K ready, in respect to both its own
systems and those of its key vendors and strategic alliance partners, no later
than July 1999.
To date, Sepracor has spent $145,000 to retrofit or replace
computer-based systems, which were identified as lacking compliance. This
included the migration of all of Sepracor's desktop computers to an operating
status Sepracor considers to be Y2K certified, through software upgrades or full
system replacements. Sepracor's key telecommunications systems were also
upgraded and/or replaced. These costs have been minimal due to the fact that Y2K
compliance has been a prerequisite to all new systems acquisitions and
maintenance upgrades.
Sepracor estimates approximately $400,000 in additional direct costs
to complete its Y2K certification efforts. This funding will be used to contract
with an independent testing firm to perform a platform and system review of
Sepracor's IT-based systems. At this time, Sepracor also plans to contract with
an independent auditor to perform a full review of its compliance efforts,
including contingency planning. This funding will also be used to address any
system or process replacement requirements that may be identified as these
reviews progress.
Areas that need further attention include vendor compliance
certification, which is in progress at this time, and contingency planning.
Completion of the vendor compliance certification is impacted by vendors'
respective Y2K efforts. Sepracor expects to have initial vendor responses
completed by April 1999, and will determine what follow-up is required at that
time. Sepracor relies on third party suppliers and service providers. If these
or other third parties experience Year 2000 failures or malfunctions, there
could be an adverse impact on Sepracor's ability to conduct operations,
including conducting continued pharmaceutical development efforts and
manufacturing pharmaceutical products. Sepracor has minimal Year 2000 related
contingency plans because there are virtually no legacy systems at Sepracor and
because very few potential issues have surfaced to date. A review of these plans
will be held once vendor certification is completed.
Sepracor's focus for the coming months will be to determine the exact
level of exposure with outside vendors/customers, and to complete independent
verification of internal compliance efforts. Based on the activities described
above, Sepracor does
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<PAGE>
not believe that the Year 2000 problem will have a material adverse effect on
Sepracor's business or results of operations.
Item 2. Properties.
Sepracor's facilities, including those used by BioSepra, are located
in Marlborough, Massachusetts, Windsor, Nova Scotia, Villeneuve-la-Garenne and
Louvres, 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 remainder to research and development and
administration. The two leases currently in effect extend to June 2007 for
32,477 square feet and June 2007 for 68,815 square feet. In
Villeneuve-la-Garenne, France, BioSepra leases approximately 28,500 square feet
of space under a contract that can be terminated by either party upon 18 months'
notice. BioSepra also leases 11,000 square feet of space in Louvres, France. In
Nova Scotia, Sepracor's primary manufacturing location is a 32,400-square-foot
fine chemical manufacturing facility located on a three-acre site in Windsor,
Nova Scotia. The Company has an option to purchase additional abutting land
which expires in July 1999. The facility was acquired by the Company in March
1994. Production at the Nova Scotia facility began in February 1995. 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 earlier 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 allowable 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.
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<PAGE>
In May 1998, HMRI filed an action in Belgium alleging that Sepracor's
European patent relating to fexofenadine is invalid in Belgium, or is not
infringed by HMRI's sales of fexofenadine in Belgium and Germany. In September
1998, Sepracor commenced infringement proceedings in the United Kingdom against
HMRI and related companies for infringement of Sepracor's European patent
relating to fexofenadine.
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 for the Eastern District of
New York granted in part Pall's summary judgment motion and held that LeukoNet
product infringes a single claim from the 321 patent. HemaSure has terminated
the manufacture, use, sale and offer for sale of the filter subject to the
court's order. HemaSure appealed the October 1997 decision to the Court of
Appeals for the Federal Circuit. Oral arguments were heard in February 1999.
HemaSure now awaits a decision from the Federal Circuit. Remaining discovery
relating to the damages phase of the first action has been completed.
With respect to the second action concerning U.S. Patent No.
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. Pall has amended its complaint to add
Lydall, Inc. ("Lydall") whose subsidiary supplied filter media for the LeukoNet
product, as a co-defendant. HemaSure has filed for summary judgment of
non-infringement, and Pall has cross- filed for summary judgment of infringement
at the same time. Lydall supported HemaSure's motion for summary judgment of
non-infringement and has served a motion for summary judgment that the asserted
claims of the '572 patent are invalid as a matter of law. Discovery has been
completed in the action.
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 LeukoNet product does not infringe any valid
enforceable claim of the two asserted Pall patents. However, there can be no
assurance that HemaSure will prevail in the pending litigations, and an adverse
outcome in a patent
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<PAGE>
infringement action would have a material adverse effect on HemaSure's financial
condition and 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, 1998.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the names, ages and positions of the
current executive officers of the Company as of December 31, 1998.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Timothy J. Barberich 51 President, Chief Executive Officer and Director
David S. Barlow 42 Executive Vice President; President,
Pharmaceuticals
David P. Southwell 38 Executive Vice President; Chief Financial Officer
and Secretary
Paul D. Rubin, M.D. 45 Executive Vice President, Drug Development and
ICE Research
James R. Hauske, Ph.D. 45 Senior Vice President, Discovery
Robert F. Scumaci 39 Senior Vice President, Finance and
Administration and Treasurer
Douglas Reedich, Ph.D. 41 Senior Vice President, Legal Affairs and 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
organization in 1984. 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.
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<PAGE>
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 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. Rubin has served as Executive Vice President, Drug Development
and ICE Research of the Company since January 1999. He was Senior Vice
President, Drug Development of the Company from April 1996 until January 1999.
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.
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).
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.
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<PAGE>
Dr. Reedich has served as Senior Vice President, Legal Affairs and
Chief Patent Counsel of the Company since January 1999 and has served as Chief
Patent Counsel 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 1998 Annual Report to
Stockholders (the "1998 Annual Report") under the headings "Supplemental
Stockholder Information -- Price Range of Common Stock" and "Supplemental
Stockholder Information -- Dividend Policy."
The Company did not sell any equity securities during the quarter
ended December 31, 1998 that were not registered under the Securities Act of
1933, as amended.
Item 6. Selected Financial Data.
Incorporated by reference from the 1998 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 1998 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
Incorporated by reference from the 1998 Annual Report under the
heading "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
Item 8. Financial Statements and Supplementary Data.
The financial statements filed as part of this Annual Report on Form
10-K are incorporated by reference from the 1998 Annual Report under the
headings
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<PAGE>
"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 1999 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 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 1998 Annual Report.
1. The following financial statements (and related notes) of the Company
are incorporated by reference from the 1998 Annual Report:
<TABLE>
<CAPTION>
Page*
-----
<S> <C>
Report of Independent Accountants 30*
Consolidated Balance Sheets at December 31, 1998 and 1997 31*
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<PAGE>
Consolidated Statements of Operations for the Years Ended
December 31, 1998, 1997 and 1996 32*
Consolidated Statements of Stockholders' Equity and Comprehensive
Income for the Years Ended December 31, 1998, 1997 and 1996 33*
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998, 1997 and 1996 34*
Notes to the Consolidated Financial Statements 35*
</TABLE>
-----------
* Refers to page number of the 1998 Annual Report. The financial
statements (and related notes) are incorporated by reference from the
1998 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:
<TABLE>
<S> <C>
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
</TABLE>
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 reports on Form 8-K were filed by the
Company during the last quarter of the year ended December 31, 1998.
(1) Current Report on Form 8-K filed with the Securities and Exchange
Commission (the "SEC") on November 5, 1998 relating to the call for
redemption of the Company's 7% Convertible Subordinated Debentures
due 2002.
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<PAGE>
(2) Current Report on Form 8-K filed with the SEC on December 10,
1998, relating to the signing of a licensing agreement with Eli Lilly
and Company.
(3) Current Report on Form 8-K filed with the SEC on December 17,
1998, relating to the pricing of the Company's 7% Convertible
Subordinated Debentures due 2005.
The following trademarks are mentioned in this Annual Report on Form
10-K:
Sepracor, ICE and Xopenex 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.
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<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SEPRACOR INC.
By: /s/ Timothy J. Barberich
-------------------------------------
Timothy J. Barberich
President and Chief Executive Officer
Date: March 31, 1999
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 31, 1999
- -------------------------- and Director (Principal Executive
Timothy J. Barberich Officer)
/s/ David P. Southwell Executive Vice President and March 31, 1999
- -------------------------- Chief Financial Officer
David P. Southwell (Principal Financial Officer)
/s/ Robert F. Scumaci Senior Vice President, Finance March 31, 1999
- -------------------------- and Administration and
Robert F. Scumaci Treasurer
(Principal Accounting Officer)
/s/ James G. Andress Director March 31, 1999
- --------------------------
James G. Andress
/s/ Digby W. Barrios Director March 31, 1999
- --------------------------
Digby W. Barrios
<PAGE>
/s/ Robert J. Cresci Director March 31, 1999
- --------------------------
Robert J. Cresci
/s/ Robert F. Johnston Director March 31, 1999
- --------------------------
Robert F. Johnston
/s/ Keith Mansford Director March 31, 1999
- --------------------------
Keith Mansford
/s/ James F. Mrazek Director March 31, 1999
- --------------------------
James F. Mrazek
/s/ Alan A. Steigrod Director March 31, 1999
- --------------------------
Alan A. Steigrod
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULES
To the Board of Directors of Sepracor Inc.
Our audits of the consolidated financial statements referred to in our report
dated February 19, 1999, except as to the information in Note W for which the
date is February 25, 1999 appearing on page 44 of the 1998 Annual Report to
Stockholders of Sepracor Inc. (which report and consolidated financial
statements are incorporated by reference in this Annual Report on Form 10-K)
also included an audit of the financial statement schedule listed in Item
14(a)(2) of this Form 10-K. In our opinion, based upon our audits and the
reports of other auditors, this financial statement schedule presents fairly, in
all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
February 19, 1999, except as to the information in
Note W for which the date is February 25, 1999
S-1
<PAGE>
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To the Board of Directors and Shareholders of BioSepra Inc. and subsidiaries:
We have audited, in accordance with generally accepted auditing standards, the
consolidated financial statements of BioSepra Inc. and subsidiaries and have
issued our report thereon dated February 2, 1999. 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
February 2, 1999
S-2
<PAGE>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance at Charged to Balance at
Beginning Charged to Other End of
of Period Expenses Accounts Deductions (1) Period
--------- ---------- ---------- -------------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1998
Accounts Receivable Reserves $369,010 $ 1,388 $-- $(264,438) $105,960
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
</TABLE>
(1) 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>
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(5) -- Form of 6 1/4% Convertible Subordinated
Debenture due 2005.
4.3(5) -- Global 6 1/4% Convertible Subordinated Debenture
payable to Cede & Co. due 2005.
4.4 -- Global 7% 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 -- The Registrant's 1991 Restated Stock Option Plan,
as amended and restated.
(*)10.3 -- The Registrant's 1991 Director Stock Option Plan,
as amended and restated.
(*)10.4(4) -- The Registrant's 1996 Employee Stock Purchase
Plan, as amended and restated.
(*)10.5(5) -- The Registrant's 1997 Stock Option Plan.
(*)10.6 -- The Registrant's 1998 Employee Stock Purchase
Plan.
<PAGE>
Exhibit No. Description Page
----------- ----------- ----
10.7(3) -- 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").
10.8(5) -- First Amendment to Marlboro Lease, dated
February 1, 1997, and Second Amendment to
Marlboro Lease, dated July 1, 1997.
10.9 -- Stock Purchase Agreement dated June 1,
1993, between the Registrant and Marion
Merrill Dow.
10.10 -- Technology Transfer and License Agreement
dated as of January 1, 1994, between the
Registrant and BioSepra Inc.
10.11 -- Technology Transfer and License Agreement
dated as of January 1, 1994, between the
Registrant and HemaSure Inc.
10.12 -- Technology Transfer and License Agreement,
effective January 1, 1995, between the
Registrant and SepraChem Inc.
10.13 -- Series A Convertible Preferred Stock
Purchase Agreement, dated September 30, 1994,
by and among the Registrant and OFD Partners,
L.P.
(*)10.14(2) -- Letter Agreement, dated September 30, 1993,
between the Company and David S. Barlow.
(*)10.15(2) -- Letter Agreement, dated June 10, 1994, between
the Registrant and David Southwell.
(*)10.16(4) -- Letter Agreement, dated February 23, 1996,
between the Registrant and Paul D. Rubin.
<PAGE>
Exhibit No. Description Page
----------- ----------- ----
(*)10.17(4) -- Letter Agreement, dated February 23, 1995,
between the Registrant and Robert F. Scumaci.
(*)10.18(4) -- Consulting Agreement between the Registrant and
Mr. Steigrod, dated September 1, 1996.
(*)10.19(5) -- Consulting Agreement Amendment, dated as
of January 1, 1997, between the Registrant and
Alan A. Steigrod.
(*)10.20(5) -- Consulting Agreement between the Registrant and
Digby W. Barrios, dated October 1, 1995.
10.21(5) -- 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.
10.22(5) -- Promissory Note from Paul D. Rubin to the
Registrant, dated January 22, 1998.
10.23(2) -- Series B Preferred Stock Purchase Agreement
dated March 14, 1995, between the Registrant
and Beckman Instruments, Inc.
10.24(2) -- Intellectual Property Security Agreement by
and between Fleet Bank of Massachusetts, N.A.
and the Registrant, dated December 28, 1994.
10.25(4) -- Confirmation of and Amendment to Intellectual
Property Security Agreement between Fleet
National Bank and the Registrant, dated February
1997.
10.26(4) -- Deposit Pledge Agreement, dated December 31, 1996,
between the Registrant and Fleet National Bank.
<PAGE>
Exhibit No. Description Page
----------- ----------- ----
10.27(5) -- Put Agreement, dated as of December 30, 1997,
between the Registrant and Fleet National Bank.
10.28(4) -- Amended and Restated Revolving Credit and
Security Agreement among Fleet National Bank,
the Registrant and Sepracor Securities
Corporation, dated December 31, 1996.
10.29(4) -- Amended and Restated Promissory Note, dated
December 31, 1996, between the Registrant,
Sepracor Securities Corporation and Fleet
National Bank.
10.30(4) -- Guaranty Agreement, dated December 31,
1996, between the Registrant and Fleet
National Bank for BioSepra Inc.
10.31(5)+ -- Agreement, dated as of December 5, 1997, by
and between the Registrant and Schering-Plough
Ltd.
10.32(5)+ -- License Agreement, dated January 30, 1998,
by and between the Registrant and Janssen
Pharmaceutica N.V.
10.33(6)+ -- Norcisapride Development and License
Agreement, dated as of July 20, 1998, between
Janssen Pharmaceutica N.V. and the Registrant.
10.34+ -- Exclusive License Agreement by and between Eli
Lilly and Company and the Registrant
10.35(5) -- Indenture, dated as of February 10, 1998,
between the Registrant and The Chase Manhattan
Bank, as trustee, relating to the 6 1/4%
Convertible Subordinated Debentures due 2005.
<PAGE>
Exhibit No. Description Page
----------- ----------- ----
10.36(5) -- 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.
10.37 -- Indenture, dated as of December 15, 1998,
between the Registrant and The Chase Manhattan
Bank, as trustee, relating to the 7%
Convertible Subordinated Debentures due 2005
10.38 -- Registration Rights Agreement, dated as of
December 10, 1998, by and among the Registrant,
Morgan Stanley & Co. Incorporated and Salomon
Smith Barney, Inc.
13 -- 1998 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 PricewaterhouseCoopers LLP.
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.
(+) Confidential treatment as to certain portions.
(1) Incorporated herein by reference from the Registrant's Registration
Statement on Form S-1 (File No. 33-41653).
<PAGE>
(2) Incorporated by reference from the Registrant's Annual Report on Form
10-K for the year ended December 31, 1994.
(3) Incorporated by reference from the Registrant's Annual Report on Form
10-K for the year ended December 31, 1995.
(4) Incorporated by reference from the Registrant's Annual Report on Form
10-K for the year ended December 31, 1996.
(5) Incorporated by reference from the Registrant's Annual Report on Form
10-K for the year ended December 31, 1997.
(6) Incorporated by reference from the Registrant's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1998.
(7) Incorporated by reference from the Registrant's Registration
Statement on Form S-8, filed on July 6, 1998, relating to the 1991
Director Stock Option Plan.
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 IT IS A
"QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES
ACT); (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) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE
904 UNDER THE SECURITIES ACT, (D) PURSUANT TO THE EXEMPTION FROM REGISTRATION
PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (E) 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(E) 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
<PAGE>
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 A PURCHASER
WHO IS NOT A U.S. 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 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(E) 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 "U.S. PERSON" HAVE THE MEANINGS
GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.
<PAGE>
SEPRACOR INC.
7% CONVERTIBLE SUBORDINATED DEBENTURE DUE 2005
No: G-1 CUSIP: 817 315 AF1
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 THREE HUNDRED MILLION DOLLARS ($300,000,000) on December
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 June
15 and December 15, of each year, commencing June 15, 1999, on said principal
sum at said office or agency, in like coin or currency, at the rate per annum of
7% from December 15, 1998 and thereafter to maturity from the June 15 or
December 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 December 15, 1998, until payment of
said principal sum has been made or duly provided for. Notwithstanding the
foregoing, if the date hereof is after any May 31 or November 30, as the case
may be, and before the following June 15 or December 15, this Debenture shall
bear interest from such June 15 or December 15; provided, however, that if the
Company shall default in the payment of interest due on such June 15 or December
15, then this Debenture shall bear interest from the next preceding June 15 or
December 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 December 15,
1998. The interest payable on the Debenture pursuant to the Indenture on any
June 15 or December 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 May 31 or November 30 (whether or not a Business Day) next
preceding such June 15 or December 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
<PAGE>
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
Commonwealth of Massachusetts, and for all purposes shall be construed in
accordance with and governed by the laws of The Commonwealth of Massachusetts.
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:
Title:
Attest: /s/ Robert Scumaci
--------------------------------
Name: Robert Scumaci
Title: Senior V.P. Finance &
Administration
Dated: December 15, 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>
SEPRACOR INC.
7% CONVERTIBLE SUBORDINATED DEBENTURE DUE 2005
This Debenture is one of a duly authorized issue of Debentures of the
Company, designated as its 7% Convertible Subordinated Debentures due 2005
(herein called the "Debentures"), limited to the aggregate principal amount of
$300,000,000 all issued or to be issued under and pursuant to an Indenture dated
as of December 15, 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
<PAGE>
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.
The Debentures will not be redeemable at the option of the Company prior to
December 20, 2001. At any time on or after December 20, 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:
<PAGE>
If redeemed during the period beginning December 20, 2001 and ending on
December 14, 2002, at a redemption price of 104.000%, and if redeemed during the
12-month period beginning December 15:
<TABLE>
<CAPTION>
Year Redemption Price
<S> <C>
2002 103.000%
2003 102.000%
2004 101.000%
</TABLE>
and 100% at December 15, 2005; provided that if the date fixed for redemption is
on June 15 or December 15, then the interest payable on such date shall be paid
to the holder of record on the next preceding May 31 or November 30,
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 December 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 June 15 or December 15, then the interest payable on such
date shall be paid to the holder of record of the Debenture on the next
preceding May 31 or November 30, 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 December 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 $124.875 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
<PAGE>
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 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.
<PAGE>
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.
<PAGE>
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>
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>
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>
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>
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>
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.
SEPRACOR INC.
1991 AMENDED AND RESTATED STOCK OPTION PLAN
-------------------------------------------
Adopted by the Board of Directors on June 24, 1991
--------------------------------------------------
1. Purpose.
--------
The purpose of this plan (the "Plan") is to secure for Sepracor Inc. (the
"Company") and its shareholders the benefits arising from capital stock
ownership by employees and officers of, and consultants or advisors to, the
Company and its parent and subsidiary corporations who are expected to
contribute to the Company's future growth and success. Except where the context
otherwise requires, the term "Company" shall include the parent and all present
and future subsidiaries of the Company as defined in Sections 424(e) and 424(f)
of the Internal Revenue Code of 1986, as amended or replaced from time to time
(the "Code"). Those provisions of the Plan which make express reference to
Section 422 of the Code shall apply only to Incentive Stock Options (as that
term is defined in the Plan).
The Plan shall be treated as an amendment to and restatement of the
Company's 1985 Stock Option Plan, a copy of which is attached hereto as Exhibit
A. As amended and restated, the Plan shall apply to all options granted by the
Company on or after June 24, 1991, but shall apply, as so amended and restated,
to any option granted prior to such date if and only to the extent that the
agreement pursuant to which such option was granted is expressly amended in
writing to adopt the terms of the Plan. Any options granted prior to June 24,
1991 not so expressly amended shall continue to be governed by the terms set
forth in Exhibit A.
2. Type of Options and Administration.
-----------------------------------
(a) Types of Options. Options granted pursuant to the Plan shall be
authorized by action of the Board of Directors of the Company (or a Committee
designated by the Board of Directors) and may be either incentive stock options
("Incentive Stock Options") meeting the requirements of Section 422 of the Code
or non-qualified options which are not intended to meet the requirements of
Section 422 of the Code.
(b) Administration. The Plan will be administered by the Board of Directors
of the Company, whose construction and interpretation of the terms and
provisions of the Plan shall be final and conclusive. The Board of Directors may
in its sole discretion grant options to purchase shares of the Company's Common
Stock, par value $.10 per share ("Common Stock"), and issue shares upon exercise
of such options as provided in the Plan. The Board shall have authority, subject
to the express provisions of the Plan, to construe the respective option
agreements and the Plan, to prescribe, amend and rescind rules and regulations
relating to the Plan, to
<PAGE>
determine the terms and provisions of the respective option agreements, which
need not be identical, and to make all other determinations in the judgment of
the Board of Directors necessary or desirable for the administration of the
Plan. The Board of Directors may correct any defect or supply any omission or
reconcile any inconsistency in the Plan or in any option agreement in the manner
and to the extent it shall deem expedient to carry the Plan into effect and it
shall be the sole and final judge of such expediency. No director or person
acting pursuant to authority delegated by the Board of Directors shall be liable
for any action or determination made in good faith. The Board of Directors may,
to the full extent permitted by or consistent with applicable laws or
regulations (including, without limitation, applicable state law and Rule 16b-3
promulgated under the Securities Exchange Act of 1934 (the "Exchange Act"), or
any successor rule ("Rule 16b-3")), delegate any or all of its powers under the
Plan to a committee (the "Committee") appointed by the Board of Directors, and
if the Committee is so appointed all references to the Board of Directors in the
Plan shall mean and relate to such Committee.
(c) Applicability of Rule 16b-3. Those provisions of the Plan which make
express reference to Rule 16b-3 shall apply to the Company only at such time as
the Company's Common Stock or another class of equity security is registered
under the Exchange Act, and then only to such persons as are required to file
reports under Section 16(a) of the Exchange Act (a "Reporting Person").
3. Eligibility.
------------
(a) General. Options may be granted to persons who are, at the time of
grant, employees or officers of, or consultants or advisors to, the Company;
provided, that Incentive Stock Options may be granted only to persons who are
eligible to receive such options under Section 422 of the Code. In addition, no
person shall be granted any Incentive Stock Option under the Plan who, at the
time such option is granted, owns, directly or indirectly, stock possessing more
than 10% of the total combined voting power of all classes of stock of the
Company, unless the requirements of Section 11(b) are satisfied. The attribution
of stock ownership provisions of Section 424(d) of the Code, and any successor
provisions thereto, shall be applied in determining the shares of stock owned by
a person for purposes of applying the foregoing percentage limitation. A person
who has been granted an option may, if he or she is otherwise eligible, be
granted an additional option or options if the Board of Directors shall so
determine. Subject to adjustment as provided in Section 15 below, the maximum
number of shares with respect to which options may be granted to any employee
under the Plan Shall not exceed 500,000 shares of Common Stock during any
calendar year. For the purpose of calculating such maximum number, (a) an option
shall continue to be treated as outstanding notwithstanding its repricing,
cancellation or expiration and (b) the repricing of an outstanding option or the
issuance of a new option in substitution for a cancelled
-2-
<PAGE>
option shall be deemed to constitute the grant of a new additional option
separate from the original grant of the option that is repriced or cancelled.
(b) Grant of Options to Directors and Officers. From and after the
registration of the Common Stock of the Company under the Exchange Act, the
selection of an officer (as the term "officer" is defined for the purposes of
Rule 16b-3) as a recipient of an option, the timing of the option grant, the
exercise price of the option and the number of shares subject to the option
shall be determined either (i) by the full Board of Directors or (ii) by a
committee composed solely of two or more "Non-Employee Directors" having full
authority to act in the matter. For the purposes of the Plan, a director shall
be deemed to be a "Non-Employee Director" only if such person qualifies as a
"Non-Employee Director" within the meaning of Rule 16b-3, as such term is
interpreted from time to time.
4. Stock Subject to Plan.
----------------------
Subject to adjustment as provided in Section 15 below, the maximum number
of shares of Common Stock of the Company which may be issued and sold under the
Plan (including the Plan as in effect prior to this amendment and restatement)
is 7,500,000 shares. If an option granted under the Plan shall expire or
terminate for any reason without having been exercised in full, the unpurchased
shares subject to such option shall again be available for subsequent option
grants under the Plan. If shares issued upon exercise of an option under the
Plan are tendered to the Company in payment of the exercise price of an option
granted under the Plan, such tendered shares shall again be available for
subsequent option grants under the Plan; provided, that in no event shall (i)
the total number of shares issued pursuant to the exercise of Incentive Stock
Options under the Plan, on a cumulative basis, exceed the maximum number of
shares authorized for issuance under the Plan exclusive of shares made available
for issuance pursuant to this sentence or (ii) the total number of shares issued
pursuant to the exercise of options by persons who are required to file reports
under Section 16(a) of the Exchange Act, on a cumulative basis, exceed the
maximum number of shares authorized for issuance under the Plan exclusive of
shares made available for issuance pursuant to this sentence.
5. Forms of Option Agreements.
---------------------------
As a condition to the grant of an option under the Plan, each recipient of
an option shall execute an option agreement in such form not inconsistent with
the Plan as may be approved by the Board of Directors. Each option agreement
shall specifically state whether the options granted thereby are intended to be
Incentive Stock Options or non-qualified options. Such option agreements may
differ among recipients.
-3-
<PAGE>
6. Purchase Price.
---------------
(a) General. The purchase price per share of stock deliverable upon the
exercise of an option shall be determined by the Board of Directors, provided,
however, that (i) in the case of an Incentive Stock Option, the exercise price
shall not be less than 100% of the fair market value of such stock, as
determined by the Board of Directors, at the time of grant of such option, or
less than 110% of such fair market value in the case of options described in
Section 11(b), and (ii) in the case of a non-qualified option, the exercise
price shall not be less than 50% of the fair market value of such stock, as
determined by the Board of Directors, at the time of grant of such option.
(b) Payment of Purchase Price. Options granted under the Plan may provide
for the payment of the exercise price by delivery of cash or a check to the
order of the Company in an amount equal to the exercise price of such options,
or, to the extent provided in the applicable option agreement, (i) by delivery
to the Company of shares of Common Stock of the Company already owned by the
optionee having a fair market value equal in amount to the exercise price of the
options being exercised, (ii) by any other means which the Board of Directors
determines are consistent with the purpose of the Plan and with applicable laws
and regulations (including, without limitation, the provisions of Rule 16b-3 and
Regulation T promulgated by the Federal Reserve Board) or (iii) by any
combination of such methods of payment. The fair market value of any shares of
the Company's Common Stock or other non-cash consideration which may be
delivered upon exercise of an option shall be determined by the Board of
Directors.
7. Option Period.
--------------
Each option and all rights thereunder shall expire on such date as the
Board of Directors shall determine, except that (i) in the case of an Incentive
Stock Option, such date shall not be later than ten years after the date on
which the option is granted, (ii) in the case of an Incentive Stock Option
described in Section 11(b), such date shall not be later than five years after
the date on which the option is granted and (iii) in all cases, options shall be
subject to earlier termination as provided in the Plan.
8. Exercise of Options.
--------------------
Each option granted under the Plan shall be exercisable either in full or
in installments at such time or times and during such period as shall be set
forth in the agreement evidencing such option, subject to the provisions of the
Plan.
-4-
<PAGE>
9. Transferability of Options.
---------------------------
Except as the Board of Directors may otherwise determine or provide in the
applicable option agreement, options shall not be sold, assigned, transferred,
pledged, or otherwise encumbered by the optionee to whom they are granted,
either voluntarily or by operation of law, except by will or the laws of descent
and distribution, and, during the life of the optionee, shall be exercisable
only by the optionee.
10. Effect of Termination of Employment or Other Relationship.
----------------------------------------------------------
Except as provided in Section 11(d) with respect to Incentive Stock
Options, the Board of Directors shall determine the period of time during which
an optionee may exercise an option following (i) the termination of the
optionee's employment or other relationship with the Company or (ii) the death
or disability of the optionee. Such periods shall be set forth in the agreement
evidencing such option.
11. Incentive Stock Options.
------------------------
Options granted under the Plan which are intended to be Incentive Stock
Options shall be subject to the following additional terms and conditions:
(a) Express Designation. All Incentive Stock Options granted under the Plan
shall, at the time of grant, be specifically designated as such in the option
agreement covering such Incentive Stock Options.
(b) 10% Shareholder. If any employee to whom an Incentive Stock Option is
to be granted under the Plan is, at the time of the grant of such option, the
owner of stock possessing more than 10% of the total combined voting power of
all classes of stock of the Company (after taking into account the attribution
of stock ownership rules of Section 424(d) of the Code), then the following
special provisions shall be applicable to the Incentive Stock Option granted to
such individual:
(i) The purchase price per share of the Common Stock subject
to such Incentive Stock Option shall not be less than 110% of the fair
market value of one share of Common Stock at the time of grant; and
(ii) The option exercise period shall not exceed five years
from the date of grant.
(c) Dollar Limitation. For so long as the Code shall so provide, options
granted to any employee under the Plan (and any other incentive stock option
plans of the Company) which are intended to constitute Incentive Stock Options
shall not constitute Incentive Stock Options to the extent that such options, in
the aggregate,
-5-
<PAGE>
become exercisable for the first time in any one calendar year for shares of
Common Stock with an aggregate fair market value (determined as of the
respective date or dates of grant) of more than $100,000.
(d) Termination of Employment, Death or Disability. No Incentive Stock
Option may be exercised unless, at the time of such exercise, the optionee is,
and has been continuously since the date of grant of his or her option, employed
by the Company, except that:
(i) an Incentive Stock Option may be exercised within the
period of three months after the date the optionee ceases to be an
employee of the Company (or within such lesser period as may be
specified in the applicable option agreement), provided, that the
agreement with respect to such option may designate a longer exercise
period and that the exercise after such three-month period shall be
treated as the exercise of a non-qualified option under the Plan;
(ii) if the optionee dies while in the employ of the Company,
or within three months after the optionee ceases to be such an
employee, the Incentive Stock Option may be exercised by the person to
whom it is transferred by will or the laws of descent and distribution
within the period of one year after the date of death (or within such
lesser period as may be specified in the applicable option agreement);
and
(iii) if the optionee becomes disabled (within the meaning of
Section 22(e)(3) of the Code or any successor provision thereto) while
in the employ of the Company, the Incentive Stock Option may be
exercised within the period of one year after the date the optionee
ceases to be such an employee because of such disability (or within
such lesser period as may be specified in the applicable option
agreement).
For all purposes of the Plan and any option granted hereunder,
"employment" shall be defined in accordance with the provisions of Section
1.421-7(h) of the Income Tax Regulations (or any successor regulations).
Notwithstanding the foregoing provisions, no Incentive Stock Option may be
exercised after its expiration date.
12. Additional Provisions.
----------------------
(a) Additional Option Provisions. The Board of Directors may, in its sole
discretion, include additional provisions in any option agreement covering
options granted under the Plan, including without limitation restrictions on
transfer, repurchase rights, commitments to pay cash bonuses, to make, arrange
for or guaranty loans or to transfer other property to optionees upon exercise
of options, or such other provisions as shall be determined by the Board of
Directors; provided that
-6-
<PAGE>
such additional provisions shall not be inconsistent with any other term or
condition of the Plan and such additional provisions shall not cause any
Incentive Stock Option granted under the Plan to fail to qualify as an Incentive
Stock Option within the meaning of Section 422 of the Code.
(b) Acceleration, Extension, Etc. The Board of Directors may, in its sole
discretion, (i) accelerate the date or dates on which all or any particular
option or options granted under the Plan may be exercised or (ii) extend the
dates during which all, or any particular option or options granted under the
Plan may be exercised; provided, however, that no such extension shall be
permitted if it would cause the Plan to fail to comply with Section 422 of the
Code or with Rule 16b-3.
13. General Restrictions.
---------------------
(a) Investment Representations. The Company may require any person to whom
an option is granted, as a condition of exercising such option, to give written
assurances in substance and form satisfactory to the Company to the effect that
such person is acquiring the Common Stock subject to the option for his or her
own account for investment and not with any present intention of selling or
otherwise distributing the same, and to such other effects as the Company deems
necessary or appropriate in order to comply with federal and applicable state
securities laws, or with covenants or representations made by the Company in
connection with any public offering of its Common Stock.
(b) Compliance With Securities Laws. Each option shall be subject to the
requirement that if, at any time, counsel to the Company shall determine that
the listing, registration or qualification of the shares subject to such option
upon any securities exchange or under any state or federal law, or the consent
or approval of any governmental or regulatory body, or that the disclosure of
non-public information or the satisfaction of any other condition is necessary
as a condition of, or in connection with, the issuance or purchase of shares
thereunder, such option may not be exercised, in whole or in part, unless such
listing, registration, qualification, consent or approval, or satisfaction of
such condition shall have been effected or obtained on conditions acceptable to
the Board of Directors. Nothing herein shall be deemed to require the Company to
apply for or to obtain such listing, registration or qualification, or to
satisfy such condition.
14. Rights as a Shareholder.
------------------------
The holder of an option shall have no rights as a shareholder with respect
to any shares covered by the option (including, without limitation, any rights
to receive dividends or non-cash distributions with respect to such shares)
until the date of issue of a stock certificate to him or her for such shares. No
adjustment shall be
-7-
<PAGE>
made for dividends or other rights for which the record date is prior to the
date such stock certificate is issued.
15. Adjustment Provisions for Recapitalizations and Related Transactions.
---------------------------------------------------------------------
(a) General. If, through or as a result of any merger, consolidation, sale
of all or substantially all of the assets of the Company, reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse stock
split, or other similar transaction, (i) the outstanding shares of Common Stock
are increased or decreased or are exchanged for a different number or kind of
shares or other securities of the Company, or (ii) additional shares or new or
different shares or other securities of the Company or other non-cash assets are
distributed with respect to such shares of Common Stock or other securities, an
appropriate and proportionate adjustment may be made in (x) the maximum number
and kind of shares reserved for issuance under the Plan, (y) the number and kind
of shares or other securities subject to then outstanding options under the
Plan, and (z) the price for each share subject to any then outstanding options
under the Plan, without changing the aggregate purchase price as to which such
options remain exercisable, provided that no adjustment shall be made pursuant
to this Section 15 if such adjustment would cause the Plan to fail to comply
with Section 422 of the Code or with Rule 16b-3.
(b) Board Authority to Make Adjustments. Any adjustments under this Section
15 will be made by the Board of Directors, whose determination as to what
adjustments, if any, will be made and the extent thereof will be final, binding
and conclusive. No fractional shares will be issued under the Plan on account of
any such adjustments.
16. Merger, Consolidation, Asset Sale, Liquidation, etc.
----------------------------------------------------
(a) General. In the event of a consolidation or merger or sale of all or
substantially all of the assets of the Company in which outstanding shares of
Common Stock are exchanged for securities, cash or other property of any other
corporation or business entity or in the event of a liquidation of the Company,
the Board of Directors of the Company, or the board of directors of any
corporation assuming the obligations of the Company, may, in its discretion,
take any one or more of the following actions, as to outstanding options: (i)
provide that such options shall be assumed, or equivalent options shall be
substituted, by the acquiring or succeeding corporation (or an affiliate
thereof), provided that any such options substituted for Incentive Stock Options
shall meet the requirements of Section 425(a) of the Code, (ii) upon written
notice to the optionees, provide that all unexercised options will terminate
immediately prior to the consummation of such transaction unless exercised by
the optionee within a specified period following the date of such notice, (iii)
in the event of a merger under the terms of which holders of the Common Stock of
the Company will receive upon consummation thereof a cash payment for
-8-
<PAGE>
each share surrendered in the merger (the "Merger Price"), make or provide for a
cash payment to the optionees equal to the difference between (A) the Merger
Price times the number of shares of Common Stock subject to such outstanding
options (to the extent then exercisable at prices not in excess of the Merger
Price) and (B) the aggregate exercise price of all such outstanding options in
exchange for the termination of such options, and (iv) provide that all or any
outstanding options shall become exercisable in full immediately prior to such
event.
(b) Substitute Options. The Company may grant options under the Plan in
substitution for options held by employees of another corporation who become
employees of the Company, or a subsidiary of the Company, as the result of a
merger or consolidation of the employing corporation with the Company or a
subsidiary of the Company, or as a result of the acquisition by the Company, or
one of its subsidiaries, of property or stock of the employing corporation. The
Company may direct that substitute options be granted on such terms and
conditions as the Board of Directors considers appropriate in the circumstances.
17. No Special Employment Rights.
-----------------------------
Nothing contained in the Plan or in any option shall confer upon any
optionee any right with respect to the continuation of his or her employment by
the Company or interfere in any way with the right of the Company at any time to
terminate such employment or to increase or decrease the compensation of the
optionee.
18. Other Employee Benefits.
------------------------
Except as to plans which by their terms include such amounts as
compensation, the amount of any compensation deemed to be received by an
employee as a result of the exercise of an option or the sale of shares received
upon such exercise will not constitute compensation with respect to which any
other employee benefits of such employee are determined, including, without
limitation, benefits under any bonus, pension, profit-sharing, life insurance or
salary continuation plan, except as otherwise specifically determined by the
Board of Directors.
19. Amendment of the Plan.
----------------------
(a) The Plan was initially adopted by the Board of Directors on July 15,
1985, was amended on April 9, 1986, January 1, 1987, January 30, 1990 and August
27, 1990, was readopted by the Board of Directors as a new Plan on June 24,
1991, was amended on March 24, 1992, February 14, 1995 and March 27, 1996, was
reapproved by the stockholders of the Company on May 14, 1997 and was amended on
February 26, 1998, each time subject to its becoming effective upon approval by
-9-
<PAGE>
the holders of a majority of the outstanding shares of Common Stock of the
Company.
(b) The Board of Directors may at any time, and from time to time, modify
or amend the Plan in any respect, except that if at any time the approval of the
shareholders of the Company is required under Section 422 of the Code or any
successor provision with respect to Incentive Stock Options or under Rule 16b-3
or with respect to options held by persons who are required to file reports
pursuant to Section 16(a) of the Exchange Act, the Board of Directors may not
effect such modification or amendment without such approval.
(c) The termination or any modification or amendment of the Plan shall not,
without the consent of an optionee, affect his or her rights under an option
previously granted to him or her. With the consent of the optionee affected, the
Board of Directors may amend outstanding option agreements in a manner not
inconsistent with the Plan. The Board of Directors shall have the right to amend
or modify (i) the terms and provisions of the Plan and of any outstanding
Incentive Stock Options granted under the Plan to the extent necessary to
qualify any or all such options for such favorable federal income tax treatment
(including deferral of taxation upon exercise) as may be afforded incentive
stock options under Section 422 of the Code and (ii) the terms and provisions of
the Plan and of any outstanding option to the extent necessary to ensure the
qualification of the Plan under Rule 16b-3.
20. Withholding.
------------
(a) The Company shall have the right to deduct from payments of any kind
otherwise due to the optionee any federal, state or local taxes of any kind
required by law to be withheld with respect to any shares issued upon exercise
of options under the Plan. Subject to the prior approval of the Company, which
may be withheld by the Company in its sole discretion, the optionee may elect to
satisfy such obligations, in whole or in part, (i) by causing the Company to
withhold shares of Common Stock otherwise issuable pursuant to the exercise of
an option or (ii) by delivering to the Company shares of Common Stock already
owned by the optionee. The shares so delivered or withheld shall have a fair
market value equal to such withholding obligation. The fair market value of the
shares used to satisfy such withholding obligation shall be determined by the
Company as of the date that the amount of tax to be withheld is to be
determined. An optionee who has made an election pursuant to this Section 20(a)
may only satisfy his or her withholding obligation with shares of Common Stock
which are not subject to any repurchase, forfeiture, unfulfilled vesting or
other similar requirements.
-10-
<PAGE>
(b) Notwithstanding the foregoing, in the case of a director or officer, no
election to use shares for the payment of withholding taxes shall be effective
unless made in compliance with any applicable requirements of Rule 16b-3.
21. Cancellation and New Grant of Options, Etc.
-------------------------------------------
The Board of Directors shall have the authority to effect, at any time and
from time to time, with the consent of the affected optionees, (i) the
cancellation of any or all outstanding options under the Plan and the grant in
substitution therefor of new options under the Plan covering the same or
different numbers of shares of Common Stock and having an option exercise price
per share which may be lower or higher than the exercise price per share of the
cancelled options or (ii) the amendment of the terms of any and all outstanding
options under the Plan to provide an option exercise price per share which is
higher or lower than the then-current exercise price per share of such
outstanding options.
22. Effective Date and Duration of the Plan.
----------------------------------------
(a) Effective Date. The Plan shall become effective when adopted by the
Board of Directors, but no Incentive Stock Option granted under the Plan shall
become exercisable unless and until the Plan shall have been approved by the
Company's shareholders. If such shareholder approval is not obtained within
twelve months after the date of the Board's adoption of the Plan, no options
previously granted under the Plan shall be deemed to be Incentive Stock Options
and no further Incentive Stock Options shall be granted. Amendments to the Plan
not requiring shareholder approval shall become effective when adopted by the
Board of Directors; amendments requiring shareholder approval (as provided in
Section 19) shall become effective when adopted by the Board of Directors, but
no Incentive Stock Option granted after the date of such amendment shall become
exercisable (to the extent that such amendment to the Plan was required to
enable the Company to grant such Incentive Stock Option to a particular
optionee) unless and until such amendment shall have been approved by the
Company's shareholders. If such shareholder approval is not obtained within
twelve months of the Board's adoption of such amendment, any Incentive Stock
Options granted on or after the date of such amendment shall terminate to the
extent that such amendment to the Plan was required to enable the Company to
grant such option to a particular optionee. Subject to this limitation, options
may be granted under the Plan at any time after the effective date and before
the date fixed for termination of the Plan.
(b) Termination. Unless sooner terminated in accordance with Section 16,
the Plan shall terminate, with respect to Incentive Stock Options, upon the
earlier of (i) the close of business on the day next preceding the tenth
anniversary of the date of its adoption by the Board of Directors, or (ii) the
date on which all shares available
-11-
<PAGE>
for issuance under the Plan shall have been issued pursuant to the exercise or
cancellation of options granted under the Plan. Unless sooner terminated in
accordance with Section 16, the Plan shall terminate with respect to options
which are not Incentive Stock Options on the date specified in (ii) above. If
the date of termination is determined under (i) above, then options outstanding
on such date shall continue to have force and effect in accordance with the
provisions of the instruments evidencing such options.
23. Provision for Foreign Participants.
-----------------------------------
The Board of Directors may, without amending the Plan, modify awards or
options granted to participants who are foreign nationals or employed outside
the United States to recognize differences in laws, rules, regulations or
customs of such foreign jurisdictions with respect to tax, securities, currency,
employee benefit or other matters.
SEPRACOR INC.
1991 DIRECTOR STOCK OPTION PLAN, AS AMENDED AND RESTATED
--------------------------------------------------------
1. Purpose
-------
The purpose of this 1991 Director Stock Option Plan (the "Plan") of
Sepracor Inc. (the "Company") is to encourage ownership in the Company by
outside directors of the Company whose continued services are considered
essential to the Company's future progress and to provide them with a further
incentive to remain as directors of the Company.
2. Administration
--------------
The Board of Directors shall supervise and administer the Plan. Grants
of stock options under the Plan and the amount and nature of the awards to be
granted shall be automatic in accordance with Section 5. However, all questions
of interpretation of the Plan or of any options issued under it shall be
determined by the Board of Directors and such determination shall be final and
binding upon all persons having an interest in the Plan.
3. Participation in the Plan
-------------------------
Directors of the Company who are not employees of the Company or any
subsidiary of the Company shall be eligible to participate in the Plan,
provided, however, that James G. Andress shall not be entitled to receive an
Initial Option (as defined below).
4. Stock Subject to the Plan
-------------------------
(a) The maximum number of shares which may be issued under the Plan
shall be 500,000 shares of the Company's Common Stock, par value $.10 per share
("Common Stock"), subject to adjustment as provided in Section 9 of the Plan.
(b) If any outstanding option under the Plan for any reason expires or
is terminated without having been exercised in full, the shares allocable to the
unexercised portion of such option shall again become available for grant
pursuant to the Plan.
(c) All options granted under the Plan shall be nonstatutory options not
entitled to special tax treatment under Section 422 of the Internal Revenue Code
of 1986, as amended to date and as it may be amended from time to time (the
"Code").
<PAGE>
5. Terms Conditions and Form of Options
------------------------------------
Each option granted under the Plan shall be evidenced by a written
agreement in such form as the Board of Directors shall from time to time
approve, which agreements shall comply with and be subject to the following
terms and conditions:
(a) Option Grant Dates. Options shall be granted (i) on the effective
date of the Plan, to all eligible directors who are directors as of such date,
and to all other eligible directors upon his or her election as a director, and
(ii) thereafter to all eligible directors immediately following each annual
meeting of stockholders (an "Annual Grant Date"), provided that only eligible
directors who have served as directors for at least six months or more prior to
an Annual Grant Date shall be entitled to an option pursuant to this subsection
(ii). An option granted pursuant to subsection (i) herein shall be referred to
herein as an "Initial Option", and an option granted pursuant to subsection (ii)
herein shall be referred to herein as a "Reelection Option".
(b) Shares Subject to Option. Each Initial Option granted under the Plan
shall be exercisable for 10,000 shares of Common Stock. Each Reelection Option
granted under the Plan shall be exercisable for 8,000 shares of Common Stock.
(c) Option Exercise Price. The option exercise price per share for each
option granted under the Plan shall equal (i) the last reported sales price per
share of the Company's Common Stock on the Nasdaq National Market (or, if the
Company is traded on a nationally recognized securities exchange on the date of
grant, the reported closing sales price per share of the Company's Common Stock
by such exchange) on the date of grant (or if no such price is reported on such
date such price as reported on the nearest preceding day) or (ii) if the Common
Stock is not traded on Nasdaq or an exchange, the fair market value per share on
the date of grant as determined by the Board of Directors.
(d) Transferability of Options. Except as the Board of Directors may
otherwise determine or provide in the applicable option agreement, options shall
not be sold, assigned, transferred, pledged or otherwise encumbered by the
optionee to whom they are granted, either voluntarily or by operation of law,
except by will or the laws of descent and distribution, and, during the life of
the optionee, shall be exercisable only by the optionee.
(e) Exercise Period.
(i) Initial Option. Each Initial Option may be exercised on a
cumulative basis as to one-fifth of the shares subject to the option on each of
the first,
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<PAGE>
second, third, fourth and fifth anniversaries of the date of grant of such
option; and
(ii) Reelection Option. Each Reelection Option may be exercised in
full immediately prior to the annual meeting of stockholders next following the
date of grant.
(f) Exercise Period Upon Disability or Death. Notwithstanding the
provisions of Section 5(e), an option granted under the Plan may be exercised,
to the extent then exercisable, by an optionee who becomes disabled (within the
meaning of Section 22(e)(3) of the Code or any successor provision thereto)
while acting as a director of the Company, or may be exercised, to the extent
then exercisable, upon the death of such optionee while a director of the
company by the person to whom it is transferred by will, by the laws of descent
and distribution, or by written notice filed pursuant to Section 5(h), in each
case within the period of one year after the date the optionee ceases to be such
a director by reason of such disability or death; provided that, no option shall
be exercisable after the expiration of ten years from the date of grant.
(g) Exercise Procedure. Options may be exercised only by written notice
to the Company at its principal office accompanied by payment in cash or the
full consideration for the shares as to which they are exercised.
(h) Exercise by Representative Following Death of Director. A director,
by written notice to the Company, may designate one or more persons (and from
time to time change such designation) including his legal representative, who,
by reason of the director's death, shall acquire the right to exercise all or a
portion of the option. If the person or persons so designated wish to exercise
any portion of the option, they must do so within the term of the option as
provided herein. Any exercise by a representative shall be subject to the
provisions of the Plan.
6. Assignments
-----------
Except as the Board of Directors may otherwise determine or provide in
the applicable option agreement, the rights and benefits under the Plan may not
be assigned except for the designation of a beneficiary as provided in Section
5.
7. Effective Date and Time for Granting Options
--------------------------------------------
(a) The Plan shall become effective December 31, 1991.
(b) All options for shares subject to the Plan shall be granted, if at
all, not later than six (6) years after the approval of the Plan by the
Company's stockholders.
-3-
<PAGE>
8. Limitation Rights
-----------------
(a) No Right to continue as a Director. Neither the Plan, nor the
granting of an option nor any other action taken pursuant to the Plan, shall
constitute or be evidence of any agreement or understanding, express or implied,
that the Company will retain a director for any period of time.
(b) No Stockholders' Rights for Options. An optionee shall have no
rights as a stockholder with respect to the shares covered by his options until
the date of the issuance to him of a stock certificate therefor, and no
adjustment will be made for dividends or other rights (except as provided in
Section 9) for which the record date is prior to the date such certificate is
issued.
9. Changes in Common Stock
-----------------------
(a) If the outstanding shares of Common Stock are increased, decreased
or exchanged for a different number of kind of shares or other securities, or if
additional shares or new or different shares or other securities are distributed
with respect to such shares of Common Stock or other securities, through merger,
consolidation, sale of all or substantially all of the assets of the Company,
reorganization, recapitalization, reclassification, stock dividend, stock split,
reverse stock split or other distribution with respect so such shares of Common
Stock, or other securities, an appropriate and proportionate adjustment will be
made in (i) the maximum number and kind or shares reserved for issuance under
the Plan, (ii) the number and kind or shares or other securities subject to then
outstanding options under the Plan and (iii) the price for each share subject to
any then outstanding options under the Plan, without changing the aggregate
purchase price as to which such options remain exercisable. No fractional shares
will be issued under the Plan on account of any such adjustments.
(b) In the event that the Company is merged or consolidated into or with
another corporation (in which consolidation or merger the stockholders of the
Company receive distributions of cash or securities of another issuer as a
result thereof), or in the event that all or substantially all of the assets of
the Company is acquired by any other person or entity, or in the event of a
reorganization or liquidation of the Company, the Board of Directors of the
Company, or the board of directors of any corporation assuming the obligations
of the Company, shall, as to outstanding options, either (i) provide that such
options shall be assumed, or equivalent options shall be substituted, by the
acquiring or successor corporation (or an affiliate thereof), or (ii) upon
written notice to the optionees, provide that all unexercised options will
terminate immediately prior to the consummation of such merger, consolidation,
acquisition, reorganization or liquidations unless exercised by the optionee
within a specified number of days following the date of such notice.
-4-
<PAGE>
10. Amendment of the Plan
---------------------
The Board of Directors may suspend or discontinue the Plan or review or
amend it in any respect whatsoever; provided, however, that without approval of
the stockholders of the Company no revision or amendment shall change the number
of shares subject to the Plan (except as provided in Section 9), change the
designation of the class of directors eligible to receive options, or materially
increase the benefits accruing to participants under the Plan.
11. Notice
------
Any written notice to the Company required by any of the provisions of the
Plan shall be addressed to the Treasurer of the Company and shall become
effective when it is received.
12. Governing Law
-------------
The Plan and all determinations made and actions taken pursuant hereto
shall be governed by the laws of the State of Delaware.
Sepracor Inc.
1998 EMPLOYEE STOCK PURCHASE PLAN
The purpose of this Plan is to provide eligible employees of Sepracor Inc.
(the "Company") and certain of its subsidiaries with opportunities to purchase
shares of the Company's common stock, $.10 par value (the "Common Stock"),
commencing on June 1, 1998. Three hundred thousand (300,000) shares of Common
Stock in the aggregate have been approved for this purpose.
1. Administration. The Plan will be administered by the Company's Board of
Directors (the "Board") or by a Committee appointed by the Board (the
"Committee"). The Board or the Committee has authority to make rules and
regulations for the administration of the Plan and its interpretation and
decisions with regard thereto shall be final and conclusive.
2. Eligibility. Participation in the Plan will neither be permitted nor
denied contrary to the requirements of Section 423 of the Internal Revenue Code
of 1986, as amended (the "Code"), and regulations promulgated thereunder. All
employees of the Company, including Directors who are employees, and all
employees of any subsidiary of the Company (as defined in Section 424(f) of the
Code) designated by the Board or the Committee from time to time (a "Designated
Subsidiary"), are eligible to participate in any one or more of the offerings of
Options (as defined in Section 9) to purchase Common Stock under the Plan
provided that:
(a) they are customarily employed by the Company or a
Designated Subsidiary for more than 20 hours a week and for more than
five months in a calendar year; and
(b) they are employees of the Company or a Designated
Subsidiary on the first day of the applicable Plan Period (as defined
below).
No employee may be granted an option hereunder if such employee,
immediately after the option is granted, owns 5% or more of the total combined
voting power or value of the stock of the Company or any subsidiary. For
purposes of the preceding sentence, the attribution rules of Section 424(d) of
the Code shall apply in determining the stock ownership of an employee, and all
stock which the employee has a contractual right to purchase shall be treated as
stock owned by the employee.
3. Offerings. The Company will make one or more offerings ("Offerings") to
employees to purchase stock under this Plan. Offerings will begin each June 1
and December 1, or the first business day thereafter (the "Offering Commencement
Dates"). Each Offering Commencement Date will begin a six-month period (a "Plan
Period") during which payroll deductions will be made and held for the purchase
of Common Stock at the end of the Plan Period. The Board or the Committee may,
at
<PAGE>
its discretion, choose a different Plan Period of twelve (12) months or less for
subsequent Offerings.
4. Participation. An employee eligible on the Offering Commencement Date of
any Offering may participate in such Offering by completing and forwarding a
payroll deduction authorization form to the employee's appropriate payroll
office at least 30 days prior to the applicable Offering Commencement Date. The
form will authorize a regular payroll deduction from the Compensation received
by the employee during the Plan Period. Unless an employee files a new form or
withdraws from the Plan, his deductions and purchases will continue at the same
rate for future Offerings under the Plan as long as the Plan remains in effect.
The term "Compensation" means the amount of money reportable on the employee's
Federal Income Tax Withholding Statement, excluding overtime, incentive or bonus
awards, allowances and reimbursements for expenses such as relocation allowances
for travel expenses, income or gains on the exercise of Company stock options,
and similar items, whether or not shown on the employee's Federal Income Tax
Withholding Statement.
5. Deductions. The Company will maintain payroll deduction accounts for all
participating employees. Payroll deductions may be at the rate of 1%, 2%, 3%,
4%, 5%, 6%, 7%, 8%, 9%, or 10% of Compensation with any change in compensation
during the Plan Period to result in an automatic corresponding change in the
dollar amount withheld.
No employee may be granted an Option (as defined in Section 9) which
permits his rights to purchase Common Stock under this Plan and any other
employee stock purchase plan (as defined in Section 423(b) of the Code) of the
Company and its subsidiaries, to accrue at a rate which exceeds $25,000 of the
fair market value of such Common Stock (determined at the Offering Commencement
Date of the Plan Period) for each calendar year in which the Option is
outstanding at any time.
6. Deduction Changes. An employee may decrease or discontinue his payroll
deduction once during any Plan Period, by filing a new payroll deduction
authorization form. However, an employee may not increase his payroll deduction
during a Plan Period. If an employee elects to discontinue his payroll
deductions during a Plan Period, but does not elect to withdraw his funds
pursuant to Section 8 hereof, funds deducted prior to his election to
discontinue will be applied to the purchase of Common Stock on the Exercise Date
(as defined below).
7. Interest. Interest will not be paid on any employee accounts, except to
the extent that the Board or the Committee, in its sole discretion, elects to
credit employee accounts with interest at such per annum rate as it may from
time to time determine.
8. Withdrawal of Funds. An employee may at any time prior to the close of
business on the last business day in a Plan Period and for any reason
permanently
-2-
<PAGE>
draw out the balance accumulated in the employee's account and thereby withdraw
from participation in an Offering. Partial withdrawals are not permitted. The
employee may not begin participation again during the remainder of the Plan
Period. The employee may participate in any subsequent Offering in accordance
with terms and conditions established by the Board or the Committee.
9. Purchase of Shares. On the Offering Commencement Date of each Plan
Period, the Company will grant to each eligible employee who is then a
participant in the Plan an option ("Option") to purchase on the last business
day of such Plan Period (the "Exercise Date"), at the Option Price hereinafter
provided for, the largest number of whole shares of Common Stock of the Company
as does not exceed the number of shares determined by dividing the Plan Period
Limit by the closing price (as defined below) on the Offering Commencement Date
of such Plan Period. The Plan Period Limit shall be equal to $208.33 multiplied
by the number of whole months in the Plan Period, rounded to the nearest whole
dollar.
The purchase price for each share purchased will be 85% of the closing
price of the Common Stock on (i) the first business day of such Plan Period or
(ii) the Exercise Date, whichever closing price shall be less. Such closing
price shall be (a) the closing price on any national securities exchange on
which the Common Stock is listed, (b) the closing price of the Common Stock on
the Nasdaq National Market or (c) the average of the closing bid and asked
prices in the over-the-counter-market, whichever is applicable, as published in
The Wall Street Journal. If no sales of Common Stock were made on such a day,
the price of the Common Stock for purposes of clauses (a) and (b) above shall be
the reported price for the next preceding day on which sales were made.
Each employee who continues to be a participant in the Plan on the Exercise
Date shall be deemed to have exercised his Option at the Option Price on such
date and shall be deemed to have purchased from the Company the number of full
shares of Common Stock reserved for the purpose of the Plan that his accumulated
payroll deductions on such date will pay for, but not in excess of the maximum
number determined in the manner set forth above.
Any balance remaining in an employee's payroll deduction account at the end
of a Plan Period will be automatically refunded to the employee, except that any
balance which is less than the purchase price of one share of Common Stock will
be carried forward into the employee's payroll deduction account for the
following Offering, unless the employee elects not to participate in the
following Offering under the Plan, in which case the balance in the employee's
account shall be refunded.
10. Issuance of Certificates. Certificates representing shares of Common
Stock purchased under the Plan may be issued only in the name of the employee,
in the name of the employee and another person of legal age as joint tenants
with rights
-3-
<PAGE>
of survivorship, or (in the Company's sole discretion) in the name of a
brokerage firm, bank or other nominee holder designated by the employee. The
Company may, in its sole discretion and in compliance with applicable laws,
authorize the use of book entry registration of shares in lieu of issuing stock
certificates.
11. Rights on Retirement, Death or Termination of Employment. In the event
of a participating employee's termination of employment prior to the last
business day of a Plan Period, no payroll deduction shall be taken from any pay
due and owing to an employee and the balance in the employee's account shall be
paid to the employee or, in the event of the employee's death, (a) to a
beneficiary previously designated in a revocable notice signed by the employee
(with any spousal consent required under state law) or (b) in the absence of
such a designated beneficiary, to the executor or administrator of the
employee's estate or (c) if no such executor or administrator has been appointed
to the knowledge of the Company, to such other person(s) as the Company may, in
its discretion, designate. If, prior to the last business day of the Plan
Period, the Designated Subsidiary by which an employee is employed shall cease
to be a subsidiary of the Company, or if the employee is transferred to a
subsidiary of the Company that is not a Designated Subsidiary, the employee
shall be deemed to have terminated employment for the purposes of this Plan.
12. Optionees Not Stockholders. Neither the granting of an Option to an
employee nor the deductions from his pay shall constitute such employee a
stockholder of the shares of Common Stock covered by an Option under this Plan
until such shares have been purchased by and issued to him.
13. Rights Not Transferable. Rights under this Plan are not transferable by
a participating employee other than by will or the laws of descent and
distribution, and are exercisable during the employee's lifetime only by the
employee.
14. Application of Funds. All funds received or held by the Company under
this Plan may be combined with other corporate funds and may be used for any
corporate purpose.
15. Adjustment in Case of Changes Affecting Common Stock. In the event of a
subdivision of outstanding shares of Common Stock, or the payment of a dividend
in Common Stock, the number of shares approved for this Plan, and the share
limitation set forth in Section 9, shall be increased proportionately, and such
other adjustment shall be made as may be deemed equitable by the Board or the
Committee. In the event of any other change affecting the Common Stock, such
adjustment shall be made as may be deemed equitable by the Board or the
Committee to give proper effect to such event.
-4-
<PAGE>
16. Merger. If the Company shall at any time merge or consolidate with
another corporation and the holders of the capital stock of the Company
immediately prior to such merger or consolidation continue to hold at least 80%
by voting power of the capital stock of the surviving corporation ("Continuity
of Control"), the holder of each Option then outstanding will thereafter be
entitled to receive at the next Exercise Date upon the exercise of such Option
for each share as to which such Option shall be exercised the securities or
property which a holder of one share of the Common Stock was entitled to upon
and at the time of such merger or consolidation, and the Board or the Committee
shall take such steps in connection with such merger or consolidation as the
Board or the Committee shall deem necessary to assure that the provisions of
Section 15 shall thereafter be applicable, as nearly as reasonably may be, in
relation to the said securities or property as to which such holder of such
Option might thereafter be entitled to receive thereunder.
In the event of a merger or consolidation of the Company with or into
another corporation which does not involve Continuity of Control, or of a sale
of all or substantially all of the assets of the Company while unexercised
Options remain outstanding under the Plan, (a) subject to the provisions of
clauses (b) and (c), after the effective date of such transaction, each holder
of an outstanding Option shall be entitled, upon exercise of such Option, to
receive in lieu of shares of Common Stock, shares of such stock or other
securities as the holders of shares of Common Stock received pursuant to the
terms of such transaction; or (b) all outstanding Options may be cancelled by
the Board or the Committee as of a date prior to the effective date of any such
transaction and all payroll deductions shall be paid out to the participating
employees; or (c) all outstanding Options may be cancelled by the Board or the
Committee as of the effective date of any such transaction, provided that notice
of such cancellation shall be given to each holder of an Option, and each holder
of an Option shall have the right to exercise such Option in full based on
payroll deductions then credited to his account as of a date determined by the
Board or the Committee, which date shall not be less than ten (10) days
preceding the effective date of such transaction.
17. Amendment of the Plan. The Board may at any time, and from time to
time, amend this Plan in any respect, except that (a) if the approval of any
such amendment by the shareholders of the Company is required by Section 423 of
the Code, such amendment shall not be effected without such approval, and (b) in
no event may any amendment be made which would cause the Plan to fail to comply
with Section 423 of the Code.
18. Insufficient Shares. In the event that the total number of shares of
Common Stock specified in elections to be purchased under any Offering plus the
number of shares purchased under previous Offerings under this Plan exceeds the
maximum number of shares issuable under this Plan, the Board or the Committee
will allot the shares then available on a pro rata basis.
-5-
<PAGE>
19. Termination of the Plan. This Plan may be terminated at any time by the
Board. Upon termination of this Plan all amounts in the accounts of
participating employees shall be promptly refunded.
20. Governmental Regulations. The Company's obligation to sell and deliver
Common Stock under this Plan is subject to listing on a national stock exchange
or quotation on the Nasdaq National Market and the approval of all governmental
authorities required in connection with the authorization, issuance or sale of
such stock.
21. Governing Law. The Plan shall be governed by Delaware law except to the
extent that such law is preempted by federal law.
22. Issuance of Shares. Shares may be issued upon exercise of an Option
from authorized but unissued Common Stock, from shares held in the treasury of
the Company, or from any other proper source.
23. Notification upon Sale of Shares. Each employee agrees, by entering the
Plan, to promptly give the Company notice of any disposition of shares purchased
under the Plan where such disposition occurs within two years after the date of
grant of the Option pursuant to which such shares were purchased.
24. Effective Date and Approval of Shareholders. The Plan shall take effect
on __________________, 1998 subject to approval by the shareholders of the
Company as required by Section 423 of the Code, which approval must occur within
twelve months of the adoption of the Plan by the Board.
Adopted by the Board of Directors
on February 26, 1998
Approved by the stockholders on
_______________, 1998
-6-
STOCK PURCHASE AGREEMENT
------------------------
This Agreement dated as of June 1, 1993 is entered into by and among
Sepracor Inc., a Delaware corporation (the "Company") and Marion Merrell Dow
Inc. (the "Purchaser").
In consideration of the mutual promises and covenants contained in this
Agreement, the parties hereto agree as follows:
1. Sale of Shares. Subject to the terms and conditions of this Agreement,
at the Closing (as defined below) the Company will sell and issue to the
Purchaser, and the Purchaser will purchase, 1,111,111 shares of Common Stock of
the Company ("Common Stock") for the purchase price of $9.00 per share. The
shares of Common Stock being sold under this Agreement are referred to as the
"Shares."
2. The Closing. The closing ("Closing") of the sale and purchase of the
Shares under this Agreement shall take place at the offices of Hale and Dorr, 60
State Street, Boston, Massachusetts at 10:00 a.m. on June 2, 1993, or at such
other time, date and place as are mutually agreeable to the Company and the
Purchaser. At the Closing, the Company shall deliver to the Purchaser a
certificate for the number of Shares being purchased, registered in the name of
the Purchaser, against payment to the Company of the purchase price therefor, by
wire transfer, check, or other method acceptable to the Company. The date of the
Closing is hereinafter referred to as the "Closing Date."
3. Representations of the Company. Except as disclosed in the SEC Filings
(as defined below), the Company hereby represents and warrants to the Purchaser
as follows:
3.1 Organization and Standing. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has full corporate power and authority to conduct its business as
presently conducted and as proposed to be conducted by it and to enter into and
perform this Agreement and to carry out the transactions contemplated by this
Agreement. The Company is duly qualified to do business as a foreign corporation
and is in good standing in the Commonwealth of Massachusetts and in every other
jurisdiction in which the failure to so qualify would have a material adverse
effect on the operations or financial condition of the Company. The Company has
furnished to the Purchaser true and complete copies of its Certificate of
Incorporation and By-Laws, each as amended to date and presently in effect.
3.2 Capitalization. The authorized capital stock of the Company
consists of 25,000,000 shares of common stock, $.10 par value per share (the
"Common Stock"), of which 17,430,709 shares are issued and outstanding as of
<PAGE>
May 31, 1993, and 1,000,000 shares of Preferred Stock, $1.00 par value per
share, of which no shares are issued or outstanding. All of the issued and
outstanding shares of Common Stock have been duly authorized and validly issued
and are fully paid and nonassessable.
3.3 Issuance of Shares. The issuance, sale and delivery of the Shares
in accordance with this Agreement have been duly authorized by all necessary
corporate action on the part of the Company, and all such shares have been duly
reserved for issuance. The Shares when so issued, sold and delivered against
payment therefor in accordance with the provisions of this Agreement will be
duly and validly issued, fully paid and non-assessable.
3.4 Company Reports and Financial Statements. The Company has delivered
to the Purchaser true and complete copies of all reports, registration
statements, proxy statements and other definitive filings filed by the Company
with the Securities and Exchange Commission since January 1, 1992 (such reports,
registration statements, proxy statements and other definitive filings, as
amended, are sometimes collectively referred to as the "SEC Filings"). The SEC
Filings comply in all material respects with the Securities Act of 1933, as
amended (the "Securities Act") and the Securities and Exchange Act of 1934, as
amended (the "Exchange Act"), and did not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements contained therein not misleading. The audited financial statements
included in the SEC Filings were prepared in accordance with generally accepted
accounting principles applied on a consistent basis and fairly present the
financial position of the Company as at the dates thereof and the results of
operations and cash flow for the periods then ended.
3.5 Authority for Agreement. The execution, delivery and performance by
the Company of this Agreement and the consummation by the Company of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action. This Agreement has been duly executed and delivered by the
Company and constitutes a valid and binding obligation of the Company
enforceable in accordance with its terms. The execution of and performance of
the transactions contemplated by this Agreement and compliance with its
provisions by the Company will not violate any provision of law and will not
conflict with or result in any breach of any of the terms, conditions or
provisions of, or constitute a default under, or require a consent or waiver
under, its Certificate of Incorporation or By-Laws (each as amended to date) or
any indenture, lease, agreement or other instrument to which the Company is a
party or by which it or any of its properties is bound, or any decree, judgment,
order, statute, rule or regulation applicable to the Company.
3.6 Governmental Consents. No consent, approval, order or authorization
of, or registration, qualification, designation, declaration or filing with,
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any governmental authority is required on the part of the Company in connection
with the execution and delivery of this Agreement or the offer, issuance, sale
and delivery of the Shares. Based in part on the representations made by the
Purchaser in Section 4 of this Agreement, the offer and sale of the Shares to
the Purchaser will be in compliance with applicable Federal and state securities
laws.
3.7 Litigation. There is no action, suit or proceeding, or governmental
inquiry or investigation, pending, or, to the best of the Company's knowledge,
any basis therefor or threat thereof, against the Company which might result,
either individually or in the aggregate, in any material adverse change in the
business, prospects, assets or condition, financial or otherwise, of the
Company.
3.8 Compliance. The Company has, in all material respects, complied
with all laws, regulations and orders applicable to its present and proposed
business and has all material permits and licenses required thereby.
3.9 Employees. All employees of the Company whose employment
responsibility requires access to confidential or proprietary information of the
Company have executed and delivered nondisclosure and assignment of invention
agreements, and all of such agreements are in full force and effect. None of the
employees of the Company is represented by any labor union, and there is no
labor strike or other labor trouble pending with respect to the Company
(including, without limitation, any organizational drive) or, to the best of the
Company's knowledge, threatened.
3.10 Absence of Changes. Since March 31, 1993, there has been no
material adverse change in the condition, financial or otherwise, net worth or
results of operations of the Company, other than changes occurring in the
ordinary course of business which changes have not, individually or in the
aggregate, had a materially adverse effect on the business, prospects,
properties or condition, financial or otherwise, of the Company.
3.11 Disclosure. The representations and warranties of the Company
contained in this Agreement do not contain any untrue statement of material fact
with respect to the subject matter hereof or omit to state any material fact
necessary to make the statements contained herein, in light of the circumstances
under which they were made, not misleading.
4. Representations of the Purchaser. The Purchaser represents and warrants
to the Company as follows:
4.1 Investment. Purchaser is acquiring the Shares for its own account
for investment and not with a view to, or for sale in connection with, any
distribution thereof, nor with any present intention of distributing or selling
the same.
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4.2 Authority. Purchaser has full power and authority to enter into and
to perform this Agreement in accordance with its terms.
4.3 Experience. Purchaser has carefully reviewed the representations
concerning the Company contained in this Agreement, has made detailed inquiry
concerning the Company, its business and its personnel; the officers of the
Company have made available to Purchaser any and all written information which
he or it has requested and have answered to Purchaser's satisfaction all
inquiries made by Purchaser; and such Purchaser has sufficient knowledge and
experience in investing in companies similar to the Company so as to be able to
evaluate the risks and merits of its investment in the Company.
4.4 Legend. Purchaser understands that the stock certificate
representing the Shares shall bear a legend substantially to the following
effect:
"The shares represented by the certificate have not been
registered under the Securities Act of 1933, as amended,
and may not be offered, sold or otherwise transferred,
pledged or hypothecated unless and until such shares are
registered under such Act or an opinion of counsel
satisfactory to the Company is obtained to the effect that
such registration is not required."
5. Conditions to the Obligations of the Purchaser. The obligation of the
Purchaser to purchase Shares at the Closing is subject to the fulfillment, or
the waiver by the Purchaser, of each of the following conditions on or before
the Closing:
5.1 Opinion of Counsel. The Purchaser shall have received an opinion
from Hale and Dorr, counsel for the Company, dated the Closing Date, addressed
to the Purchaser, and satisfactory in form and substance to the Purchaser, to
the effect that:
(a) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware and has full
corporate power and authority to conduct its business as presently conducted, to
enter into and perform this Agreement and to carry out the transactions
contemplated by this Agreement. The Company is duly qualified to do business and
in good standing in the Commonwealth of Massachusetts.
(b) The authorized capital stock of the Company is as described in
Section 3.2 of this Agreement.
(c) The Shares have been duly authorized and reserved for issuance
by all necessary corporate action on the part of the Company; and the
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Shares, when issued, sold and delivered against payment therefor in accordance
with the provisions of this Agreement, will be duly and validly issued, fully
paid and non-assessable.
(d) The execution, delivery and performance by the Company of this
Agreement have been duly authorized by all necessary corporate action and this
Agreement has been duly executed and delivered by the Company. This Agreement
(other than Sections 7.6 as to which no opinion need be expressed) constitutes
the valid and binding obligation of the Company, enforceable in accordance with
its terms, subject as to enforcement of remedies to applicable bankruptcy,
insolvency, reorganization or similar laws affecting generally the enforcement
of creditors' rights and subject to a court's discretionary authority with
respect to the granting of a decree ordering specific performance or other
equitable remedies. The execution and delivery of this Agreement and the offer,
issue and sale of the Shares hereunder will not conflict with, or result in any
breach of any of the terms, conditions, or provisions of, or constitute a
default under, the Certificate of Incorporation or By-Laws of the Company, or
any indenture, lease, agreement, or other instrument known to such counsel to
which the Company is a party or by which it or any of its properties are bound,
or any decree, judgment or order specifically naming the Company and known to
such counsel.
(e) Except as obtained and in effect at the Closing, no consent,
approval, order or authorization of, or registration, qualification,
designation, declaration, or filing with, any governmental authority is required
on the part of the Company in connection with the execution and delivery of this
Agreement, or the offer, issue, sale and delivery of the Shares, or the other
transactions to be consummated at the Closing pursuant to this Agreement.
(f) Based in part on the representations of the Purchaser in
Section 4, the offer, issuance and sale of the Shares pursuant to this Agreement
are exempt from registration under the Securities Act of 1933.
6. Condition to the Obligations of the Company. The obligations of the
Company under Section 1.2 of this Agreement are subject to fulfillment, or the
waiver, of the following conditions on or before the Closing:
6.1 Accuracy of Representations and Warranties. The representations and
warranties of the Purchaser contained in Section 4 shall be true on and as of
the Closing Date with the same effect as though such representations and
warranties had been made on and as of that date.
7. Registration Rights.
7.1 Certain Definitions. As used in this Agreement, the following
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terms shall have the following respective meanings:
"Commission" means the Securities and Exchange Commission, or any other
Federal agency at the time administering the Securities Act.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any similar Federal statute, and the rules and regulations of the Commission
issued under such Act, as they each may, from time to time, be in effect.
"Registration Statement" means a registration statement filed by the
Company with the Commission for a public offering and sale of Common Stock
(other than a registration statement on Form S-8 or Form S-4, or their
successors, or any other form for a similar limited purpose, or any registration
statement covering only securities proposed to be issued in exchange for
securities or assets of another corporation or covering only outstanding
securities to be sold on behalf of stockholders other than the Stockholders).
"Registration Expenses" means the expenses described in Section 7.5.
"Registrable Shares" means (i) the Shares and (ii) any other shares of
Common Stock issued in respect of such shares (because of stock splits, stock
dividends, reclassifications, recapitalizations, or similar events); provided,
however, that shares of Common Stock which are Registrable Shares and which are
sold pursuant to a Registration Statement or Rule 144 under the Securities Act
shall thereupon cease to be Registrable Shares.
"Securities Act" means the Securities Act of 1933, as amended, or any
similar Federal statute, and the rules and regulations of the Commission issued
under such Act, as they each may, from time to time, be in effect.
"Stockholders" means the Purchaser and any persons or entities to whom
the rights granted under this Agreement are transferred by any Purchaser, its
successors or assigns pursuant to Section 7.11 hereof.
7.2 Required Registrations.
(a) At any time after December 31, 1993, a Stockholder or
Stockholders (the "Requesting Stockholder or Stockholders") may request, in
writing, that the Company effect the registration on Form S-3 (or any successor
form) of Registrable Shares owned by such Requesting Stockholder or Stockholders
having an aggregate offering price of at least $3,000,000 (based on the then
current market price). If the Requesting Stockholders intend to distribute the
Registrable Shares by means of an underwriting, they shall so advise the Company
in their request. The managing underwriter(s) shall be selected by the
Requesting Stockholders and shall
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<PAGE>
be subject to the approval of the Company, which approval shall not be
unreasonably withheld. Upon receipt of any such request, the Company shall
promptly give written notice of such proposed registration to all other
Stockholders. Such other Stockholders shall have the right, by giving written
notice to the Company within 30 days after the Company provides its notice, to
elect to have included in such registration such of their Registrable Shares as
such other Stockholders may request in such notice of election; provided that if
the underwriter (if any) managing the offering determines that, because of
marketing factors, all of the Registrable Shares requested to be registered by
all Stockholders may not be included in the offering, then all the Registrable
Shares of the Requesting Stockholders shall be included in the offering, and
other Stockholders who have requested registration shall participate in the
registration pro rata among themselves based upon the number of Registrable
Shares which they have requested to be so registered, provided, that if the
Registrable Shares of the Requesting Stockholders equal or exceed the number of
Shares determined by the underwriter to be includible in such offering, the
Requesting Stockholders shall participate in the registration pro rata among
themselves based upon the number of Registrable Shares which they have requested
to be so registered and the other Stockholders shall not participate.
Thereafter, the Company shall, as expeditiously as possible, use its best
efforts to effect the registration on Form S-3 (or any successor form) of all
Registrable Shares which the Company has been requested to so register.
(b) The Company shall not be required to effect more than two
registrations pursuant to paragraph (a) above. In addition, the Company shall
not be required to take any action to effect a registration requested pursuant
to paragraph (a) above within 180 days following the effective date of any
Registration Statement.
(c) If at the time of any request to register Registrable Shares
pursuant to this Section 7.2, the Company is engaged or has fixed plans to
engage within 60 days of the time of the request in a registered public offering
or is engaged in any other activity which, in the good faith determination of
the Company's Board of Directors, would be adversely affected by the requested
registration to the material detriment of the Company, then the Company may at
its option direct that such request be delayed for a period not in excess of six
months from the effective date of such offering or the date of commencement of
such other material activity, as the case may be, such right to delay a request
to be exercised by the Company not more than once in any 12-month period.
7.3 Incidental Registration.
(a) Whenever the Company proposes to file a Registration Statement
(other than pursuant to Section 7.2) at any time and from time to time, it will,
prior to such filing, give written notice to all Stockholders of its intention
to do
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<PAGE>
so and, upon the written request of a Stockholder or Stockholders given within
20 days after the Company provides such notice (which request shall state the
intended method of disposition of such Registrable Shares), the Company shall
use its best efforts to cause all Registrable Shares which the Company has been
requested by such Stockholder or Stockholders to register to be registered under
the Securities Act to the extent necessary to permit their sale or other
disposition in accordance with the intended methods of distribution specified in
the request of such Stockholder or Stockholders; provided that the Company shall
have the right to postpone or withdraw any registration proposed to be effected
pursuant to this Section 7.3 without obligation to any Stockholder.
(b) In connection with any registration under this Section 7.3
involving an underwriting, the Company shall not be required to include any
Registrable Shares in such registration unless the holders thereof accept the
terms of the underwriting as agreed upon between the Company and the
underwriters selected by it. If in the opinion of the managing underwriter it is
appropriate because of marketing factors to limit the number of Registrable
Shares to be included in the offering, then the Company shall be required to
include in the registration only that number of Registrable Shares, if any,
which the managing underwriter believes should be included therein. If the
number of Registrable Shares to be included in the offering in accordance with
the foregoing is less than the total number of shares which the holders of
Registrable Shares have requested to be included, then the holders of
Registrable Shares who have requested registration and other holders of
securities entitled to include them in such registration shall participate in
the registration pro rata based upon their total ownership of shares of Common
Stock (giving effect to the conversion into Common Stock of all securities
convertible thereinto). If any holder would thus be entitled to include more
securities than such holder requested to be registered, the excess shall be
allocated among other requesting holders pro rata in the manner described in the
preceding sentence.
7.4 Registration Procedures. If and whenever the Company is required by
the provisions of this Agreement to use its best efforts to effect the
registration of any of the Registrable Shares under the Securities Act, the
Company shall:
(a) file with the Commission a Registration Statement with respect
to such Registrable Shares and use its best efforts to cause that Registration
Statement to become and remain effective;
(b) as expeditiously as practicable prepare and file with the
Commission any amendments and supplements to the Registration Statement and the
prospectus included in the Registration Statement as may be necessary to keep
the Registration Statement effective, in the case of a firm commitment
underwritten public offering, until each underwriter has completed the
distribution of all securities
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<PAGE>
purchased by it and, in the case of any other offering, until the earlier of the
sale of all Registrable Shares covered thereby or the date three years after the
Closing Date;
(c) as expeditiously as possible furnish to each selling
Stockholder such reasonable numbers of copies of the prospectus, including a
preliminary prospectus, in conformity with the requirements of the Securities
Act, and such other documents as the selling Stockholder may reasonably request
in order to facilitate the public sale or other disposition of the Registrable
Shares owned by the selling Stockholder; and
(d) as expeditiously as possible use its best efforts to register
or qualify the Registrable Shares covered by the Registration Statement under
the securities or Blue Sky laws of such states as the selling Stockholders shall
reasonably request, and do any and all other acts and things that may be
necessary or desirable to enable the selling Stockholders to consummate the
public sale or other disposition in such states of the Registrable Shares owned
by the selling Stockholder; provided, however, that the Company shall not be
required in connection with this paragraph (d) to qualify as a foreign
corporation or execute a general consent to service of process in any
jurisdiction.
If the Company has delivered preliminary or final prospectuses to the
selling Stockholders and after having done so the prospectus is amended to
comply with the requirements of the Securities Act, the Company shall promptly
notify the selling Stockholders and, if requested, the selling Stockholders
shall immediately cease making offers of Registrable Shares and return all
prospectuses to the Company. The Company shall promptly provide the selling
Stockholders with revised prospectuses and, following receipt of the revised
prospectuses, the selling Stockholders shall be free to resume making offers of
the Registrable Shares.
7.5 Allocation of Expenses. The Company will pay all Registration
Expenses of all registrations under this Agreement; provided, however, that if a
registration under Section 7.2 is withdrawn at the request of the Requesting
Stockholders (other than as a result of information concerning the business or
financial condition of the Company which is made known to the Stockholders after
the date on which such registration was requested) and if the Requesting
Stockholders elect not to have such registration counted as a registration
requested under Section 7.2, the Requesting Stockholders shall pay the
Registration Expenses of such registration pro rata in accordance with the
number of their Registrable Shares to be included in such registration. For
purposes of this Section 7.5, the term "Registration Expenses" shall mean all
expenses incurred by the Company in complying with this Agreement, including,
without limitation, all registration and filing fees, printing expenses, fees
and expenses of counsel for the Company, state Blue Sky fees and expenses, but
excluding underwriting discounts, selling commissions and the fees and expenses
of any selling Stockholder's own counsel.
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7.6 Indemnification and Contribution.
(a) In the event of any registration of any of the Registrable
Shares under the Securities Act pursuant to this Agreement, the Company will
indemnify and hold harmless the seller of such Registrable Shares, each
underwriter of such Registrable Shares, and each other person, if any, who
controls such seller or underwriter within the meaning of the Securities Act or
the Exchange Act against any losses, claims, damages or liabilities, joint or
several, to which such seller, underwriter or controlling person may become
subject under the Securities Act, the Exchange Act, state securities or Blue Sky
laws or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in any Registration
Statement under which such Registrable Shares were registered under the
Securities Act, any preliminary prospectus or final prospectus contained in the
Registration Statement, or any amendment or supplement to such Registration
Statement, or arise out of or are based upon the omission or alleged omission to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading; and the Company will reimburse such seller,
underwriter and each such controlling person for any legal or any other expenses
reasonably incurred by such seller, underwriter or controlling person in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company will not be liable in
any such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon any untrue statement made in such Registration
Statement, preliminary prospectus or final prospectus, or any such amendment or
supplement, or upon any omission therefrom, in reliance upon and in conformity
with information furnished to the Company, in writing, by or on behalf of such
seller, underwriter or controlling person specifically for use in the
preparation thereof.
(b) In the event of any registration of any of the Registerable
Shares under the Securities Act pursuant to this Agreement, each seller of
Registrable Shares, severally and not jointly, will indemnify and hold harmless
the Company, each of its directors and officers and each underwriter (if any)
and each person, if any, who controls the Company or any such underwriter within
the meaning of the Securities Act or the Exchange Act, against any losses,
claims, damages or liabilities, joint or several, to which the Company, such
directors and officers, underwriter or controlling person may become subject
under the Securities Act, Exchange Act, state securities or Blue Sky laws or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact contained in any Registration Statement
under which such Registrable Shares were registered under the Securities Act,
any preliminary prospectus or final prospectus contained in the Registration
Statement, or any amendment or supplement to the Registration Statement, or
arise
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out of or are based upon any omission or alleged omission to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading, if the statement or omission was made in reliance upon and in
conformity with information relating to such seller furnished in writing to the
Company by or on behalf of such seller specifically for use in connection with
the preparation of such Registration Statement, prospectus, amendment or
supplement; provided, however, that the obligations of such Stockholders
hereunder shall be limited to an amount equal to the proceeds to each
Stockholder of Registrable Shares sold in connection with such registration.
(c) Each party entitled to indemnification under this Section 7.6
(the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom; provided, that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not be unreasonably
withheld); and, provided, further, that the failure of any Indemnified Party to
give notice as provided herein shall not relieve the Indemnifying Party of its
obligations under this Section 7.6. The Indemnified Party may participate in
such defense at such party's expense; provided, however, that the Indemnifying
Party shall pay such expense if representation of such Indemnified Party by the
counsel retained by the Indemnifying Party would be inappropriate due to actual
or potential differing interests between the Indemnified Party and any other
party represented by such counsel in such proceeding. No Indemnifying Party, in
the defense of any such claim or litigation shall, except with the consent of
each Indemnified Party, consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such Indemnified Party of a release from all
liability in respect of such claim or litigation, and no Indemnified Party shall
consent to entry of any judgment or settle such claim or litigation without the
prior written consent of the Indemnifying Party.
(d) In order to provide for just and equitable contribution to
joint liability under the Securities Act in any case in which either (i) any
holder of Registrable Shares exercising rights under this Agreement, or any
controlling person of any such holder, makes a claim for indemnification
pursuant to this Section 7.6 but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the expiration
of time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
this Section 7.6 provides for indemnification in such case, or (ii) contribution
under the Securities Act may be required on the part of any such selling
Stockholder or any such controlling person in circumstances for which
indemnification is provided under this Section 7.6; then, in each such case, the
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Company and such Stockholder will contribute to the aggregate losses, claims,
damages or liabilities to which they may be subject (after contribution from
others) in such proportions so that such holder is responsible for the portion
represented by the percentage that the public offering price of its Registrable
Shares offered by the Registration Statement bears to the public offering price
of all securities offered by such Registration Statement, and the Company is
responsible for the remaining portion; provided, however, that, in any such
case, (A) no such holder will be required to contribute any amount in excess of
the proceeds to it of all Registrable Shares sold by it pursuant to such
Registration Statement, and (B) no person or entity guilty of fraudulent
misrepresentation, within the meaning of Section 11(f) of the Securities Act,
shall be entitled to contribution from any person or entity who is not guilty of
such fraudulent misrepresentation.
7.7 Information by Holder. Each Stockholder including Registrable Shares
in any registration shall furnish to the Company such information regarding such
Stockholder and the distribution proposed by such Stockholder as the Company may
reasonably request in writing and as shall be required in connection with any
registration, qualification or compliance referred to in this Agreement.
7.8 "Stand-Off" Agreement. Each Stockholder, if requested by the Company
and the managing underwriter of an offering by the Company of Common Stock or
other securities of the Company pursuant to a Registration Statement, shall
agree not to sell publicly any Registrable Shares or other securities of the
Company held by such Stockholder for a specified period of time (not to exceed
180 days) following the effective date of such Registration Statement and not to
transfer or dispose of any such shares privately during such period to a
transferee who does not agree to do likewise; provided, that all officers and
directors of the Company (and any entities affiliated with such officers or
directors) enter into similar agreements.
7.9 Rule 144 Requirements. The Company agrees to:
(a) comply with the requirements of Rule 144(c) under the Securities
Act with respect to current public information about the Company;
(b) use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act (at any time after it has become subject to
such reporting requirements); and
(c) furnish to any holder of Registrable Shares upon request (i) a
written statement by the Company as to its compliance with the requirements of
said Rule 144(c), and the reporting requirements of the Securities Act and the
Exchange Act, (ii) a copy of the most recent annual or quarterly report of the
Company, and (iii) such other reports and documents of the Company as such
holder
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may reasonably request to avail itself of any similar rule or regulation of the
Commission allowing it to sell any such securities without registration.
7.10 Termination. All of the Company's obligations to register
Registrable Shares under this Agreement shall terminate on the third anniversary
of the Closing Date.
7.11 Transfers of Rights. This Agreement, and the rights and obligations
of Purchaser hereunder, may be assigned by Purchaser to any person or entity
which acquires at least 100,000 Shares originally acquired by Purchaser from the
Company, and such transferee shall be deemed a "Purchaser" for purposes of this
Agreement; provided that the transferee provides written notice of such
assignment to the Company.
8. General.
(a) Notices. All notices, requests, consents, and other
communications under this Agreement shall be in writing and shall be delivered
by hand or mailed by first class certified or registered mail, return receipt
requested, postage prepaid:
If to the Company, at 33 Locke Drive, Marlboro, MA 01752, Attention:
President, or at such other address or addresses as may have been furnished in
writing by the Company to the Purchasers, with a copy to Mark G. Borden, Hale
and Dorr, 60 State Street, Boston, MA 02109; or
If to Purchaser, at 9300 Ward Parkway, Kansas City, Missouri 64114;
Attention: General Counsel, or at such other address or addresses as may have
been furnished to the Company in writing by Purchaser.
Notices provided in accordance with this Section 8 shall be deemed
delivered upon personal delivery or two business days after deposit in the mail.
(b) Entire Agreement. This Agreement embodies the entire agreement
and understanding between the parties hereto with respect to the subject matter
hereof and supersedes all prior agreements and understandings relating to such
subject matter.
(c) Amendments and Waivers. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), with the written consent of the Company and the holders of at
least 66-2/3% of the Registrable Shares; provided, that this Agreement may be
amended with the consent of the holders of less than all Registrable Shares only
in a manner which affects all
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Registrable Shares in the same fashion. No waivers of or exceptions to any term,
condition or provision of this Agreement, in any one or more instances, shall be
deemed to be, or construed as, a further or continuing waiver of any such term,
condition or provision.
(d) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
shall be one and the same document.
(e) Severability. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.
(f) Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware.
Executed as of the date first written above.
COMPANY:
SEPRACOR INC.
By: /s/ Timothy J. Barberich
Title: President
MARION MERRELL DOW INC.
By: /s/
------------------------
Title: V.P.
14
TECHNOLOGY TRANSFER AND LICENSE AGREEMENT
This TECHNOLOGY TRANSFER AND LICENSE AGREEMENT, dated as of January 1,
1994, is between Sepracor Inc., a Delaware corporation ("Sepracor"), and
BioSepra Inc., a Delaware corporation ("BioSepra").
R E C I T A L S:
A. Sepracor is willing to transfer and license to BioSepra, and BioSepra
desires to acquire and license from Sepracor, certain technology and
intellectual property and rights thereto for the purpose of allowing BioSepra to
develop and market products using such technology and intellectual property and
rights thereto.
B. In the future, Sepracor may develop certain inventions, improvements,
processes or know-how, or Sepracor may obtain technology or patents or other
proprietary rights useful in the business of BioSepra, and, in each such case,
Sepracor is willing to grant to BioSepra a license or sublicense to use such
developments, technology or rights.
C. Sepracor is willing to transfer to BioSepra, and BioSepra desires to
acquire from Sepracor, all of the outstanding capital stock of Sepracor S.A., a
wholly-owned subsidiary of Sepracor.
NOW, THEREFORE, in consideration of the mutual covenants set forth herein
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Sepracor and BioSepra hereby agree as follows:
1. Definitions. As used herein, capitalized terms have the respective
meanings set forth in Schedule A attached hereto and incorporated herein by
reference.
2. Transfers.
2.1. Transfer of Technology. Subject to the terms and conditions of this
Agreement, Sepracor hereby transfers and assigns to BioSepra all of Sepracor's
right, title and interest to the Sepracor Technology and the assets and
equipment to be set forth in a separate letter agreement between the parties
(the "Letter Agreement").
2.2. Transfer of Sepracor, S.A. Subject to the terms and conditions of
this Agreement, effective as of the date hereof, Sepracor shall transfer and
assign to BioSepra, and BioSepra shall acquire from Sepracor, all of the
outstanding capital stock of Sepracor S.A. in accordance with the Stock Transfer
Agreement attached hereto as Exhibit A.
<PAGE>
3. Licenses and Right of First Refusal.
3.1. Grant of License to BioSepra. Subject to the terms and conditions
of this Agreement, Sepracor hereby grants to BioSepra a perpetual, royalty-free
and exclusive right and license, including the right to grant sublicenses, to
Improvements for use in the BioSepra Field.
3.2. Third-Party Licenses. To the extent that any Sepracor Technology or
Improvements assigned or licensed to BioSepra hereunder consist of rights of
Sepracor under an agreement or license with or from a third party, any
assignment or license granted to BioSepra hereunder shall be limited to the
rights which Sepracor has a right to grant under such agreement or license and
otherwise subject to any obligations assumed by Sepracor in consideration of the
grant or assignment of such right or license to Sepracor which is to be assigned
or sublicensed to BioSepra.
3.3. Grant of Licenses to Sepracor. Subject to the terms and conditions
of this Agreement, BioSepra hereby grants to Sepracor (i) a perpetual,
royalty-free and exclusive (against BioSepra and all other Persons) right and
license, including the right to grant sublicenses, to the Sepracor Technology
for the development, manufacture, use or sale of any products within the
Sepracor Field and (ii) a perpetual, royalty-free and nonexclusive right and
license, including the right to grant sublicenses, to the Sepracor Technology
for the development, manufacture, use or sale of any products outside the
BioSepra Field and the Sepracor Field.
3.4. Right of First Refusal. If Sepracor proposes to sell, or license a
third party to sell, any product for use within the BioSepra Field (a
"Product"), Sepracor will first provide BioSepra with written notice of such
proposal, including all material terms and conditions thereof (the "Product
Notice"). For 30 days following receipt of the Product Notice, BioSepra shall
have the option to purchase or license from Sepracor the Product upon the terms
and conditions set forth in the Product Notice. In the event BioSepra elects to
purchase or license the Product from Sepracor, BioSepra shall give written
notice of its election to Sepracor within such 30-day period and the parties
shall negotiate a mutually agreeable agreement for the purchase or license of
the Product. If BioSepra does not elect to purchase or license the Product,
Sepracor may, within the 30-day period following the expiration of the option
right granted to BioSepra, transfer or license the Product to the proposed
transferee or any other transferee, provided that this transfer shall not be on
terms and conditions more favorable to the purchaser than those contained in the
Product Notice.
3.5. Termination. The provisions of Sections 3.1 and 3.4 shall terminate
upon the earlier of (a) four years after the date hereof or (b) the acquisition
of all or substantially all of the business or assets, by merger, sale of assets
or otherwise, of either BioSepra or Sepracor, provided, that any licenses or
sublicenses
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<PAGE>
granted under Section 3.1 shall survive such termination to the extent that they
relate to Improvements existing on such date of termination.
4. BioSepra Common Stock.
4.1 Issuance. In connection with the transfers and licenses from
Sepracor to BioSepra herein, BioSepra shall issue to Sepracor 3,999,999 shares
of BioSepra Common Stock.
4.2 Registration Rights.
4.2.1 At any time after (i) the expiration of the four year period
following the closing of BioSepra's first underwritten public offering of shares
of BioSepra Common Stock, or (ii) if later, after BioSepra becomes eligible to
file a Registration Statement on Form S-3 (or any successor form~relating to
secondary offerings), Sepracor may request BioSepra, in writing, to effect the
registration on Form S-3 (or such successor form), of shares of BioSepra Common
Stock having an aggregate offering price of at least $1,000,000 (based on the
then current public market price). If Sepracor intends to distribute the shares
of BioSepra Common Stock by means of an underwriting, Sepracor shall so advise
BioSepra in its request. Upon receipt of any such request, BioSepra shall as
expeditiously as possible, use its best efforts to effect the registration on
Form S-3 (or such successor form) of all shares of BioSepra Common Stock which
Sepracor has been requested to so register.
4.2.2 BioSepra shall not be required to effect more than two
registrations in accordance with Section 4.2 of the Agreement. If at the time of
any request to register shares of BioSepra Common Stock pursuant to Section 4.2
of the Agreement, BioSepra is engaged in any other activity which, in the good
faith determination of BioSepra's Board of Directors, would be adversely
affected by the requested registration to the material detriment of BioSepra,
then BioSepra may at its option direct that such request be delayed for a period
not in excess of six months from the date of commencement of such other material
activity, such right to delay a request to be exercised by BioSepra not more
than once in any two-year period. Sepracor will pay all Registration Expenses.
5. Technology; Patent Rights and Disclosure.
5.1. Technology Transfer. Sepracor shall provide to BioSepra, or a
sublicensee designated by BioSepra, reasonable technical assistance and
instruction, at BioSepra's or such permitted sublicensee's sole option and
expense, in understanding, interpreting and applying Sepracor Technology and
Improvements for the purpose of commercially developing products within the
BioSepra Field. Sepracor shall make its employees reasonably available for
consultation by telephone, or in person at the
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<PAGE>
offices of Sepracor, in connection with such assistance and instruction, all at
the sole expense of BioSepra or such sublicensee.
5.2. Patent Rights. Sepracor shall have the exclusive right, at its
expense, to prepare, prosecute and maintain patent applications, and to maintain
and enforce patents issued thereon with respect to Improvements discovered,
developed or otherwise acquired by Sepracor.
5.3. Cooperation. Each party agrees to cause each of its employees and
agents to take all actions and to execute, acknowledge and deliver all
instruments or agreements reasonably requested by the other party, and necessary
for the perfection, maintenance, enforcement or defense of that party's rights
as set forth herein.
5.4. Confidential Information. Any party receiving Confidential
Information shall maintain the confidential and proprietary status of such
Confidential Information, keep such Confidential Information and each part
thereof within its possession or under its control sufficient to prevent any
activity with respect to the Confidential Information that is not specifically
authorized by this Agreement, use commercially reasonable efforts to prevent the
disclosure of any Confidential Information to any other Person, and use
commercially reasonable efforts to ensure that such Confidential Information is
used only for those purposes specifically authorized herein; provided, however,
that such restriction shall not apply to any Confidential Information which is
(a) independently developed by the receiving party, (b) in the public domain at
the time of its receipt or thereafter becomes part of the public domain through
no fault of the receiving party, (c) received without an obligation of
confidentiality from a third party having the right to disclose such
information, (d) released from the restrictions of this Section 5.4 by the
express written consent of the disclosing party, (e) disclosed to any permitted
assignee, permitted sublicensee or permitted subcontractor of either Sepracor or
BioSepra hereunder (if such assignee, sublicense or subcontractor is subject to
the provisions of this Section 5.4 or comparable provisions of such other
documents), or (f) required by law, statute, rule or court order to be disclosed
(the disclosing party shall, however, use commercially reasonable efforts to
obtain confidential treatment of any such disclosure). The obligations set forth
in this Section 5.4 shall survive for a period of five (5) years from the
termination or expiration of this Agreement. Without limiting the generality of
the foregoing, Sepracor and BioSepra each shall use commercially reasonable
efforts to obtain confidentiality agreements from its respective employees and
agents, similar in scope to this Section 5.4, to protect the Confidential
Information. Sepracor agrees to treat the Sepracor Technology as Confidential
Information of BioSepra. Notwithstanding anything to the contrary herein,
Sepracor and BioSepra shall each be deemed to have satisfied its obligations
under this Section 5.4 if it protects the Confidential Information of the other
party
- 4 -
<PAGE>
with the same degree of care that it uses to protect its own similar
Confidential Information.
5.5. Permitted Disclosures. Notwithstanding the provisions of Section
5.4 hereof, Sepracor and BioSepra may, to the extent necessary, disclose and use
Confidential Information, consistent with the rights of Sepracor and BioSepra
otherwise granted hereunder (a) for the purpose of engaging in research and
development, conducting clinical testing and marketing programs, or securing
institutional or government approval to clinically test or market any product,
(b) for the purpose of sharing clinical trial results and data with third
parties conducting clinical trials on, or (c) for the purpose of securing patent
protection for an invention within the scope of the Improvements.
6. Disclaimer of Warranty; Consequential Damages.
6.1 Disclaimer of Warranty. Nothing in this Agreement shall be construed
as a representation made or warranty given by either party hereto that any
patents will issue based on pending applications within the Sepracor Technology,
or that any such patents which do issue will be valid, or that the practice by
the other party hereto of any license granted hereunder, or that the use of any
Sepracor Technology and Improvements transferred or licensed hereunder, will not
infringe the patent or proprietary rights of any other Person. In addition,
except as expressly set forth in Section 7, Sepracor and BioSepra acknowledge
that THE TECHNOLOGY IS LICENSED AND TRANSFERRED, AS THE CASE MAY BE, TO BIOSEPRA
AND SEPRACOR, RESPECTIVELY, AS IS, AND SEPRACOR AND BIOSEPRA EXPRESSLY DISCLAIM
AND HEREBY WAIVE, RELEASE AND RENOUNCE ANY WARRANTY, EXPRESS OR IMPLIED, WITH
RESPECT TO SUCH TECHNOLOGY, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
6.2 Consequential Damages. EXCEPT AS OTHERWISE SET FORTH HEREIN, NEITHER
PARTY TO THIS AGREEMENT SHALL BE ENTITLED TO RECOVER FROM THE OTHER ANY SPECIAL,
INCIDENTAL, CONSEQUENTIAL OR PUNITIVE DAMAGES.
7. PerSeptive Biosystems Legal Proceedings.
7.1 Legal Proceedings. The parties acknowledge that Sepracor's HyperD
chromatography media, and related intellectual property, which is transferred to
BioSepra hereunder, is currently the subject of two lawsuits brought by
PerSeptive Biosystems, Inc. ("PerSeptive") in October 1993 in the United States
District Court for the District of Massachusetts. Such lawsuits, along with any
other existing or future claims of PerSeptive or its affiliates which relate to
the subject matter of such lawsuits, shall hereinafter be referred to as the
"Lawsuits". The
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<PAGE>
parties expect that upon transfer of Sepracor's chromatography business to
BioSepra, BioSepra will be added as a defendant in the Lawsuits.
7.2 Costs and Expenses. Sepracor shall retain sole control of the
defense, settlement or compromise of the Lawsuits, provided, however, that
neither Sepracor nor BioSepra shall agree to any settlement of the Lawsuits
without the express written consent of the other party, which consent shall not
be unreasonably withheld or delayed. Sepracor shall pay all costs and expenses
related to the conduct of the defense of the Lawsuits. BioSepra shall reimburse
Sepracor on a monthly basis for one-half of all such costs and expenses (net of
insurance proceeds received by Sepracor) within 20 days of receipt of an invoice
therefor.
7.3 Damages. Any damages, royalties or settlement amount (net of
insurance) required to be paid to PerSeptive as a result of the Lawsuits shall
be the responsibility of Sepracor to the extent such damages, royalties or
settlement amount relate to the sale or development of HyperD media by either
party prior to the closing of the initial public offering of shares of BioSepra
Common Stock, and any damages, royalties or settlement amount (net of insurance)
required to be paid to PerSeptive as a result of the Lawsuits shall be the
responsibility of BioSepra to the extent such damages, royalties or settlement
amount relate to the sale or development of HyperD media after the closing of
the initial public offering of BioSepra Common Stock. Each of Sepracor and
BioSepra shall be responsible for one-half of any other damages, royalties or
settlement amount (net of insurance) required to be paid to PerSeptive as a
result of the Lawsuits. BioSepra may, at its option and expense, have its own
counsel participate in any proceeding relating to the Lawsuits. BioSepra shall
cooperate with Sepracor or its insurer in the disposition of the Lawsuits.
8. No Implied Waivers; Rights Cumulative. No failure on the part of
Sepracor or BioSepra to exercise and no delay in exercising any right, power,
remedy or privilege under this Agreement, or provided by statute or at law or in
equity or otherwise, shall impair, prejudice or constitute a waiver of any such
right, power, remedy or privilege or be construed as a waiver of any breach of
this Agreement or as an acquiescence therein, nor shall any single or partial
exercise of any such right, power, remedy or privilege preclude any other or
further exercise thereof or the exercise of any other right, power, remedy or
privilege.
9. Force Majeure. Sepracor and BioSepra shall each be excused for any
failure or delay in performing any of its respective obligations under this
Agreement, other than the obligations of BioSepra to make certain payments to
Sepracor pursuant to Section 3 hereof, if such failure or delay is caused by
Force Majeure.
10. Notices. All notices, requests and other communications to Sepracor or
BioSepra hereunder shall be in writing (including telecopy or similar electronic
transmissions), shall refer specifically to this Agreement and shall be
personally
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<PAGE>
delivered or sent by telecopy or other electronic facsimile transmission or by
registered mail or certified mail, return receipt requested, postage prepaid, in
each case to the respective address specified below (or to such other address as
may be specified in writing to the other party hereto):
Sepracor Inc.
33 Locke Drive
Marlborough, MA 01752
Attention: President
----------
BioSepra Inc.
140 Locke Drive
Marlborough, MA 01752
Attention: President
----------
Any notice or communication given in conformity with this Section 10 shall be
deemed to be effective when received by the addressee, if delivered by hand,
telecopy or other electronic facsimile transmission, and three (3) days after
mailing, if mailed.
11. Further Assurances. Each of Sepracor and BioSepra agrees to duly
execute and deliver, or cause to be duly executed and delivered, such further
instruments and do and cause to be done such further acts and things, including,
without limitation, the filing of such additional assignments, agreements,
documents and instruments, that may be necessary or as the other party hereto
may at any time and from time to time reasonably request in connection with this
Agreement or to carry out more effectively the provisions and purposes of, or to
better assure and confirm unto such other party its rights and remedies under,
this Agreement.
12. Successors and Assigns. The terms and provisions of this Agreement
shall inure to the benefit of, and be binding upon, Sepracor, BioSepra, and
their respective successors and assigns; provided, however, that neither
Sepracor nor BioSepra may assign or otherwise transfer any of its rights and
interests, nor delegate any of its respective obligations hereunder, including,
without limitation, pursuant to a merger or consolidation, without the prior
written consent of the other party hereto, which consent shall not be
unreasonably withheld. Any attempt to assign or delegate any portion of this
Agreement in violation of this Section 14 shall be null and void. Subject to the
foregoing, any reference to Sepracor and BioSepra hereunder shall be deemed to
include the successors thereto and assigns thereof.
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<PAGE>
13. Amendments. No amendment, modification, waiver, termination or
discharge of any provision of this Agreement, nor consent to any departure by
Sepracor or BioSepra therefrom, shall be effective unless the same shall be in
writing specifically identifying this Agreement and the provision intended to be
amended, modified, waived, terminated or discharged and signed by Sepracor and
BioSepra, and each such amendment, modification, waiver, termination or
discharge shall be effective only in the specific instance and for the specific
purpose for which given. No provision of this Agreement shall be varied,
contradicted or explained by any oral agreements course of dealing or
performance or any other matter not set forth in an agreement in writing and
signed by Sepracor and BioSepra.
14. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts.
15. Severability. If any provision hereof should be held invalid, illegal
or unenforceable in any respect in any jurisdiction, then, to the fullest extent
permitted by law, (a) all other provisions hereof shall remain in full force and
effect in such jurisdiction and shall be liberally construed in order to carry
out the intentions of the parties hereto as nearly as may be possible and (b)
such invalidity, illegality or unenforceability shall not affect the validity,
legality or enforceability of such provision in any other jurisdiction. To the
extent permitted by applicable law, Sepracor and BioSepra hereby waive any
provision of law that would render any provision hereof prohibited or
unenforceable in any respect.
16. Headings. Headings used herein are for convenience only and shall not
in any way affect the construction of, or be taken into consideration
interpreting, this Agreement.
17. Execution in Counterparts. This Agreement may be executed in
counterparts, each of which counterparts, when so executed and delivered, shall
be deemed to be an original, and all of which counterparts, taken together,
shall constitute one and the same instrument.
18. Entire Agreement. This Agreements together with any agreements
referenced herein, constitutes, on and as of the date hereof, the entire
agreement of Sepracor and BioSepra with respect to the subject matter hereof,
and all prior or contemporaneous understandings or agreements, whether written
or oral, between Sepracor and BioSepra with respect to such subject matter are
hereby superseded in their entirety.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed under seal and delivered as of the date first above written.
SEPRACOR INC.
By: /s/ Timothy J. Barberich
-------------------------------
Timothy J. Barberich, President
BIOSEPRA INC.
By: /s/ William E. Rich
-------------------------------
William E. Rich, President
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<PAGE>
SCHEDULE A
----------
GLOSSARY
--------
"BioSepra Common Stock" shall mean the common stock, $0.01 par value per
share, of BioSepra.
"BioSepra Field" shall mean the separation of biological molecules
(excluding the separation of optically active forms of chiral molecules with a
molecular weight of less than 4,000 Daltons); provided, however, that the
BioSepra Field shall not include the development, manufacture, use or sale of
medical devices for the separation or purification of blood, blood products or
blood components.
"Confidential Information" shall mean all Technology disclosed by Sepracor
to BioSepra or by BioSepra to Sepracor pursuant to this Agreement.
"Force Majeure" shall mean any act of God, any accident, explosion, fire,
storm, earthquake, flood, drought, peril of the sea, riot, embargo, war or
foreign, federal, state or municipal order of general application seizure,
requisition or allocation, any failure or delay of transportation, shortage of
or inability to obtain supplies, equipment fuel or labor or any other
circumstances or event beyond the reasonable control of the party relying upon
such circumstance or event.
"Improvements" shall mean any improvement or enhancement to any Sepracor
Technology covered by the Sepracor Patent Rights that is discovered, developed
or otherwise acquired by Sepracor prior to the termination date set forth in
Section 3.5.
"Person" shall mean any individual, partnership, corporation, firm,
association, unincorporated organization, joint venture, trust or other entity.
"Registration Expenses" shall mean all expenses incurred by BioSepra in
complying with Section 4.2 of this Agreement, including, without limitation, all
registration and filing fees, exchange listing fees, printing expenses, fees and
expenses of counsel for BioSepra and the fees and expenses of one counsel
selected by Sepracor to represent Sepracor, state Blue Sky fees and expenses,
and the expense of any special audits incident to or required by any such
registration, but excluding underwriting discounts and selling commissions.
"Sepracor Field" shall mean the synthesis or separation of optically active
forms of chiral molecules with a molecular weight of less than 4,000 Daltons and
the development, manufacture, use or sale of chiral drugs and chiral drug
intermediates.
"Sepracor Patent Rights" shall mean (a) the issued patents and patent
applications listed in the Letter Agreement, (b) any patent application
constituting an equivalent, counterpart, reissue, extension or continuation
(including, without
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<PAGE>
limitation, a continuation in part or a division) of any of the foregoing
applications, and (c) any patent issued or issuing upon any of the foregoing
applications.
"Sepracor Technology" shall mean all Technology owned or controlled by
Sepracor as of the date hereof including, but not limited to, the Sepracor
Patent Rights and other rights listed and described in the Letter Agreement,
that relates to and is used in researching, developing or manufacturing products
in the BioSepra Field. "Owned or controlled" shall include Technology which
Sepracor owns, or under which Sepracor is licensed and has the right to grant
sublicenses.
"Technology" shall mean public and nonpublic technical or other
information, trade secrets, know-how, processes, formulations, concepts, ideas,
preclinical, clinical, pharmacological or other data and testing results,
experimental methods, or results, descriptions, business or scientific plans,
depictions, customer lists and any other written, printed or electronically
stored materials, and any and all other intellectual property, including
patents, patent applications, trademarks and trademark applications of any
nature whatsoever.
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TECHNOLOGY TRANSFER AND LICENSE AGREEMENT
This TECHNOLOGY TRANSFER AND LICENSE AGREEMENT, dated as of January 1,
1994, is between Sepracor Inc., a Delaware corporation ("Sepracor"), and
HemaSure Inc., a Delaware corporation ("HemaSure").
RECITALS:
A. Sepracor is willing to transfer and license to HemaSure, and HemaSure
desires to acquire and license from Sepracor, certain technology and
intellectual property and rights thereto for the purpose of allowing HemaSure to
develop and market products using such technology and intellectual property and
rights thereto.
B. In the future, Sepracor may develop certain inventions, improvements,
processes or know-how, or Sepracor may obtain technology or patents or other
proprietary rights useful in the business of HemaSure, and, in each such case,
Sepracor is willing to grant to HemaSure a license or sublicense to use such
developments, technology or rights.
NOW, THEREFORE, in consideration of the mutual covenants set forth herein
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Sepracor and HemaSure hereby agree as follows:
1. Definitions. As used herein, capitalized terms have the respective
meanings set forth in Schedule A attached hereto and incorporated herein by
reference.
2. Transfer of Technology. Subject to the terms and conditions of this
Agreement, Sepracor hereby transfers and assigns to HemaSure all of Sepracor's
right, title and interest to the Sepracor Technology and the assets and
equipment to be set forth in a separate letter agreement between the parties
(the "Letter Agreement").
3. Licenses and Right of First Refusal.
3.1. Grant of License to HemaSure. Subject to the terms and conditions
of this Agreement, Sepracor hereby grants to HemaSure a perpetual, royalty-free
and exclusive right and license, including the right to grant sublicenses, to
Improvements for use in the HemaSure Field.
3.2. Third-Party Licenses. To the extent that any Sepracor Technology or
Improvements assigned or licensed to HemaSure hereunder consist of rights of
Sepracor under an agreement or license with or from a third party, any
assignment or license granted to HemaSure hereunder shall be limited to the
rights which Sepracor has a right to grant under such agreement or license and
otherwise subject
<PAGE>
to any obligations assumed by Sepracor in consideration of the grant or
assignment of such right or license to Sepracor which is to be assigned or
sublicensed to HemaSure.
3.3. Grant of Licenses to Sepracor. Subject to the terms and conditions
of this Agreement, HemaSure hereby grants to Sepracor (i) a perpetual,
royalty-free and exclusive (against HemaSure and all other Persons) right and
license, including the right to grant sublicenses, to the Sepracor Technology
for the development, manufacture, use or sale of any products within the
Sepracor Field and (ii) a perpetual, royalty-free and nonexclusive right and
license, including the right to grant sublicenses, to the Sepracor Technology
for the development, manufacture, use or sale of any products outside the
HemaSure Field and the Sepracor Field.
3.4. Right of First Refusal. If Sepracor proposes to sell, or license a
third party to sell, any product for use within the HemaSure Field (a
"Product"), Sepracor will first provide HemaSure with written notice of such
proposal, including all material terms and conditions thereof (the "Product
Notice"). For 30 days following receipt of the Product Notice, HemaSure shall
have the option to purchase or license from Sepracor the Product upon the terms
and conditions set forth in the Product Notice. In the event HemaSure elects to
purchase or license the Product from Sepracor, HemaSure shall give written
notice of its election to Sepracor within such 30-day period and the parties
shall negotiate a mutually agreeable agreement for the purchase or license of
the Product. If HemaSure does not elect to purchase or license the Product,
Sepracor may, within the 30-day period following the expiration of the option
right granted to HemaSure, transfer or license the Product to the proposed
transferee or any other transferee, provided that this transfer shall not be on
terms and conditions more favorable to the purchaser than those contained in the
Product Notice.
3.5. Termination. The provisions of Sections 3.1 and 3.4 shall terminate
upon the earlier of (a) four years after the date hereof or (b) the acquisition
of all or substantially all of the business or assets, by merger, sale of assets
or otherwise, of either HemaSure or Sepracor, provided, that any licenses or
sublicenses granted under Section 3.1 shall survive such termination to the
extent that they relate to Improvements existing on such date of termination.
4. HemaSure Common Stock.
4.1. Issuance. In connection with the transfers and licenses from
Sepracor to HemaSure herein, HemaSure shall issue to Sepracor 2,999,999 shares
of HemaSure Common Stock.
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<PAGE>
4.2. Registration Rights.
4.2.1 At any time after (i) the expiration of the four year period
following the closing of HemaSure's first underwritten public offering of shares
of HemaSure Common Stock, or (ii) if later, after HemaSure becomes eligible to
file a Registration Statement on Form S-3 (or any successor form relating to
secondary offerings), Sepracor may request HemaSure, in writing, to effect the
registration on Form S-3 (or such successor form), of shares of HemaSure Common
Stock having an aggregate offering price of at least $5,000,000 (based on the
then current public market price). If Sepracor intends to distribute the shares
of HemaSure Common Stock by means of an underwriting, Sepracor shall so advise
HemaSure in its request. Upon receipt of any such request, HemaSure shall as
expeditiously as possible, use its best efforts to effect the registration on
Form S-3 (or such successor form) of all shares of HemaSure Common Stock which
Sepracor has been requested to so register.
4.2.2 HemaSure shall not be required to effect more than two
registrations in accordance with Section 4.2 of the Agreement. If at the time of
any request to register shares of HemaSure Common Stock pursuant to Section 4.2
of the Agreement, HemaSure is engaged in any other activity which, in the good
faith determination of HemaSure's Board of Directors, would be adversely
affected by the requested registration to the material detriment of HemaSure,
then HemaSure may at its option direct that such request be delayed for a period
not in excess of six months from the date of commencement of such other material
activity, such right to delay a request to be exercised by HemaSure not more
than once in any two-year period. Sepracor will pay all Registration Expenses.
5. Technology; Patent Rights and Disclosure.
5.1. Technology Transfer. Sepracor shall provide to HemaSure, or a
sublicensee designated by HemaSure, reasonable technical assistance and
instruction, at HemaSure's or such permitted sublicensee's sole option and
expense, in understanding, interpreting and applying Sepracor Technology and
Improvements for the purpose of commercially developing products within the
HemaSure Field. Sepracor shall make its employees reasonably available for
consultation by telephone, or in person at the offices of Sepracor, in
connection with such assistance and instruction, all at the sole expense of
HemaSure or such sublicensee.
5.2. Patent Rights. Sepracor shall have the exclusive right, at its
expense, to prepare, prosecute and maintain patent applications, and to maintain
and enforce patents issued thereon with respect to Improvements discovered,
developed or otherwise acquired by Sepracor.
5.3. Cooperation. Each party agrees to cause each of its employees and
agents to take all actions and to execute, acknowledge and deliver all
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instruments or agreements reasonably requested by the other party, and necessary
for the perfection, maintenance, enforcement or defense of that party's rights
as set forth herein.
5.4. Confidential Information. Any party receiving Confidential
Information shall maintain the confidential and proprietary status of such
Confidential Information, keep such Confidential Information and each part
thereof within its possession or under its control sufficient to prevent any
activity with respect to the Confidential Information that is not specifically
authorized by this Agreement, use commercially reasonable efforts to prevent the
disclosure of any Confidential Information to any other Person, and use
commercially reasonable efforts to ensure that such Confidential Information is
used only for those purposes specifically authorized herein; provided, however,
that such restriction shall not apply to any Confidential Information which is
(a) independently developed by the receiving party, (b) in the public domain at
the time of its receipt or thereafter becomes part of the public domain through
no fault of the receiving party, (c) received without an obligation of
confidentiality from a third party having the right to disclose such
information, (d) released from the restrictions of this Section 5.4 by the
express written consent of the disclosing party, (e) disclosed to any permitted
assignee, permitted sublicensee or permitted subcontractor of either Sepracor or
HemaSure hereunder (if such assignee, sublicense or subcontractor is subject to
the provisions of this Section 5.4 or comparable provisions of such other
documents), or (f) required by law, statute, rule or court order to be disclosed
(the disclosing party shall, however, use commercially reasonable efforts to
obtain confidential treatment of any such disclosure). The obligations set forth
in this Section 5.4 shall survive for a period of five (5) years from the
termination or expiration of this Agreement. Without limiting the generality of
the foregoing, Sepracor and HemaSure each shall use commercially reasonable
efforts to obtain confidentiality agreements from its respective employees and
agents, similar in scope to this Section 5.4, to protect the Confidential
Information. Sepracor agrees to treat the Sepracor Technology as Confidential
Information of HemaSure. Notwithstanding anything to the contrary herein,
Sepracor and HemaSure shall each be deemed to have satisfied its obligations
under this Section 5.4 if it protects the Confidential Information of the other
party with the same degree of care that it uses to protect its own similar
Confidential Information.
5.5. Permitted Disclosures. Notwithstanding the provisions of Section
5.4 hereof, Sepracor and HemaSure may, to the extent necessary, disclose and use
Confidential Information, consistent with the rights of Sepracor and HemaSure
otherwise granted hereunder (a) for the purpose of engaging in research and
development, conducting clinical testing and marketing programs, or securing
institutional or government approval to clinically test or market any product,
(b) for the purpose of sharing clinical trial results and data with third
parties conducting
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clinical trials on, or (c) for the purpose of securing patent protection for an
invention within the scope of the Improvements.
6. Disclaimer of Warranty; Consequential Damages.
6.1. Disclaimer of Warranty. Nothing in this Agreement shall be
construed as a representation made or warranty given by either party hereto that
any patents will issue based on pending applications within the Sepracor
Technology, or that any such patents which do issue will be valid, or that the
practice by the other party hereto of any license granted hereunder, or that the
use of any Sepracor Technology and Improvements transferred or licensed
hereunder, will not infringe the patent or proprietary rights of any other
Person. In addition, Sepracor and HemaSure acknowledge that THE TECHNOLOGY IS
LICENSED AND TRANSFERRED, AS THE CASE MAY BE, TO HEMASURE AND SEPRACOR,
RESPECTIVELY, AS IS, AND SEPRACOR AND HEMASURE EXPRESSLY DISCLAIM AND HEREBY
WAIVE, RELEASE AND RENOUNCE ANY WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO
SUCH TECHNOLOGY, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE.
6.2. Consequential Damages. EXCEPT AS OTHERWISE SET FORTH HEREIN,
NEITHER PARTY TO THIS AGREEMENT SHALL BE ENTITLED TO RECOVER FROM THE OTHER ANY
SPECIAL, INCIDENTAL, CONSEQUENTIAL OR PUNITIVE DAMAGES.
7. No Implied Waivers; Rights Cumulative. No failure on the part of
Sepracor or HemaSure to exercise and no delay in exercising any right, power,
remedy or privilege under this Agreement, or provided by statute or at law or in
equity or otherwise, shall impair, prejudice or constitute a waiver of any such
right, power, remedy or privilege or be construed as a waiver of any breach of
this Agreement or as an acquiescence therein, nor shall any single or partial
exercise of any such right, power, remedy or privilege preclude any other or
further exercise thereof or the exercise of any other right, power, remedy or
privilege.
8. Force Majeure. Sepracor and HemaSure shall each be excused for any
failure or delay in performing any of its respective obligations under this
Agreement, other than the obligations of HemaSure to make certain payments to
Sepracor pursuant to Section 3 hereof, if such failure or delay is caused by
Force Majeure.
9. Notices. All notices, requests and other communications to Sepracor or
HemaSure hereunder shall be in writing (including telecopy or similar electronic
transmissions), shall refer specifically to this Agreement and shall be
personally delivered or sent by telecopy or other electronic facsimile
transmission or by registered mail or certified mail, return receipt requested,
postage prepaid, in each
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case to the respective address specified below (or to such other address as may
be specified in writing to the other party hereto):
Sepracor Inc.
33 Locke Drive
Marlborough, MA 01752
Attention: President
HemaSure Inc.
33 Locke Drive
Marlborough, MA 01752
Attention: President
Any notice or communication given in conformity with this Section 9 shall be
deemed to be effective when received by the addressee, if delivered by hand,
telecopy or other electronic facsimile transmission, and three (3) days after
mailing, if mailed.
10. Further Assurances. Each of Sepracor and HemaSure agrees to duly
execute and deliver, or cause to be duly executed and delivered, such further
instruments and do and cause to be done such further acts and things, including,
without limitation, the filing of such additional assignments, agreements,
documents and instruments, that may be necessary or as the other party hereto
may at any time and from time to time reasonably request in connection with this
Agreement or to carry out more effectively the provisions and purposes of, or to
better assure and confirm unto such other party its rights and remedies under,
this Agreement.
11. Successors and Assigns. The terms and provisions of this Agreement
shall inure to the benefit of, and be binding upon, Sepracor, HemaSure, and
their respective successors and assigns; provided, however, that neither
Sepracor nor HemaSure may assign or otherwise transfer any of its rights and
interests, nor delegate any of its respective obligations hereunder, including,
without limitation, pursuant to a merger or consolidation, without the prior
written consent of the other party hereto, which consent shall not be
unreasonably withheld. Any attempt to assign or delegate any portion of this
Agreement in violation of this Section 11 shall be null and void. Subject to the
foregoing, any reference to Sepracor and HemaSure hereunder shall be deemed to
include the successors thereto and assigns thereof.
12. Amendments. No amendment, modification, waiver, termination or
discharge of any provision of this Agreement, nor consent to any departure by
Sepracor or HemaSure therefrom, shall be effective unless the same shall be in
writing specifically identifying this Agreement and the provision intended to be
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amended, modified, waived, terminated or discharged and signed by Sepracor and
HemaSure, and each such amendment, modification, waiver, termination or
discharge shall be effective only in the specific instance and for the specific
purpose for which given. No provision of this Agreement shall be varied,
contradicted or explained by any oral agreements course of dealing or
performance or any other matter not set forth in an agreement in writing and
signed by Sepracor and HemaSure.
13. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts.
14. Severability. If any provision hereof should be held invalid, illegal
or unenforceable in any respect in any jurisdiction, then, to the fullest extent
permitted by law, (a) all other provisions hereof shall remain in full force and
effect in such jurisdiction and shall be liberally construed in order to carry
out the intentions of the parties hereto as nearly as may be possible and (b)
such invalidity, illegality or unenforceability shall not affect the validity,
legality or enforceability of such provision in any other jurisdiction. To the
extent permitted by applicable law, Sepracor and HemaSure hereby waive any
provision of law that would render any provision hereof prohibited or
unenforceable in any respect.
15. Headings. Headings used herein are for convenience only and shall not
in any way affect the construction of, or be taken into consideration
interpreting, this Agreement.
16. Execution in Counterparts. This Agreement may be executed in
counterparts, each of which counterparts, when so executed and delivered, shall
be deemed to be an original, and all of which counterparts, taken together,
shall constitute one and the same instrument.
17. Entire Agreement. This Agreements together with any agreements
referenced herein, constitutes, on and as of the date hereof, the entire
agreement of Sepracor and HemaSure with respect to the subject matter hereof,
and all prior or contemporaneous understandings or agreements, whether written
or oral, between Sepracor and HemaSure with respect to such subject matter are
hereby superseded in their entirety.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed under seal and delivered as of the date first above written.
SEPRACOR INC.
By: /s/ Timothy J. Barberich
-------------------------------
Timothy J. Barberich, President
HEMASURE INC.
By: /s/ Eugene J. Zurlo
-------------------------------
Eugene J. Zurlo, President
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SCHEDULE A
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GLOSSARY
--------
"HemaSure Common Stock" shall mean the common stock, $0.01 par value per
share, of HemaSure.
"HemaSure Field" shall mean the development, manufacture, use or sale of
medical devices for the separation or purification of blood, blood products or
blood components.
"Confidential Information" shall mean all Technology disclosed by Sepracor
to HemaSure or by HemaSure to Sepracor pursuant to this Agreement.
"Force Majeure" shall mean any act of God, any accident, explosion, fire,
storm, earthquake, flood, drought, peril of the sea, riot, embargo, war or
foreign, federal, state or municipal order of general application seizure,
requisition or allocation, any failure or delay of transportation, shortage of
or inability to obtain supplies, equipment fuel or labor or any other
circumstances or event beyond the reasonable control of the party relying upon
such circumstance or event.
"Improvements" shall mean any improvement or enhancement to any Sepracor
Technology covered by the Sepracor Patent Rights that is discovered, developed
or otherwise acquired by Sepracor prior to the termination date set forth in
Section 3.5.
"Person" shall mean any individual, partnership, corporation, firm,
association, unincorporated organization, joint venture, trust or other entity.
"Registration Expenses" shall mean all expenses incurred by HemaSure in
complying with Section 4.2 of this Agreement, including, without limitation, all
registration and filing fees, exchange listing fees, printing expenses, fees and
expenses of counsel for HemaSure and the fees and expenses of one counsel
selected by Sepracor to represent Sepracor, state Blue Sky fees and expenses,
and the expense of any special audits incident to or required by any such
registration, but excluding underwriting discounts and selling commissions.
"Sepracor Field" shall mean the synthesis or separation of optically active
forms of chiral molecules with a molecular weight of less than 4,000 Daltons and
the development, manufacture, use or sale of chiral drugs and chiral drug
intermediates.
"Sepracor Patent Rights" shall mean (a) the issued patents and patent
applications listed in the Letter Agreement, (b) any patent application
constituting an equivalent, counterpart, reissue, extension or continuation
(including, without
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limitation, a continuation in part or a division) of any of the foregoing
applications, and (c) any patent issued or issuing upon any of the foregoing
applications.
"Sepracor Technology" shall mean all Technology owned or controlled by
Sepracor as of the date hereof including, but not limited to, the Sepracor
Patent Rights and other rights listed and described in the Letter Agreement,
that relates to and is used in researching, developing or manufacturing products
in the HemaSure Field. "Owned or controlled" shall include Technology which
Sepracor owns, or under which Sepracor is licensed and has the right to grant
sublicenses.
"Technoloy" shall mean public and nonpublic technical or other information,
trade secrets, know-how, processes, formulations, concepts, ideas, preclinical,
clinical, pharmacological or other data and testing results, experimental
methods, or results, descriptions, business or scientific plans, depictions,
customer lists and any other written, printed or electronically stored
materials, and any and all other intellectual property, including patents,
patent applications, trademarks and trademark applications of any nature
whatsoever.
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TECHNOLOGY TRANSFER AND LICENSE AGREEMENT
THIS TECHNOLOGY TRANSFER AND LICENSE AGREEMENT is effective as of January
1, 1995 by and between SEPRACOR, INC. ("SI"), a Delaware corporation which has
offices at 33 Locke Drive, Marlborough, Massachusetts and SEPRACHEM INC.
("SCI"), a Delaware corporation which has offices at 33 Locke Drive,
Marlborough, Massachusetts.
WHEREAS, SI possesses certain intellectual and industrial property rights;
and
WHEREAS, SI is willing to grant, and SCI desires to acquire, exclusive
rights to use such rights on a worldwide basis in accordance with the terms and
conditions hereinafter set forth.
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 Combinatorial Chemistry Libraries. "Combinatorial Chemistry Libraries"
shall mean any group of 25 or more compounds related in structure and
synthesized contemporaneously from a common intermediate in quantities of no
more than one hundred grams per compound.
1.2 Confidential Information. "Confidential Information" shall mean: (a)
all non-public Licensed Technology of SI either disclosed to SCI or otherwise
acquired by SCI pursuant to this Agreement; or (b) Improvements discovered,
developed or acquired by SCI and disclosed to SI.
1.3 Effective Date. "Effective Date" shall mean January 1, 1995.
1.4 Force Majeure. "Force Majeure" shall mean any act of God, any accident,
explosion, fire, storm, earthquake, flood, drought, peril of the sea, riot,
embargo, war or foreign, federal, state, provincial or municipal order of
general application, seizure, requisition or allocation, any failure or delay of
transportation, shortage of or inability to obtain supplies, equipment, fuel or
labor, or any other circumstances or event beyond the reasonable control of the
party relying upon such circumstance or event.
<PAGE>
1.5 Improvement. "Improvement" shall mean any improvement or enhancement to
the Licensed Technology that is discovered, developed or otherwise acquired by
SI or SCI prior to the termination or expiration of this Agreement, whether
patentable or not; provided, however, that if an Improvement has been acquired
from a third party, such Improvement shall be included in this definition only
to the extent that such third party has granted rights to sublicense or
otherwise extend the right to use such Improvement. Improvements shall not
include rights to compounds made using the Licensed Technology unless such
compounds are useful in practicing the Licensed Technology.
1.6 Licensed Technology. "Licensed Technology" shall mean public and
non-public technical or other information, trade secrets, know-how, processes,
formulations, concepts, ideas, preclinical, clinical, pharmacological or other
data and testing results, experimental methods or results, descriptions,
business or scientific plans, depictions, customer lists and any other written,
printed or electronically stored materials, and any and all other intellectual
property, including patents or patent applications owned or controlled by SI as
of the Effective Date (including, but not limited to, the Patent Rights, the
Technical Information and other rights (i) created by agreements between SI and
third parties which are listed and described in Exhibit A attached hereto and
incorporated herein by reference and (ii) for which a co-equal ownership right
and interest is assigned to SCI pursuant to Section 4.3 below), that relates to
and is used in researching, developing or manufacturing Products. "Owned or
controlled" shall include only rights which SI owns, or under which SI is
licensed and has the right to extend the right to use to SCI.
1.7 Patent Rights. "Patent Rights" shall mean (a) the issued patents and
patent applications listed in Exhibit B attached hereto and incorporated herein
by reference and any non-United States counterpart thereof, (b) any patent
application constituting an equivalent, counterpart, reissue, extension or
continuation (including, without limitation, a continuation in part or a
division) of any of the foregoing applications, and (c) any patent issued or
issuing upon any of the foregoing applications.
1.8 Products. "Products" shall mean any and all products in the SCI Field.
1.9 SCI Field. "SCI Field" shall mean the development, manufacture, use and
sale of any and all pharmaceutical intermediates, active ingredients,
agrichemicals, flavours, fragrances and other chemicals and compounds, except
that this field shall not include (i) the right to develop, make, use and sell
those compounds included in Exhibit C-1 attached hereto and incorporated herein
by reference; (ii) the right to develop, make, use and sell Combinatorial
Chemistry Libraries of chiral or achiral compounds; or (iii) the right to
develop, make, use and sell compounds in the Combinatorial Chemistry Libraries
in quantities of less than one (1) kilogram. Compounds described in part (iv) of
Exhibit C-2 attached hereto
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and made a part hereof shall be included in this field, but only on a
non-exclusive basis.
1.10 Tanabe Agreement. "Tanabe Agreement" shall mean the license and
development agreement between SI and Tanabe Seiyaku Co., Ltd. dated October 30,
1990, as it may have been supplemented and amended from time to time prior to
the Effective Date.
1.11 Technical Information. "Technical Information" shall mean all trade
secrets, know-how, computer programs (including copyrights in said software),
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 SI
and which is relevant to the development, manufacture, use or sale of Products.
2. GRANT OF RIGHTS AND LICENSES
Subject to all of the terms and conditions set forth in this Agreement:
2.1 Use of Licensed Technology.
(a) SI hereby grants to SCI an exclusive, royalty-free perpetual right
and license to use and practice the Licensed Technology on a world-wide basis in
order to develop, manufacture, use and sell Products and for no other purpose;
provided, however, that: (i) SI shall retain the right to use the Licensed
Technology to manufacture pharmaceutical fine chemical intermediates and
pharmaceutical active ingredients for the clinical and laboratory use of SI and
its licensees; (ii) the right and license granted to SCI under this Section
2.1(a) shall not include the exclusive right and license granted by SI to third
parties prior to the Effective Date pursuant to any of the agreements listed in
Exhibit D attached hereto and incorporated herein by reference, but shall
include rights and licenses granted by such third parties back to SI pursuant to
such agreements before, on and after the Effective Date; and (iii) SI shall, as
described in Section 4.3 below, retain a co-equal ownership right and interest
in all of SI's rights and obligations under the Tanabe Agreement.
(b) SI hereby also grants to SCI a non-exclusive, royalty-free right
and license to use and practice the Licensed Technology on a world-wide basis in
order to develop, manufacture, use and sell compounds included in parts (i) and
(iv) of Exhibit C-2 hereto for the periods of time described in Exhibit C-2
hereto.
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(c) From time to time upon the request of SCI, SI shall provide to SCI,
at no additional cost to SCI, all of the Technical Information within thirty
(30) days of receiving SCI's written request, so long as there is no agreement
between SI and a third party as of the Effective Date which limits SI's ability
to provide such information to SCI. In addition, all patent or other searches
and prior art in the possession of SI with respect to the Patent Rights shall be
provided to SCI at its request.
2.2 Right to Sublicense or Assign. SCI shall have the right to sublicense
or assign any of the rights and licenses granted hereunder, so long as each
sublicense or assignee agrees to be bound by all of the terms and conditions
contained in this Agreement.
2.3 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.
2.4 Sharing of Improvements.
(a) Each party agrees to notify the other party of each Improvement it
has discovered, developed or acquired. The discovering, developing or acquiring
party (the "developing party") shall upon request of the other party deliver
data and specifications to the other party concerning such Improvement.
(b) If such Improvement is discovered, developed or acquired by SI,
then SCI shall have an exclusive, royalty-free perpetual right and license to
use and practice such Improvement on a world-wide basis in order to develop,
manufacture, use and sell Products and for no other purpose. Such Improvement
shall be deemed to be included in the definition of "Licensed Technology" for
all purposes.
(c) If such Improvement is discovered, developed or acquired by SCI,
then SI shall have an exclusive, royalty-free perpetual right and license
(including the right to grant sublicenses) to use and practice such Improvement
on a world-wide basis in order to develop, manufacture, use and sell all
products outside the SCI Field and for no other purpose.
(d) If such Improvement is discovered, developed or acquired jointly by
SI and SCI, then such Improvement shall be considered jointly owned by SI and
SCI. SCI agrees not to use or license such Improvement outside the SCI Field and
SI agrees not to use or license such Improvement in the SCI Field.
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3. TECHNICAL ASSISTANCE AND INSTRUCTION.
3.1 Provided by SI. Upon request, SI shall provide to SCI reasonable
technical assistance and instruction, at SCI's sole expense (such expense to be
approved in advance and in writing by SCI), in understanding, interpreting and
applying the Licensed Technology for the purpose of commercially developing
Products. SI shall make its employees reasonably available for consultation by
telephone, or in person, at the offices at SI, in connection with such
assistance and instruction, all at the sole expense of SCI (such expense to be
approved in advance and in writing by SCI), in accordance with the terms and
provisions to be agreed upon in writing by SI and SCI.
3.2 Provided by SCI. Upon request, SCI shall provide to SI reasonable
technical assistance and instruction, at SI's sole expense (such expense to be
approved in advance and in writing by SI), in understanding, interpreting and
applying the Improvements discovered, developed or acquired by SCI for the
purpose of commercially developing products outside the SCI Field. SCI shall
make its employees reasonably available for consultation by telephone, or in
person, at the offices at SCI, in connection with such assistance and
instruction, all at the sole expense of SI (such expense to be approved in
advance and in writing by SI), in accordance with the terms and provisions to be
agreed upon in writing by SI and SCI.
3.3 Visitors. Each party shall maintain adequate comprehensive general
liability insurance with waivers of subrogation, covering employees and
representatives of the other party visiting the facilities or using the
equipment or handling the products of the insured party. Employees and
representatives of either party visiting the facilities of the other party shall
be required to observe the rules and regulations of the facilities being
visited. Each party agrees to hold the other party harmless from any
responsibility for injuries to or the death of its employees or representatives
while visiting the other party's facilities or damage to the other party's
property, except in cases of gross negligence or intentional tortious acts
and/or actions insured against, provided that all claims hereunder are brought
within six (6) months after the incident(s) giving rise to such claims.
4. INVENTIONS AND THIRD PARTY LICENSES
4.1 Registering Patents and Other Intellectual Property Rights.
(a) SI shall have the exclusive right to prepare, prosecute and
maintain patent applications and other intellectual property registrations, and
to maintain and enforce patents and rights issued thereon, with respect to the
Licensed Technology and to any Improvements discovered, developed or otherwise
acquired by SI. Any costs reasonably incurred by SI in accordance with this
Section 4.1(a)
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shall be borne 70% by SCI and 30% by SI. SCI shall pay SI's invoices to SCI for
such costs within thirty (30) days of SCI's receipt thereof. If SI decides not
to exercise its exclusive right described in this Section 4.1(a), SI shall so
notify SCI in writing and SCI shall then have right to prepare, prosecute and
maintain patent applications and other intellectual property registrations, and
to maintain and enforce patents and rights issued thereon, with respect to the
Licensed Technology and to any Improvements discovered, developed or otherwise
acquired by SI, all at SCI's expense.
(b) SCI shall have the exclusive right to prepare, prosecute and
maintain patent applications and other intellectual property registrations, and
to maintain and enforce patents and rights issued thereon, with respect to any
Improvements discovered, developed or otherwise acquired by SCI. Any costs
reasonably incurred by SCI in accordance with this Section 4.1(b) shall be borne
100% by SCI. If SCI decides not to exercise its exclusive right described in
this Section 4.1(b), SCI shall so notify SI in writing and SI shall then have
right to prepare, prosecute and maintain patent applications and other
intellectual property registrations, and to maintain and enforce patents and
rights issued thereon, with respect to any Improvements discovered, developed or
otherwise acquired by SCI, all at SI's expense.
(c) With respect to any Improvements discovered, developed or otherwise
acquired jointly by SI and SCI, SI shall have the exclusive right to prepare,
prosecute and maintain patent applications and other intellectual property
registrations, and to maintain and enforce patents and rights issued thereon.
Any costs incurred by SI in accordance with this Section 4.1 (c) shall be borne
50% by SI and 50% by SCI. SCI shall pay SI's invoices to SI for such costs
within thirty (30) days of SCI's receipt thereof.
4.2 Third Party Licenses.
(a) To the extent that any part of the Licensed Technology consists of
rights of SI under an agreement or license with or from a third party, SCI's
right to use such part of the Licensed Technology hereunder shall be limited to
the rights which SI has a right to grant or extend under such agreement or
license and otherwise subject to any obligations assumed by SI in consideration
of the grant or assignment of such right or license to SI which is to be
extended to SCI, including the payment to SI (or such other party as SI may
direct) of royalties which SI may owe to such third party based on SCI's
development, manufacture, use or sale of the Products. All fixed maintenance
costs of SI under such agreements shall be borne 70% by SCI and 30% by SI. SCI
shall pay SI's invoices to SCI for such costs within thirty (30) days of SCI's
receipt thereof.
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(b) All such agreements with third parties which were executed by SI on
or before the Effective Date are listed on Exhibit A hereto and have been
provided in full to SCI prior to the Effective Date.
(c) To the extent that any Improvements discovered, developed or
acquired by SCI consist of rights of SCI under an agreement or license with or
from a third party, any assignment or license granted to SI hereunder shall be
limited to the rights which SCI has a right to grant under such agreement or
license and otherwise subject to any obligations assumed by SCI in consideration
of the grant or assignment of such right or license to SCI which is to be
sublicensed to SI, including the payment of royalties or other fees to such
third party.
4.3 Assignment of Interest in Rights Licensed Under Tanabe Agreement.
(a) SI hereby assigns to SCI a co-equal ownership right and interest in
all of SI's rights and obligations under the Tanabe Agreement.
(b) The parties have agreed that: (i) the revenue from the Tanabe
Agreement, as well as the reasonable costs incurred by SI in connection with the
Tanabe Agreement (to the extent that such costs are reasonable and documented),
shall be prior to January 1, 1996 directed to SI and thereafter shall be divided
50% to SCI and 50% to SI; (ii) after January 1, 1996, each party shall pay the
other party's invoices for its share of such expenses within thirty (30) days of
its receipt thereof; and (iii) after January 1, 1996, each party shall remit to
the other party 50% of the revenues which it receives from the Tanabe Agreement
within thirty (30) days of its receipt thereof.
5. CONFIDENTIAL INFORMATION, NON-COMPETITION AND NON-SOLICITATION
5.1 Confidentiality Maintained. Each party agrees that the other party
hereto has a proprietary interest in its Confidential Information. During and
after the term of this Agreement, all disclosures of Confidential Information to
the receiving party, its agents and employees shall be held in strict confidence
by such receiving party, which shall disclose the 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
the Confidential Information except for the purposes of exercising its rights
and carrying out its duties hereunder. The provision of this Section 5.1 shall
also apply to any sublicensees, consultants or subcontractors during and after
the term of this Agreement, that the receiving party may sublicense or engage in
connection with this Agreement.
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5.2 Permitted Disclosures. Notwithstanding the provisions of Section 5.1
above, SI and SCI may, to the extent necessary, disclose and use Confidential
Information, consistent with the rights of SI and SCI otherwise granted
hereunder, for the purpose of: (a) engaging in research and development,
conducting clinical testing and marketing programs, or securing institutional or
government approval to clinically test or market any product; (b) subject to
confidentiality agreements typically executed in the industry under comparable
circumstances, sharing clinical trial results and data with third parties
conducting clinical trials on products; or (c) securing patent or other
intellectual property protection for an invention.
5.3 Liability for Disclosure. Notwithstanding anything contained in this
Agreement to the contrary, neither party shall be liable for a disclosure of the
other party's Confidential Information if the information so disclosed:
(a) was in the public domain without violation of the rights of the
non-disclosing party 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 with rights thereto not in violation of the rights of the
non-disclosing party at the time of disclosure by the disclosing party to the
receiving party and can be so demonstrated; or
(c) 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
(d) was required to be disclosed under legal or administrative process,
provided that the disclosing party has given the non-disclosing party no less
than ten (10) days prior written notice of the disclosing party's intention to
make a disclosure pursuant to this Section 5.3.
6. LITIGATION
6.1 Notification of Suit. Each party shall give the other party prompt
written notice of any suit, action or written claim involving the Licensed
Technology, and in any event no more than thirty (30) days after acquiring such
knowledge or prior to the expiration of time in which a response must be filed
with a court or other judicial body, whichever is first to occur.
6.2 Prosecution of Infringements.
(a) If SCI discovers an infringement of the Licensed Technology by a
third party, it shall give SI prompt notice thereof and shall take no other
action
8
<PAGE>
against the alleged infringer without the prior written consent of SI. SCI
agrees to cooperate with SI, at no out-of-pocket expense to SCI, in connection
with any action taken by SI to prosecute such infringements. Any recovery of
damages or attorneys fees in infringements actions, or amounts received at
settlement thereof, shall be applied first to reimburse the parties for their
expenses incurred in connection with such actions, and thereafter shall be
divided as follows: (i) if the infringement is described in Section 9.3 of the
Tanabe Agreement, 50% to SCI and 50% to SI; and (ii) for all other
infringements, (A) if such infringement occurred outside the SCI Field, 100% to
SI; and (B) if such infringement occurred inside the SCI Field, 70% to SCI and
30% to SI.
(b) SI shall have no obligation to institute suit or take action
against any infringer. In the event that SI declines to take such action for any
reason, SCI shall have the right, but not the obligation, to take such action if
the infringement is in the SCI Field, but shall promptly advise SI of any
counterclaims brought by the alleged infringer and give SI an opportunity to
defend against such counterclaims. In the event of any such counterclaims, SCI
shall not enter into settlement with the alleged infringer without the prior
written consent of SI, which shall not be unreasonably withheld.
7. REPRESENTATIONS, WARRANTIES AND COVENANTS
Each of SI and SCI hereby represents, warrants and covenants to the other,
as of the date that it executed this Agreement, as follows:
7.1 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.
7.2 Binding Obligation. This Agreement has been duly authorized by all
necessary corporate action of SI and SCI, respectively, and constitutes a valid
and binding obligation on SI and SCI, respectively, enforceable in accordance
with the terms hereof, except as to applicable bankruptcy, reorganization
insolvency, moratorium and similar laws affecting the rights of creditors
generally and the discretion of courts in awarding equitable relief.
7.3 No Government Approvals Needed. 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.
7.4 No Provisions Contravened. There is no provision in its certificates of
incorporation or By-Laws, and no provision in any existing mortgage, indenture,
9
<PAGE>
contract or agreement binding on it, which would be contravened by the
execution, delivery or performance by it of this Agreement.
7.5 No Consent of Third Parties Needed. 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.
7.6 No Proceedings Pending. There is no action or proceeding pending or in
so far as it knows threatened in writing against it before any court,
administrative agency or other tribunal which might have a material adverse
effect on its ability to perform its obligations hereunder. Neither party knows
of any claim by any third party of infringement by the Licensed Technology on
such third party's patent, copyright or other intellectual property rights
(other than allegations made by Andeno concerning interference with its GLOP
patents in connection with the Tanabe products) or of misappropriation of trade
secrets involving the Technical Information.
7.7 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.
7.8 Licensed Technology. SI represents and warrants to SCI that it owns, or
has the full right to use (and extend to SCI the right to use) under written
agreements, all patents, copyrights, trademarks, trade secrets and other
intellectual property rights included in the Licensed Technology.
7.9 Improvements. Each party has the right to perform its obligations with
respect to Improvements hereunder.
8. TERMINATION OR EXPIRATION
8.1 Term of Agreement. The term of this Agreement shall commence on the
Effective Date and shall continue until the earlier to occur of (i) December 31,
1998; or (ii) on six months written notice from SI to SCI or from SCI to SI on
or after the date after March 1, 1996(i) on which the ownership by SI of SCI
shall first be less than twenty percent (20%) of the outstanding voting stock of
SCI, or (ii) if SCI has been merged or consolidated into another entity, then on
which the ownership by SI of such other entity shall first be less than twenty
percent (20%) of the outstanding voting stock of such entity; provided, that any
perpetual licenses or sublicenses granted under this Agreement shall survive
such expiration or termination to the extent that they relate to the Licensed
Technology and any Improvements existing on such date of termination or
expiration. Sections 2.4(a) and (d) and Article 3 of this Agreement shall end
upon the expiration or termination of this Agreement; provided,
10
<PAGE>
however, that if this Agreement expires or is terminated prior to January 1,
1998, Article 3 shall remain in effect until January 1, 1998 so long as the
party receiving benefits thereunder is not in default of its obligations
hereunder on such date of expiration or termination.
8.2 No Damages for Termination. The parties hereto agree that, if SI
terminates this Agreement pursuant to Section 8.1, then SI shall not be liable
for damages or injuries suffered by SCI as a result of that termination.
9. MISCELLANEOUS
9.1 Successors and Assigns. The terms and provisions of this Agreement
shall inure to the benefit of, and be binding upon, SI, SCI and their respective
successors and assigns. Any reference to SI and SCI hereunder shall be deemed to
include the successors thereto and assigns thereof.
9.2 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts applicable to
agreements made and to be fully performed therein, without regard to principles
of conflicts of law.
9.3 Amendments and Waivers. No amendment, modification, waiver, termination
or discharge of any provision of this Agreement, nor consent to any departure by
SI or SCI therefrom, shall be effective unless the same shall be in writing
specifically identifying this Agreement and the provision intended to be
amended, modified, waived, terminated or discharged and signed by SI and SCI,
and each such amendment, modification, waiver, termination or discharge shall be
effective only in the specific instance and for the specific purpose for which
given. No provision of this Agreement shall be varied, contradicted or explained
by any oral agreements, course of dealing or performance or any other matter not
set forth in an agreement in writing and signed by SI and SCI.
9.4 No Other Relationship. Nothing herein contained shall be deemed to
create a joint venture, agency, partnership or employer-employee 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.
9.5 Notices. All notices, requests and other communications to SI or SCI
hereunder shall be in writing (including telecopy or similar electronic
transmissions) and shall be personally delivered or sent by telecopy or other
electronic facsimile transmission during normal business hours or by registered
mail or certified mail, return receipt requested, postage prepaid, in each case
to the respective address
11
<PAGE>
specified below (or to such other address as may be specified in writing to the
other party hereto):
Sepracor Inc.
33 Locke Drive
Marlborough, MA 01752
Attention: President
----------
SepraChem Inc.
33 Locke Drive
Marlborough, MA 01752
Attention: President
----------
Any notice or communication given in conformity with this Section 9.5 shall be
deemed to be effective when received by the addressee, if delivered by hand,
telecopy or other electronic facsimile transmission, and three (3) days after
mailing, if mailed.
9.6 Entire Understanding. This Agreement, together with certain other
agreements entered into between the parties in conjunction herewith on even date
herewith, including the Contract Manufacturing Agreement, Supply Agreement,
Contract Research Agreement, Registration Rights Agreement and Agreement and
Plan of Merger, constitutes, on and as of the date hereof, the entire agreement
of SI and SCI with respect to the subject matter hereof, and all prior or
contemporaneous understandings or agreements, whether written or oral, between
SI and SCI with respect to such subject matter are hereby superseded in their
entirety.
9.7 Severability. If any provision hereof should be held invalid, illegal
or unenforceable in any respect in any jurisdiction, then, to the fullest extent
permitted by law, (a) all other provisions hereof shall remain in full force and
effect in such jurisdiction and shall be liberally construed in order to carry
out the intentions of the parties hereto as nearly as may be possible and (b)
such invalidity, illegality or unenforceability shall not affect the validity,
legality or enforceability of such provision in any other jurisdiction. To the
extent permitted by applicable law, SI and SCI hereby waive any provision of law
that would render any provision hereof prohibited or unenforceable in any
respect.
9.8 Further Assurances.
(a) Each of SI and SCI agrees to duly execute and deliver, or cause
to be duly executed and delivered, such further instruments and do and cause to
be done such further acts and things, including, without limitation, the filing
of such
12
<PAGE>
additional assignments, agreements, documents and instruments, that may be
necessary or as the other party hereto may at any time and from time to time
reasonably request in connection with this Agreement or to carry out more
effectively the provisions and purposes of, or to better assure and confirm unto
such other party its rights and remedies under, this Agreement.
(b) Each party agrees to cause each of its employees and agents to take
all actions and to execute, acknowledge and deliver all instruments or
agreements reasonably requested by the other party, and necessary for the
perfection, maintenance, enforcement or defense of that party's rights as set
forth herein.
9.9 No Implied Waivers; Rights Cumulative. No failure on the part of SI or
SCI to exercise and no delay in exercising any right, power, remedy or privilege
under this Agreement, or provided by statute or at law or in equity or
otherwise, shall impair, prejudice or constitute a waiver of any such right,
power, remedy or privilege or be construed as a waiver of any breach of this
Agreement or as an acquiescence therein, nor shall any single or partial
exercise of any such right, power, remedy or privilege preclude any other or
further exercise thereof or the exercise of any other right, power, remedy or
privilege.
9.10 Force Majeure. SI and SCI shall each be excused for any failure or
delay in performing any of its respective obligations under this Agreement,
other than its obligations to make payments to the other party, if such failure
or delay is caused by Force Majeure.
9.11 Survival of Contents. Notwithstanding anything else in this Agreement
to the contrary, the parties agree that Sections 2.1, 2.2, 2.3 and 2.4(b) and
(c) and Articles 4, 5, 6, 7, 8 and 9 shall survive the termination or expiration
of this Agreement, as the case may be, to the extent required thereby for the
full observation and performance by any or all of the parties hereto.
9.12 Compliance With Laws. Each of SI and SCI covenants and agrees that all
of its activities under or pursuant to this Agreement shall comply in all
material respects with all applicable laws, rules and regulations.
9.13 Headings. Headings used herein are for convenience only and shall not
in any way affect the construction of, or be taken into consideration
interpreting, this Agreement.
9.14 Execution in Counterparts. This Agreement may be executed in
counterparts, each of which counterparts, when so executed and delivered, shall
be deemed to be an original, and all of which counterparts, taken together,
shall constitute one and the same instrument.
13
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9.15 Arbitration.
(a) All disputes arising out of or relating to this Agreement shall be
finally settled by arbitration conducted in Boston under the rules of Commercial
Arbitration of the American Arbitration Association ("Rules"). The arbitrator
shall provide for the discovery of evidence by the Massachusetts rules of civil
procedure governing discovery, notwithstanding any other provisions in such
Rules. Both parties shall bear equally the cost of the arbitration (exclusive of
legal fees and expenses, all of which each party shall bear separately). All
decisions of the arbitrator(s) shall be final and binding on both parties and
enforceable in any court of competent jurisdiction.
(b) Notwithstanding the foregoing, in the event of breach by a party of
its obligations hereunder, the non-breaching party may seek injunctive or other
equitable relief in any court of competent jurisdiction. Each party hereby
acknowledges the unique nature of Licensed Technology. SI acknowledges that the
value of SCI's right and license to use the Licensed Technology in the SCI Field
pursuant to this Agreement rests, in large part, on the fact that SCI's rights
are exclusive in the SCI Field. Likewise, SCI acknowledges that the value of
SI's right and license to use the Licensed Technology outside the SCI Field
pursuant to this Agreement rests, in large part, on the fact that SCI has no
rights outside the SCI Field. Each party further acknowledges that monetary
damages, by themselves, would not adequately compensate the other party in the
event of breaches or violations of various terms of this Agreement (including
without limitation the restriction of SCI's rights to the SCI Field and the
restriction of SI's rights to outside the SCI Field). Therefore, in addition to
recovering monetary damages, each party shall have the right to immediately
obtain a temporary restraining order and/or injunctive relief from any court in
equity to halt or prevent breaches or violations by the other party of its
obligations under this Agreement; provided, however, that each party
acknowledges that the other party, although it may be breaching or violating its
obligations under this Agreement, should not be enjoined from exercising or
enjoying its rights, or its reservation of rights, under this Agreement, as the
case may be.
IN WITNESS WHEREOF, the parties hereto have signed this Agreement under
seal.
SEPRACOR, INC., as Licensor
By /s/ Timothy J. Barberich
Timothy J. Barberich, President
14
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SEPRACHEM INC., as Licensee
By /s/ Robert L. Bratzler
Robert L. Bratzler, President
15
<PAGE>
EXHIBIT A
THIRD PARTY AGREEMENTS INCLUDED IN LICENSED TECHNOLOGY
------------------------------------------------------
(1) License Agreement dated May 5, 1989 by and between Massachusetts
Institute of Technology ("MIT") and SI
(2) License Agreement dated June 21, 1991 by and between MIT and SI
(3) Agreement between Research Corporation Technologies Inc. ("RCT") and SI
dated September 10, 1992
(4) Agreement between RCT and SI dated March 6, 1991
16
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EXHIBIT B
ISSUED PATENTS AND PATENT APPLICATIONS
--------------------------------------
17
<PAGE>
EXHIBIT C
---------
COMPOUNDS EXCLUDED FROM SCI FIELD
---------------------------------
This Exhibit consists of Exhibit C-1 and Exhibit C-2.
Exhibit C-1
- ------------
Terfenadine carboxylate (racemate and single isomers)
R-Ketoprofen
S-Ketoprofen (for use in dentifrice or mouthwash formulations)
R-Albuterol
R,R,-Formoterol
R-Fluoxetine
S-Fluoxetine
S-Oxybutynin
R-Onybutynin
S-Doxazosin
Norastemizole
Norcisapride (racemate and single isomers)
R-Ondansetron
S-Ondansetron
(-)-Amlodipine
Pantoprazole single isomers
Ketoconazole single isomers
Itraconazole single isomers
Descarboethoxyloratadine
Lomefloxacin single isomers
Ketorolac single isomers
Etodolac single isomers
Metoprolol single isomers
Exhibit C-2
- -----------
Other active metabolite or single-isomer pharmaceutical compounds and other
chiral compounds which are identified as being from a Combinatorial Chemistry
Library, where such compounds are being developed by SI or its licensees;
provided, however, that, with respect to each such compound under this Exhibit
C-2,
(i) SCI shall have a nonexclusive, royalty-free right and
license to use and practice the Licensed Technology on a
world-wide basis in order to
18
<PAGE>
develop, manufacture, use and sell such compound pursuant
to all of the terms and conditions of this Agreement and
such compound shall be included in the SCI Field (but only
on a non-exclusive basis) until such time as SCI might lose
such non-exclusive rights in accordance with (iii) below.
(ii) SI shall have the right to notify SCI in writing at any
time after SI or one of its licensees or sublicensees
begins clinical trials on such compound that SI desires to
add such compound to Exhibit C-1;
(iii) If SCI had prior to receipt of such notice under (ii) above
not produced at least one (1) kilogram of such compound for
sale to a third party, then such compound shall be added to
Exhibit C-1 and shall be excluded from the SCI Field;
(iv) If SCI had prior to receipt of such notice under (ii) above
produced at least one (1) kilogram of such compound for
sale to a third party, then:
(A) SCI shall have a non-exclusive, royalty-free
perpetual right and license to use and practice
the Licensed Technology on a world-wide basis in
order to develop, manufacture, use and sell such
compound pursuant to all of the terms and
conditions of this Agreement and such compound
shall be included in the SCI Field (but only on a
non-exclusive basis); and
(B) SI shall also have the right to use and practice
the Licensed Technology (with the right to
sublicense) on a world-wide basis in order to
develop, manufacture, use and sell such compound.
19
<PAGE>
EXHIBIT D
---------
LICENSES AGREEMENTS GRANTED BY SI TO THIRD PARTIES
--------------------------------------------------
1. License Agreement between SI and Alza dated April 13, 1994.
2. License Agreement between SI and Sterling Winthrop Inc. dated
November 30, 1992.
3. License Agreement between SI and Marion Merrell Dow Agreement dated
June 1, 1993.
20
<PAGE>
AMENDMENT NO. 1
TO
TECHNOLOGY TRANSFER AND LICENSE AGREEMENT
The undersigned refer to a certain Technology Transfer and License
Agreement effective as of January 1, 1995 by and between Sepracor Inc. and
SepraChem Inc. (the "Agreement").
Capitalized terms not defined herein shall have the meanings ascribed to
them in the Agreement.
1. Semi-Synthetic Paclitaxel. The parties hereto agree to amend Section 1.5
of the Agreement to include all patents and technology relating to
semi-synthetic Paclitaxel, which was initially discovered on July 11, 1995.
2. Clarification of Rights Retained by Licensor. For the sake of
clarification, the parties hereto confirm that, notwithstanding anything
contained in the Agreement to the contrary, Licensor has retained the right to
grant to a third party a perpetual and exclusive right and license, including
the right to grant sublicenses, to the Licensed Technology and to Improvements
for use by such third party in a field limited to the development, production
and sale or other transfer of Combinatorial Chemistry Libraries (and related
technologies) of chiral and achiral compounds for testing against chemical or
biological targets.
3. Assignment of Nagase Agreements. To the extent that Nagase agrees to the
assignment by SI to SCI of SI's rights and obligations under any or all of the
agreements listed on Attachment 1 hereto, or any part thereof, then SI shall
assign such rights and obligations to SCI forthwith.
4. No Other Changes. Except as is expressly stated in this Amendment No. 1,
the terms of the Agreement remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have signed this Amendment No. 1
under seal as of July 12, 1995.
SEPRACOR INC., as Licensor
By /s/ Timothy J. Barberich
------------------------------
Timothy J. Barberich, President
SEPRACHEM INC., as Licensee
By: /s/ Robert L. Bratzler
-----------------------------
Robert L. Bratzler, President
<PAGE>
ATTACHMENT 1
(Existing Agreements)
<TABLE>
<S> <C>
1) CONFIDENTIALITY AGREEMENT dated as of August 24, 1989
2) DEVELOPMENT AGREEMENT dated as of July 24, 1990
3) MEMORANDUM to the DEVELOPMENT AGREEMENT dated as of July 17, 1992
4) SECOND MEMORANDUM TO THE DEVELOPMENT AGREEMENT dated as of May 10, 1993
5) LICENSE AGREEMENT (S-IBUPROFEN) dated as of July 24, 1990
6) SECOND AMENDMENT TO THE S-IBUPROFEN LICENSE AGREEMENT dated as of
May 10, 1993
7) THIRD AMENDMENT TO THE S-IBUPROFEN LICENSE AGREEMENT dated as of
_____________
8) DISTRIBUTORSHIP AND AGENCY AGREEMENT as of July 24, 1990
9) LICENSE AGREEMENT (S-ATENOLOL) dated as of January 24, 1992
10) AMENDMENT TO S-ATENOLOL LICENSE AGREEMENT dated as of May 10, 1993
11) LICENSE AGREEMENT (S-FLURBIPROFEN) dated as of July 24, 1992
12) AMENDMENT TO S-FLURBIPROFEN LICENSE AGREEMENT dated as of May 10, 1993
13) LICENSE AGREEMENT (GLYCIDOL AND ITS DERIVATIVES) dated as of July 24, 1992
14) AMENDMENT TO GLYCIDOL AND ITS DERIVATIVES LICENSE AGREEMENT dated as of
May 10, 1993
15) LICENSE AGREEMENT (CAPTOPRIL) dated as of July 24, 1992
16) LICENSE AGREEMENT (S-KETOPROFEN) dated as of July 24, 1992
1
<PAGE>
<S> <C>
17) AMENDMENT TO THE S-KETOPROFEN LICENSE AGREEMENT dated as of July 24, 1993
18) LICENSE AGREEMENT (6-APA) dated as of July 24, 1992
19) AMENDMENT TO 6-APA LICENSE AGREEMENT dated as of May 10, 1993
20) LICENSE AGREEMENT (EPOXYCHROMANS AND ITS DERIVATIVES) dated as of
___________, 1995
21) SUMMARY OF SEPRACOR/NAGASE MEETING, Marlborough, MA, USA dated as of
July 28, 1994
22) PROFIT SHARING OF S-IBUPROFEN, S-KETOPROFEN, AND R-KETOPROFEN dated
as of September 9, 1994
23) CONFIDENTIALITY AGREEMENT (KHANDELWAL/6-APA) dated as of February 1, 1991
24) CONFIDENTIALITY AGREEMENT (ALEMBIC/6-APA) dated as of July 1, 1991
25) CONFIDENTIALITY AGREEMENT (DWC/CAPTOPRIL) dated as of July 25, 1991
26) CONFIDENTIALITY AGREEMENT (WOCKHARDT/CAPTOPRIL) dated as of
October 31, 1991
27) CONFIDENTIALITY AGREEMENT (SYNPAC/6-APA dated as of March 6, 1992
28) CONFIDENTIALITY AGREEMENT (BOOTS/S-IBUPROFEN) dated as of March 6, 1992
29) CONFIDENTIALITY AGREEMENT (ETHYL/S-IBUPROFEN) dated as of August 16, 1993
30) CONFIDENTIALITY AGREEMENT (CHEMINOR/S-IBUPROFEN) dated as of October 1, 1993
31) CONFIDENTIALITY AGREEMENT (SHASUN/S-IBUPROFEN) dated as of April 6, 1994
</TABLE>
2
<PAGE>
AMENDMENT No. 2
TO
TECHNOLOGY TRANSFER AND LICENSE AGREEMENT
This Amendment No. 2, dated as of the 7th day of February, 1996 ("Amendment
No. 2"), is to the Technology Transfer and License Agreement effective as of
January 1, 1995, as amended by Amendment No. 1 to Technology License and
Transfer Agreement ("Amendment No. 1"), dated as of July 12, 1995 (as so amended
by Amendment No. 1, the "Technology Transfer Agreement"), by and between
SEPRACOR, INC., a Delaware corporation which has offices at 33 Locke Drive,
Marlborough, Massachusetts ("SI"), and SEPRACHEM, INC., a Delaware corporation
which has offices at 33 Locke Drive, Marlborough, Massachusetts ("SCI").
WHEREAS, under the Technology Transfer Agreement, SI granted SCI a license
to use certain intellectual and industrial property rights, as more fully
described therein; and
WHEREAS, both parties desire to amend certain provisions of the Technology
Transfer Agreement;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties do hereby agree as
follows:
1. The first sentence of Section 8.1 of the Technology Transfer Agreement
is hereby deleted in its entirety and the following substituted therefor:
"The term of this Agreement shall commence on the Effective Date and shall
continue until the earlier to occur of (i) December 31, 1998; or (ii) on six
months written notice from SI to SCI or from SCI to SI on or after the date
after March 1, 1996 (a) on which the ownership by SI of SCI shall first be less
than twenty percent (20%) of the outstanding voting stock of SCI, provided that
such event does not occur in connection with a merger or consolidation of SCI
into another entity, or (b) if SCI has been merged or consolidated into another
entity and SI has exchanged its stock of SCI for stock of the parent corporation
of such other entity, then the date on which the ownership by SI of such parent
corporation shall first be less than twenty percent (20%) of the outstanding
voting stock of such parent corporation; provided, that any perpetual licenses
or sublicenses granted under this Agreement, and any licenses or sublicenses
granted under Section 2.1(b) hereof, shall survive such expiration or
termination to the extent that they relate to the Licensed Technology and any
Improvements existing on such date of termination or expiration; provided,
further, however, that any licenses or sublicenses granted under Section 2.1(b)
hereof shall continue to be terminable in accordance with the provisions of
Exhibit C-2 hereof."
<PAGE>
2. Exhibit D to the Technology Transfer Agreement is hereby amended to add
all of the agreements listed on Appendix 1 to Amendment No. 1; it being
understood and agreed that the provisions of Section 3 of Amendment No. 1 remain
in full force and effect.
3. Capitalized terms used herein and not otherwise defined shall have the
meanings set forth for such terms in the Technology Transfer Agreement.
4. As so amended by this Amendment No. 2 and Amendment No. 1, the terms and
provisions of the Technology Transfer Agreement are ratified and confirmed and
shall remain in full force and effect as though set forth in full herein.
IN WITNESS WHEREOF, the parties hereto, by their duly authorized officers,
have signed this Amendment under seal.
SEPRACOR, Inc. as Licensor
By: /s/ David P. Southwell
----------------------------
David P. Southwell, ECP & CFO
SEPRACHEM, INC., as Licensee
By: /s/ Robert L. Bratzler
-----------------------------
Robert L. Bratzler, President
2
STOCK PURCHASE AGREEMENT
This Agreement dated as of September 30, 1994 is entered into by and among
Sepracor Inc., a Delaware corporation (the "Company"), and OFD Partners, L.P.
(the "Purchaser").
In consideration of the mutual promises and covenants contained in this
Agreement, the parties hereto agree as follows:
1. Sale of Shares and Warrants.
(a) Subject to the terms and conditions of this Agreement, at the
Closing (as defined below), the Company will sell and issue to the Purchaser,
and the Purchaser will purchase, 79,365 shares of Series A Convertible Preferred
Stock of the Company ("Series A Preferred Stock") at a purchase price of $63.00
per share. The shares of Series A Preferred Stock being sold under this
Agreement are referred to as the "Shares," and the shares of Common Stock
issuable upon conversion thereof are referred to as the "Conversion Shares." The
Series A Preferred Stock shall have the rights, preferences and privileges set
forth in the Certificate of Designations attached hereto as Exhibit A, which
shall be filed with the Secretary of State of Delaware prior to the Closing.
(b) Subject to the terms and conditions of this Agreement, at the
Closing, the Company will sell and issue to the Purchaser, and the Purchaser
will purchase, (i) Common Stock Purchase Warrants to purchase 793,650 shares of
Common Stock, at an exercise price of $6.30 per share; (ii) Common Stock
Purchase Warrants to purchase 178,000 shares of Common Stock, at an exercise
price of $7.50 per share; and (iii) Common Stock Purchase Warrants to purchase
22,000 shares of Common Stock, at an exercise price of $12.00 per share. In
consideration for the issuance of the Common Stock Purchase Warrants referred to
in clauses (i), (ii) and (iii) (collectively, the "Warrants"), the Purchaser
shall pay to the Company, at the Closing, an amount equal to $.001 per share of
Common Stock subject to the Warrants issued to the Purchaser hereunder. The
Warrants shall be in the form attached hereto as Exhibit B. The shares of Common
Stock issuable upon exercise of the Warrants are referred to as the "Warrant
Shares."
2. The Closing. The closing ("Closing") of the sale and purchase of the
Shares and Warrants under this Agreement shall take place at the offices of Hale
and Dorr, 60 State Street, Boston, Massachusetts at 10:00 a.m. as of September
30, 1994, or at such other time, date and place as are mutually agreeable to the
Company and the Purchaser. At the Closing, the Company shall deliver to the
Purchaser a certificate for 79,365 Shares and the Warrants, in each case
registered in the name of Purchaser, against payment to the Company of the
purchase price therefor, by wire transfer,
<PAGE>
check, or other method acceptable to the Company. The date of the Closing is
hereinafter referred to as the "Closing Date."
3. Representations of the Company. The Company hereby represents and
warrants to the Purchaser as follows:
3.1 Organization and Standing. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has full corporate power and authority to conduct its business as
presently conducted and as proposed to be conducted by it and to enter into and
perform this Agreement and to carry out the transactions contemplated by this
Agreement. The Company is duly qualified to do business as a foreign corporation
and is in good standing in the Commonwealth of Massachusetts and in every other
jurisdiction in which the failure to so qualify would have a material adverse
effect on the operations or financial condition of the Company.
3.2 Capitalization. The authorized capital stock of the Company consists
of 25,000,000 shares of Common Stock, of which 18,659,909 shares were
outstanding as of June 30, 1994, and 1,000,000 shares of Preferred Stock, $1.00
par value per share, of which no shares are issued or outstanding prior to the
Closing of the transactions contemplated by this Agreement (the "Closing").
Since June 30, 1994 there has not been any material change in the number of
outstanding shares of Common Stock. All of the issued and outstanding shares of
Common Stock have been duly authorized and validly issued and are fully paid and
nonassessable. Except as disclosed in the SEC Filings (as defined below), the
Company will not have outstanding securities convertible into or exchangeable
for any shares of the Company's capital stock (other than the Shares), nor will
it have outstanding any rights to subscribe for or to purchase, or any options
for the purchase of, or any agreements providing for the issuance (contingent or
otherwise) of, or any calls, commitments or claims of any character relating to,
any shares of the Company's capital stock or any securities convertible into or
exchangeable for any shares of the Company's capital stock (other than the
Shares). As of the Closing, the Company will not be subject to any obligation
(contingent or otherwise) to repurchase or otherwise, acquire or retire any
shares of its capital stock.
3.3 Issuance of Shares. The issuance, sale and delivery of the Shares,
Conversion Shares, Warrants and Warrant Shares in accordance with this Agreement
have been duly authorized by all necessary corporate action on the part of the
Company, and all the Shares, Warrant Shares and Conversion Shares have been duly
reserved for issuance. The Shares, Conversion Shares and Warrant Shares, when
issued and delivered against payment therefor in accordance with the provisions
of this Agreement and the Warrants, respectively, will be duly and validly
issued, fully paid and non-assessable.
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3.4 Company Reports and Financial Statements. The Company has delivered
to the Purchaser true and complete copies of all reports, registration
statements (other than registration statements on Form S-8), proxy statements
and other definitive filings filed by the Company with the Securities and
Exchange Commission since January 1, 1993 (such reports, registration
statements, proxy statements and other definitive filings, as amended, are
sometimes collectively referred to as the "SEC Filings"). The SEC Filings comply
in all material respects with the Securities Act of 1933, as amended (the
"Securities Act") and the Securities and Exchange Act of 1934, as amended (the
"Exchange Act"), and did not as of the dates thereof contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements contained therein not misleading. The audited
financial statements included in the SEC Filings were prepared in accordance
with generally accepted accounting principles applied on a consistent basis and
fairly present the financial position of the Company as at the dates thereof and
the results of operations and cash flow for the periods then ended.
3.5 Authority for Agreement. The execution, delivery and performance by
the Company of this Agreement and the Warrants and the consummation by the
Company of the transactions contemplated hereby and thereby have been duly
authorized by all necessary corporate action. This Agreement and the Warrants
have been duly executed and delivered by the Company and constitute valid and
binding obligations of the Company enforceable in accordance with their
respective terms. The execution of and performance of the transactions
contemplated by this Agreement and the Warrants and compliance with the
provisions hereof and thereof by the Company will not violate any provision of
law and will not conflict with or result in any breach of any of the terms,
conditions or provisions of, or constitute a default under, or require a consent
or waiver under, its Certificate of Incorporation or By-Laws (each as amended to
date) or any indenture, lease, agreement or other instrument to which the
Company is a party or by which it or any of its properties is bound, or any
decree, judgment, order, statute, rule or regulation applicable to the Company.
3.6 Governmental Consents; Offering. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any governmental authority is required on the part of the Company
in connection with the execution and delivery of this Agreement or the offer,
issuance, sale and delivery of the Shares and Warrants. Based in part on the
representations made by the Purchaser in Section 4 hereof, the offer and sale of
the Shares and Warrants to the Purchaser will be in compliance with applicable
Federal and state securities laws.
Neither the Company nor anyone acting on behalf of the Company has offered
the Shares or any similar securities for sale to, or solicited any offer to buy
any of the same from, or otherwise approached or negotiated in respect thereof
with, any person
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other than the Purchaser. Neither the Company nor anyone acting on its behalf
has taken, or will take, any action which would subject the issuance or sale of
the Shares or the Warrants to Section 5 of the Securities Act of 1933, as
amended.
No broker's or finder's or placement fee or commission will be payable with
respect to the issuance of the Shares, the Warrant Shares or the Warrants, or
any of the transactions contemplated by this Agreement. The Company will hold
the Purchaser harmless from any claim, demand or liability for brokers' or
finders' or placement fees or similar commission alleged to have been incurred
in connection with any such transaction.
3.7 Litigation. Except as disclosed in the SEC Filings, there is no
action, suit or proceeding, or inquiry or investigation, pending, or, to the
best of the Company's knowledge, any basis therefor or threat thereof, against
the Company which might result, either individually or in the aggregate, in any
material adverse change in the business, prospects, assets or condition,
financial or otherwise, of the Company.
3.8 Compliance. The Company has, in all material respects, complied with
all laws, regulations and orders applicable to its present and proposed business
and has all material permits and licenses required thereby.
3.9 Employees. All employees of the Company whose employment
responsibility requires access to confidential or proprietary information of the
Company have executed and delivered nondisclosure and assignment of invention
agreements, and all of such agreements are in full force and effect. None of the
employees of the Company is represented by any labor union, and there is no
labor strike or other labor trouble pending with respect to the Company
(including, without limitation, any organizational drive) or, to the best of the
Company's knowledge, threatened.
3.10 Absence of Changes. Since June 30, 1994, there has been no material
adverse change in the financial condition or results of operations of the
Company, other than changes occurring in the ordinary course of business.
3.11 Disclosure. The representations and warranties of the Company
contained in this Agreement do not contain any untrue statement of material fact
with respect to the subject matter hereof or omit to state any material fact
necessary to make the statements contained herein, in light of the circumstances
under which they were made, not misleading.
4. Representations of the Purchaser. The Purchaser hereby represents and
warrants to the Company as follows:
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4.1 Investment. The Purchaser is acquiring the Shares and Warrants for
its own account for investment and not with a view to, or for sale in connection
with, any distribution thereof, nor with any present intention of distributing
or selling the same.
4.2 Authority. The Purchaser has full power and authority to enter into
and to perform this Agreement in accordance with its terms.
4.3 Experience. The Purchaser has carefully reviewed the representations
concerning the Company contained in this Agreement, has made detailed inquiry
concerning the Company, its business and its personnel; the officers of the
Company have made available to Purchaser any and all written information which
he or it has requested and have answered to Purchaser's satisfaction all
inquiries made by Purchaser; and Purchaser has sufficient knowledge and
experience in investing in Companies similar to the Company so as to be able to
evaluate the risks and merits of its investment in the Company.
4.4 Legend. The Purchaser understands that the stock certificate
representing the Shares shall bear a legend substantially to the following
effect:
"The shares represented by the certificate have
not been registered under the Securities Act of
1933, as amended, and may not be offered, sold or
otherwise transferred, pledged or hypothecated
unless and until such shares are registered under
such Act or an opinion of counsel satisfactory to
the Company is obtained to the effect that such
registration is not required."
4.5 Accredited Investor. The Purchaser is an "accredited investor"
within the meaning of Regulation D promulgated under the Securities Act.
5. Closing Conditions. The obligation of the Purchaser to purchase and pay
for the Shares and the Warrants to be acquired by it hereunder is subject to the
conditions hereinafter set forth.
5.1 Representations and Warranties True. All representations and
warranties of the Company made in Section 3 or otherwise under or pursuant to
this Agreement shall be true on the Closing Date as though made on the Closing
Date and the Company shall have delivered to the Purchaser a certificate of an
authorized officer dated the Closing Date, certifying to such effect.
5.2 Instruments and Proceedings to be Satisfactory. All instruments and
corporate proceedings relating to the sale of the Shares and the Warrants
hereunder by the Company or otherwise relating to the transactions contemplated
hereby shall be satisfactory to the Purchaser.
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5.3 Opinion of the Company's Counsel. The Purchaser shall have received
from Hale and Dorr, counsel for the Company, an opinion, dated the Closing Date,
in scope and substance satisfactory to such Purchaser, as to the matters
included in Sections 3.1, 3.3 and 3.5 hereof, except that with respect to the
matters included in Section 3.5, such opinion shall relate only to such
indentures, leases, agreements or other instruments filed as exhibits to the
Company's Annual Report on Form 10K for the year ended December 31, 1993 and the
Company's Quarterly Reports on Form 10Q for the quarters ended March 31, 1994
and June 30, 1994.
6. Registration Rights.
6.1 Certain Definitions. As used in this Agreement, the following terms
shall have the following respective meanings:
"Commission" means the Securities and Exchange Commission, or any
other Federal agency at the time administering the Securities Act.
"Registration Statement" means a registration statement filed by the
Company with the Commission for a public offering and sale of Common Stock
(other than a registration statement on Form S-8 or Form S-4, or their
successors, or any other form for a similar limited purpose, or any registration
statement covering only securities proposed to be issued in exchange for
securities or assets of another corporation or covering only outstanding
securities to be sold on behalf of stockholders pursuant to the Amended and
Restated Registration Rights Agreement dated as of June 28, 1991 among the
Company and certain stockholders (the "1991 Agreement") and/or the Agreement
dated as of June 1, 1993 between the Company and Marion Merrell Dow Inc.).
"Registration Expenses" means the expenses described in Section 6.5.
"Registrable Shares" means (i) the Conversion Shares and Warrant
Shares (ii) any other shares of Common Stock issued in respect of such shares
(because of stock splits, stock dividends, reclassifications, recapitalizations,
or similar events); provided, however, that shares of Common Stock which are
sold pursuant to a Registration Statement or Rule 144 under the Securities Act
shall thereupon cease to be Registrable Shares.
"Stockholders" means the Purchaser and any persons or entities to
whom the rights granted under this Agreement are transferred by the Purchaser,
its successors or assigns pursuant to Section 6.11 hereof.
6.2 Required Registrations.
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<PAGE>
(a) At any time after September 30, 1995, a Stockholder or
Stockholders (the "Requesting Stockholder or Stockholders") may request, in
writing, that the Company effect the registration on Form S-3 (or any successor
form) of Registrable Shares owned by such Requesting Stockholder or Stockholders
having an aggregate offering price of at least $3,000,000 (based on the then
current market price). If the Requesting Stockholders intend to distribute the
Registrable Shares by means of an underwriting, they shall so advise the Company
in their request. The managing underwriter(s) shall be selected by the
Requesting Stockholders and shall be subject to the approval of the Company,
which approval shall not be unreasonably withheld. Upon receipt of any such
request, the Company shall promptly give written notice of such proposed
registration to all other Stockholders. Such other Stockholders shall have the
right, by giving written notice to the Company within 30 days after the Company
provides its notice, to elect to have included in such registration such of
their Registrable Shares as such other Stockholders may request in such notice
of election; provided that if the underwriter(s) (if any) managing the offering
determines that, because of marketing factors, all of the Registrable Shares
requested to be registered by all Stockholders may not be included in the
offering, the Stockholders shall, subject to the 1991 Agreement, participate in
the registration pro rata among themselves based upon the number of Registrable
Shares which they have requested to be so registered. Thereafter, the Company
shall, as expeditiously as possible, use its best efforts to effect the
registration on Form S-3 (or any successor form) of all Registrable Shares which
the Company has been requested to so register.
(b) The Company shall not be required to effect more than three
registrations pursuant to paragraph (a) above. In addition, the Company shall
not be required to take any action to effect a registration requested pursuant
to paragraph (a) above within (i) 180 days following the effective date of any
Registration Statement covering shares to be sold for the account of the Company
or (ii) within 90 days following the effective date of any registration
statement filed by the Company with the Commission to register shares demanded
to be registered by stockholders pursuant to the 1991 Agreement.
(c) If at the time of any request to register Registrable Shares
pursuant to this Section 6.2, the Company is engaged or has fixed plans to
engage within 60 days of the time of the request in a registered public offering
or is engaged in any other activity which, in the good faith determination of
the Company's Board of Directors, would be adversely affected by the requested
registration to the material detriment of the Company, then the Company may at
its option direct that such request be delayed for a period not in excess of six
months from the effective date of such offering or the date of commencement of
such other material activity, as the case may be, such right to delay a request
to be exercised by the Company not more than once in any 24-month period.
6.3 Incidental Registration.
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<PAGE>
(a) Whenever the Company proposes to file a Registration Statement
(other than pursuant to Section 6.2) at any time and from time to time, it will,
prior to such filing, give written notice to all Stockholders of its intention
to do so and, upon the written request of a Stockholder or Stockholders given
within 20 days after the Company provides such notice (which request shall state
the intended method of disposition of such Registrable Shares), the Company
shall use its best efforts to cause all Registrable Shares which the Company has
been requested by such Stockholder or Stockholders to register to be registered
under the Securities Act to the extent necessary to permit their sale or other
disposition in accordance with the intended methods of distribution specified in
the request of such Stockholder or Stockholders; provided that the Company shall
have the right to postpone or withdraw any registration proposed to be effected
pursuant to this Section 6.3 without obligation to any Stockholder.
(b) In connection with any registration under this Section 6.3
involving an underwriting, the Company shall not be required to include any
Registrable Shares in such registration unless the holders thereof accept the
terms of the underwriting as agreed upon between the Company and the
underwriters selected by it. If in the opinion of the managing underwriter it is
appropriate because of marketing factors to limit the number of shares to he
sold for the account of selling stockholders to be included in the offering,
then there shall first be included any shares of Common Stock entitled, as of
the date hereof, to be registered therein prior to the Registrable Shares
pursuant to the 1991 Agreement (including shares entitled as of the date hereof
to be registered on a parity basis with any such priority rights), to the extent
the 1991 Agreement is then in effect, and holders of Registrable Shares shall be
entitled to include in such registration only such remaining number of shares
that the managing underwriter determined may be included therein. If the number
of Registrable Shares to be included in the registration in accordance with the
foregoing is less than the total number of shares that holders of Registrable
Shares have requested to be included, then the holders of Registrable Shares who
have requested registration and other holders of securities entitled to include
them in such registration on a parity basis with the Registrable Shares shall
participate in the registration pro rata based upon their total ownership of
shares of Common Stock entitled to be so included. If any holder would thus be
entitled to include more securities than such holder requested to be registered,
the excess shall be allocated among other requesting holders pro rata in the
manner described in the preceding sentence.
6.4 Registration Procedures. If and whenever the Company is required by
the provisions of this Agreement to use its best efforts to effect the
registration of any of the Registrable Shares under the Securities Act, the
Company shall:
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(a) file with the Commission a Registration Statement with respect
to such Registrable Shares and use its best efforts to cause that Registration
Statement to become and remain effective;
(b) as expeditiously as practicable prepare and file with the
Commission any amendments and supplements to the Registration Statement and the
prospectus included in the Registration Statement as may be necessary to keep
the Registration Statement effective, in the case of a firm commitment
underwritten public offering, until each underwriter has completed the
distribution of all securities purchased by it and, in the case of any other
offering, until the earlier of the sale of all Registrable Shares covered
thereby or the date five years after the Closing Date, provided, that
Stockholders shall, upon written notice from the Company, cease sales of
Registrable Shares pursuant to a Registration Statement filed hereunder for a
period not to exceed 90 days in any 24-month period if there exists at the time
material non-public information relating to the Company which, in the reasonable
opinion of the Company, should not be disclosed;
(c) as expeditiously as possible furnish to each selling Stockholder
such reasonable numbers of copies of the prospectus, including a preliminary
prospectus, in conformity with the requirements of the Securities Act, and such
other documents as the selling Stockholder may reasonably request in order to
facilitate the public sale or other disposition of the Registrable Shares owned
by the selling Stockholder; and
(d) as expeditiously as possible use its best efforts to register or
qualify the Registrable Shares covered by the Registration Statement under the
securities or Blue Sky laws of such states as the selling Stockholders shall
reasonably request, and do any and all other acts and things that may be
necessary or desirable to enable the selling Stockholders to consummate the
public sale or other disposition in such states of the Registrable Shares owned
by the selling Stockholder; provided, however, that the Company shall not be
required in connection with this paragraph (d) to qualify as a foreign
corporation or execute a general consent to service of process in any
jurisdiction.
If the Company has delivered preliminary or final prospectuses to the
selling Stockholders and after having done so the prospectus is amended to
comply with the requirements of the Securities Act, the Company shall promptly
notify the selling Stockholders and, if requested, the selling Stockholders
shall immediately cease making offers of Registrable Shares and return all
prospectuses to the Company. The Company shall promptly provide the selling
Stockholders with revised prospectuses and, following receipt of the revised
prospectuses, the selling Stockholders shall be free to resume making offers of
the Registrable Shares.
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6.5 Allocation of Expenses. The Company will pay all Registration
Expenses of all registrations under this Agreement; provided, however, that if a
registration under Section 6.2 is withdrawn at the request of the Requesting
Stockholders (other than as a result of information concerning the business or
financial condition of the Company which is made known to the Stockholders after
the date on which such registration was requested) and if the Requesting
Stockholders elect not to have such registration counted as a registration
requested under Section 6.2, the Requesting Stockholders shall pay the
Registration Expenses of such registration pro rata in accordance with the
number of their Registrable Shares to be included in such registration. For
purposes of this Section 6.5 the term "Registration Expenses" shall mean all
expenses incurred by the Company in complying with this Agreement, including,
without limitation, all registration and filing fees, printing expenses, fees
and expenses of counsel for the Company, state Blue Sky fees and expenses, but
excluding underwriting discounts, selling commissions and the fees and expenses
of any selling Stockholder's own counsel.
6.6 Indemnification and Contribution.
(a) In the event of any registration of any of the Registrable
Shares under the Securities Act pursuant to this Agreement, the Company will
indemnify and hold harmless the seller of such Registrable Shares, each
underwriter of such Registrable Shares, and each other person, if any, who
controls such seller or underwriter within the meaning of the Securities Act or
the Exchange Act against any losses, claims, damages or liabilities, joint or
several, to which such seller, underwriter or controlling person may become
subject under the Securities Act, the Exchange Act, state securities or Blue Sky
laws or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in any Registration
Statement under which such Registrable Shares were registered under the
Securities Act, any preliminary prospectus or final prospectus contained in the
Registration Statement, or any amendment or supplement to such Registration
Statement, or arise out of or are based upon the omission or alleged omission to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading; and the Company will reimburse such seller,
underwriter and each such controlling person for any legal or any other expenses
reasonably incurred by such seller, underwriter or controlling person in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company will not be liable in
any such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon any untrue statement made in such Registration
Statement, preliminary prospectus or final prospectus, or any such amendment or
supplement, or upon any omission therefrom, in reliance upon and in conformity
with information furnished to the Company, in writing, by or on behalf of such
seller, underwriter or controlling person specifically for use in the
preparation thereof.
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(b) In the event of any registration of any of the Registrable
Shares under the Securities Act pursuant to this Agreement, each seller of
Registrable Shares, severally and not jointly, will indemnify and hold harmless
the Company, each of its directors and officers and each underwriter (if any)
and each person, if any, who controls the Company or any such underwriter within
the meaning of the Securities Act or the Exchange Act, against any losses,
claims, damages or liabilities, joint or several, to which the Company, such
directors and officers, underwriter or controlling person may become subject
under the Securities Act, Exchange Act, state securities or Blue Sky laws or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact contained in any Registration Statement
under which such Registrable Shares were registered under the Securities Act,
any preliminary prospectus or final prospectus contained in the Registration
Statement, or any amendment or supplement to the Registration Statement, or
arise out of or are based upon any omission or alleged omission to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading, if the statement or omission was made in reliance upon
and in conformity with information relating to such seller furnished in writing
to the Company by or on behalf of such seller specifically for use in connection
with the preparation of such Registration Statement, prospectus, amendment or
supplement; provided, however, that the obligations of such Stockholders
hereunder shall be limited to an amount equal to the proceeds to each
Stockholder of Registrable Shares sold in connection with such registration.
(c) Each party entitled to indemnification under this Section 6.6
(the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom; provided, that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not be unreasonably
withheld); and, provided, further, that the failure of any Indemnified Party to
give notice as provided herein shall not relieve the Indemnifying Party of its
obligations under this Section 6.6. The Indemnified Party may participate in
such defense at such party's expense; provided, however, that the Indemnifying
Party shall pay such expense if representation of such Indemnified Party by the
counsel retained by the Indemnifying Party would be inappropriate due to actual
or potential differing interests between the Indemnified Party and any other
party represented by such counsel in such proceeding. No Indemnifying Party, in
the defense of any such claim or litigation shall, except with the consent of
each Indemnified Party, consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such Indemnified Party of a release from all
liability in respect of such claim or litigation, and no Indemnified
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Party shall consent to entry of any judgment or settle such claim or litigation
without the prior written consent of the Indemnifying Party.
(d) In order to provide for just and equitable contribution to joint
liability under the Securities Act in any case in which either (i) any holder of
Registrable Shares exercising rights under this Agreement, or any controlling
person of any such holder, makes a claim for indemnification pursuant to a this
Section 6.6 but it is judicially determined (by the entry of a final judgment or
decree by a court of competent jurisdiction and the expiration of time to appeal
or the denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 6.6 provides
for indemnification in such case, or (ii) contribution under the Securities Act
may be required on the part of any such selling Stockholder or any such
controlling person in circumstances for which indemnification is provided under
this Section 6.6; then, in each such case, the Company and such Stockholder will
contribute to the aggregate losses, claims, damages or liabilities to which they
may be subject (after contribution from others) in such proportions so that such
holder is responsible for the portion represented by the percentage that the
public offering price of its Registrable Shares offered by the Registration
Statement bears to the public offering price of all securities offered by such
Registration Statement, and the Company is responsible for the remaining
portion; provided, however, that, in any such case, (A) no such holder will be
required to contribute any amount in excess of the proceeds to it of all
Registrable Shares sold by it pursuant to such Registration Statement, and (B)
no person or entity guilty of fraudulent misrepresentation, within the meaning
of Section 11(f) of the Securities Act, shall be entitled to contribution from
any person or entity who is not guilty of such fraudulent misrepresentation.
6.7 Information by Holder. Each Stockholder including Registrable Shares
in any registration shall furnish to the Company such information regarding such
Stockholder and the distribution proposed by such Stockholder as the Company may
reasonably request in writing and as shall be required in connection with any
registration, qualification or compliance referred to in this Agreement.
6.8 Rule 144 Requirements. The Company agrees to:
(a) comply with the requirements of Rule 144(c) under the Securities
Act with respect to current public information about the Company;
(b) use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act; and
(c) furnish to any holder of Registrable Shares upon request (i) a
written statement by the Company as to its compliance with the requirements of
said
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Rule 144(c), and the reporting requirements of the Securities Act and the
Exchange Act, (ii) a copy of the most recent annual or quarterly report of the
Company, and (iii) such other reports and documents of the Company as such
holder may reasonably request to avail itself of any similar rule or regulation
of the Commission allowing it to sell any such securities without registration.
6.9 Termination. All of the Company's obligations to register
Registrable Shares under this Agreement shall terminate on the tenth anniversary
of the Closing Date, provided, however, that the Company shall have no
obligation to register shares hereunder at any time the Registrable Shares may
be sold pursuant to Rule 144(k) under the Securities Act (or its successor).
6.10 Transfers of Rights. The rights and obligations of any Purchaser
under this Section 6, may be assigned by Purchaser to any person or entity which
acquires at least 100,000 Shares, Conversion Shares and/or Warrant Shares
originally acquired by Purchaser from the Company, and such transferee shall be
deemed a "Purchaser" for purposes of this Agreement; provided that the
transferee provides written notice of such assignment to the Company.
6.11 Consent. The Company shall use its reasonable best efforts, as soon
as practicable after the Closing, to obtain the requisite consents of the
parties to the 1991 Agreement to (i) delete the provisions of Section 6.2(b)(ii)
of this Agreement and (ii) amend this Agreement to provide that the incidental
registration rights granted to the Purchaser in Section 6.3 shall be on a parity
and pro rata basis with the incidental registration rights granted pursuant to
Section 3.2(b)(i) of the 1991 Agreement and to provide that no party to the 1991
Agreement shall have any incidental registration rights with respect to any
registration demanded by the Stockholders hereunder. If and when such consents
are obtained, the parties shall amend this Agreement to reflect the foregoing
modifications.
7. Right of Participation. The Company shall, prior to any proposed
issuance by the Company of any shares of Common Stock or other securities
convertible into or exercisable for shares of Common Stock (collectively,
"Securities") in a Dilutive Financing (as defined below), offer to Purchaser by
written notice the right, for a period of thirty (30) days, to purchase for cash
at an amount equal to the price or other consideration for which such Securities
are to be issued in such Dilutive Financing, a number of such Securities so
that, after giving effect to such issuance (and the conversion and exercise into
or for shares of Common Stock of all such securities that are so convertible or
exercisable), Purchaser will continue to maintain its same proportionate
ownership in the Company as of the date of such notice (treating Purchaser, for
the purpose of such computation, as the holder of the number of shares of Common
Stock which would be issuable to Purchaser upon conversion and exercise of all
securities held by Purchaser on the date such offer is made, and assuming the
like conversion and exercise of all such other securities held
- 13 -
<PAGE>
by other persons). For purposes of this Section 7, a "Dilutive Financing" means
any issuance of Securities (i) for which the purchase price, on a common stock
equivalent basis, is less than the then effective Conversion Price of the Series
A Preferred Stock (as defined in the Certificate of Incorporation of the
Company) and (ii) as a result of which, an anti-dilution adjustment is not made
to the Conversion Price of the Series A Preferred Stock by virtue of Section
4(d)(i)(D)(VI) of Article Fourth of the Company's Certificate of Incorporation.
For purposes of this Section 7, "Common Stock" shall be deemed to include equity
security having rights to receive dividends or distributions (including
liquidation) not limited to a fixed sum or percentage of the purchase price
therefor, and the price at which such securities are deemed issued for purposes
hereof shall take into account as appropriate the relationship between the terms
thereof and the terms of the Shares.
The Company's written notice to the Purchaser shall describe the Securities
proposed to be issued by the Company and specify the number, price and payment
terms. Purchaser may accept the Company's offer as to the full number of
Securities offered to it or any lesser number, by written notice thereof given
by it to the Company prior to the expiration of the aforesaid thirty (30) day
period, in which event the Company shall promptly sell and Purchaser shall buy,
upon the terms specified, the number of Securities agreed to be purchased by
Purchaser. The Company shall be free at any time prior to ninety (90) days after
the date of its notice of offer to Purchaser, to offer and sell to any third
party or parties the remainder of such Securities proposed to be issued by the
Company (including but not limited to the Securities not agreed by Purchaser to
be purchased by it), at a price and on payment terms no less favorable to the
Company than those specified in such notice of offer to Purchaser. However, if
such third party sale or sales are not consummated within such ninety (90) day
period, the Company shall not sell such Securities as shall not have been
purchased within such period without again complying with this Section 7.
The obligations of the Company under this Section 7 shall terminate upon
the earlier of (i) the conversion of all outstanding Shares into Common Stock or
(ii) ten years after the Closing Date.
8. General.
(a) Notices. All notices, requests, consents, and other communications
under this Agreement shall be in writing and shall be delivered by hand or
mailed by first class certified or registered mail, return receipt requested,
postage prepaid:
If to the Company, at 33 Locke Drive, Marlboro, MA 01752, Attention:
President, or at such other address or addresses as may have been furnished in
writing by the Company to the Purchaser, with a copy to Mark G. Borden, Hale and
Dorr, 60 State Street, Boston, MA 02109; or
- 14 -
<PAGE>
If to Purchaser, at such address or addresses as may have been furnished to
the Company in writing by Purchaser.
Notices provided in accordance with this Section 8 shall be deemed
delivered upon personal delivery or two business days after deposit in the mail.
(b) Entire Agreement. This Agreement embodies the entire agreement and
understanding between the parties hereto with respect to the subject matter
hereof and supersedes all prior agreements and understandings relating to such
subject matter.
(c) Amendments and Waivers. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively), with the
written consent of the Company and the holders of at least a majority of the
Registrable Shares (giving effect to the Conversion of all Shares and exercise
of all Warrants); provided, that this Agreement may be amended with the consent
of the holders of less than all Registrable Shares only in a manner which
affects all Registrable Shares in the same fashion. No waivers of or exceptions
to any term, condition or provision of this Agreement, in any one or more
instances, shall be deemed to be, or construed as, a further or continuing
waiver of any such term, condition or provision.
(d) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
shall be one and the same document.
(e) Severability. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(f) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware.
Executed as of the date first written above.
- 15 -
<PAGE>
COMPANY:
SEPRACOR INC.
By: /s/ Timothy Barberich
------------------------------------
Title: President
PURCHASER:
OFD PARTNERS, L.P.
OFD GENERAL, INC. (ITS GENERAL PARTNER)
By: /s/ Daniel U. Stein
------------------------------------
President
- 16 -
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
EXCLUSIVE LICENSE AGREEMENT
BY AND BETWEEN
ELI LILLY AND COMPANY
AND
SEPRACOR INC.
<PAGE>
<TABLE>
<CAPTION>
Table of Contents
Page
<S> <C> <C>
ARTICLE 1 DEFINITIONS........................................................................................1
1.1 Affiliate..........................................................................................1
1.2 Basic Patent Rights................................................................................2
1.3 Business Day.......................................................................................2
1.4 Calendar Year......................................................................................2
1.5 Change of Control..................................................................................2
1.6 Combination Product................................................................................2
1.7 DDS Formulation....................................................................................2
1.8 Dollars............................................................................................2
1.9 Effective Date.....................................................................................3
1.10 First Commercial Sale..............................................................................3
1.11 HSR Act............................................................................................3
1.12 Improvement........................................................................................3
1.13 Improvement Patent Rights..........................................................................3
1.14 Licensed Technology................................................................................3
1.15 Native R-fluoxetine Product........................................................................3
1.16 NDA................................................................................................3
1.17 Net Sales..........................................................................................4
1.18 Patent Rights......................................................................................5
1.19 Payment Period.....................................................................................5
1.20 Permitted Sublicensee..............................................................................5
1.21 Phase I Clinical Study.............................................................................5
1.22 Phase III Clinical Study...........................................................................5
1.23 Product............................................................................................5
1.24 Proprietary Information............................................................................5
1.25 R-fluoxetine.......................................................................................6
1.26 Regulatory Application.............................................................................6
1.27 Sepracor Know-How..................................................................................6
1.28 United States......................................................................................7
1.29 Valid Claim........................................................................................7
ARTICLE 2 LICENSE; DISCLOSURE OF INFORMATION; DEVELOPMENT AND
COMMERCIALIZATION............................................................................................7
2.1 Exclusive License Grant............................................................................7
(a) License.......................................................................7
(b) Right to Sublicense...........................................................7
2.2 Sepracor Transfers and Disclosure of Information...................................................8
(a) Transfer of IND/On-Going Studies..............................................8
(b) Disclosure of Sepracor Know-How...............................................8
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
2.3 HSR Filing and Approvals...........................................................................9
(a) HSR Filing....................................................................9
(b) Sepracor's Obligations.......................................................10
(c) Additional Approvals.........................................................10
(d) Costs of Filings.............................................................10
2.4 Lilly's Development Obligations...................................................................10
(a) Lilly Diligence..............................................................10
(b) Opportunity to Co-Promote In the United States...............................12
(c) Research and Development Activities..........................................14
(d) Product Registrations: Pricing Reimbursement Approvals
.............................................................................14
(e) Data.........................................................................14
(f) Assistance by Sepracor.......................................................14
2.5 Independent Discoveries by Lilly..................................................................15
2.6 Other Studies.....................................................................................15
2.7 Progress Reports to Sepracor......................................................................16
2.8 Conversion of License.............................................................................16
ARTICLE 3 PAYMENTS; ROYALTIES AND REPORTS...................................................................16
3.1 Consideration for License.........................................................................16
3.2 Milestones for License............................................................................16
3.3 Royalties, United States..........................................................................17
(a) Royalty Rates................................................................17
(b) Term of Royalty Obligations..................................................17
(c) Royalty Increase Date........................................................17
(d) Royalty Reductions...........................................................18
3.4 Royalties, Outside the United States..............................................................19
(a) Royalty Rate.................................................................19
(b) Term of Royalty Obligations..................................................19
(c) Royalty Reduction............................................................19
3.5 Third Party Royalties.............................................................................20
3.6 Obligations and Licenses After Royalty Term Expiration............................................21
3.7 Samples...........................................................................................21
3.8 One Royalty Payment...............................................................................21
3.9 Payment and Report Timing.........................................................................21
3.10 Payments to Sepracor..............................................................................22
3.11 Books and Records; Audits.........................................................................22
3.12 Reports and Invoices Conclusively Correct.........................................................23
3.13 No Reduction in Payments..........................................................................23
ARTICLE 4 PATENTS & TRADEMARKS..............................................................................23
4.1 Filing, Prosecution and Maintenance of Patent Rights..............................................23
(a) Prosecution by Sepracor......................................................23
(b) Option of Lilly to Prosecute and Maintain Patents............................24
</TABLE>
ii
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<TABLE>
<CAPTION>
<S> <C> <C>
4.2 Lilly and Joint Inventions........................................................................24
4.3 Enforcement of Patents............................................................................24
4.4 Consent for Settlement............................................................................25
4.5 Actions Against the Parties.......................................................................25
4.6 Trademarks........................................................................................25
4.7 Studies and Information in Support of Patent Rights...............................................25
ARTICLE 5 INFORMATION AND CONFIDENTIALITY...................................................................25
5.1 Confidential Information and Nondisclosure........................................................25
(a) Confidential Information.....................................................25
(b) Disclosure to Agents.........................................................26
5.2 Public Announcements..............................................................................27
ARTICLE 6 NOTICES...........................................................................................27
ARTICLE 7 TERM AND TERMINATION..............................................................................28
7.1 Term..............................................................................................28
7.2 Termination.......................................................................................28
7.3 Liquidation.......................................................................................31
ARTICLE 8 FORCE MAJEURE.....................................................................................31
ARTICLE 9 REPRESENTATIONS & WARRANTIES, COVENANTS...........................................................31
ARTICLE 10 INDEMNIFICATION.............................................................................................33
10.1 Lilly.............................................................................................33
10.2 Sepracor..........................................................................................33
10.3 Conditions of Indemnification.....................................................................33
ARTICLE 11 MISCELLANEOUS...............................................................................................34
11.1 Modifications.....................................................................................34
11.2 Assignments and Change of Control.................................................................34
11.3 Headings..........................................................................................34
11.4 Invalidity........................................................................................34
11.5 Governing Law.....................................................................................34
11.6 Waiver............................................................................................34
11.7 No Other Relationship.............................................................................34
11.8 Entire Understanding..............................................................................35
11.9 Responsibility for Taxes..........................................................................35
11.10 Compliance With Laws..............................................................................35
11.11 Counterparts......................................................................................35
11.12 Exhibits and Appendices...........................................................................35
</TABLE>
iii
<PAGE>
APPENDIX 1.2
APPENDIX 1.13
APPENDIX 2.4(a)
APPENDIX 3.3
APPENDIX 5.2
APPENDIX 9.2
iv
<PAGE>
EXCLUSIVE LICENSE AGREEMENT
THIS EXCLUSIVE LICENSE AGREEMENT (the "Agreement") is by and between
Eli Lilly and Company, a corporation organized and existing under the laws of
Indiana and having its principal place of business at Lilly Corporate Center,
Indianapolis, Indiana 46285 (hereinafter referred to as "Lilly")
and
Sepracor Inc., a Delaware corporation having its principal place of business at
111 Locke Drive, Marlborough, Massachusetts 01752 (hereinafter referred to as
"Sepracor"). Sepracor and Lilly are sometimes referred to herein individually as
a party and collectively as the parties. References to "Lilly" and "Sepracor"
shall include their respective Affiliates (which term is hereinafter defined).
WHEREAS, Sepracor possesses certain intellectual property rights and
regulatory filings relating to R-fluoxetine; and
WHEREAS, Lilly possesses extensive capabilities in marketing,
manufacturing, development and commercialization of pharmaceutical products,
including fluoxetine, on a worldwide basis; and
WHEREAS, Lilly desires to engage in research, development, marketing
and sale of pharmaceutical products involving R-fluoxetine as an active
ingredient; and
WHEREAS, Lilly desires to acquire from Sepracor, and Sepracor is
willing to grant to Lilly, an exclusive license under Sepracor's intellectual
property rights relating to R-fluoxetine, including patents and know-how, upon
the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual promises, terms and conditions hereafter set forth, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Lilly and Sepracor hereby agree as follows:
ARTICLE 1
DEFINITIONS
As used in this Agreement, the following terms, whether used in the
singular or plural, shall have the respective meanings set forth below:
1.1 Affiliate. "Affiliate" shall mean any individual or entity
directly or indirectly controlling, controlled by or under common control with,
a party to this Agreement.
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
For purposes of this Agreement, the direct or indirect ownership of greater than
[**] of the outstanding voting securities of an entity shall be deemed to
constitute control. An individual or entity shall be considered an "Affiliate"
only for so long as such control exists.
1.2 Basic Patent Rights. "Basic Patent Rights" shall mean rights
under any patents listed in Appendix 1.2 hereto, 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.
1.3 Business Day. "Business Day" shall mean a day on which banks are
open for business in both Marlborough, Massachusetts and Indianapolis, Indiana.
1.4 Calendar Year. "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.
1.5 Change of Control. "Change of Control" shall mean acquisition by
a third party of [**] or more of the stock of a party to this Agreement, or
transfer to a third party of Effective Control of a party to this Agreement as a
result of any other transaction. "Effective Control" means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of an entity, whether through the ownership of voting
securities, by contract or otherwise. Notwithstanding the applicability of the
foregoing, an entity which shall be consolidated pursuant to United States
Generally Accepted Accounting Principles ("GAAP") with either Lilly or Sepracor
shall be deemed under Effective Control for purposes of this Agreement.
1.6 Combination Product. "Combination Product" shall mean Product
which comprises two (2) or more active ingredients at least one (1) of which is
R-fluoxetine.
1.7 DDS Formulation. "DDS Formulation" shall mean Product based on a
drug delivery system that enables administration by a route other than oral
delivery, or which significantly alters release characteristics as compared to
conventional, non-controlled release oral formulations.
1.8 Dollars. "Dollar" shall mean lawful money of the United States of
America.
2
<PAGE>
1.9 Effective Date. "Effective Date" shall mean the latest of (a) the
date on which Sepracor executes this Agreement; (b) the date on which Lilly
executes this Agreement; and (c) if applicable, the next Business Day following
the expiration or earlier termination of any notice and waiting period wider the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.
1.10 First Commercial Sale. "First Commercial Sale" shall mean, with
respect to any Product, the first sale of Product by Lilly or Permitted
Sublicensee to an independent third party.
1.11 HSR Act. "HSR Act" shall mean the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
1.12 Improvement. "Improvement" shall mean any enhancement in the
formulation, ingredients, preparation, presentation, means of delivery, dosage,
package of, manufacture, or any new or expanded therapeutic indications(s) for
or uses of, Product or R-fluoxetine, in each case which is developed prior to or
during the term of this Agreement by or on behalf of Sepracor, or conceived
jointly by employees or agents of Sepracor and Lilly.
1.13 Improvement Patent Rights. "Improvement Patent Rights" shall
mean rights under any patent or patent application listed in Appendix 1.13
hereto, and any and all substitutions, continuations, divisions,
continuations-in-part, reissues, renewals, registrations, confirmations,
reexaminations, extensions including supplementary protection certificates,
foreign equivalents or counterparts, and other filings thereof, and any patent
or patent application, and any and all substitutions, continuations, divisions,
continuations-in-part, reissues, renewals, registrations, confirmations,
reexaminations, extensions including supplementary protection certificates,
foreign equivalents or counterparts, and other filings thereof, containing
claims that cover an Improvement.
1.14 Licensed Technology. "Licensed Technology" shall mean Patent
Rights, Sepracor Know-How, and Improvements.
1.15 Native R-fluoxetine Product. "Native R-fluoxetine Product" shall
mean Product that is neither Combination Product nor DDS Formulation.
1.16 NDA. "NDA" shall mean, with respect to the United States, a New
Drug Application filed with the United States Food and Drug Administration
seeking authorization to market Product in the United States, and with respect
to any country outside the United States, an application submitted to the
relevant drug regulatory authorities seeking authorization to market Product in
such country.
3
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
1.17 Net Sales. "Net Sales" shall mean, on a country by country
basis, with respect to a Product, the gross amount invoiced by Lilly or
Permitted Sublicensees to unrelated third parties, for the Product in the
country, less:
a. any [**];
b. any [**];
c. any [**]
d. any [**];
e. any [**]; and
f. any [**].
Such amounts shall be determined from the books and records of Lilly or any
United States Permitted Sublicensee maintained in accordance with United States
GAAP, or in the case of non- United States Permitted Sublicensees such other
similar applicable accounting standards, consistently applied. Lilly further
agrees in determining such amounts, it will use Lilly's then-current standard
procedures and methodology, including Lilly's then-current standard exchange
rate methodology for the translation of foreign currency sales into Dollars or
in the case of Permitted Sublicensees, similar methodology, consistently
applied. Lilly's standard exchange rate methodology will be consistent with that
used in Lilly's external financial reporting which shall be GAAP compliant or,
in the case of non-United States Affiliates and Permitted Sublicensees,
compliant with other similar applicable accounting standards.
(1) In the event that Product is sold as a Combination Product which
is [**] Net Sales of that Combination Product, for the purposes of determining
royalty payments, shall be determined by [**] shall be calculated [**]. It shall
be calculated by [**]. This calculation shall be performed on a
country-by-country basis for each country where Combination Product is sold.
(2) In the event that Product is sold as a Combination Product which
is [**], Net Sales of that Combination Product, for the purposes of determining
royalty payments shall be determined by [**] shall be calculated [**]. It shall
be calculated by [**]. This calculation shall be performed on a
country-by-country basis for each country where Combination Product is sold.
4
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
(3) In the event that Native R-fluoxetine Product is not sold at all
in a country, [**] of actual Net Sales of Combination Product in that country
shall be used for the purpose of determining royalty payments.
(4) Actual Net Sales of DDS Formulations shall be used for the
purpose of determining royalty payments.
For the purposes of this Section 1.17, the term "unit" shall mean a discrete
manufactured unit, such as a tablet, capsule, caplet, soft elastic gelatin
capsule, and the like.
1.18 Patent Rights. "Patent Rights" shall mean Basic Patent Rights
and Improvement Patent Rights.
1.19 Payment Period. "Payment Period" shall mean a calendar quarter
ending on March 31st, June 30th, September 30th, or December 31st.
1.20 Permitted Sublicensee. "Permitted Sublicensee" shall mean the
holder of any sublicense granted in writing pursuant to Section 2.1(b) of this
Agreement.
1.21 Phase I Clinical Study. "Phase I Clinical Study" shall mean a
clinical study conducted in accordance with good clinical practice ("GCP") in a
small number of healthy volunteers or patients designed or intended to establish
an initial safety profile, pharmacodynamics or pharmacokinetics of Product.
1.22 Phase III Clinical Study. "Phase III Clinical Study" shall mean
a human clinical trial involving Product conducted in accordance with 21 C.F.R.
ss. 312.21(c), or any successor thereto.
1.23 Product. "Product" shall mean any form or dosage of
pharmaceutical composition or preparation in final form (including Combination
Product and DDS Formulation) labeled and packaged for sale by prescription,
over-the-counter or any other method, which contains R-fluoxetine as an active
ingredient.
1.24 Proprietary Information. "Proprietary Information" 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 representations of data,
specifications, assembly procedures, schematics and other valuable information
of whatever nature, whether confidential or not, and all other scientific,
clinical, regulatory, marketing, financial and
5
<PAGE>
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 Proprietary 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 thirty (30) Business Days of
disclosure to the receiving party.
1.25 R-fluoxetine. "R-fluoxetine" shall mean any form (including,
without limitation, any salt, hydrate, crystalline structure or the like) of the
chemical compound known as the R(-) isomer of fluoxetine, also identified by the
chemical name (-)N-methyl-3-phenyl-3-[(oc,oc,oc-trifluoro-p-tolyl)-oxy]
- -propylamine, or any metabolite thereof.
1.26 Regulatory Application. "Regulatory Application" shall mean any
application or request necessary for the development, manufacture, distribution,
marketing, promotion, offer for sale, use, import, export or sale of Product,
including but not limited to, any applications or requests for: (i) approval of
Product, including any NDAs, and supplements and amendments thereto; (ii) pre-
and post-approval marketing authorizations (including any applications for
prerequisite manufacturing approval or authorization related thereto); (iii)
labeling approval; (iv) technical, medical and scientific licenses; and (v)
registrations or authorizations from 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 Product.
1.27 Sepracor Know-How. "Sepracor Know-How" shall mean any of
Sepracor's information and materials, relating to the research, development,
registration, manufacture, marketing, use or sale of R-fluoxetine or Product
which prior to or during the term of this Agreement are developed by or at the
request of Sepracor or in Sepracor's possession or control through license or
otherwise (provided that Sepracor is permitted to make disclosure thereof to
Lilly 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, processes, formulas, data, ideas,
skill, experience, inventions, technology, trade secrets, manufacturing
procedures, test procedures, purification and isolation techniques,
instructions, test data and other intellectual property (patentable or
otherwise) relating to R-fluoxetine or Product. 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 to R-fluoxetine;
(ii) assays and biological methodology necessary or useful for development,
manufacture, use or sale of R-fluoxetine or Product; and (iii) all applications,
registrations, licenses, authorizations, approvals and correspondences submitted
to or received from any
6
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
regulatory authorities with jurisdiction over an investigational drug containing
R-fluoxetine created by or for Sepracor (including, without limitation, minutes
and official contact reports relating to any communications with any regulatory
authority with jurisdiction over an investigational drug containing
R-fluoxetine).
1.28 United States. "United States" shall mean the United States of
America and its territories and possessions.
1.29 Valid Claim. "Valid Claim" shall mean, with respect to a
country, a claim of any unexpired patent, included within Patent Rights, in such
country 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 for appeal; or (ii) has not
been abandoned, disclaimed, or admitted to be invalid or unenforceable through
reissue.
ARTICLE 2
LICENSE; DISCLOSURE OF INFORMATION; DEVELOPMENT AND COMMERCIALIZATION
2.1 Exclusive License Grant.
(a) License. Sepracor hereby grants to Lilly, as of the Effective
Date, an exclusive, worldwide license (exclusive even as to Sepracor except as
may be required by Sepracor in order to comply with its obligations under this
Agreement) to discover, develop, make, have made, import, export, use,
distribute, market, promote, offer for sale and sell R-fluoxetine and Product
under Licensed Technology. In addition, Sepracor hereby grants to Lilly a right
of reference to Sepracor IND [**] as of the date this Agreement was fully
executed by the parties; provided, however, that such right of reference shall
be revoked in the event that this Agreement is not approved pursuant to the HSR
Act.
(b) Right to Sublicense. Lilly shall have the right to sublicense any
of the licenses granted under Section 2.1(a) through written sublicense
agreements only provided that Lilly remains responsible to Sepracor under this
Agreement, and each party granted a sublicense hereunder confirms in writing to
Lilly that it agrees to be bound by all of the terms and conditions contained in
the Agreement; provided further that any sublicense in the United States shall
require Sepracor's prior written consent, which shall not be unreasonably
withheld. Lilly shall have no other right to sublicense.
7
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
2.2 Sepracor Transfers and Disclosure of Information.
(a) Transfer of IND/On-Going Studies. Promptly after completion of
any on-going Phase I studies, Sepracor shall use reasonable efforts to transfer
Sepracor's IND [**] to Lilly. In addition, Sepracor shall proceed with the
orderly completion of any other on-going studies, including toxicology studies,
and transfer of any data or information arising therefrom, necessary to timely
and efficiently commence or complete any clinical studies. This obligation shall
also apply to any other Regulatory Application, data, or information in
Sepracor's possession or control for Product in any other country.
(i) With regard to Sepracor's on-going Phase I study identified
by Protocol [**], Lilly shall reimburse Sepracor for costs
and expenses incurred by Sepracor in connection with this
study the amount of [**] payable within [**] of the
Effective Date. Prior to payment by Lilly, Sepracor shall
provide to Lilly the amount of and supporting documentation
for any costs and expenses incurred by Sepracor before the
signing date of this Agreement, and estimates of costs and
expenses to be incurred after the signing date of this
Agreement.
(ii) With regard to Sepracor's Phase I study identified by
Protocol [**], Lilly shall promptly reimburse Sepracor for
reasonable direct costs and expenses, including direct costs
of time spent by Sepracor employees, incurred by Sepracor in
connection with this study. Sepracor shall provide Lilly
with an estimate of such costs and expenses. Sepracor shall
invoice Lilly 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 Lilly
of the invoice and supporting documentation.
(b) Disclosure of Sepracor Know-How.
(i) Except as provided in Section 2.2(a) above, promptly after
the Effective Date, Sepracor shall, at its own cost, use
good faith reasonable efforts to disclose to Lilly in
writing, or via mutually acceptable electronic media, copies
or reproductions of all written Sepracor Know-How reasonably
available to Sepracor not previously disclosed to Lilly in
order to enable Lilly to exploit the rights granted under
Section 2.1 of this Agreement.
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(ii) In addition, during the term of this Agreement, Sepracor
shall promptly disclose to Lilly in writing, or via
mutually acceptable electronic media, on an ongoing basis
copies or reproductions of all new written Sepracor
Know-How that is reasonably necessary to research, develop,
register, manufacture, market, use or sell R-fluoxetine or
Product. Such new Sepracor Know-How and other useful
information shall be automatically deemed to be within the
scope of the licenses granted herein without payment of any
additional compensation.
(iii) Upon Lilly's request, Sepracor shall provide reasonable
technical assistance and materials available to Sepracor to
enable Lilly to utilize Sepracor Know-How, provided that
Lilly shall promptly reimburse Sepracor for reasonable
direct costs and expenses, including direct costs of time
spent by Sepracor employees, incurred by Sepracor in
providing such technical assistance and materials. Sepracor
shall invoice Lilly 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 Lilly of the invoice and supporting documentation
provided, however, that such costs and expenses must be
identified prior to being committed to by Sepracor and
provided to Lilly to determine whether Lilly agrees to have
the technical assistance provided at such cost and the
final amount sought to be reimbursed shall not exceed by
[**] the estimated cost without Lilly's prior written
consent. Lilly shall be under no obligation to reimburse
Sepracor for costs and expenses incurred by Sepracor
without Lilly's agreement. Lilly shall have the right to
use for all purposes in connection with any Regulatory
Application for Product all Sepracor Know-How and other
information disclosed pursuant to this Section and under
this Agreement.
2.3 HSR Filing and Approvals.
(a) HSR Filing. To the extent necessary, each of Sepracor and Lilly
shall file, within [**] after the date of this Agreement with the Federal Trade
Commission and the Antitrust Division of the United States Department of Justice
any notification and report form (the "Report") required of it in the reasonable
opinion of either or both parties 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
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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 Lilly in eliminating any concern on the part of any court or
government authority regarding the legality of the transaction proposed herein,
including, if required by federal or state antitrust authorities, Lilly'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 regarding the legality of the transaction proposed herein and
promptly produce documents, witnesses, and information demanded by a request for
documents and witnesses if requested.
(c) Additional Approvals. Sepracor and Lilly will each cooperate and
use 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 Lilly's opinion for the consummation of
this Agreement as contemplated hereby including, without limitation, those acts
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 Lilly shall promptly
reimburse Sepracor for reasonable direct costs and expenses, including direct
costs of time spent by Sepracor employees, incurred by Sepracor in providing
such cooperation. Sepracor shall invoice Lilly 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 Lilly of the invoice and
supporting documentation provided, however, that such cost and expenses must be
identified prior to being committed to by Sepracor and provided to Lilly to
determine whether Lilly agrees to have the assistance provided at such cost and
the final amount sought to be reimbursed shall not exceed by [**] the estimated
cost without Lilly's prior written consent. Lilly shall be under no obligation
to reimburse Sepracor for costs and expenses incurred by Sepracor without
Lilly's agreement.
(d) Costs of Filings. Except as specifically provided in Section
2.3(c), each party shall be responsible for its own costs, expenses, and filing
fees associated with any of its filings under the HSR Act and any foreign
equivalent thereof.
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2.4 Lilly's Development Obligations.
(a) Lilly Diligence.
(i) At its own cost and expense, and subject to Sepracor's
compliance with its obligations under Sections 2.2(a),
2.2(b)(i), and 2.3(a), Lilly shall conduct preclinical
and clinical trials and apply for all governmental
approvals necessary to manufacture, sell, market, and
distribute Product, and to develop, submit Regulatory
Applications for, manufacture and commercialize Product
(such activities cumulatively referred to as
"Development"), in accordance with the Development Plan
appended hereto as Appendix 2.4(a) and incorporated
herein by reference. The parties acknowledge that lack
of diligence in Development of Product will diminish the
value of this Agreement to Sepracor; accordingly, Lilly
shall at all times put forth good faith commercially
reasonable efforts in connection with Development of
Product. Adherence to the timeline set forth in the
Development Plan is agreed by the parties to represent
good faith commercially reasonable efforts and sound
scientific judgment in Development of Product; provided,
however, that the parties understand and agree that the
timeline may from time to time be subject to reasonable
adjustment by Lilly in response to extenuating
circumstances not in the complete control of Lilly
including, but not limited to, force majeure, documented
changes in the requirements of regulatory agencies,
failed or inconclusive clinical studies, discovery of
unanticipated toxicity or adverse events of Product, or
a need for additional clinical studies to achieve
appropriate labeling of Product. Lilly shall use good
faith commercially reasonable efforts and sound
scientific judgment to fully exploit Product to the
extent of its commercial potential.
(ii) Subject to Section 2.4(a)(i) above, the parties
acknowledge and agree that all decisions including,
without limitation, decisions relating to Lilly's
research, development, registration, manufacture, sale,
commercialization, design, price, distribution,
marketing and promotion of Product covered under this
Agreement, shall be within the sole discretion of Lilly.
Sepracor acknowledges that Lilly is in the business of
developing, manufacturing and selling pharmaceutical
products and, subject to the provisions of Section
2.4(a)(i), nothing in this Agreement shall be construed
as restricting such business or imposing on Lilly the
duty to market and/or sell and exploit R-fluoxetine or
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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 Co-Promote In the United States. If there is no
generic Product on the market in the United States, or if the only generic
Products on the market in the United States are authorized by or on behalf of
Lilly, then Sepracor shall have an opportunity to co-promote Product in the
United States subject to the following paragraphs (i) and (ii).
(i) In the event that (A) Product is launched in the United
States and (B) Net Sales of Product worldwide is below [**]
in any year-long period commencing after the [**] of First
Commercial Sale in the United States, as calculated at the
end of each Payment Period, before the [**] of First
Commercial Sale in the United States (the "Trigger
Period"), then Sepracor shall have the right (but not the
obligation) to co-promote all forms of Product that have
been commercialized during each of the preceding [**] as of
the date Sepracor exercises its option to copromote during
the Trigger Period (hereinafter "Co-Promotion Product").
Such co-promote rights shall extend only to the United
States, and Sepracor shall use its own sales force. The
co-promotion rights, which may be exercised only once,
shall commence immediately upon the close of the Trigger
Period and shall terminate upon the earlier of: (1) the
[**] of First Commercial Sale in the United States; and (2)
the launch of third-party generic Product in the United
States without authorization from Lilly. Sepracor shall
notify Lilly of its intent to exercise this right within
[**] after receiving Lilly's relevant reports for the
fourth quarter of the Trigger Period; if within this [**]
period Sepracor does not provide Lilly with notice of its
intent to exercise its co-promotion right, the right to
co-promote shall terminate.
(ii) All months or years referred to in this subsection are
months or years after First Commercial Sale in the United
States. For the purposes of determining Net Sales of
Product worldwide during the [**], the parties shall (1)
meet promptly during the [**] to discuss sales levels of
Product during the [**], and (2) immediately upon the
conclusion of the [**], Lilly shall prepare a projection of
Net Sales for the [**]. Such projection shall comprise the
actual Net Sales worldwide for [**], and a projection of
Net
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Sales worldwide for [**] based upon actual Net Sales
worldwide for [**] and taking into consideration trend
tines, including historical demand and shipment trends,
normal and customary buying patterns, and Lilly's normal
inventory loading patterns, for Product.
(iii) If Sepracor exercises its right to co-promote Co-Promotion
Product in the United States, the parties shall negotiate
in good faith a co-promotion agreement, the terms of which
shall include the following:
(A) The amount of Net Sales of Co-Promotion Product during
the [**] Trigger Period shall be referred to
hereinafter as the "Sales Base". During the term of
the co-promotion Sepracor shall receive a royalty as
per Section 3.3 on the Net Sales of Co-Promotion
Product up to the Sales Base. With regard to Product
other than Co-Promotion Product, Sepracor shall
continue to receive royalties in accordance with
Article 3.
(B) Sales shall be booked by Lilly and Lilly shall
continue to control Product pricing decisions.
(C) Lilly shall continue to promote Product and both
parties shall use commercially reasonable efforts, to
be defined in the co-promotion agreement, to promote
Co-Promotion Product through in-person presentations
to physicians. Sepracor shall receive a co-promotion
fee equal to [**]; provided, however, that the parties
shall agree to equitably share the aggregate sales
force and non-sales force promotional expenses
targeted to incremental sales of Co-Promotion Product
in excess of the Sales Base.
(D) Sales aids and any other materials made available to
Lilly's sales force for use in promoting Co-Promotion
Product or training of Lilly's sales force shall be
made available to Sepracor. If any such materials are
created by Sepracor they shall be subject to Lilly's
prior written approval before use, which approval
shall not unreasonably be withheld. Sepracor shall use
Lilly trademarks in accordance with standards to be
provided by Lilly.
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(c) Research and Development Activities. Subject to and in accordance
with its diligence obligations set forth in Section 2.4(a), following the
Effective Date, Lilly shall be responsible, at its cost and expense, and in its
sole judgment, for all research and development activities which are necessary
to submit Regulatory Applications for and obtain marketing authorization for,
Product, and any post-approval studies required as a condition of obtaining any
marketing authorization for Product. In addition, Lilly shall be responsible for
any other studies (or portions of studies) necessary or desirable, in its sole
judgment, for maintaining any NDA, as well as any pre-marketing studies prior to
marketing authorization, and post-marketing studies conducted following
marketing authorization.
(d) Product Registrations: Pricing Reimbursement Approvals. Subject
to and in accordance with its diligence obligations set forth in Section 2A(a),
Lilly shall be responsible, at its cost and expense, and in its sole judgment,
for determining the appropriate regulatory strategy, for submitting Regulatory
Applications, obtaining and maintaining marketing authorizations, and for
obtaining and maintaining any pricing and reimbursement approvals required for
the sale of Product. Each Regulatory Application and each pricing and
reimbursement approval shall be placed in Lilly's name unless applicable law
requires, or Sepracor and Lilly otherwise agree, that an approval be solely or
jointly in the name of Sepracor. Sepracor agrees that notwithstanding such
Regulatory Application or pricing and reimbursement approval in its name, Lilly
retains the exclusive rights granted to Lilly in Section 2.1.
(e) Data. Lilly shall own all data arising out of studies performed
by or on behalf of Lilly under this Article 2.
(f) Assistance by Sepracor. In connection with any NDA, or other
Regulatory Application relating to Product, Sepracor shall, at Lilly's request
but reasonably subject to Sepracor's other business requirements, provide to
Lilly in a prompt manner responses to questions which have been raised by any
regulatory authority in connection with such Regulatory Application and further
provide to Lilly estimates of Sepracor's costs for rendering such assistance.
Sepracor shall assist Lilly from time to time, at Lilly's request but reasonably
subject to Sepracor's other business requirements, in the design and
implementation of clinical studies. Lilly shall reimburse Sepracor for its
reasonable direct costs and expenses, including direct costs of time spent by
Sepracor employees, incurred in rendering assistance under this Section 2.4(f).
Sepracor shall invoice Lilly 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 Lilly of the invoice and supporting
documentation, provided, however, that such costs and expenses must be
identified prior to being
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Securities and Exchange Commission. Asterisks denote omissions.
committed to by Sepracor and provided to Lilly to determine whether Lilly agrees
to have the assistance provided at such cost and the final amount sought to be
reimbursed shall not exceed by [**] the estimated cost without Lilly's prior
written consent. Lilly shall be under no obligation to reimburse Sepracor for
costs and expenses incurred by Sepracor without Lilly's agreement.
2.5 Independent Discoveries by Lilly. Sepracor acknowledges that Lilly has had
long ongoing research programs which may now or in the future independently
discover or develop technologies or products relating to treatment and
prevention of any disease, disorder or condition in humans or animals including
those related to R-fluoxetine and its manufacture. Sepracor agrees that such
technologies and products, to the extent discovered by Lilly without use of
Sepracor Know-How or Improvements, will not be deemed to be Sepracor Know-How or
Improvements.
2.6 Other Studies.
(a) After the Effective Date and during the term of this Agreement,
Sepracor shall have the right to conduct process research, formulation research,
and preclinical studies involving R-fluoxetine in support of Patent Rights, and
to disclose the results of such studies pursuant to Sections 5.1(a)(iv) or (v)
and in furtherance of this Agreement, unless Lilly shall establish to Sepracor's
reasonable satisfaction that such disclosure would materially adversely affect
Lilly's interest in Product; provided that prior to First Commercial Sale,
disclosure of the results of any such studies are first notified to Lilly; and
provided, further that prior to initiating any preclinical studies (whether
conducted prior to or after First Commercial Sale), Sepracor shall obtain
Lilly's prior written approval, which will not be unreasonably withheld.
(b) Except as provided in Section 2.6(a), prior to First Commercial
Sale, Sepracor shall not initiate further studies, process research, formulation
research or preclinical or clinical trials with R-fluoxetine without the express
written consent of Lilly, including the prior written approval of any protocols
to be used and any amendments thereto. Sepracor shall request Lilly's written
consent by complying with the notice provisions of Article 6, and Lilly may
grant or withhold such consent in its sole discretion.
(c) Sepracor and Lilly acknowledge that all Sepracor research results
under Sections 2.6(a) and (b) shall constitute Sepracor Know-How; accordingly,
Sepracor shall provide to Lilly the results from such research and any
background information requested, at no additional cost or royalty. Sepracor
shall be permitted to disclose such results to third parties only as provided
under Section 5.1 below. At the option of Lilly, Lilly may have its
representative(s) monitor or assist with any preclinical,
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clinical or other studies approved by Lilly as provided in Section 2.6(b) and
conducted by Sepracor.
(d) Sections 2.6(a) and (b) notwithstanding, nothing in this
Agreement shall be construed to restrict or limit Sepracor's right to use
Product obtained from commercial sources in clinical trials following First
Commercial Sale provided that no Proprietary Information is utilized by Sepracor
in violation of this Agreement.
2.7 Progress Reports to Sepracor. During the term of this Agreement, Lilly shall
provide Sepracor with quarterly written reports, including a meaningful summary
of Development (including summary results from preclinical and clinical trials
conducted on Product) and registration progress under this Agreement. Such
reports shall also detail progress of Development against the timeline of the
Development Plan, any adjustments to the timeline, and the reasons for such
adjustments.
2.8 Conversion of License. Any other provision in this Agreement
notwithstanding, upon the conversion of any of the licenses granted herein to
fully paid up non-exclusive licenses pursuant to Section 3.6 or Section 7.1, as
appropriate, Sepracor shall not engage in sale of Product for [**] from the date
of conversion of the license. In addition, Sepracor shall not use Lilly
Confidential Information in violation of this Agreement.
ARTICLE 3
PAYMENTS; ROYALTIES AND REPORTS
3.1 Consideration for License. In partial consideration for the
licenses and rights granted to Lilly hereunder, Lilly shall pay to Sepracor a
non-refundable, non-creditable license fee ("License Fee") of [**], which
payment shall be due within [**] following the Effective Date.
3.2 Milestones for License. In partial consideration for the licenses
granted to Lilly hereunder, Lilly shall pay to Sepracor milestone payments up to
a total amount of [**] as set forth below:
(a) [**] for initiation of the first Phase I Clinical Study for
Product payable within [**] following the Effective Date;
(b) [**] within [**] following initiation of the first Phase III
Clinical Study for a Product; and
(c) [**] within [**] following First Commercial Sale in the United
States.
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All milestones shall be payable only once irrespective of the number of Products
that have achieved the milestone events set forth in (a), (b) and (c) above, and
once a milestone payment is due or paid it shall be non-refundable and shall not
be creditable against any payments that may become payable by Sepracor to Lilly,
subject to Section 3.13.
3.3 Royalties, United States.
(a) Royalty Rates. Lilly agrees to pay Sepracor, for the rights
granted to Lilly with respect to Product pursuant to Section 2.1 above, a
royalty for Product sold in the United States by or on behalf of Lilly,
Permitted Sublicensees or assigns. Such royalty shall be payable commencing upon
First Commercial Sale in the United States by or on behalf of Lilly, Permitted
Sublicensees or assigns. Such royalty for United States sales shall be:
(i) [**] in the United States in the relevant Calendar Year
[**] in that Calendar Year; and
(ii) [**] in the United States in the relevant Calendar Year
[**] in that Calendar Year [**]; and
(iii) [**] in the United States in the relevant Calendar year
[**] in that Calendar Year in [**].
An example royalty calculation is set forth in Appendix 3.3.
(b) Term of Royalty Obligations. Subject to Sections 3.3(c) and
3.3(d) below, the royalty described in Section 3.3(a) shall be payable on Net
Sales of a Product until the date upon which a generic equivalent of such
Product, approved without authorization of Lilly, is launched in the United
States; provided, however, that in the event that royalties are reduced pursuant
to Section 3.3(d) in respect of a Product, royalties on such Product shall be
payable until the date which is the earlier of(i) ten (10) years after the First
Commercial Sale of the first Product and (ii) the date upon which a generic
equivalent of such Product, approved without authorization of Lilly, is launched
in the United States.
(c) Royalty Increase Date. The royalty described in Section 3.3(a)
shall be [**]; provided however if approval or launch of generic racemic
fluoxetine is delayed or does not occur due to actions by Lilly or an agreement
involving Lilly (except for Lilly's defense of its own patents), then the
Royalty Increase Date shall be the later of [**]. Until the Royalty Increase
Date all royalties on Net Sales of Product in the
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United States shall be calculated on the basis of the royalty rate of Section
3.3(a)(i), irrespective of the amount of worldwide Net Sales of Product.
(d) Royalty Reductions. In respect of those Products for which no
Valid Claim of Improvement Patent Rights covers such Product, the royalty in
Section 3.3(a) shall be reduced by [**] from and after the time, if any, that
Basic Patent Rights expire or are rendered invalid, unenforceable, or not
patentable to Sepracor as a result of an executed decision from an
administrative or legal action brought by or on behalf of a third party and with
no involvement of Lilly, but only for so long as such executed decision shall
remain in effect; provided, however, that such royalty shall not be reduced to
less than [**] of Net Sales of Product. Additionally, as regards Combination
Product not covered by a Valid Claim of Improvement Patent Rights but covered by
a Valid Claim of a patent owned or controlled by Lilly which claims, generically
or specifically, (i) a non-R-fluoxetine active ingredient of such Combination
Product as a composition of matter, (ii) the labeled use of a non-R-fluoxetine
active ingredient of such Combination Product, (iii) the Combination Product
itself as a composition of matter, or (iv) the labeled use of such Combination
Product, the royalty of Section 3.3(a) shall be eliminated from and after the
later of (A) the date that Basic Patent Rights expire or are rendered invalid,
unenforceable, or not patentable to Sepracor as a result of an executed decision
from an administrative or legal action brought by or on behalf of a third party
with no involvement of Lilly, and (B) the date of launch in the United States of
a third party generic equivalent of Native R-fluoxetine Product not authorized
by Lilly.
The provisions of this Section 3.3 that call for reduction or elimination of
royalties when particular Patent Rights are rendered invalid, unenforceable, or
not patentable to Sepracor shall be referred to as "patent invalidation royalty
reduction provisions".
For the avoidance of any doubt, the parties expressly agree that royalties
payable to Sepracor shall not be reduced or eliminated pursuant to the patent
invalidation royalty reduction provisions of this Section 3.3(d) concerning
Basic Patent Rights if Basic Patent Rights are rendered invalid, unenforceable,
or not patentable to Sepracor in an administrative or legal action (including
but not limited to reexamination, reissue, or interference) brought by, on
behalf of or at the direction of, or in whole or in part by, Lilly or a
Permitted Sublicensee, or involving Lilly or a Permitted Sublicensee as a party
provided that Lilly or Permitted Sublicensee is not made a party to such
administrative or legal action due to the actions of another party thereto.
The parties further agree that royalties on a Product that at the time of sale
is not, but once was, covered by a Valid Claim of Improvement Patent Rights
shall not be
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reduced or eliminated pursuant to the patent invalidation royalty reduction
provisions of this Section 3.3(d) concerning Improvement Patent Rights if such
Valid Claim was rendered invalid, unenforceable, or not patentable to Sepracor
in an administrative or legal action (including but not limited to
reexamination, reissue, or interference) brought by, on behalf of or at the
direction of, or in whole or in part by, Lilly or a Permitted Sublicensee, or
involving Lilly or a Permitted Sublicense as a party provided that Lilly or
Permitted Sublicensee is not made a party to such administrative or legal action
due to the actions of another party thereto.
For the purposes of this Section, a Valid Claim of Improvement Patent Rights
shall be deemed to cover a Product if the sale or use of such Product would be
within the scope of such Valid Claim in accordance with the established
principles of patent claim interpretation in the United States.
3.4 Royalties, Outside the United States.
(a) Royalty Rate. Lilly agrees to pay Sepracor, for the rights
granted to Lilly with respect to Product pursuant to Section 2.1 above, a
royalty for Product sold outside the United States by or on behalf of Lilly or
its Permitted Sublicensees or assigns. Such royalty shall be payable on a
country by country basis commencing upon First Commercial Sale in such country
by or on behalf of Lilly or its Permitted Sublicensees or assigns. Such royalty
shall be, on a country by country basis:
(i) [**] in the relevant Calendar Year [**] in that Calendar
Year[**]; and
(ii) [**] in the relevant Calendar Year [**] in that Calendar
Year [**]; and
(iii) [**] in the relevant Calendar Year [**] in that Calendar
Year [**].
(b) Term of Royalty Obligations. In the event that a Valid Claim of
Improvement Patent Rights covering a Product exists in a particular country, the
royalty described in Section 3.4(a) shall be payable for Net Sales of such
Product in a country until the earlier of the date upon which such Valid Claim
expires or is rendered invalid or deemed unpatentable to Sepracor in a judicial
or administrative proceeding from which no appeal can be taken or the date upon
which a generic equivalent of such Product, approved without authorization of
Lilly, is launched.
(c) Royalty Reduction. In the event that, or from and after the date
after which, no Valid Claim of Improvement Patent Rights covering a Product
exists in a
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particular country, the royalty described in Section 3.4(a) shall be reduced by
[**] in such country (but shall not be reduced to less than [**]) and be payable
for Net Sales of such Product in such country until the later of(i) the date
which is five (5) years after the date of First Commercial Sale of the first
Product in such country, and (ii) the date of expiration of Lilly's regulatory
exclusivity in respect of such Product in such country. Additionally, as regards
Combination Product not covered by a Valid Claim of Improvement Patent Rights
but covered by a Valid Claim of a patent owned or controlled by Lilly, which
Valid Claim claims, generically or specifically, (i) a non-R-fluoxetine active
ingredient of such Combination Product as a composition of matter, (ii) the
labeled use of a non-R-fluoxetine active ingredient of such Combination Product,
(iii) the Combination Product itself as a composition of matter, or (iv) the
labeled use of such Combination Product, the royalty of Section 3.4(a) shall be
eliminated from and after the date of launch in the country in question of a
generic equivalent of Native R-fluoxetine Product by a third party not
authorized by Lilly.
The provisions of this Section 3.4 that call for reduction or elimination of
royalties when particular Patent Rights are rendered invalid, unenforceable, or
not patentable to Sepracor shall be referred to as "patent invalidation royalty
reduction provisions".
The parties further agree that royalties on a Product that at the
time of sale is not, but once was, covered by a Valid Claim of Improvement
Patent Rights shall not be reduced or eliminated pursuant to the patent
invalidation royalty reduction provisions of this Section 3.4 concerning
Improvement Patent Rights if such Valid Claim was rendered invalid,
unenforceable, or not patentable to Sepracor in an administrative or legal
action (including but not limited to reexamination, reissue, opposition, or
interference) brought by, on behalf of or at the direction of, or in whole or in
part by, Lilly or a Permitted Sublicensee, or involving Lilly or a Permitted
Sublicensee as a party provided that Lilly or Permitted Sublicensee is not made
a party to such administrative or legal action due to the actions of another
party thereto.
For the purposes of this Section, a Valid Claim of Improvement Patent Rights
shall be deemed to cover a Product if the sale of such Product would be within
the scope of such Valid Claim in accordance with the established principles of
patent claim interpretation of the jurisdiction where the Valid Claim applies.
3.5 Third Party Royalties. In the event that third party patent
licenses are required by Lilly or its Permitted Sublicensees in order to make,
have made, use or sell a DDS Formulation in any country, Lilly shall be solely
responsible for acquiring such licenses at Lilly's sole discretion and Lilly may
deduct [**]; provided, however,
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that Lilly may not deduct more than [**], and further provided, however, that
such deduction may be made by Lilly in respect of sales in a country only if
there exists no Valid Claim of Basic Patent Rights in such country, there exists
no Valid Claim of Improvement Patent Rights covering such DDS Formulation in
such country, and only from and after the time of launch in such country of a
generic equivalent of Native R-fluoxetine Product by a third party not
authorized by Lilly.
3.6 Obligations and Licenses After Royalty Term Expiration. On a
country by country and Product by Product basis, after the royalty term expires
under this Article 3 in a country, Lilly shall have no further obligation to pay
any royalty in such country on the Net Sales of such Product pursuant to Article
3 hereof, and the licenses granted to Lilly under this Agreement shall become
fully paid up non-exclusive licenses as regards such Product in such country.
3.7 Samples. No royalties shall accrue on the disposition of Product
by Lilly or its Permitted Sublicensees free of charge 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 Lilly free of charge shall not be included in the determination
of Net Sales.
3.8 One Royalty Payment. Only one royalty will be due on Net Sales
even though the manufacture, use or sale of Product may be covered by more than
one of Basic Patent Rights or Improvement Patent Rights in a country as licensed
under this Agreement.
3.9 Payment and Report Timing. Lilly shall remit royalty payments
under this Article 3, in Dollars, within [**] of the end of each Payment Period,
beginning with the first Payment Period after First Commercial Sale; provided,
however, that if Lilly enters an agreement with a third-party having terms
similar to those in this Agreement, wherein the royalty remittance period is
less than [**], such shorter remittance period shall be automatically applied to
this Agreement. With each payment, Lilly shall deliver to Sepracor a written
report describing, for the applicable Payment Period:
(a) the total worldwide Net Sales for Product;
(b) the Net Sales for Product on a country by country basis for the
top eight countries, and the number and description of each Product sold by or
on behalf of Lilly or Permitted Sublicensees or assigns during such Payment
Period for each of the top eight countries, and the exchange rate used to
convert sales from local currency to Dollars; and
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
(c) the total royalty due.
3.10 Payments to Sepracor.
(a) All payments to Sepracor pursuant to this Agreement shall be made
by wire transfer, to Fleet Bank of Massachusetts, 75 State Street, Boston,
Massachusetts 02109 [**] 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 account
(d) All payments due to Sepracor hereunder but not paid by Lilly on
the due date thereof shall bear interest (in Dollars) at the rate which is the
lesser of: (i) [**]; and (ii) [**]. 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.
3.11 Books and Records; Audits.
(a) Lilly shall keep and maintain, and shall cause 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 Article 3 to be determined. Upon [**] prior written notice from Sepracor,
Lilly 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 audit pertinent books and records of Lilly, its
Permitted Sublicensees and assigns as may be reasonably necessary to verify the
accuracy of the royalty reports hereunder. The audit shall be limited to
pertinent books and records for any year ending not more than [**] prior to the
date of such request. Such audit shall be at Sepracor's expense unless the
examination should establish that Lilly's payment of such royalties for the
period examined were in error by [**] or more of the royalties which should have
been paid, in which case Lilly shall be responsible for the reasonable expenses
of such audit. An audit under this Section 3.11 shall not occur more than once
in any calendar year. Lilly may designate competitively sensitive information,
which such auditor may not disclose to Sepracor, provided, however,
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
that such designation shall not encompass the auditor's conclusions, whether the
royalty reports are correct or incorrect, or the specific details concerning any
discrepancies.
(b) Prompt adjustment shall be made by Lilly or Sepracor, as
appropriate, to compensate the other for any errors or omissions revealed by an
audit under this Section 3.11. Information obtained during the course of such an
audit shall be kept confidential by Sepracor and its agents, except to the
extent necessary to enforce Sepracor's rights hereunder.
3.12 Reports and Invoices Conclusively Correct. All reports, invoices
and payments not disputed as to correctness by Sepracor within three (3) years
after receipt thereof shall thereafter conclusively be deemed correct for all
purposes.
3.13 No Reduction in Payments. No part of any amount payable to
Sepracor under this Agreement may be reduced due to any counterclaim, set-off,
adjustment or other right which Lilly might have against Sepracor, any other
party or otherwise, except for adjustments pursuant to Section 3.11(b), or
amounts due from Sepracor to Lilly pursuant to a final judgment entered against
Sepracor arising from Sepracor's violation of the terms or conditions of this
Agreement.
ARTICLE 4
PATENTS & TRADEMARKS
4.1 Filing, Prosecution and Maintenance of Patent Rights.
(a) Prosecution by Sepracor. Sepracor agrees to diligently file,
prosecute and maintain, all Patent Rights owned in whole or in part by Sepracor
and licensed to Lilly under this Agreement. Sepracor shall supply Lilly with a
copy of the applications as filed, together with notice of its filing date and
serial number. Sepracor shall keep Lilly regularly advised of the status of
pending patent applications (including, without limitation, the grant of any
Patent Rights), and upon the written request of Lilly shall provide copies of
any substantive papers as filed related to the filing, prosecution and
maintenance of such patent filings. All information, papers, and other materials
provided by Sepracor in accordance with this section shall be subject to the
confidentiality provisions of this Agreement.
(b) Option of Lilly to Prosecute and Maintain Patents. Sepracor shall
give [**] notice to Lilly of any desire to cease prosecution and/or maintenance
of a particular Patent Right and, in such case, shall permit Lilly, at its sole
discretion, to continue prosecution or maintenance at its own expense. If Lilly
elects to continue
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prosecution or maintenance, Sepracor shall execute such documents and perform
such acts, at Lilly's expense, as may be reasonably necessary to effect an
assignment of such Patent Rights to Lilly. Any such assignment shall be
completed in a timely manner to allow Lilly to continue such prosecution or
maintenance. Any patents or patent applications so assigned shall not be
considered Patent Rights.
4.2 Lilly and Joint Inventions. Any patentable inventions made by
Lilly in the course of performing its obligations under this Agreement will be
owned by and be the sole responsibility of Lilly. Any patentable inventions made
jointly as a result of the parties performing obligations under this Agreement
will be jointly owned by the parties, and each party may make, use, offer to
sell, or sell the invention without the consent of or accounting to the other
party, subject to the provisions of Section 2.1. The parties shall cooperate to
cause the filing of one or more patent applications covering any such joint
inventions, and counsel selected for preparation, filing, and prosecution of any
joint patent application(s) will be mutually acceptable to the respective
parties. Expenses and costs for filing, prosecuting and maintaining any such
joint patent application(s) shall be shared.
4.3 Enforcement of Patents. In the event that either Lilly or
Sepracor becomes aware of any infringement of any issued patent within the
Sepracor Patent Rights, which infringement involves Product, 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, which may
include filing suit, against the third party infringer. Sepracor shall bear all
expense of any suit brought by it Lilly shall have 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 Lilly 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 Lilly. In the event that Lilly has not joined the suit or action, Lilly will
reasonably cooperate with Sepracor in preparing and presenting any such suit or
action and shall have the right to consult with Sepracor and be represented by
its own counsel at Lilly's own expense. Any recovery or damages derived from a
suit which Lilly has joined and shared costs shall be used first to reimburse
each of Sepracor and Lilly for its documented out-of-pocket legal expenses
relating to the suit, with any remaining compensatory damages to be treated as
Net Sales and any punitive damages to be shared equally by the parties. Any
recovery or damages derived from a suit which Lilly has not joined shall be
retained by Sepracor.
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Confidential Materials omitted and filed with the
Securities and Exchange Commission. Asterisks denote omissions.
If the third party continues to infringe and Sepracor does not
initiate such action within [**] of the date of notice referred to in the
immediately preceding paragraph, then Lilly may at its option initiate and
control action or bring suit against the third party infringer. Lilly shall bear
all the costs and expenses of any such action or suit. Sepracor shall cooperate
with Lilly in preparing and presenting such action or suit, provided that Lilly
shall reimburse all Sepracor's direct cost and expenses, including direct costs
of time spent by Sepracor employees, incurred in providing such cooperation. Any
recovery or damages derived from such an action or suit shall be retained by
Lilly.
4.4 Consent for Settlement. Neither party shall enter into any
settlement or compromise which would in any manner alter, diminish or be in
derogation of the other party's rights under this Agreement without the prior
written consent of such other party. Any settlement amounts paid by Lilly and as
mutually agreed upon by the parties will be deducted from Net Sales.
4.5 Actions Against the Parties. If any third party brings suits or
actions against either party asserting any patent infringement related to
Product, both parties will consult with each other to determine the measures of
defense.
4.6 Trademarks. Lilly will own and be responsible for all trademarks
related to the marketing of Product and will be responsible for registering,
defending and maintaining such trademarks.
4.7 Studies and Information in Support of Patent Rights.
Notwithstanding any provision to the contrary in this Agreement, Sepracor shall
have the right to use and disclose, in accordance with Section 5.1(a)(iv) or (v)
any Sepracor Know-How and Improvements at its sole option and discretion for the
limited purpose of filing, prosecuting, and supporting Patent Rights; provided,
however, that Sepracor provide prior written notification to Lilly of any such
disclosure.
ARTICLE 5
INFORMATION AND CONFIDENTIALITY
5.1 Confidential Information and Nondisclosure.
(a) Confidential Information. All information generated and relating
to the research, development, registration for approval, marketing or sale of
R-fluoxetine or Product as well as the terms of this Agreement is confidential
information and will not be communicated by Lilly or Sepracor to any third
parties during the term of this
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Agreement without the express written consent of the nondisclosing party except
for information which:
(i) is already known to the receiving party as evidenced by
their own written records prior to receipt under this
Agreement; or
(ii) is disclosed to the receiving party by a third party who
has the right to make such disclosure; or
(iii) is or becomes part of the public domain through no fault
of the receiving party; or
(iv) 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 to market
R-fluoxetine or Product, but such disclosure may be made
only to the extent reasonably necessary to obtain such
patents or authorizations; or
(v) is required to be disclosed to a government agency
anywhere in the world for legitimate commercial or legal
purposes, relating to, inter alia, drug registration,
marketing, tax filings and patent applications (including
but not limited to filing and prosecution thereof)
provided the party required to make any such disclosure
first notifies the other party allowing for comment prior
to disclosure, and further provided that disclosures in
connection with tax filings may be made without prior
notification to the other party.
The parties agree to cooperate in good faith to provide any information
reasonably necessary to any disclosure made pursuant Sections 5.1(a)(iv) and
(v).
(b) Disclosure to Agents. Notwithstanding the provisions of Section
5.1(a) and subject to the other terms of this Agreement, each party shall have
the right to disclose confidential information to its Permitted Sublicensees,
agents, auditors, investment bankers, or consultants (collectively "Agents") in
accordance with this Section 5.1(b). Any such Agents must agree in writing to be
bound by 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
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
than the term of this Agreement. As appropriate, each party shall be jointly and
severally liable for any disclosure of the other party's confidential
information by Agents.
5.2 Public Announcements. Neither party will issue any press release,
publication, or any other public announcement relating to this Agreement without
obtaining the other party's prior written approval, which approval will not be
unreasonably withheld. The parties shall issue a joint press release regarding
this Agreement, which has been agreed to by Sepracor and Lilly and which is
attached hereto as Appendix 5.2. During the term of this Agreement Lilly shall
publicly announce, or permit Sepracor to publicly announce, commencement and
completion of the major phases of clinical development of Product, including but
not limited to Phase II and Phase III clinical trials, NDA submission, NDA
filing, approvable and approval letters, and launch; provided, however, that the
parties shall cooperate in good faith to prepare mutually acceptable
announcements prior to release. The parties further agree to use reasonable
efforts to keep terms of this Agreement confidential including with respect to
public filings to the extent that confidential treatment may be available
through regulatory authorities. Lilly will have the right to redact, to the
extent permitted by law, the copy of the Agreement provided to the SEC;
provided, however, that Lilly shall provide Sepracor with its proposed redacted
copy of the Agreement within [**] of the Effective Date. Notwithstanding any of
the foregoing, each party may use the substance of previously approved public
announcements and the substance of other public announcements of the other party
without prior notice.
ARTICLE 6
NOTICES
Any notices, report or communication required or permitted to be
given by either party hereunder shall be deemed sufficiently given, if received
in person or received by facsimile transmission, followed by courier or mailed
by registered mail, return receipt requested, and addressed to the party to whom
notice is given and received as follows:
If to Lilly: Eli Lilly and Company
Lilly Corporate Center
Indianapolis, IN 46285
Attn: V.P., General Counsel
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
If to Sepracor: Sepracor Inc.
111 Locke Drive
Marlborough, MA 01782
Attn: General Manager, Pharmaceuticals
ARTICLE 7
TERM AND TERMINATION
7.1 Term. This Agreement will start on the Effective Date and remain
in effect as follows:
(a) until the later of the expiration of Patent Rights (including
extensions thereof) and the terms during which royalties are payable pursuant to
Article 3; or
(b) until terminated under Section 7.2 or 7.3.
Upon termination under Section 7.1(a) above, Lilly will have a paid-up,
royalty-free, non-exclusive license to use, sell, make or have made Product
under Sepracor Know-How.
7.2 Termination.
(a) If either party commits a material breach of this Agreement, the
other party shall have the right to terminate this Agreement by giving written
notice of termination to the breaching party in sufficient detail to ascertain
and respond to the alleged breach. Termination shall take effect [**] after
receipt of such notice unless the breach is corrected within the same time
period, except as otherwise provided in Section 7.2(c).
(b) If Sepracor terminates because of a material breach by Lilly
which is not cured within [**] after written notification of breach, then the
following shall apply: All rights and licenses granted by Sepracor to Lilly
hereunder shall immediately be revoked and reconveyed to Sepracor, and Lilly
shall have no right to any continued use of Licensed Technology. Lilly, upon
request of Sepracor and free of charge, shall execute any document reasonably
necessary to return to Sepracor or any person or organization designated by
Sepracor, the Licensed Technology including documents submitted to any
governmental regulatory agency for purposes of seeking marketing authorization
for Product, or making, using or selling Product. Moreover, all written Sepracor
Know-How and written Proprietary Information communicated to Lilly shall be
reconveyed to Sepracor. Lilly shall, to the extent permitted under the same
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
terms and conditions as Lilly is licensed, grant Sepracor a sublicense to make,
have made, use, or sell Product under any third party patents covering
manufacture, use, or sale of R-fluoxetine that Lilly may be licensed under.
Lilly shall grant to Sepracor a royalty free, exclusive license to make, have
made, use, or sell Product under any patents that may be owned by Lilly covering
manufacture, use, or sale of R-fluoxetine. Lilly shall transfer and grant to
Sepracor a royalty free, exclusive license to all R-fluoxetine information,
including but not limited to, results, data, and reports containing the same,
generated or otherwise possessed by Lilly and created prior to termination of
this Agreement, including also the right to read and reference all Native
R-fluoxetine Regulatory Applications. Any studies in progress pursuant to the
Development Plan shall be transferred to Sepracor in a manner that allows such
studies to continue uninterrupted to the extent reasonable and practical. In the
event that Lilly does not have a toxicology package satisfactory to the U.S. FDA
for approval of Native R-fluoxetine, to transfer to Sepracor, and Lilly does not
have in progress the toxicology studies necessary for a such toxicology package,
then Lilly shall grant Sepracor the right to reference the preclinical
toxicology section of Lilly's NDA for fluoxetine only for the purpose of
regulatory bridging. Lilly shall not be liable to Sepracor for any reason
whatsoever as a consequence of Sepracor's utilizing any information or documents
(one copy of which shall be retained by Lilly for legal purposes only) conveyed
as provided in this paragraph. For avoidance of doubt, Sepracor shall not have
access to fluoxetine regulatory files, information or data belonging to Lilly
except as otherwise provided above.
(c) The provisions of Sections 7.2(a) and 7.2(b) above
notwithstanding, if Lilly fails to substantially adhere to the timeline set
forth in the Development Plan in accordance with Section 2.4(a) and sound
scientific judgment and commercial reasonableness, then Sepracor shall have the
right to give Lilly written notice thereof stating in reasonable detail the
particular diligence failure(s). Lilly shall have a period of [**] from the
receipt of such notice to meet with Sepracor to discuss the activities that are
being pursued to address the failure of diligence. In any event, Lilly shall
initiate a program to address the failure of diligence within [**] from Lilly's
receipt of such notice, and the period for Lilly to cure the lack of diligence
shall not be longer than [**] from Lilly's receipt of such notice. If Lilly is
determined to have failed to meet the diligence obligations of this Agreement,
or to have unreasonably adjusted the timeline for Development of Product,
Sepracor shall have the right to terminate this Agreement. At Sepracor's
election, the provisions of Section 7.2(b) above shall apply.
(d) If Lilly terminates because of a material breach by Sepracor
which is not cured within [**] after written notification of breach, then
Sepracor, upon request of Lilly and free of charge, shall execute any document
reasonably necessary to transfer
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
to Lilly or any person or organization designated by Lilly, the necessary rights
in Licensed Technology concerning and related to Product including documents
submitted to any governmental regulatory agency for purposes of making, using or
selling Product, and Lilly shall have the exclusive, royalty free, worldwide
right to use such Licensed Technology as Lilly deems appropriate to make, use
and sell Products. Sepracor, upon request of Lilly and free of charge, shall
execute any document necessary to return to Lilly or any person or organization
designated by Lilly, the Licensed Technology and rights thereto including
documents submitted to any governmental regulatory agency for purposes of
supporting Product. Moreover, all written Lilly know-how and written Proprietary
Information communicated to Sepracor shall be promptly returned to Lilly.
Sepracor shall not be liable to Lilly for any reason whatsoever as a consequence
of Lilly's utilizing any information, documents (one copy of which may be
retained by Sepracor for legal purposes only) Patent Rights or Sepracor Know-How
as provided in this paragraph.
(e) Lilly may terminate this Agreement it, in its sole discretion, it
determines to not develop, register or have developed or registered Product by
giving Sepracor [**] written notice. In the event of such a termination, the
provisions of Section 7.2(b) above shall apply. Lilly shall not be liable to
Sepracor for any reason whatsoever as a consequence of Sepracor's utilization of
any information, documents (one copy of which shall be retained for legal
purposes only) or Sepracor Know-How returned to Sepracor under this paragraph.
The right of either party to terminate this Agreement as herein above provided
shall not be affected in any way by its waiver of or failure to take action with
respect to any previous default. Any such termination shall be without prejudice
to any further rights and remedies vested in the parties. The license rights
granted herein shall survive the bankruptcy or reorganization of either party.
(f) Termination of this Agreement for any reason, except as under
Section 7.2, shall be without prejudice to:
(i) the rights and obligations hereunder that survive
termination, such as Article 5;
(ii) any other remedies which either party may then or
thereafter have hereunder; and
(iii) either party's obligation to make any payments due
pursuant to this Agreement which accrue prior to
termination, and at the time of termination, all such
payments due shall be made in full.
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7.3 Liquidation. If one of the parties shall go into liquidation,
other than for the purpose of a bona fide reorganization, or a receiver or
trustee be appointed for its property or estate, or if such party shall make an
assignment for the benefit of its creditors, and whether or not any of the
aforesaid acts be the outcome of a voluntary act of that party, the other party
shall be entitled to terminate this Agreement forthwith by written notice to the
first party.
ARTICLE 8
FORCE MAJEURE
Neither of the undersigned parties shall be liable for failure to
perform its obligations under this Agreement when occasioned by contingencies
beyond its control, such as strikes or other work stoppages, lock-outs, riots,
wars, delay of third-party carriers, acts of God, such as fire, floods, storms,
and earthquakes. Each party will notify the other immediately should any such
contingency occur.
ARTICLE 9
REPRESENTATIONS & WARRANTIES, COVENANTS
9.1 Each Party represents and warrants that:
(i) it is a corporation or entity duly organized and validly
existing under the law of the state of its incorporation;
(ii) it has the full authority to enter into and perform all of
the duties and obligations contemplated under this
Agreement;
(iii) the execution, delivery and performance of this Agreement
by it has been duly authorized by all requisite corporate
action, subject only to approval of its board of
directors; and
(iv) to the best of its knowledge there are no third party
patents or pending patent applications which if issued
would preclude the use or sale of R-fluoxetine or Product.
9.2 Sepracor represents and warrants that, except as provided in
Appendix 9.2, it is the sole and exclusive owner or is exclusively licensed and
controls Patent Rights and Sepracor Know-How, and that such rights are not the
subject of any encumbrance, lien or claim of ownership by any third party.
Sepracor warrants and represents that it has no trade name, trademark or
trademark related material, such as USAN registrations, related to R-fluoxetine.
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9.3 Sepracor represents and warrants that it has no knowledge of
written third party opinions that Patent Rights are invalid or unenforceable and
that there are no proceedings instituted, threatened or pending in any court of
law or patent office which challenge Patent Rights, validity or enforceability
as applicable thereto. Further, Sepracor knows of 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 Product or
Sepracor Know-How.
9.4 Sepracor covenants that at no time during the term of this
Agreement shall Sepracor assign, transfer, encumber or grant rights in or with
respect to Patent Rights or Sepracor Know-How inconsistent with the grants and
other rights reserved to Lilly under this Agreement, provided, however, this
covenant shall not affect the absolute right of Sepracor to transfer title to
its exclusively owned Patent Rights or Sepracor Know-How to any successor to all
or substantially all of that portion of Sepracor's business.
9.5 Sepracor represents and warrants to the best of its knowledge
that data summaries provided in writing to Lilly by Sepracor prior to the
Effective Date relating to pre-clinical and clinical studies of the Product
accurately represent the raw data underlying such summaries; and it has provided
to Lilly a summary of all material adverse events known to it relating to the
Product. Further, Sepracor has no knowledge of any scientific facts or
circumstances that would negate the intended commercial utility of R-fluoxetine
or Product.
9.6 Sepracor represents and warrants that there are no marks or
trademarks proposed, filed or registered by Sepracor in connection with the
Product and that Sepracor will not seek to file or register any trademark or
mark in connection with Product.
9.7 Lilly covenants that at no time during the term of this Agreement
shall Lilly assign, transfer, encumber or grant rights in or with respect to
Product inconsistent with the grants and other rights reserved to Sepracor under
this Agreement, provided, however, this covenant shall not affect the absolute
right of Lilly to transfer title to its exclusive licensed rights under this
Agreement to any successor to all or substantially all of that portion of
Lilly's business.
ARTICLE 10
INDEMNIFICATION
10.1 Lilly. Lilly will indemnify (subject to Section 10.3), defend
and hold Sepracor harmless against any and all actions, suits, claims, demands,
prosecutions, liabilities, costs, and expenses based on or arising out of this
Agreement (including but not
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limited to claims of patent infringement), resulting from Lilly's performance
under this Agreement including, the development, manufacture, packaging, use or
sale of Products, or use of Sepracor Know-How or Products by Lilly, its
Permitted Sublicensees or its (or their) customers or any representation made or
warranty given by Lilly or its Permitted Sublicensees with respect to Products.
10.2 Sepracor. Sepracor will indemnify (subject to Section 10.3),
defend and hold Lilly harmless against any and all actions, suits, claims,
demands, prosecutions, liabilities, costs, and expenses based on or arising out
of this Agreement, resulting from Sepracor's activities under this Agreement and
activities related to the research and development, manufacture, packaging, use
or sale of Products by Sepracor, or use of Sepracor Know-How or Products by
Sepracor, its other licensees or its (or their) customers or any representation
made or warranty given by Sepracor or its other licensees with respect to
Products.
10.3 Conditions of Indemnification. If either party proposes to seek
indemnification from the other under Sections 10.1 or 10.2, it shall notify the
other party within [**] of receipt of notice of any such claim or suits and
shall cooperate fully with the other party in the defense of all such claims or
suits. 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. 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 indemnified party may participate in (but not control) the
defense thereof at its sole cost and expense. No settlement or compromise shall
be binding on a party hereto without its prior written consent and no party
shall be responsible for damages resulting from the negligence of the other
party.
ARTICLE 11
MISCELLANEOUS
11.1 Modifications. This Agreement supersedes all previous agreements
whether written or oral between the parties. No modifications or amendment of
this
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
Agreement shall be of any force or effect unless it is in writing signed by the
parties to be bound thereby.
11.2 Assignments and Change of Control. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns and provided that neither party shall assign this
Agreement or any of its rights, privileges or obligations without the prior
written consent of the other party, which consent shall not be unreasonably
withheld; provided, however, that in the event of a Change of Control, written
notification will be required but not consent. Notwithstanding the two
immediately preceding sentences, in the event of a Change of Control of
Sepracor, [**].
11.3 Headings. All titles, headings and captions in the Agreement are
for convenience only, do not constitute part of this Agreement, and shall not be
of any meaning or substance or employed in interpreting this Agreement.
11.4 Invalidity. In the event that a court of competent jurisdiction
holds that a particular provision or requirement of this Agreement is in
violation of any law, such provision or requirement shall not be enforced except
to the extent that it is not in violation of such law and all other provisions
and requirements of this Agreement shall remain in full force and effect. The
parties shall replace such invalidated or unenforceable provision or requirement
by valid and enforceable provision or requirement which will achieve, to the
extent possible, the economic, business and other purposes of the replaced
provision.
11.5 Governing Law. This Agreement shall be governed, interpreted and
construed in accordance with the laws of the State of New York, applicable to
agreements made and to be fully performed therein, without giving effect to its
principles of conflicts of laws.
11.6 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.
11.7 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.
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11.8 Entire Understanding. This 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. In the event of any inconsistencies
or conflicts between the terms of this Agreement and any exhibit or appendix
referred to herein, the terms of this Agreement shall govern.
11.9 Responsibility for Taxes. Lilly shall be responsible for payment
of taxes arising out of or related to Product sales made by Lilly and for
submission of proper documentation with respect thereto to the tax authorities.
Lilly 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
Lilly's failure or delay in paying such taxes or submitting such documentation.
11.10 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.
11.11 Counterparts. This Agreement may be executed in any number of
counterparts and each such counterpart shall be deemed to be an original.
11.12 Exhibits and Appendices. All exhibits and appendices referred
to in this Agreement are attached hereto and incorporated herein by this
reference.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed under seal and entered into by their duly authorized
representatives.
SEPRACOR INC. ELI LILLY AND COMPANY
By: /s/ Timothy J. Barberich By: /s/ August M. Watanabe
------------------------------- ----------------------------
Timothy J. Barberich August M. Watanabe, M.D.
President and Chief Executive Officer Executive V.P., Science &
Technology
Date: December 4, 1998 Date: December 4, 1998
35
<PAGE>
APPENDIX 1.2
Basic Patent Rights
U.S. Patents Expires
5,708,035 January 13, 2015
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
APPENDIX 1.13
Improvement Patent Rights
U.S. Patents Expires
5,648,396 July 15, 2014
Patent Applications Docket No.
[**] [**]
<PAGE>
APPENDIX 2.4(a)
R-Fluoxetine Development Plan and Time Line
(See Attached)
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
APPENDIX 2.4(a)
R-fluoxetine Development Plan
Key Plan Assumptions:
[**]
Development Plan Activities:
[**]
A timeline for the major activities that are included as part of this summary
development plan is attached to this appendix (Attachment 1).
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
Summary Development Plan for R-fluoxetine Attachment 1
- -----------------------------------------
[**]
<PAGE>
APPENDIX 3.3
Sample Royalty Calculation
(See Attached)
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
Appendix 3.3
Example of Royalty Calculation
(Amounts in thousands of US dollars, some numbers have been rounded or truncated
to ease in the demonstration of the methodology to be employed and therefore are
not entirely accurate for calculation purposes.)
[**]
<PAGE>
APPENDIX 5.2
Joint Press Release
(See Attached)
<PAGE>
(317) 276-5795 - James P. Kappel (Lilly)
(508) 481-6700 - David P. Southwell (Sepracor)
Lilly and Sepracor Announce Agreement on Next-Generation
Antidepressant
Eli Lilly and Company (NYSE: LLY) and Sepracor Inc. (Nasdaq: SEPR), announced
today that they have entered into a license agreement that will enable Lilly to
exclusively develop and globally commercialize R-fluoxetine. R-fluoxetine, a new
chemical entity patented by Sepracor, is a modified form of an active ingredient
found in Prozac. Prozac was the first selective serotonin reuptake inhibitor
(SSRI) to enter the U.S. market more than 10 years ago. It is the world's most
widely prescribed brand-name antidepressant, having been prescribed to more than
35 million people in more than 100 countries with worldwide sales of
approximately $2.6 billion in 1997. R-fluoxetine is currently in Phase I
clinical development in the United States.
"R-fluoxetine is an exciting molecule with a good chance of becoming an
important new advance in treating depression. Despite recent advances in
diagnosing and treating clinical depression, this illness remains a vastly
underdiagnosed and therefore undertreated disease affecting more than 18 million
adults in the U.S. alone," said Sidney Taurel, Lilly president and chief
executive officer. "This licensing agreement with Sepracor, coupled with our
internal progress in developing new antidepressants, will enable Lilly to
introduce new and advanced treatments for this debilitating illness and to build
upon our leadership position in neuroscience products."
R-fluoxetine has been shown in preclinical studies to have the potential to
offer greater flexibility in treating depression compared to currently marketed
antidepressants. In addition, preclinical data suggest that R-fluoxetine has the
potential to provide treatment benefits in a broader range of patients and for a
broader range of indications than most currently available antidepressants,
including
<PAGE>
Prozac. Based on current regulatory guidelines, Lilly hopes to complete the
clinical studies needed to thoroughly evaluate R-fluoxetine by 2001 with
regulatory submissions taking place at that time.
Under the terms of the agreement, Sepracor will receive an up-front milestone
payment and license fee of $20 million. The company will also receive up to $70
million in additional milestone payments, based on the progression of
R-fluoxetine through development. In addition, Sepracor will receive royalties
on R-fluoxetine worldwide sales beginning at product launch. In exchange, Lilly
will receive exclusive, worldwide rights to R-fluoxetine for all indications and
uses. Lilly will be responsible for all subsequent development work on
R-fluoxetine, regulatory submissions, product manufacturing, marketing and
sales.
"R-fluoxetine represents another significant opportunity to provide important
therapeutic advances through the development of single-isomer and metabolite
versions of existing pharmaceutical products," said Timothy J. Barberich,
Sepracor's president and chief executive officer.
"We believe Sepracor has undertaken some very insightful research toward the
development of a single-isomer version of fluoxetine that may have significant
clinical and commercial potential," said August M. Watanabe, M.D., Lilly
executive vice president, science and technology. "Our success in developing and
marketing Prozac, as well as our overall approach to discovering novel
antidepressants, uniquely qualifies us to take the development of R-fluoxetine
forward."
Sepracor's patent portfolio for R-fluoxetine includes a U.S. method-of-use
patent covering R-fluoxetine as an antidepressant that expires in 2015 and
several other patent filings, covering methods of treatment, unique formulations
and manufacturing processes.
<PAGE>
Sepracor is a speciality pharmaceutical company that develops and commercializes
potentially improved versions of widely prescribed drugs. Referred to as
improved chemical entities (ICE), Sepracor's ICE pharmaceuticals are being
developed as proprietary, single-isomer or active-metabolite versions of leading
drugs. ICE pharmaceuticals are designed to offer meaningful improvements in
patient outcomes through reduced side effects, increased therapeutic efficiency,
improved dosage forms and, in some cases, the opportunity for additional
indications.
Lilly is a global research-based pharmaceutical corporation headquartered in
Indianapolis, Ind., that is dedicated to creating and delivering innovative
pharmaceutical-based health care solutions that enable people to live longer,
healthier and more active lives.
This release contains forward-looking statements that reflect management's
current views of the scientific and commercial potential of the R-fluoxetine
molecule. The information is based on management's current expectations but
actual results may differ materially due to various factors. As a product in the
earliest stages of clinical development, its success is subject to a number of
risks and uncertainties, including the successful outcome of clinical trials;
the timely receipt of regulatory approvals; the clinical profile and pricing of
competitive products; market conditions; and those outlined in Lilly and
Sepracor filings with the SEC.
# # #
- ---------------------------------------------------
Prozac(R) (fluoxetine hydrochloride, Dista)
<PAGE>
APPENDIX 9.2
Exclusive License Agreement by and between Sepracor Inc. and McLean Hospital
Corporation which was previously provided to Lilly.
Execution Copy
SEPRACOR INC.
TO
THE CHASE MANHATTAN BANK
Trustee
INDENTURE
Dated as of December 15, 1998
7% Convertible Subordinated Debentures due 2005
<PAGE>
TABLE OF CONTENTS
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 11
SECTION 2.4. EXECUTION OF DEBENTURES 13
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 26
ARTICLE IV
SUBORDINATION OF DEBENTURES 28
SECTION 4.1. AGREEMENT OF SUBORDINATION 28
SECTION 4.2. PAYMENTS TO DEBENTUREHOLDERS 28
SECTION 4.3. SUBROGATION OF DEBENTURES 31
SECTION 4.4. AUTHORIZATION TO EFFECT SUBORDINATION 32
SECTION 4.5. NOTICE TO TRUSTEE 32
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<PAGE>
SECTION 4.6. TRUSTEE'S RELATION TO SENIOR OBLIGATIONS 33
SECTION 4.7. NO IMPAIRMENT OF SUBORDINATION 33
SECTION 4.8. CERTAIN CONVERSIONS NOT DEEMED PAYMENT 33
SECTION 4.9. ARTICLE APPLICABLE TO PAYING AGENTS 34
SECTION 4.10. SENIOR OBLIGATIONS ENTITLED TO RELY 34
SECTION 4.11. RELIANCE ON JUDICIAL ORDER OR CERTIFICATE OF
LIQUIDATING AGENT 34
ARTICLE V
PARTICULAR COVENANTS OF THE COMPANY 35
SECTION 5.1. PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST 35
SECTION 5.2. MAINTENANCE OF OFFICE OR AGENCY 35
SECTION 5.3. APPOINTMENTS TO FILL VACANCIES IN TRUSTEE'S OFFICE 36
SECTION 5.4. PROVISIONS AS TO PAYING AGENT 36
SECTION 5.5. EXISTENCE 37
SECTION 5.6. MAINTENANCE OF PROPERTIES 37
SECTION 5.7. PAYMENT OF TAXES AND OTHER CLAIMS 38
SECTION 5.8. RULE 144A INFORMATION REQUIREMENT 38
SECTION 5.9. STAY, EXTENSION AND USURY LAWS 38
SECTION 5.10. COMPLIANCE CERTIFICATE 39
ARTICLE VI
DEBENTUREHOLDERS' LISTS AND REPORTS BY THE COMPANY AND THE TRUSTEE 39
SECTION 6.1. DEBENTUREHOLDERS' LISTS 39
SECTION 6.2. PRESERVATION AND DISCLOSURE OF LISTS 39
SECTION 6.3. REPORTS BY TRUSTEE 40
SECTION 6.4. REPORTS BY COMPANY 40
ARTICLE VII
REMEDIES OF THE TRUSTEE AND DEBENTUREHOLDERS
ON AN EVENT OF DEFAULT 41
SECTION 7.1. EVENTS OF DEFAULT 41
SECTION 7.2. PAYMENTS OF DEBENTURES ON DEFAULT; SUIT THEREFOR 43
SECTION 7.3. APPLICATION OF MONIES COLLECTED BY TRUSTEE 44
SECTION 7.4. PROCEEDINGS BY DEBENTUREHOLDER 45
SECTION 7.5. PROCEEDINGS BY TRUSTEE 46
SECTION 7.6. REMEDIES CUMULATIVE AND CONTINUING 46
SECTION 7.7. DIRECTION OF PROCEEDINGS AND WAIVER OF DEFAULTS
BY MAJORITY OF DEBENTUREHOLDERS 47
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<PAGE>
SECTION 7.8. NOTICE OF DEFAULTS 47
SECTION 7.9. UNDERTAKING TO PAY COSTS 47
ARTICLE VIII
CONCERNING THE TRUSTEE 48
SECTION 8.1. DUTIES AND RESPONSIBILITIES OF TRUSTEE 48
SECTION 8.2. RELIANCE ON DOCUMENTS, OPINIONS, ETC 50
SECTION 8.3. NO RESPONSIBILITY FOR RECITALS, ETC 51
SECTION 8.4. TRUSTEE, PAYING AGENTS, CONVERSION AGENTS OR
REGISTRAR MAY OWN DEBENTURES 51
SECTION 8.5. MONIES TO BE HELD IN TRUST 51
SECTION 8.6. COMPENSATION AND EXPENSES OF TRUSTEE 51
SECTION 8.7. OFFICERS' CERTIFICATE AS EVIDENCE 52
SECTION 8.8. CONFLICTING INTERESTS OF TRUSTEE 52
SECTION 8.9. ELIGIBILITY OF TRUSTEE 52
SECTION 8.10. RESIGNATION OR REMOVAL OF TRUSTEE 53
SECTION 8.11. ACCEPTANCE BY SUCCESSOR TRUSTEE 54
SECTION 8.12. SUCCESSION BY MERGER, ETC 54
SECTION 8.13. PREFERENTIAL COLLECTION OF CLAIMS 55
SECTION 8.14. TRUSTEE'S APPLICATION FOR INSTRUCTIONS FROM
THE COMPANY 55
ARTICLE IX
CONCERNING THE DEBENTUREHOLDERS 56
SECTION 9.1. ACTION BY DEBENTUREHOLDERS 56
SECTION 9.2. PROOF OF EXECUTION BY DEBENTUREHOLDERS 56
SECTION 9.3. WHO ARE DEEMED ABSOLUTE OWNERS 56
SECTION 9.4. COMPANY-OWNED DEBENTURES DISREGARDED 56
SECTION 9.5. REVOCATION OF CONSENTS; FUTURE HOLDERS BOUND 57
ARTICLE X
DEBENTUREHOLDERS' MEETINGS 57
SECTION 10.1. PURPOSE OF MEETINGS 57
SECTION 10.2. CALL OF MEETINGS BY TRUSTEE 58
SECTION 10.3. CALL OF MEETINGS BY COMPANY OR DEBENTUREHOLDERS 58
SECTION 10.4. QUALIFICATIONS FOR VOTING 58
SECTION 10.5. REGULATIONS 59
SECTION 10.6. VOTING 59
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<PAGE>
SECTION 10.7. NO DELAY OF RIGHTS BY MEETING 60
ARTICLE XI
SUPPLEMENTAL INDENTURES 60
SECTION 11.1. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF
DEBENTUREHOLDERS. 60
SECTION 11.2. SUPPLEMENTAL INDENTURES WITH CONSENT
OF DEBENTUREHOLDERS 61
SECTION 11.3. EFFECT OF SUPPLEMENTAL INDENTURE 62
SECTION 11.4. NOTATION ON DEBENTURES 63
SECTION 11.5. EVIDENCE OF COMPLIANCE OF SUPPLEMENTAL
INDENTURE TO BE FURNISHED TRUSTEE 63
ARTICLE XII
CONSOLIDATION, MERGER, SALE, CONVEYANCE AND LEASE 63
SECTION 12.1. COMPANY MAY CONSOLIDATE ETC. ON CERTAIN
TERMS 63
SECTION 12.2. SUCCESSOR CORPORATION TO BE SUBSTITUTED 64
SECTION 12.3. OPINION OF COUNSEL TO BE GIVEN TRUSTEE 64
ARTICLE XIII
SATISFACTION AND DISCHARGE OF INDENTURE 64
SECTION 13.1. DISCHARGE OF INDENTURE 64
SECTION 13.2. DEPOSITED MONIES TO BE HELD IN TRUST BY
TRUSTEE 65
SECTION 13.3. PAYING AGENT TO REPAY MONIES HELD 65
SECTION 13.4. RETURN OF UNCLAIMED MONIES 66
SECTION 13.5. REINSTATEMENT 66
ARTICLE XIV
IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS 66
SECTION 14.1. INDENTURE AND DEBENTURES SOLELY CORPORATE
OBLIGATIONS 66
ARTICLE XV
CONVERSION OF DEBENTURES 67
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<PAGE>
SECTION 15.1. RIGHT TO CONVERT 67
SECTION 15.2. EXERCISE OF CONVERSION PRIVILEGE; ISSUANCE OF
COMMON STOCK ON CONVERSION; NO ADJUSTMENT FOR
INTEREST OR DIVIDENDS 67
SECTION 15.3. CASH PAYMENTS IN LIEU OF FRACTIONAL SHARES 69
SECTION 15.4. CONVERSION PRICE 69
SECTION 15.5. ADJUSTMENT OF CONVERSION PRICE 69
SECTION 15.6. EFFECT OF RECLASSIFICATION, CONSOLIDATION,
MERGER OR SALE 78
SECTION 15.7. TAXES ON SHARES ISSUED 79
SECTION 15.8. RESERVATION OF SHARES; SHARES TO BE FULLY PAID;
COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS;
LISTING OF COMMON STOCK 80
SECTION 15.9. RESPONSIBILITY OF TRUSTEE 80
SECTION 15.10. NOTICE TO HOLDERS PRIOR TO CERTAIN ACTIONS 81
ARTICLE XVI
MISCELLANEOUS PROVISIONS 82
SECTION 16.1. PROVISIONS BINDING ON COMPANY'S SUCCESSORS 82
SECTION 16.2. OFFICIAL ACTS BY SUCCESSOR CORPORATION 82
SECTION 16.3. ADDRESSES FOR NOTICES, ETC 82
SECTION 16.4. GOVERNING LAW 83
SECTION 16.5. EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT;
CERTIFICATES TO TRUSTEE 83
SECTION 16.6. LEGAL HOLIDAYS 83
SECTION 16.7. TRUST INDENTURE ACT 83
SECTION 16.8. NO SECURITY INTEREST CREATED 84
SECTION 16.9. BENEFITS OF INDENTURE 84
SECTION 16.10. TABLE OF CONTENTS, HEADINGS, ETC 84
SECTION 16.11. AUTHENTICATING AGENT 84
SECTION 16.12. EXECUTION IN COUNTERPARTS 85
EXHIBIT A FORM OF DEBENTURE A-1
-6-
<PAGE>
INDENTURE
INDENTURE, dated as of December 15, 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 7% Convertible Subordinated Debentures due 2005
(hereinafter sometimes called the "Debentures"), in an aggregate principal
amount not to exceed $300,000,000 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
-1-
<PAGE>
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 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
-2-
<PAGE>
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.
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 and the guarantee by the
Company of up to $5.0 million of Indebtedness of HemaSure to Fleet National
Bank.
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.
-3-
<PAGE>
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.
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).
-4-
<PAGE>
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 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 and Salomon Smith Barney Inc.
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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).
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.
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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 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 December 10, 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.
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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 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 $189,475,000 in 6 1/4% Convertible Subordinated Debentures
due 2005 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.
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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).
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 "7% Convertible Subordinated Debentures due 2005."
Debentures not to exceed the aggregate principal amount of $300,000,000 (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
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(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 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
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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 June 15 and December 15 of each
year.
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
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date shall mean the May 31 or November 30 preceding said June 15 or December 15,
respectively.
Any interest on any Debenture which is payable, but is not
punctually paid or duly provided for, on any said June 15 or December 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 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.
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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 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
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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, 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
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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.
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
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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 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 U.S. 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) REPRESENTS THAT IT IS A "QUALIFIED
INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES
ACT); (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) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH
RULE 904 UNDER THE SECURITIES ACT, (D) PURSUANT TO THE EXEMPTION FROM
REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF
AVAILABLE) OR (E) 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(E) 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 IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH
TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION
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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 A PURCHASER WHO IS NOT A U.S. 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 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(E) 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 "U.S. 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.
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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.
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,
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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
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) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904
UNDER THE SECURITIES ACT, (D) PURSUANT TO THE EXEMPTION FROM
REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF
AVAILABLE), OR (E) 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(E) 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 TO EACH
PERSON TO WHOM THE COMMON STOCK EVIDENCED HEREBY IS TRANSFERRED
(OTHER THAN A TRANSFER PURSUANT TO CLAUSE 1(E) ABOVE) A NOTICE
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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(E) 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
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paragraph, the 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
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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 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 December 20, 2001. At any time on or after December 20,
2001, the Company may, 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
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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 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
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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 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.
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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 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.
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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 June 15 or December 15,
then the interest payable on such date shall be paid to the holders of record of
the Debentures on the next preceding May 31 or November 30, 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.
(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
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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.
(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
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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.
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").
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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.
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,
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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.
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
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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 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.
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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 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
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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 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
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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 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
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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 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
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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
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Damages, if any) 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.
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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, (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,
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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 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 May 31 and November 30
in each year beginning with May 31, 1999, 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
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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.
(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 June 15 of each year
commencing with the year 1999, the Trustee shall transmit to holders of
Debentures such reports dated as of June 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).
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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:
(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
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(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
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.
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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 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
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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 be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Debentureholder any
plan of 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:
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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), 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
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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.
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
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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 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
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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.
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
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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;
(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
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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;
(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
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(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 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
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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 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.
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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
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.
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(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.
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
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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.
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ARTICLE IX
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
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by the Company or any other obligor on the Debentures or any Affiliate of the
Company or any 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:
(a) 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
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exchangeability of such Debentures with the Debentures issued hereunder in fully
registered form and to make all appropriate changes for such purpose;
(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;
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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 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
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
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such supplemental indenture shall 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
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.
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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 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.
ln 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
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(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
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.
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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, 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.
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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 December 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 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
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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 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.
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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.
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
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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 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
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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 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
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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 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
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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 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
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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 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
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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 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.
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(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, 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
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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, and such notice shall state
the reduced Conversion Price and the period during which it will be in effect.
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(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 of which holders
of Common Stock shall be entitled to receive stock,
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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
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the Company shall not be required to issue or deliver any such stock certificate
unless and until the person or persons requesting the 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
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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 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
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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
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.
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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 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
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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.
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
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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 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.
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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 & CEO
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 IT IS A
"QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES
ACT); (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) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE
904 UNDER THE SECURITIES ACT, (D) PURSUANT TO THE EXEMPTION FROM REGISTRATION
PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (E) 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(E) ABOVE), IT
WILL FURNISH THE CHASE MANHATTAN BANK, AS TRUSTEE (OR A SUCCESSOR
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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 A
PURCHASER WHO IS NOT A U.S. 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 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(E) 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 "U.S. PERSON" HAVE
THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.
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SEPRACOR INC.
7% 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 December 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 June 15 and December 15, of each
year, commencing June 15, 1999, on said principal sum at said office or agency,
in like coin or currency, at the rate per annum of 7% from December 15, 1998 and
thereafter to maturity from the June 15 or December 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 December 15, 1998, until payment of said principal sum has been made or
duly provided for. Notwithstanding the foregoing, if the date hereof is after
any May 31 or November 30, as the case may be, and before the following June 15
or December 15, this Debenture shall bear interest from such June 15 or December
15; provided, however, that if the Company shall default in the payment of
interest due on such June 15 or December 15, then this Debenture shall bear
interest from the next preceding June 15 or December 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 December 15, 1998. The interest payable on the
Debenture pursuant to the Indenture on any June 15 or December 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 May 31 or November 30
(whether or not a Business Day) next preceding such June 15 or December 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
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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 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 Commonwealth of Massachusetts, and for all purposes shall be
construed in accordance with and governed by the laws of The Commonwealth of
Massachusetts.
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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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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[FORM OF REVERSE OF DEBENTURE]
SEPRACOR INC.
7% CONVERTIBLE SUBORDINATED DEBENTURE DUE 2005
This Debenture is one of a duly authorized issue of
Debentures of the Company, designated as its 7% 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 December 15, 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,
A-6
<PAGE>
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 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
A-7
<PAGE>
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 December 20, 2001. At any time on or after December 20, 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 December 20, 2001
and ending on December 14, 2002, at a redemption price of 104.000%, and if
redeemed during the 12-month period beginning December 15:
<TABLE>
<CAPTION>
Year Redemption Price
<S> <C>
2002 103.000%
2003 102.000%
2004 101.000%
</TABLE>
and 100% at December 15, 2005; provided that if the date fixed for redemption is
on June 15 or December 15, then the interest payable on such date shall be paid
to the holder of record on the next preceding May 31 or November 30,
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 December 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 June 15 or December 15, then the
interest payable on such date shall be paid to the holder of record of the
Debenture on the next preceding May 31 or November 30, 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
A-8
<PAGE>
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 December 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
$124.875 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
A-9
<PAGE>
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 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.
A-10
<PAGE>
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 as tenants in common UNIF GIFT MIN ACT --
COM- ____________________ Custodian
(Cust)
--------------------
(Minor)
- -----------------------------------------------------------------------------------------------------
TEN as tenants by the entireties
ENT-
- -----------------------------------------------------------------------------------------------------
JT TEN- as joint tenants with right under Uniform Gifts to Minors Act
of survivorship and not as
tenants in common ____________________
(State)
- -----------------------------------------------------------------------------------------------------
</TABLE>
ADDITIONAL ABBREVIATIONS MAY ALSO BE USED
THOUGH NOT IN THE ABOVE LIST.
A-11
<PAGE>
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
A-12
<PAGE>
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:
A-13
<PAGE>
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
A-14
<PAGE>
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:
A-15
<PAGE>
-----------------------------------------
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.
Execution Copy
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement"),
dated as of December 10, 1998 by and among SEPRACOR INC., a Delaware
corporation (the "Company") and MORGAN STANLEY & CO. INCORPORATED and
SALOMON SMITH BARNEY INC. (the "Initial Purchasers") pursuant to the Purchase
Agreement, dated as of December 10, 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.
Damages Accrual Period: See Section 2(f) hereof.
<PAGE>
Damages Payment Date: Each of the semi-annual interest
payment dates provided in the Indenture.
Debentures: 7% 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 December 15, 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 and
Salomon Smith Barney 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.
Notice Holder: See Section 2(d) hereof.
<PAGE>
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.
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
<PAGE>
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 (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 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
<PAGE>
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 five (5) 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 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
<PAGE>
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
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").
<PAGE>
(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 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
<PAGE>
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 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
<PAGE>
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
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
<PAGE>
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.
(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
<PAGE>
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 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
<PAGE>
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 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
<PAGE>
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 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.
<PAGE>
(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 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
<PAGE>
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 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
<PAGE>
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 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
<PAGE>
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 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
<PAGE>
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 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
<PAGE>
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 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.
<PAGE>
(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 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
<PAGE>
(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 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
<PAGE>
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 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.
<PAGE>
Registration Rights Agreement
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the date first written above.
SEPRACOR INC.
By: /s/ Robert Scumaci
---------------------------------
Name: Robert Scumaci
Title: Sr. Vice President
Accepted as of the date first above written:
MORGAN STANLEY & CO. INCORPORATED
SALOMON SMITH BARNEY INC.
By: MORGAN STANLEY & CO. INCORPORATED
By: /s/ W L Blais
----------------------------
Name: WL Blais
Title: Principal
[FRONT COVER]
(SEPRACOR LOGO)
(PHOTO MONTAGE USING PHOTOS FROM INTERIOR OF BOOK)
Liberating the Power of Pure Medicine
1998 Annual Report
<PAGE>
[INSIDE FRONT COVER]
(CHART SHOWING SEPRACOR DRUGS/PARENT DRUGS/CURRENT APPROVAL STATUS)
<TABLE>
<CAPTION>
ICE Pharmaceutical Parent Drug Preclinical Phase I Phase II Phase III NDA Filed Launch
[Picture Caption -- Respiratory-Allergy/Asthma]
<S> <C> <C>
Fexofenadine ALLEGRA(TM) Seldane(R) ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||1996
Levalbuterol XOPENEX(TM) Ventolin(R)/Proventil(R) |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Norastemizole Hismanal(R) ||||||||||||||||||||||||||||||||||||||||||||
Desloratadine Claritin(R) |||||||||||||||||||||||||||||||||||||||||
(R,R)-formoterol Foradil(R)/Atock(R) ||||||||||||||||||||||||||||||||
(-)-cetirizine Zyrtec(R) |||||||
(S)-salmeterol Serevent(R) |||||||
[Picture Caption -- Urology/Gastroenterology]
(S)-oxybutynin Ditropan(R) ||||||||||||||||||||||||||||||||
(+)-norcisapride Propulsid(R) ||||||||||||||||||||||
(S)-doxazosin Cardura(R) |||||||||
(S)-lansoprazole Prevacid(R) ||||||
(-)-pantoprazole Pantozol(TM) ||||||
[Picture Caption -- Central Nervous System]
(R)-ketoprofen Orudis(R)/Actron(R) ||||||||||||||||||||||||||||||
(R)-fluoxetine Prozac(R) ||||||||||||||||||||||||||
Desmethylsibutramine Meridia(R) ||||||||
(+)-zopiclone Imovane(R) ||||||||
Hydroxy bupropion Zyban(TM) |||||
Desmethylvenlafaxine Effexor(R) |||||
Nefazodone metabolite Serzone(R) |||||
[Picture Caption -- Other]
(S)-amlodipine Norvasc(R) |||||
Hydroxy itraconazole Sporanox(TM) |||||
</TABLE>
<PAGE>
Sepracor
Sepracor is developing an extensive portfolio of ICE(TM) Pharmaceutical
candidates for the therapeutic areas of respiratory care, urology,
gastroenterology, psychiatry and neurology. These products will be
commercialized through out-licensing agreements, co-promotion partnerships and
Sepracor's sales force.
Sepracor is a specialty pharmaceutical company that develops and commercializes
potentially improved versions of widely-prescribed drugs. Improved Chemical
Entities ("ICEs") are proprietary, single-isomer or active-metabolite drugs
offering meaningful improvements in patient care over existing therapies. ICE
Pharmaceuticals are designed to offer reduced side effects, increased efficacy,
improved dosage, and the opportunity for additional indications.
Sepracor's pharmaceutical company partners include: Eli Lilly for the single
isomer of Prozac(R), Schering-Plough for the active metabolite of Claritin(R),
Johnson & Johnson for the active metabolites of Propulsid(R) and Hismanal(R),
and Hoechst Marion Roussel for Allegra(TM).
ICE(TM) Pharmaceuticals
one
<PAGE>
To Our Shareholders:
Nineteen ninety-eight was a remarkable year for Sepracor. The Company added
significant shareholder value by achieving several important milestones;
Sepracor signed three corporate partnerships, made considerable progress in the
clinic, and announced new ICE Pharmaceutical patents. Our annual report
describes Sepracor's continued progress in developing and commercializing its
ICE Pharmaceuticals.
Sepracor expands its commercialization strategy. As Sepracor continues to
expand its pipeline of ICE Pharmaceuticals, it will decide which candidates the
Company will seek to develop and market internally and which compounds could be
outlicensed to strategic corporate partners. The Company's three-tiered approach
to commercialize its ICE Pharmaceuticals includes direct sales, co-promotion and
out-licensing agreements.
Direct Sales In creating a strong presence in the respiratory market,
Sepracor plans to continue to expand its own respiratory sales force for the
marketing and sales of Xopenex (levalbuterol HCl), the first single-isomer,
short-acting bronchodilator. Sepracor is developing (R,R)-formoterol currently
in Phase II trials, as a long-acting, single-isomer bronchodilator that will
complement Xopenex as part of Sepracor's respiratory franchise.
Co-promotion Sepracor expects that Norastemizole, an active metabolite of
Hismanal, marketed by Janssen Pharmaceutica N.V., a wholly-owned subsidiary of
Johnson & Johnson, will be a co-promoted product with Sepracor's respiratory
sales force. Sepracor and Janssen intend to jointly market and sell the drug and
the companies will each receive fifty percent of the norastemizole profits.
Over the next several years, Sepracor's sales force will expand, as
necessary, to support as many as ten new product launches in the therapeutic
areas of respiratory, urology and central nervous system (CNS). Several
candidates under internal development have the potential to be co-promoted with
strategic pharmaceutical partners.
Outlicensing The Company believes that certain compounds are more
appropriate for partnerships as a therapeutic franchise management strategy.
Sepracor signed two licensing agreements in 1998; the first with Eli Lilly and
Company for (R)-fluoxetine, a modified form of an active ingredient found in
Prozac(R), and the second with Janssen for (+)-norcisapride, the metabolite of
Propulsid(R). Both are examples of how an ICE Pharmaceutical can potentially
improve the parent compound and also expand the product franchise through new
indications not achieved by the parent drug. Sepracor has chosen several other
compounds as candidates for out-licensing arrangements, including ICE versions
of Johnson & Johnson's Sporanox, Pfizer's Norvasc and UCB/Pfizer's Zyrtec, and
American Home Products/Byk's Pantozol.
[BEGIN CHART]
10 Product Launches Support Sepracor Sales Force Build Out
(TIMELINE 1998 TO 2004 / SALES FORCE 65 TO 2000)
<TABLE>
<CAPTION>
Respiratory Urology CNS
<S> <C> <C>
Xopenex[TM] (S)-oxybutynin (+)-zopiclone
(R,R)-formoterol (S)-doxazosin Hydroxy bupropion
Norastemizole Desmethylsibutramine Desmethylsibutramine
Nefazodone metabolite
(R)-ketoprofen
</TABLE>
[END CHART]
two
<PAGE>
This year five ICE Pharmaceutical compounds advanced in the clinic.
Sepracor's Phase II trials of (S)-oxybutynin, the single isomer of racemic
oxybutynin, demonstrated efficacy and good tolerability for the treatment of
urinary incontinence. A high priority clinical program for Sepracor,
(S)-oxybutynin is entering into a Phase IIB/III clinical trial involving over
900 patients. The Company is continuing progress with Phase II trials of
(R,R)-formoterol, Sepracor's long-acting bronchodilator. To date, Sepracor has
completed three large-scale, controlled clinical trials of norastemizole, one of
its antihistamine drug candidates and will conduct additional trials this year.
The Company also completed Phase I clinical trials for (R)-fluoxetine.
Sepracor's partner Schering-Plough advanced desloratadine, the active
metabolite of Claritin(R) into Phase III clinical trials and Janssen began Phase
I clinical studies on Propulsid(R).
In addition, Sepracor received an approvable letter for Xopenex(TM)
(levalbuterol HCl) from the U.S. Food and Drug Administration and is currently
awaiting final approval.
Sepracor expects to continue its clinical programs by filing five new
Investigational New Drug Applications in 1999 for the following ICE candidates:
(+)-zopiclone, (S)-doxazosin, desmethylsibutramine, hydroxy itraconazole, and
(-)-cetirizine. Sepracor will also explore (R)-ketoprofen in the clinic for new
indications.
ICE Patent Announcements During 1998, Sepracor announced the issuance of
three important patents relating to single-isomer drugs. The Company was issued
a patent for the use of a single isomer of fluoxetine, (R)-fluoxetine, to treat
depression. The Company also received a patent covering the use of
(-)-cetirizine, a single isomer of cetirizine, to treat allergies. Cetirizine,
marketed as Zyrtec(R) by both Pfizer and UCB S.A., is a leading treatment for
allergies. Sepracor was also granted a patent on (+)-zopiclone, a single isomer
form of a drug marketed in Europe for the treatment of sleep disorders by
Rhone-Poulenc Rorer sold under the brand name of Imovane(R). Sepracor continued
to expand its patent platform by filing 28 additional ICE Pharmaceutical patent
applications in 1998.
Sepracor's drug discovery efforts continue to generate lead compounds,
which complement the Company's ICE Pharmaceutical pipeline. In an effort to
become a fully integrated pharmaceutical company, Sepracor is continuing to
focus its discovery program on the areas of infectious disease and CNS,
particularly pain and anxiety.
Sepracor ended the year with a strong cash position. For the year ended
December 31, 1998, the Company had approximately $500 million in consolidated
cash and marketable securities. In February 1998, Sepracor completed a $189
million offering of 6-1/4% Convertible Subordinated Debentures due 2005. In
December 1998, the Company completed a $300 million offering of 7% Convertible
Subordinated Debentures also due 2005.
The Company leaves 1998 with the strongest balance sheet in its history and
is well positioned to continue advancing its ongoing clinical programs and
expanding its research of new drug candidates.
I would like to thank Sepracor's shareholders, partners, and employees for
their contributions toward our accomplishments this past year, and I look
forward to reporting on Sepracor's clinical and commercial progress to you
throughout the coming year.
Sincerely,
/s/ Timothy J. Barberich
- -------------------------------------
Timothy J. Barberich
President and Chief Executive Officer
[PHOTO OF TIMOTHY J. BARBERICH IN TOP RIGHT CORNER OF PAGE]
three
<PAGE>
ICE(TM) Strategy
Sepracor's ICE(TM) Pharmaceutical Strategy is the Core of Our Success
Single-Isomer Drugs
Over 150 years ago, Louis Pasteur discovered that man-made drugs differed
significantly from those found in nature. These synthetic drugs contain a 50:50
mixture of two isomers, while naturally occurring drugs such as adrenaline, are
always single isomers. Often only one isomer of the pair in a racemic mixture is
therapeutically active, while the other isomer is inactive and may even cause
detrimental side effects.
Racemic mixtures are commonly the result of chemical synthesis of
molecules. Over 500 racemic drugs are on the market today. Chemically identical,
isomers differ in their three-dimensional structures. As a result, different
isomers often interact separately with chemical processes in the body.
The United States Food and Drug Administration's 1992 policy statement on
stereo-isomers encourages the development of optically pure, single-isomer drugs
as New Chemical Entities (NCEs). The FDA now considers the non-therapeutic half
of a racemic pharmaceutical an impurity, unless it is proven harmless. Sepracor
and the pharmaceutical industry have responded with intensified development in
this area.
Sepracor's ICE(TM) Pharmaceuticals have the potential to be purer, safer or
more efficacious versions of their parent drug compounds. Since the parent drugs
have well-known efficacy and safety profiles, ICE Pharmaceuticals generally can
be developed with less technical, financial, and regulatory risk than new
chemical entities. Sepracor has assembled a portfolio of patents and is
currently developing proprietary, single-isomer versions of 16 best-selling
drugs marketed today as racemic mixtures.
Single Isomers
Many drugs exist in mirror-image forms called isomers. Often only one isomer of
the pair in a racemic mixture is therapeutically active, while the other isomer
is inactive or may even cause detrimental side effects.
To the right of this page is the molecular model for Sepracor's single-isomer
drug Xopenex(TM) (levalbuterol HCl). The drug's mirror image and inactive
isomer, (S)-albuterol, is to the left. Xopenex(TM) (levalbuterol HCl), in
nebulizer form, will be sold in the U.S. by Sepracor's respiratory sales force
after receiving final U.S. FDA marketing approval.
[PHOTO: molecule with 2 mirror molecules screened behind type]
four
<PAGE>
PAGE 5
Active-Metabolite Drugs
An active metabolite is a therapeutically-active compound produced when the body
metabolizes a drug. Drugs are usually transformed within the body into a variety
of related chemical forms (metabolites), some of which may have therapeutic
activity (an active metabolite). Interference with the metabolic conversion of a
drug into its medicinal metabolites and the increase in concentration of the
drug in the body, can result in potentially serious side effects. Sepracor has
demonstrated that for certain drugs, superior efficacy or safety can be obtained
by switching from the parent drug to the active metabolite.
For example, Sepracor's ICE(TM) Pharmaceutical, (+)-norcisapride, is an
isomer of the active metabolite of Propulsid, marketed by Johnson & Johnson for
gastroesophageal reflux disease (GERD). Propulsid is known to have the potential
for cardiac side effects and drug-drug interactions. We believe (+)-norcisapride
will eliminate the risk of these serious side effects and has the potential to
increase the efficacy and improve dosing for GERD. In addition, (+)-norcisapride
creates an opportunity for additional indications such as emesis, irritable
bowel syndrome, and bulimia.
Sepracor is currently developing six improved active-metabolite
alternatives of widely-prescribed compounds.
Active Metabolites
Active metabolites are therapeutically active compounds produced when a drug is
transformed (metabolized) within the body. Sepracor has shown that some active
metabolites may have superior safety and efficacy profiles to that of their
parent drug and in some instances offer the opportunity for additional
indications.
For example, desloratadine (right) is an active metabolite form of
Schering-Plough's market-leading, nonsedating antihistamine, Claritin(R)
(loratadine), which may have the potential for greater potency. Schering-Plough,
who licensed a use patent from Sepracor, is developing and will commercialize
desloratadine, which is currently in worldwide Phase III clinical trials.
[PHOTO: molecule with larger molecule screened behind type]
five
<PAGE>
[PHOTO OF 2 PEOPLE IN SILHOUETTE CLIMBING A MOUNTAIN-FULL BLEED PICTURE]
six
<PAGE>
Partnerships Enhancing Drug Effectiveness...Extending Proprietary Life
Eli Lilly and Company, Schering-Plough, Johnson & Johnson, and Hoechst Marion
Roussel have formed drug development and commercialization collaborations with
Sepracor. These pharmaceutical companies have licensed Sepracor's proprietary
ICE(TM) Pharmaceutical products in order to develop potentially safer and more
efficacious, single-isomer or active-metabolite versions of blockbuster drugs.
In exchange for patent rights and other rights, these agreements include a
combination of initial licensing fees, funding of drug-development expenses,
milestone payments, royalty and co-marketing payments from its partners. The
parent compounds of Sepracor's four licensed ICE(TM) Pharmaceuticals, and
Allegra (currently on the market), had combined sales revenue, exceeding $6
billion in 1998.
(R)-fluoxetine - a next-generation antidepressant In December 1998,
Sepracor announced an exclusive licensing agreement with Eli Lilly and Company
(NYSE: LLY) for the development and commercialization of (R)-fluoxetine, a new
chemical entity patented by Sepracor. (R)-fluoxetine is a modified form of an
active ingredient found in Prozac(R). Prozac was the first selective serotonin
reuptake inhibitor (SSRI) to enter the U.S. market more than 10 years ago.
Prozac is the world's most widely used brand-name antidepressant, having been
prescribed to more than 35 million people in over 100 countries. Worldwide,
Prozac sales reached $2.8 billion in 1998.
Sepracor has shown in its own preclinical studies that (R)-fluoxetine has
the potential to offer greater flexibility in treating depression compared to
currently marketed antidepressants. In addition, preclinical data suggests that
(R)-fluoxetine has the potential to provide treatment benefits in a broader
range of patients and for a broader range of indications than most currently
available antidepressants, including Prozac.
Under the terms of Sepracor's agreement with Lilly, Sepracor will receive
an up-front milestone
[Eli Lilly Logo]
<TABLE>
<CAPTION>
ICE(TM) Pharmaceutical Collaborations]
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sepracor ICE(TM) Pharmaceutical Candidate Parent Drug Company Expected Indication Parent Drug Development Status
Potential Benefits of Drug Candidate 1998 Estimated
Worldwide Sales
($millions)
- ----------------------------------------------------------------------------------------------------------------------------------
Allegra Seldane(R) Allergy $500 Launched 1996
nonsedating antihistamine with Hoechst Marion Roussel
improved dosing
- ----------------------------------------------------------------------------------------------------------------------------------
Desloratadine Claritin(R) Allergy $2300 Phase III
nonsedating antihistamine with Schering-Plough
improved potency
- ----------------------------------------------------------------------------------------------------------------------------------
Norastemizole Hismanal(R) Allergy $150 Phase III
antihistamine with improved potency, Johnson & Johnson
rapid onset, longer duration and
reduced cardio-vascular side effects
without sedation
- ----------------------------------------------------------------------------------------------------------------------------------
(+) - norcisapride Propulsid(R) GERD $1000 Phase I
reduced cardiotoxicity, increased Johnson & Johnson
efficacy, additional indications,
less frequent dosing
- --------------------------------------------------------------------------------------------------------------------------------
(R) - fluoxetine Prozac(R) Depression other $2800 Phase I/II
improved efficacy and new indications Eli Lilly and Company CNS indications
</TABLE>
seven
<PAGE>
payment and a license fee of $20 million and will also receive up to $70 million
in milestone payments based on the progression of (R)-fluoxetine through
development. Sepracor will receive royalties on worldwide (R)-fluoxetine sales
beginning on product launch. Lilly will be responsible for all development work
on (R)-fluoxetine, including regulatory submissions. Based on current regulatory
guidelines, Lilly hopes to complete the clinical studies of (R)-fluoxetine by
2001 with regulatory submissions taking place at that time.
Under the Hart Scott Rodino Act, the Company has received a request from
the Federal Trade Commission for additional information in connection with its
license agreement with Eli Lilly and Company for (R)-fluoxetine. The Company
plans to fully respond to the request and expects the license agreement with Eli
Lilly and Company to become effective as soon as the Federal Trade Commission
completes its review.
Norcisapride - a potentially safe active metabolite of Janssen's GERD drug,
Propulsid(R) In July 1998, Sepracor and Janssen announced a licensing agreement
to develop and market (+)-norcisapride. Propulsid(R) (cisapride) is indicated in
the U.S. for the treatment of patients with nocturnal heartburn due to
gastroesophageal reflux disease (GERD). Janssen's worldwide sales of
Propulsid(R) in 1998 exceeded $1 billion. Sepracor's preclinical data indicates
that the Propulsid(R) active metabolite, (+)-norcisapride, has the potential of
being a safe and active product for GERD, with additional potential for other
indications.
[Johnson & Johnson logo]
Under the terms of the agreement, Sepracor has exclusively licensed to
Janssen all of Sepracor's worldwide rights to develop and market
(+)-norcisapride enantiomers. Janssen will pay Sepracor royalties on product
sales beginning at launch and royalties will escalate upon achievement of sales
milestones.
<TABLE>
<CAPTION>
Sepracor ICE(TM) Pharmaceutical Candidates for Therapeutic Franchise Management
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ICE(TM) Pharmaceutical Parent drug Sepracor Development Patent Drug 1998 Innovator
Partnership Candidate Estimated Worldwide Patent
Drug Indication Company Commercialization Partner Sales in millions Expiration
- ------------------------------------------------------------------------------------------------------------------------------
Allegra(R) Seldane(R) $500 2001
allergy Hoechst Marion Roussel Hoechst Marion Roussel
desloratadine Claritin(R) $2300 2004
allergy Schering-Plough Schering-Plough
norastemizole Hismanal(R) $100 2007
allergy Johnson & Johnson Johnson & Johnson
(+)-norcisapride Propulsid(R) $1000 2009
GERD Johnson & Johnson Johnson & Johnson
(R)-fluoxetine Prozac(R) $2800 2003
depression Eli Lilly and Co. Eli Lilly and Co.
- ------------------------------------------------------------------------------------------------------------------------------
(R)-bupropion Zyban(TM) $150 1997
depression, ADD Glaxo-Wellcome
(-)-cetirizine Zyrtec(R) $700 2002
allergy Pfizer
(-)-pantoprazole Pantozol(TM) $300 2005
GERD American Home Products
(-)-amlodipine Norvasc(R) $2600 2007
hypertension Pfizer
hydroxy itraconazole Sporanox(R) $500 2007
anti-fungal Johnson & Johnson
desmethylvenlafaxine Effexor(R) $500 2007
CNS American Home Products
(S)-lansoprazole Prevacid(R) $1200 2007
GI TAP Pharmaceuticals
(R)-ondansetron Zofran(R) $600 2007
nausea Glaxo-Wellcome
(S)-salmeterol Serevent(R) $800 2008
asthma Glaxo-Wellcome
- ------------------------------------------------------------------------------------------------------------------------------
Total: $14.5 billion
</TABLE>
eight
<PAGE>
[Logo's in Text: Johnson & Johnson / Schering-Plough / Hoechst Marion Roussel]
Norastemizole - a potential non-sedating antihistamine, an active
metabolite of Janssen's Hismanal(R) In February 1998, Sepracor announced a
co-development and co-promotion arrangement for norastemizole with Janssen
Pharmaceutica, N.V., a wholly-owned subsidiary of Johnson & Johnson (NYSE: JNJ).
Norastemizole may combine the benefits of safety, potency, rapid onset of action
and long duration of action for the treatment of allergies.
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 United States and abroad. When this option
is exercised, Janssen and Sepracor will equally share the costs and profits
associated with the further development, marketing and sale of norastemizole in
the U.S. Janssen will market norastemizole overseas, paying Sepracor royalties
on sales. Sepracor retains the right to co-promote norastemizole in the U.S.
through its respiratory sales force.
Three large-scale controlled human clinical trials of norastemizole have
been completed by Sepracor and additional studies are underway.
Desloratadine - an active metabolite of Schering-Plough's market-leading
nonsedating antihistamine, Claritin(R), with the potential for greater potency
In December 1997, Sepracor and Schering-Plough Corporation (NYSE: SGP) announced
a licensing agreement giving Schering-Plough exclusive worldwide rights to
Sepracor's use patent covering desloratadine, an active metabolite of
Claritin(R). 1998 worldwide sales of Claritin were approximately $2.3 billion.
Under the terms of the agreement, Sepracor has exclusively licensed its
desloratadine use patent rights to Schering-Plough, who will develop and market
a desloratadine product worldwide. Under the agreement, royalties will begin at
product launch and will escalate over time and upon the achievement of sales
volume and other milestones. Schering-Plough is currently conducting worldwide
Phase III trials.
Fexofenadine (Allegra(TM)) - a safer, active metabolite replaces HMRI's
Seldane(R) Seldane, marketed by Hoechst Marion Roussel (HMRI), was the leading
nonsedating antihistamine until the FDA mandated that Seldane carry a
"black-box" warning in its label alerting physicians to potential cardiovascular
side effects and adverse drug-drug interactions.
In 1993, Sepracor entered into a licensing agreement with HMRI giving it
the rights to Sepracor's U.S. patents on its ICE Pharmaceutical fexofenadine
(Allegra), an active metabolite of Seldane. In less than three years of
development, HMRI launched Allegra(TM) in 1996 as a nonsedating antihistamine
without the cardiotoxicity of the parent drug Seldane(R). After the introduction
of Allegra, and at the request of the FDA, HMRI removed Seldane(R) from the
market. Seldane offers no therapeutic benefits over its active metabolite,
Allegra, and has serious potential adverse side effects.
While Sepracor is entitled to receive U.S. 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 pending patent interference action. The interference is expected to be
decided in 1999. 1998 worldwide sales of Allegra were approximately $500
million.
[Chart centered in top column]
------------------------------------
The Value of ICE(TM) Strategy
------------------------------------
New
Indications
Market
Growth
Innovator's NCE
Product
Improvement
[Vertical] Sales
[Horizontal] Time [arrow] 2005 2015
nine
<PAGE>
Breathing Easier ICE(TM) Pharmaceuticals...Improving Patient Outcomes
A comprehensive product platform for the Company's respiratory sales force is
expected to include the direct sales of Sepracor's two complementary asthma
drugs, Xopenex(TM) (levalbuterol HCl), a short-acting bronchodilator, and
(R,R)-formoterol, a long-acting bronchodilator. The Company also intends to
co-promote norastemizole, under development for the treatment of allergies.
Asthma
Fifteen million Americans, including 5 million children, suffer from asthma, an
increase of 78 percent since 1980. It is the most prevalent chronic disorder in
children and annually accounts for 10 million lost school days. Approximately
5,000 deaths occur as a result of asthma in the U.S. each year, a 91 percent
increase in the past decade.
Asthma is a chronic disorder of the bronchial airways. During an asthma
attack, the bronchial airways become narrowed as the bronchial muscles tighten.
Bronchodilators, such as racemic albuterol and Xopenex, are classified as
beta-agonists. Beta- agonists are used as primary treatment for acute and
chronic asthma attacks because of their immediate onset of action. In order to
treat asthma effectively, beta agonists should be used in conjunction with the
long-term therapy of either steroids or leukotriene antagonists.
Short-acting and long-acting bronchodilators prescribed for the treatment
of asthma had worldwide sales of over $2.6 billion in 1998. Sepracor's Xopenex
is the single-isomer version of the world's leading bronchodilator, racemic
albuterol. In 1998, racemic albuterol estimated worldwide sales exceeded $1.2
billion. Racemic albuterol has been the front line therapy despite its side
effects. Xopenex is the first improvement over racemic albuterol in over 20
years.
Xopenex(TM) (levalbuterol HCl) - the improved single-isomer form of
Glaxo-Wellcome's Ventolin(R) and Schering-Plough's Proventil(R) Sepracor is
awaiting final approval from the FDA to begin marketing Xopenex(TM)
(levalbuterol HCl), a bronchodilator for the treatment and prevention of acute
bronchospasm. The drug will first be available in solution formulation for use
in a nebulizer device, which is an electric air compressor with a mouthpiece
through which the patient breathes vaporized asthma medication.
The active ingredient of Xopenex is the therapeutically active (R)-isomer
of racemic albuterol. Racemic albuterol, an equal mixture of (R) and (S)
isomers, is the world's leading bronchodilator for asthma. In racemic albuterol,
the (R)-isomer is exclusively responsible for the therapeutic effect and
perfectly matches the human body's receptor. The (S)-isomer has been found to
have no therapeutic benefit and poorly matches the body's receptor. Scientific
data suggest the (S)-isomer may cause detrimental airway hyperactivity. Xopenex
is potentially safer and more efficacious than racemic albuterol.
In addition to formulating a nebulizer solution, Sepracor is developing
Xopenex for use in several delivery systems, including syrup, tablet, a
dry-powder inhaler and metered-dose inhaler. Sepracor plans
[PHOTO OF XOPENEX BOX]
[Caption next to Photo] Xopenex will be the first commercially
available isomerically pure beta-agonist
to treat asthma symptoms.
ten
<PAGE>
[PHOTO: LARGE PHOTO OF CHILDREN IN SILHOUETTE AT SUNSET JUMPING INTO A LAKE]
eleven
<PAGE>
[PHOTO: FULL BLEED PHOTO OF TWO PEOPLE JOGGING IN A PARK]
[PIE CHART]
1998 Estimated Worldwide Sales for Antihistamine Products
Claritin(R) Zyrtec(R)
$2.3 Billion $700 Million
Hismanal(R) Allegra(R)/
$100 Million Seldane(R)
$500 Million
twelve
<PAGE>
to market Xopenex directly through the Company's 65 person respiratory sales
force. The sales force plans to sell directly to pulmonologists, allergists,
pediatricians, and primary care physicians in hospitals and clinics in the U.S.
(R,R)-formoterol - an improved single-isomer form of Novartis' Foradil(R)
and Yamanouchi's Atock(R) Sepracor is developing a single-isomer form of
formoterol, (R,R)-formoterol, as a superior bronchodilator with a long-duration
of action coupled with a rapid onset of action. This combination of properties
should make (R,R)-formoterol an attractive entry in the long-acting
bronchodilator market, which is currently lead by Glaxo-Wellcome's Serevent(R).
1998 worldwide sales of Serevent were approximately $700 million.
(R,R)-Formoterol has the potential to be the first once-a-day long acting
bronchodilator.
Sepracor's (R,R)-formoterol is currently in Phase II clinical trials. The
Company plans to market (R,R)-formoterol through its respiratory direct sales
force.
Allergy
Over forty million Americans suffer from seasonal allergic rhinitis (hay fever),
an allergic reaction to airborne pollens. Symptoms include runny nose, watery
eyes, and scratchy throat. Worldwide sales of antihistamines were approximately
$4 billion in 1998. Industry analysts have forecasted antihistamine sales could
double to approximately $6 billion by 2003.
[PIE CHART]
1998 Worldwide Estimated Sales
for Bronchodilators Products
Short-Acting Bronchodilators (Ventolin(R)/Proventil(R))
$1.2 Billion
Long-Acting Bronchodilators (Serevent(R)/Foradil(R)/Atock(R))
$.9 Billion
Norastemizole - an active metabolite of Janssen's Hismanal(R) Sepracor is
aggressively developing norastemizole, which the Company believes has the
potential to be the most potent, most rapid, nonsedating antihistamine drug in
the class which includes Allegra and Claritin. In addition, norastemizole has
the potential to be free of the "black-box" warning in Hismanal's label which
alerts physicians to serious side effects and drug-drug interactions.
Sepracor has completed three large-scale controlled clinical trials of
norastemizole and will be conducting additional studies throughout 1999.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
ICE Pharmaceuticals for Respiratory Therapy
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ICE(TM) Pharmaceutical Candidate Parent Drug Expected Parent Drug 1998 Development Earliest
Potential Benefits of Sepracor Company Indication Estimated Worldwide Status Potential
Drug Candidate Sales ($millions) Launch
- --------------------------------------------------------------------------------------------------------------------------------
Xopenex(TM) (levalbuterol HCI) Ventolin(/Proventil* Asthma - $1200 NDA Complete 1999
improved safety and efficacy Glaxo-Wellcome, short-acting
Schering-Plough bronchodilator
- --------------------------------------------------------------------------------------------------------------------------------
Norastemizole Hismanal* Allergy $150 Phase III 2001
antihistamine with improved Johnson & Johnson
potency, rapid onset, longer
duration and reduced cardio-
vascular side effects without
sedation
- --------------------------------------------------------------------------------------------------------------------------------
(R,R) - formoterol Foradil(R)/Atock(R) Asthma - $100 Phase II 2002
rapid onset of action and Novartis/Yamanouchi long-acting
longer duration bronchodilator
</TABLE>
thirteen
<PAGE>
Active Lifestyles A Retiring Generation Demands More Effective Medicines
Urinary incontinence affects a large population, in the U.S., approximately 17
million people. Drug therapy to treat urinary incontinence, however, has been
limited due to the unpleasant side effects of existing drugs, including dry
mouth, nausea, restlessness and heart palpitations. The majority of the patients
for both urge and stress incontinence rely on adult diapers or incontinence
devices. Worldwide sales of these alternatives were approximately $2 billion in
1998, while drug therapy accounted for approximately $200 million.
(S)-oxybutynin - a single-isomer form of Alza's Ditropan(R) Sepracor's
(S)-oxybutynin is a potential treatment for urinary (urge) incontinence with
significantly reduced side effects that limit the sales of Ditropan(R). Urge
incontinence is an urgent desire to urinate accompanied by an inability to
control the bladder. Sepracor's recently completed Phase II clinical trial
indicated (S)-oxybutynin's effectiveness for the treatment of urge incontinence.
The trial also statistically demonstrated the drug's ability to reduce both
urinary frequency and the episodes of involuntary urination (incontinence) in a
dose-dependent manner with low incidence of unpleasant side effects. Sepracor
will begin a 900 patient, twelve-week, Phase IIB dose ranging clinical trial in
early 1999.
(+)-desmethylsibutramine - a single isomer of the active metabolite of
Knoll Pharmaceutical's Meridia(R) In addition to its potential use to treat
various central nervous system indications (see CNS page 17), Sepracor is
developing (+)-desmethylsibutramine as a pharmacological treatment for stress
incontinence. Different from "urge incontinence" (see (S)-oxybutynin above),
stress incontinence is the involuntary escape of a small amount of urine when a
person coughs, laughs, or lifts heavy objects. Stress incontinence is common in
women, particularly after childbirth.
(S)-doxazosin - a single-isomer form of Pfizer's Cardura(R) Sepracor's
(S)-doxazosin has the potential to treat benign prostatic hypertrophy (BPH),
which is enlargement of the prostate, a condition common among men over 50 years
of age. (S)-doxazosin has the potential to decrease the side effect of
orthostatic hypotension, which lowers the blood pressure and can cause severe
dizziness and fainting. This side effect often requires titration, which leads
to multiple visits to the physician's office. If successfully developed,
Sepracor's single-isomer version could reduce the number of office visits needed
to titrate this medication, as well as increase its efficacy. In the second half
of 1999, Sepracor plans to begin Phase I human clinical trials of (S)-doxazosin.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
ICE Pharmaceuticals for Urological Disorders
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ICE(TM) Pharmaceutical Candidate Parent Drug Expected Indication Parent Drug 1998 Current Earliest
Potential Benefits of Sepracor Company Estimated Worldwide Development Potential
Drug Candidate Sales ($millions) Status Launch
- -------------------------------------------------------------------------------------------------------------------------
(S)-oxybutynin Ditropan(R) Urge Incontinence $150 Phase II 2002
reduced anticholinergic side Alza
effects including dry mouth,
nausea, dizziness and palpitations
- -------------------------------------------------------------------------------------------------------------------------
(S)-doxazosin Cardura(R) Benign Prostatic $600 preclinical 2002
reduced orthostatic hypotension Pfizer Hypertrophy (BPH)
and improved potency
- -------------------------------------------------------------------------------------------------------------------------
(+)-desmethylsibutramine Meridia(R) Stress Incontinence new indication preclinical 2002
reduced anticholinergic side Knoll Labs
effects and new indication
</TABLE>
fourteen
<PAGE>
[FULL BLEED PHOTO OF OLD COUPLE]
[PIE CHART]
1998 Estimated Worldwide Sales for
Urinary Incontinence Products
Diapers & Devices BPH
$2 Billion $1 Billion
Stress and Urge
Incontinence
$200 Million
fifteen
<PAGE>
[FULL BLEED PHOTO OF MOTHER AND BABY IN FIELD]
[PIE CHART]
1998 Estimated Worldwide Sales for
Central Nervous System Products
<TABLE>
<S> <C>
Depression $9 Billion
Anxiety $2.6 Billion
ADHD $50 Million
Obesity $500 Million
</TABLE>
sixteen
<PAGE>
Feeling Better Lower Side Effects and New Indications Yield a Healthy Outlook
Sepracor's portfolio of drug candidates will address a portion of a central
nervous system (CNS) worldwide market which had sales over $12.6 billion in
1998. Many of the Company's ICE Pharmaceuticals have the potential to treat
indications such as depression, obesity and attention deficit disorder, among
others.
(+)-desmethylsibutramine - a single-isomer form of the metabolite of Knoll
Pharmaceutical's Meridia(R) Preliminary Sepracor preclinical studies indicate
that (+)-desmethylsibutramine may be a potent selective serotonin reuptake
inhibitor (SSRI), norepinephrine and dopamine reuptake inhibitor. This unique
triple mechanism of action may offer benefits in the treatment of obesity as
well as the opportunity to treat additional indications including chronic pain
syndromes, attention deficit disorder (ADHD) and depression. Sepracor plans to
submit an investigational new drug application (IND) and initiate Phase I human
clinical trials with (+)-desmethylsibutramine in 1999.
(+)-zopiclone - a single-isomer form of Rhone-Poulenc Rorer's Imovane(R) If
successfully developed, this drug could represent the second non-benzodiazepine
treatment for sleep disorders in the U.S. Zopiclone, available only outside the
U.S., reduces sleep latency, increases the duration of sleep, and decreases the
number of nocturnal awakenings in sleep studies conducted in man. Currently, the
market is served primarily by zolpidem tartrate, marketed as Ambien(R) by
Searle.
Sepracor has shown in preclinical studies that the activity responsible for
efficacy predominantly resides in the (+) isomer of zopiclone and the single
isomer version exhibits lower anticholinergic side effects than those seen with
the parent drug, Imovane(R). Sepracor plans to submit an IND and initiate Phase
I clinical trials with (+)-zopiclone in the first half of 1999.
(R)-ketoprofen - a single-isomer form of American Home Product's Orudis(R)
Preclinical studies have indicated that Sepracor's (R)-ketoprofen is a
potentially highly potent analgesic treatment for neuropathic pain, with reduced
gastrointestinal side effects. The Company plans to begin human clinical trials
of (R)-ketoprofen for this indication during the first half of 1999.
Hydroxy bupropion - a single-isomer form of Glaxo-Wellcome's Zyban(R)
Sepracor's preclinical studies indicate that hydroxy bupropion offers the
possibility of a lower incidence of seizures than the parent drug Zyban(R),
coupled with potential new indications including depression and ADHD.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
ICE Pharmaceuticals for Central Nervous System Indications
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ICE(TM) Pharmaceutical Candidate Parent Drug Expected Parent Drug 1998 Current Earliest
Potential Benefits of Sepracor Company Indication Estimated Worldwide Development Potential
Drug Candidate Sales ($millions) Status Launch
- ----------------------------------------------------------------------------------------------------------------------------------
(R)-ketoprofen Orudis(R)/Actron(R) neuropathic pain $150 Phase I/II 2002
reduced gastrointestinal side American Home Products
effects, improved potency
- ----------------------------------------------------------------------------------------------------------------------------------
(+)-desmethylsibutramine Meridia(R) depression, anxiety, new to market Preclinical 2002
reduced anticholinergic side Knoll Labs obesity, attention
effects including dry mouth deficit disorder (ADHD)
and constipation
- ----------------------------------------------------------------------------------------------------------------------------------
(+)-zopiclone Imovane(R) sleep disorders $140 Preclinical 2003
reduced anticholinergic side Phone-Poulenc Rorer
effects including dry mouth
- ----------------------------------------------------------------------------------------------------------------------------------
Hydroxy bupropion Zyban(R) ADHD new to market Preclinical 2003
reduced incidence of seizures, Glaxo-Wellcome
dry mouth and insomnia
- ----------------------------------------------------------------------------------------------------------------------------------
Nefazodone metabolite Serzone(R) depression $230 Preclinical 2004
reduced anticholinergic Bristol-Meyers Squibb
side effects
</TABLE>
seventeen
<PAGE>
Drug Discovery Backward Integration...Sepracor's New Chemical Entities
As the Company continues towards its vision of becoming a fully integrated
pharmaceutical company, Sepracor is broadening its development focus to include
discovery and development of New Chemical Entities (NCEs).
Sepracor's strong ICE Pharmaceutical product portfolio will carry the
Company into the next millennium. However, future growth can be further
augmented through discovery and development of new chemical compounds. These
NCEs are expected to complement Sepracor's current ICE Pharmaceutical pipeline.
The ability for a company the size of Sepracor to make a significant
contribution to drug discovery has increased with the use of new technologies in
combinatorial chemistry and high throughput screening. In the past, only large
pharmaceutical companies participated in the discovery of novel, drug-like
molecules which are suitable for the treatment of diseases with unmet medical
needs. However, the accessibility and widespread use of the new technologies of
combinatorial chemistry and ultra high throughput screening provide an
opportunity for Sepracor to compete with larger pharmaceutical companies in the
area of NCE discovery.
Combinatorial chemistry techniques - with robotics and computer directed
synthesis - are used to quickly produce libraries of compounds, which are then
suitable for biological evaluation in relevant high throughput screening assays.
These compound libraries are rapidly assessed for drug-like properties, which
include specific disease-associated receptor binding or enzyme inhibition, as
well as absorption, metabolism and toxicological profiles. These techniques have
significantly increased the productivity of the medicinal chemist and
dramatically increased the frequency at which compounds with more drug-like
properties are identified and chosen for further investigation.
Sepracor's approach to the discovery of NCE's is identifying novel
compounds, which are of strategic interest to Sepracor, with in vitro and in
vivo biological activity in the anti-infective, anti-inflammatory, pain and
behavioral disease therapeutic areas.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Sepracor's New Chemical Entities
- --------------------------------------------------------------------------------
<S> <C> <C>
Sepracor Lead Compound Indication Receptor/Enzyme
SEP-97, 148 Pain, Anxiety Adenosine
SEP-154, 601 Asthma A2A
A3
SEP-109, 235 Anxiety Serotonin
SEP-89, 406 Anxiety 5HT1a
5HT2a
SEP-98, 035 Fungal Infection Fungicidal versus
Aspergillas and Candida
SEP-132, 617 Bacterial Infection Narrow spectrum, resistant
gram-positive infections
</TABLE>
[CHART] Sepracor's Drug Discovery
Combinatorial Functional
Chemistry Genomics
Many Compounds Disease Targets
High-Throughput
Screening
"Hits" BIOINFORMATICS
Computer Control
Lead Compounds
Preclinical and
Clinical Trials
eighteen
<PAGE>
[FULL BLEED PHOTO OF SCIENTIST LOOKING AT TEST TUBE]
nineteen
<PAGE>
Sepracor Inc. Selected Financial Data
<TABLE>
<CAPTION>
Year Ended December 31, (in thousands, except per share data) 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
Statement of Operations Data:
<S> <C> <C> <C> <C> <C>
Revenues:
Product sales $ 6,996 $ 9,636 $ 13,784 $ 14,271 $ 12,382
Collaborative research and development 5,044 58 25 1,036 303
License fees and royalties 5,366 5,643 1,232 900 5,425
-----------------------------------------------------------------------
Total revenues 17,406 15,337 15,041 16,207 18,110
-----------------------------------------------------------------------
Costs and expenses:
Cost of revenue 4,604 5,992 6,784 10,410 6,919
Research and development 63,062 43,055 35,828 21,707 17,723
Purchase of in-process research and development (1) - - - - 3,500
Selling, general, administrative and patent costs 32,891 17,254 16,312 20,411 16,212
Restructuring and impairment charges (2) (351) 4,179 - 4,144 -
-----------------------------------------------------------------------
Total costs and expenses 100,206 70,480 58,924 56,672 44,354
-----------------------------------------------------------------------
Loss from operations (82,800) (55,143) (43,883) (40,465) (26,244)
-----------------------------------------------------------------------
Other income (expense):
Equity in investee losses (3) (7,482) (2,755) (17,539) (808) -
Interest income 13,191 5,766 6,713 3,228 1,390
Interest expense (16,969) (5,976) (6,140) (2,077) (832)
Gain on sale of ChiRex Inc. - 30,069 - - -
Other (4) 124 547 (107) (1,171) (213)
-----------------------------------------------------------------------
Net loss before minority interests (93,936) (27,492) (60,956) (41,293) (25,899)
Minority interests in subsidiaries 653 1,369 846 7,881 5,556
-----------------------------------------------------------------------
Net loss $ (93,283) $ (26,123) $ (60,110) $ (33,412) $ (20,343)
-----------------------------------------------------------------------
Net loss applicable to common shares (5) $ (93,433) $ (26,723) $ (60,710) $ (33,412) $ (20,343)
-----------------------------------------------------------------------
Basic and diluted net loss per common share $ (3.23) $ (0.97) $ (2.25) $ (1.54) $ (1.09)
Basic and diluted weighted-average number of
common shares outstanding 28,913 27,599 27,032 21,637 18,644
Balance Sheet Data (in thousands):
Cash and marketable securities $499,597 $ 92,560 $103,650 $143,250 $ 27,590
Total assets 551,313 128,507 146,689 202,713 73,419
Long-term debt 492,104 84,268 85,267 85,818 5,929
Stockholders' equity 4,389 12,032 30,392 89,227 30,485
</TABLE>
(1) Represents a charge in connection with an acquisition by BioSepra Inc.
(2) Represents a recovery of restructuring charges in 1998 and restructuring and
impairment charges taken by BioSepra in December 1997 and June 1995. See
Footnote J - Notes to Consolidated Financial Statements.
(3) 1998 includes a write-off of a guarantee of a HemaSure line of credit and
1996 includes one-time charges from ChiRex's initial public offering and
HemaSure's loss from discontinued operations. 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 $150,000, $600,000 and $600,000 in preferred stock dividends in
1998, 1997 and 1996, respectively. See Footnote B - Notes to Consolidated
Financial Statements.
twenty
<PAGE>
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
Sepracor 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. The Company develops drugs by
leveraging its broad patent position, expertise in chiral chemistry and
pharmacology, and experience in conducting clinical trials and seeking
regulatory approvals for new drugs. Sepracor's Improved Chemical Entities
("ICEs") pharmaceutical development program has yielded an extensive portfolio
of drug candidates intended to treat a broad range of indications in respiratory
care, urology, gastroenterology, psychiatry and neurology. The Company is also
broadening its development focus to include discovery and development of new
chemical entities.
The consolidated financial statements include the accounts of Sepracor Inc.
("Sepracor" or the "Company") and its majority and wholly-owned subsidiaries,
including BioSepra Inc. ("BioSepra"), Sepracor Canada Limited, New England
Pharmaceuticals, Inc. (from June 1995 to June 1996 at which time it was merged
into Sepracor) and SepraChem Inc. (from January 1996 to March 1996). The
consolidated financial statements also include Sepracor's affiliates, HemaSure
Inc. ("HemaSure") (a subsidiary from January 1994 to September 1995), and
Versicor Inc. ("Versicor") (a subsidiary from May 1995 to December 1997).
BioSepra develops, manufactures and sells chromatographic media for use by
biopharmaceutical companies in the purification and production of
biopharmaceuticals. In 1996, Sepracor loaned BioSepra $5,500,000. Interest on
the loan was prime plus 3/4%. The loan, including any interest thereon, was
convertible into shares of BioSepra stock at the option of Sepracor at any time
prior to payment. In June 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 of the outstanding
principal and interest Sepracor owns approximately 64% of BioSepra.
At December 31, 1998, the Company owned 33% of the outstanding shares of common
stock of HemaSure, a company applying its proprietary filtration technology to
develop products to increase the safety of blood collection and transfusion. The
Company accounts for its investment in HemaSure using the equity method. At
December 31, 1997, the Company's investment in HemaSure was recorded at zero. In
September 1998, Sepracor guaranteed a $5,000,000 HemaSure line of credit and as
a result began to record its portion (33%) of HemaSure losses. Losses of
$1,188,000 were recorded for the remainder of 1998 and at December 31, 1998 the
Company recorded the balance of the guarantee, or $3,812,000, as a loss, for a
total 1998 HemaSure equity loss of $5,000,000. (See Notes to Consolidated
Financial Statements - Note W - Subsequent Event for HemaSure ownership change
to 42%).
In May 1995, Versicor was formed to develop novel drug candidates principally
for the treatment of infectious diseases. In 1995 and 1997, Versicor entered
into Convertible Subordinated Note Agreements ("the Note Agreements") with
Sepracor. 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 Versicor Notes") in the amount of
$9,530,000. The remaining $6,034,000, which was outstanding under the Versicor
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 Versicor 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 through December 31, 1997. For the year ended
December 31, 1998, Sepracor recorded $2,482,000 as its 22% share of Versicor
losses and at December 31, 1998, its investment in Versicor was $1,490,000.
In 1996, ChiRex Inc. ("ChiRex"), a newly formed corporation that was 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 shares of ChiRex
common stock representing 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.
Results of Operations
Years Ended December 31, 1998, 1997 and 1996
Product sales were $6,996,000, $9,636,000 and $13,784,000 in 1998, 1997 and
1996, respectively. Product sales are primarily attributable to BioSepra's sales
of bioprocessing media, supplies and equipment. The decrease in revenue from
1997 to 1998 is primarily attributable to decreased media sales and the
discontinuance by BioSepra of its instrument product line. The decrease in
revenue from 1996 to 1997 is attributable to fluctuations experienced by
BioSepra 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 $5,044,000, $58,000 and
$25,000, in 1998, 1997 and 1996, respectively. The increase from 1997 to 1998 is
primarily due to revenue recognized by Sepracor under its collaboration and
license agreement dated as of January 1998 (the "Norastemizole Agreement"), with
Janssen Pharmaceutica N.V. ("Janssen") for the development of norastemizole.
License fees and royalties were $5,366,000, $5,643,000 and $1,232,000 in 1998,
1997 and 1996, respectively. Included in the 1998 license revenue is $5,000,000
received from Schering-Plough Corporation ("Schering"), under a license
agreement dated December 1997 (the "DCL Agreement") for descarboethoxyloratadine
("DCL"). License revenue in 1997 included $3,600,000 recognized by BioSepra
under an agreement (the "Beckman Agreement") with Beckman Instruments, Inc.
("Beckman") and the Hoechst Marion Roussel Inc. ("HMRI") milestone payment of
$1,875,000 to
twenty-one
<PAGE>
Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Sepracor under the license agreement for terfenadine carboxylate, marketed by
HMRI as Allegra. License revenue in 1996 included $900,000 recognized by
BioSepra under the Beckman Agreement and $168,000 in royalties received from
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. As of March 1996, Sepracor shares the royalty revenue from Tanabe
equally with ChiRex.
In December 1997, under the DCL Agreement, Sepracor licensed to Schering
exclusive worldwide rights to Sepracor's patents covering DCL, an active
metabolite of loratadine that in pre-clinical studies has shown the potential
for greater potency. In the first quarter of 1998, Schering paid Sepracor an
initial license fee of $5,000,000. Under the terms of the DCL Agreement,
Sepracor is entitled to receive royalties on DCL sales, if any, beginning at
product launch. Royalties paid to Sepracor will escalate over time and upon the
achievement of sales volume and other milestones.
Effective January 1998, Sepracor and Janssen, a wholly-owned subsidiary of
Johnson & Johnson, entered into the Norastemizole Agreement, relating to the
development and marketing of norastemizole, a third generation nonsedating
antihistamine. Under the terms of the Norastemizole 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 on Janssen sales, if
any, 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 over-the-counter rights to norastemizole.
On July 2, 1998, Sepracor received an approvable letter for Xopenex(TM),
inhalation solution, in multidose strengths, from the U.S. Food and Drug
Administration ("FDA"). Xopenex(TM) is the therapeutically active isomer of
racemic albuterol. Final approval by the FDA of the Xopenex(TM) New Drug
Application ("NDA") is subject to satisfactory completion of product labeling
discussions and certain other conditions. Sepracor is planning to introduce
Xopenex(TM) upon FDA approval.
On July 20, 1998, Sepracor entered into a second license agreement with Janssen
(the "Norcisapride Agreement") giving Janssen exclusive worldwide rights to
Sepracor's patents covering norcisapride, an isomer of the active metabolite of
Propulsid(TM). Under the terms of the Norcisapride Agreement, Sepracor has
exclusively licensed to Janssen rights to develop and market the norcisapride
product worldwide. Under the Norcisapride Agreement, Janssen would pay Sepracor
royalties on norcisapride sales, if any, beginning at product launch. The
royalty rate to be paid to Sepracor will escalate upon the achievement of sales
volume milestones.
In December 1998, Sepracor entered into a license agreement (the "Lilly
(R)-fluoxetine Agreement") with Eli Lilly and Company ("Lilly") under which
Sepracor grants to Lilly exclusive worldwide rights to Sepracor's patents
covering (R)-fluoxetine. (R)-fluoxetine is a new chemical entity patented by
Sepracor, which is a modified form of an active ingredient found in Prozac(R),
marketed by Lilly. Under the terms of the Lilly (R)-fluoxetine Agreement, and
subject to clearance under the Hart Scott Rodino Antitrust Improvements Act of
1976 as amended (the "HSR Act"), Sepracor will receive an initial milestone
payment and license fee of $20,000,000 and up to $70,000,000 in additional
milestone payments, based on the progression of (R)-fluoxetine through
development. In addition, Sepracor will receive royalties on (R)-fluoxetine
worldwide sales, if any, beginning upon first commercial sale. Under the HSR
Act, Sepracor has received a request from the Federal Trade Commission for
additional information in connection with the Lilly (R)-fluoxetine Agreement.
Sepracor plans to fully respond to the request and expects the Lilly
(R)-fluoxetine Agreement to become effective as soon as the Federal Trade
Commission completes its review.
The material component of cost of revenue, cost of products sold, as a
percentage of product sales, was 59%, 57% and 49% in 1998, 1997 and 1996
respectively. The increase in 1998 from 1997 is due to an unfavorable product
mix on current media products and a decline in absorption of manufacturing costs
due to lower product sales at BioSepra. The increase in 1997 from 1996 is
primarily due to product mix changes and fluctuations in timing of
production-scale customer orders of BioSepra. In addition, the increase is
attributable to the transition of BioSepra resources from product development to
production support, in association with the commercialization of new media and
instrument products. In 1997 a payment of $469,000 was made to a third party in
connection with the HMRI milestone payment and is included in cost of revenue.
Research and development expenses were $63,062,000, $43,055,000 and $35,828,000
in 1998, 1997 and 1996, respectively. The increase in 1998 from 1997 is
primarily due to an increase in research and development spending on preclinical
and clinical trials in Sepracor's pharmaceutical programs including two major
Phase III norastemizole trials, a fall seasonal allergic rhinitis study and a
controlled allergen challenge study; a Phase II pediatric study for the syrup
formulation of Xopenex(TM); a Phase II study for (R,R)-formoterol; and a Phase I
clinical trial for (R)-fluoxetine. These increases were partially offset by the
fact that Sepracor no longer consolidates Versicor results in 1998, while 1997
results included approximately $5,073,000 of research and development costs
attributable to Versicor. Costs increased in 1997 as compared to 1996 as
levalbuterol Phase III clinical trials were completed; an NDA was submitted for
levalbuterol to the FDA, Phase III clinical trials began for norastemizole; and
Phase I clinical trials were initiated for (R,R)-formoterol. Sepracor expects
the trend of increasing research and development expenditures to continue in
1999 through continued investments in numerous clinical and pre-clinical
programs.
Selling, general and administrative expenses were $30,883,000, $15,594,000 and
$15,245,000, in 1998, 1997 and 1996, respectively. The increase in 1998 from
1997 is primarily the result of Sepracor's development of its infrastructure,
including operations and a specialty sales force, to support Xopenex(TM). The
increase in 1997 from 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.
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 market. In conjunction 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
twenty-two
<PAGE>
Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
workforce in the U.S. operation. BioSepra terminated seven employees consisting
of marketing, sales, finance and administrative personnel. The $161,000 of
severance and benefits was fully paid out in 1998. In 1998, BioSepra recognized
a gain of $351,000 related to the sale of its instrument inventory to Beckman,
which was previously written off as part of the 1997 restructuring charges
described above.
In 1996, as a result of the sale by BioSepra in July 1995 of Biopass, BioSepra
wrote-off the remaining unamortized portion of certain purchased technology of
approximately $741,000.
Legal expenses related to patents were $2,008,000, $1,660,000 and $1,067,000 for
1998, 1997 and 1996, respectively. The increase in 1998 from 1997 is due
primarily to costs associated with an increased volume of patent filings and
costs associated with the HMRI patent interference. 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 initiated in 1997.
Equity in loss of investees was $7,482,000, $2,755,000 and $17,539,000 for
1998, 1997 and 1996, 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 loss in 1998
from 1997 is primarily due to a $5,000,000 accrual of a HemaSure line of credit
guarantee and the recording of Versicor losses for a full year in 1998. Although
Sepracor's investment in HemaSure had been reduced to zero in November of 1997,
Sepracor's guarantee of the HemaSure line of credit in September 1998 resulted
in the continued recording of its portion of HemaSure losses. Sepracor recorded
$1,188,000 as its portion of losses through December 1998 and determined that
the full guarantee amount of $5,000,000 should be written-off at December 31,
1998. The decrease in 1997 compared to 1996 is primarily related to the absence
of any one-time write-offs, such as those in 1996 for ChiRex and HemaSure
(Sepracor's combined portion of these one-time write-offs was $12,701,000),
ChiRex having net income for the period in 1997 during which Sepracor maintained
an interest and recording of HemaSure losses for only eleven months of 1997 as
the investment was written down to zero.
Interest income was $13,191,000, $5,766,000 and $6,713,000 for 1998, 1997, and
1996, respectively. The increase in 1998 from 1997 is due to the larger average
cash balance available for investment primarily resulting from the February 1998
convertible subordinated debenture financing of $189,475,000, while the decrease
in 1997 from 1996 is principally the result of a lower average cash balance
available for investment.
Interest expense was $16,969,000, $5,976,000 and $6,140,000 in 1998, 1997 and
1996, respectively. The increase in 1998 from 1997 is due primarily to interest
on the February 1998 convertible subordinated debenture financing of
$189,475,000 at 6-1/4%. The decrease in 1997 from 1996 was a result of reduced
borrowings by BioSepra and more favorable interest rates on the remaining
borrowings.
Net other income (expense) was $124,000, $547,000 and $(107,000) for 1998, 1997
and 1996, respectively. 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 $653,000, $1,369,000 and $846,000 for 1998, 1997 and 1996, respectively.
The decrease in 1998 from 1997 is due to a reduction in BioSepra's loss. The
increase in 1997 from 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
Effective for the year ended December 31, 1998, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 131, "Disclosures about Segments of
an Enterprise and Related Information." This approach designates the Company's
internal organization as used by management for making operating decisions and
assessing performance as the source of business segments. On this basis, the
Company has two business segments: Sepracor and Sepracor Group, which includes
BioSepra and equity investments in HemaSure, Versicor and ChiRex. Segment
results, as well as geographic data, are presented on this new basis in 1998, as
well as retroactively to 1997 and 1996. The Company also adopted SFAS No.130,
"Reporting Comprehensive Income", in the first quarter of 1998, which requires
disclosure of comprehensive income, i.e., net income plus direct adjustments to
stockholders' equity.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities." This statement
establishes accounting and reporting standards for derivative instruments
embedded in other contracts (collectively referred to as "derivatives"), and for
hedging activities. The statement requires companies to recognize all
derivatives as either assets or liabilities, with the instruments measured at
fair value. The accounting for changes in fair value, gains or losses, depends
on the intended use of the derivative and its resulting designation. The
statement is effective for fiscal years beginning after June 15, 1999. The
Company expects no immediate impact from SFAS No. 133 because it currently has
no derivatives.
Liquidity and Capital Resources
Cash and cash equivalents plus marketable securities of Sepracor and its
subsidiaries, including BioSepra, totaled $499,597,000 at December 31, 1998,
compared to $92,560,000 at December 31, 1997. Cash and cash equivalents plus
marketable securities of Sepracor, excluding BioSepra, at December 31, 1998 were
$497,362,000, compared to $90,044,000 at December 31, 1997.
The net cash used in operating activities for the year ended December 31, 1998
was $59,891,000. The net cash used in operating activities includes a net loss
of $93,283,000 adjusted by non-cash charges of $13,245,000. These charges were
offset by the minority interest in subsidiary portion of the net loss of
$653,000 and $263,000 for the reduction in the provision for doubtful accounts.
Non-cash charges include $5,000,000 relating to the accrual of Sepracor's
guarantee of a HemaSure line of credit. The accounts payable and accrued expense
amounts increased a total of $20,547,000, primarily due to increased research
and development and interest accruals at Sepracor. Deferred revenue increased in
1998 compared to 1997 a total of $1,891,000 primarily due to Sepracor's deferral
of the recognition of revenue from HMRI, pending an unsettled patent
interference.
Sepracor used $201,013,000 in investing activities for the year ended December
31, 1998. The cash was used in investing activities primarily for net purchases
of marketable securities of $194,293,000 and for $7,288,000 of property and
equipment purchases. Sepracor expects purchases of property and equipment to be
in the $12,000,000 to $17,000,000 range in 1999 with depreciation for 1999
expected to be in the $6,000,000 to $8,000,000 range.
twenty-three
<PAGE>
Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Net cash of $474,091,000 was provided by financing activities for the year ended
December 31, 1998. The cash resulted primarily from proceeds of $489,475,000
from two convertible subordinated debenture financings, offset by $15,615,000 of
costs associated with these financings.
In 1994, Sepracor, BioSepra and HemaSure entered into an equipment leasing
arrangement that provides for a total of up to $2,000,000 of financing to
Sepracor and its subsidiaries for the purpose of financing capital equipment in
the U.S. All outstanding amounts are collateralized by the assets so financed
and are guaranteed by Sepracor. At December 31, 1998, there was $320,000
outstanding under this credit facility relating to Sepracor, BioSepra and
HemaSure of which $63,000 represented Sepracor's portion.
At December 31, 1998, Sepracor had guaranteed $402,000 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, 1998, Sepracor Canada Limited had received approximately
$2,960,000 of such term debt, of which $1,754,000 was outstanding.
In 1995 and in 1997, Versicor entered into Convertible Subordinated 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 equal to the
prime rate minus 1/4%, adjusted under certain circumstances. The note agreements
were convertible, at the option of Sepracor, into Versicor 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 note
agreements into 12,166,667 shares of Versicor preferred stock. 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. 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. Sepracor is a guarantor of all outstanding
borrowings. At December 31, 1998, BioSepra had $2,000,000 outstanding under this
agreement. The annual interest rate on such borrowings is at the lower of the
prime rate or LIBOR plus 1.75%.
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. As of December 31, 1998, the put agreement
remained outstanding.
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 $6,105,000 of offering costs, which were
recorded as other assets and are being amortized over seven years, the term of
the 6-1/4% Debentures. The net proceeds to the Company after offering costs were
$183,370,000.
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, totaling $6,850,000. 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.
On October 30, 1998 Sepracor called for the redemption of its 7% Convertible
Subordinated Debentures due 2002, (the "7% Debentures due 2002"), aggregating
$80,880,000. The 7% debentures due 2002 were convertible, at the holder's
option, into shares of Sepracor Common Stock at a conversion price of $19.68 per
share. On December 1, 1998, immediately prior to the redemption, the entire
principal amount of 7% Debentures due 2002, was converted into 4,109,756 shares
of Sepracor Common Stock. As a result of the conversion, Sepracor wrote off
$1,582,000 of deferred financing costs against stockholders' equity.
On December 10, 1998, Sepracor issued $300,000,000 of 7% Convertible
Subordinated Debentures due 2005 (the "7% Debentures due 2005"). The 7%
Debentures due 2005 are convertible into Sepracor Common Stock, at the option of
the holder, at a price of $124.875 per share. The 7% Debentures due 2005 bear
interest at 7% payable semi-annually, commencing on June 15, 1999. The 7%
Debentures due 2005 are not redeemable by the Company prior to December 20,
2001. The Company may be required to repurchase the 7% Debentures due 2005 at
the option of the holders in certain circumstances. As part of the sale of the
7% Debentures due 2005, Sepracor incurred approximately $9,919,000 of offering
costs, which were recorded as other assets and are being amortized over seven
years, the term of the 7% Debentures due 2005. The net proceeds to the Company
after offering costs were $290,081,000.
Market Risk
The Company is exposed to market risk from changes in interest rates and equity
prices, which could affect its future results of operations and financial
condition. The Company manages its exposure to these risks through its regular
operating and financing activities.
Interest Rates: The Company's available for sale investments and subordinated
convertible debentures are sensitive to changes in interest rates. Interest rate
changes would result in a change in the fair value of these financial
instruments due to the difference between the market interest rate and the rate
at the date of purchase of the financial instrument. A 10% decrease in year-end
1998 market interest
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<PAGE>
Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
rates would result in no material impact on the net fair value of the Company's
interest-sensitive financial instruments.
Equity Prices: The Company's subordinated convertible debentures are sensitive
to fluctuations in the price of the Company's common stock into which the
debentures are convertible. Changes in equity prices would result in changes in
the fair value of the Company's subordinated convertible debentures due to the
difference between the current market price and the market price at the date of
issuance of debentures. A 10% increase in the year-end 1998 market equity prices
would result in an increase of $38,600,000 on the net fair value of the
Company's subordinated convertible debentures.
Subsequent Events
On February 25, 1999, Sepracor entered into an agreement with HemaSure pursuant
to which Sepracor invested $2,000,000 in HemaSure in exchange for 1,333,334
shares of HemaSure common stock and for warrants to purchase 667,000 of
additional shares of HemaSure common stock. This has resulted in Sepracor's
ownership of HemaSure increasing from 33% to 42% as of February 25, 1999.
On February 25, 1999, BioSepra acquired 51% of the outstanding common stock of
Biosphere Medical, S.A. ("Biosphere"), a French societe anonyme. BioSepra
acquired the 51% ownership by granting an exclusive license pertaining to
certain patents and technology and the transfer of certain other technology to
Biosphere. BioSepra has the option to acquire the remaining 49% of the
outstanding common stock of Biosphere through December 31, 2004, as defined.
Additionally, the holder of the remaining 49% of the outstanding common stock of
Biosphere has an option to require BioSepra to purchase its shares from December
31, 2003 until December 31, 2004 at a price of not less than FF6,000,000
($1,072,000 December 31, 1998). The results of operations for Biosphere will be
included in BioSepra's operations from the date of acquisition. The historical
results of operations of Biosphere are not material to BioSepra's financial
statements.
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 May 1998, HMRI filed an action in
Belgium alleging that Sepracor's European patent relating to fexofenadine is
invalid in Belgium, or is not infringed by HMRI's sales of fexofenadine in
Belgium and Germany. In September 1998, Sepracor commenced infringement
proceedings in the United Kingdom against HMRI and related companies for
infringement of Sepracor's European patent relating to fexofenadine. Sepracor
and HMRI have agreed to resolve the interference by arbitration. The arbitrator
has been selected and a decision, once rendered, must be submitted to the PTO
for final approval. The proceedings are ongoing and the Company is unable to
predict its outcome.
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 a motion for summary judgment
of noninfringement. Pall filed a cross motion for summary judgment of
infringement at the same time.
In October 1997, the Eastern District of New York granted in part Pall's summary
judgment motion and held that the LeukoNet product infringes a single claim from
the '321 patent. HemaSure has terminated the manufacture, use, sale and offer
for sale of the filter subject to the court's order. HemaSure appealed the
October 1997 decision to the Court of Appeals for the Federal Circuit. Oral
arguments were heard in February 1999. HemaSure now awaits a decision from the
Federal Circuit. Remaining discovery relating to the damages phase of the first
action has been completed.
With respect to the second action concerning U.S. Patent No. 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. Pall has amended its Complaint to add Lydall, Inc., whose
subsidiary supplied filter media for the LeukoNet product, as a co-defendant.
HemaSure has filed for summary judgment of noninfringement, and Pall has
cross-filed for summary judgment of infringement at the same time. Lydall
supported HemaSure's motion for summary judgment of noninfringement, and has
served a motion for summary judgment that the asserted claims of the '572 patent
are invalid as a matter of law. Discovery has been completed in the action.
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 LeukoNet product does not infringe any valid enforceable
claim of the two asserted Pall patents. However, there can be no assurance that
HemaSure will prevail in the pending litigations, and an adverse outcome in a
patent infringement action would have a material adverse effect on HemaSure's
financial condition and 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 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:
twenty-five
<PAGE>
Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Sepracor Has Operating Losses: Sepracor has not been profitable since inception,
and it is possible that it will not achieve profitability. Sepracor incurred net
losses applicable to common shares on a consolidated basis of approximately
$93,433,000 for the year ended December 31, 1998 and $26,723,000 for the year
ended December 31, 1997. These net losses include dividends paid on Sepracor's
Series B Preferred Stock totaling $150,000 for the year ended December 31, 1998
and $600,000 for the year ended December 31, 1997. Sepracor expects to continue
to incur losses in future periods.
Many of Sepracor's Products are in the Early Stage of Product Development and
May Not Be Developed Successfully: Sepracor is focused on the development of
ICEs. Most of Sepracor's ICEs are still undergoing clinical trials or are at the
early stages of development. Sepracor's drugs may not provide greater benefits
or fewer side effects than the original versions of these drugs and its research
efforts may not lead to the discovery of new drugs with improved
characteristics. All of Sepracor's drugs under development will require
significant additional research, development, preclinical and/or clinical
testing, regulatory approval and a commitment of significant additional
resources prior to their commercialization. Sepracor's potential products may
not:
o be developed successfully;
o be proven safe and efficacious in clinical trials;
o offer therapeutic or other improvements over comparable drugs;
o meet applicable regulatory standards;
o be capable of being produced in commercial quantities at acceptable costs; or
o be successfully marketed.
There Are Uncertainties Involved with Patents: Sepracor's success depends in
part on its ability to obtain and maintain patents, protect trade secrets and
operate without infringing upon the proprietary rights of others. Sepracor has
filed various patent applications covering the composition of, and the methods
of using, single-isomer or active-metabolite forms of various compounds for
specific applications.
Sepracor may not be issued patents in respect of the patent applications already
filed or that it may file in the future. Moreover, the patent position of
companies in the pharmaceutical industry generally involves complex legal and
factual questions, and recently has been the subject of much litigation. No
consistent policy has emerged from the PTO or the courts regarding the breadth
of claims allowed or the degree of protection afforded under patents and other
proprietary rights. Therefore, any patents Sepracor has obtained, or obtains in
the future, may be challenged, invalidated or circumvented.
Sepracor's ability to commercialize successfully any ICE will largely depend
upon its ability to obtain and maintain use patents of sufficient scope to
prevent third parties from developing similar or competitive products. Third
parties, typically drug companies, hold patents or patent applications covering
the composition of matter for most of the ICEs for which Sepracor has use
patents or patent applications. In each such case, unless Sepracor has or
obtains a license agreement, Sepracor generally may not commercialize the ICE
until the expiration of these third-party patents. Licenses may not be available
to Sepracor on acceptable terms, if at all. In addition, it would be costly to
contest the validity of a third-party patent or defend any claim that Sepracor
infringes a third-party patent. Moreover, litigation involving third-party
patents may not be resolved in Sepracor's favor.
Developing new products and processes is expensive and time consuming.
Therefore, it is important for Sepracor to obtain patent and trade secret
protection for significant new technologies, products and processes. Protection
of Sepracor's proprietary rights from unauthorized third-party use requires that
the rights either be covered by valid and enforceable patents or be maintained
in confidence as trade secrets. Some of the technology that Sepracor uses in its
products is not covered by any patents or patent applications. In the absence of
patent protection, competitors may adversely affect Sepracor's business by
developing independently substantially equivalent technology. This independent
development may circumvent any trade secret protection applicable to Sepracor's
products.
Sepracor is Involved In a Patent Interference: In July 1997, the PTO informed
Sepracor that it had declared an interference between Sepracor's use patent on
fexofenadine to treat allergic rhinitis and another similar use patent
application filed by it, and HMRI's use patent application on the
anti-histaminic effects of fexofenadine on hepatically impaired patients. The
primary objective of a patent interference, which only the PTO can declare, is
to determine which party first invented the 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 and issues a patent in the overlapping subject
matter to the party it believes has the earliest legally sufficient date of
invention.
The process to resolve an interference can take many years and the outcome of
interferences varies considerably. If Sepracor loses the interference, HMRI will
be issued a U.S. patent for the overlapping subject matter. Further, HMRI may
not be obligated to pay the milestone or royalty payments called for in the
existing agreement in which Sepracor licenses its U.S. patent rights covering
fexofenadine to HMRI. If Sepracor prevails in the interference, it will retain
all of its claims in Sepracor's issued patent. A favorable decision, however,
does not ensure meaningful protection of Sepracor's proprietary rights.
Sepracor is using arbitration to resolve the interference, and the arbitration
proceeding is ongoing. The arbitrator may or may not render a decision during
the first half of 1999. Once rendered, the arbitrator's decision must be
submitted to the PTO for final approval.
There is No Certainty that Sepracor will Obtain Government Approvals; The
Approval Process is Costly and Lengthy: The FDA and similar foreign agencies
must approve the marketing and sale of pharmaceutical products developed by
Sepracor or its development partners. The regulatory process to obtain marketing
approval requires clinical trials of a product to establish its safety and
efficacy. Problems that may arise during clinical trials include:
o results of clinical trials may not be consistent with pre-clinical study
results;
o results from later phases of clinical trials may not be consistent with the
results from earlier phases; and
o products may not be shown to be safe and efficacious.
The clinical trial and regulatory approval process can take many years and
require substantial expenditures. Sepracor may not obtain regulatory approval
for products on a timely basis, if at all. With respect to certain of Sepracor's
ICEs, Sepracor has been able to shorten the regulatory approval process by
relying on the parent drug's preclinical and clinical toxicology data already on
file with the FDA. However, it is possible that the FDA will not permit Sepracor
to use this strategy in the future. Accordingly, Sepracor may be required to
expend significant resources to complete preclinical and clinical studies for
its other ICEs which would significantly delay the regulatory approval process.
twenty-six
<PAGE>
Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Sepracor's failure to obtain regulatory approval on a timely basis and any
unanticipated significant expenditures on preclinical and clinical studies could
adversely affect Sepracor's financial condition. Even if the FDA grants Sepracor
regulatory approval of a product, such approval may be subject to limitations on
the indicated uses for which the product may be marketed or contain requirements
for costly post-marketing follow-up studies.
Sepracor's NDA for Xopenex(TM) is currently in the regulatory approval process.
While Sepracor expects final FDA approval of this application in 1999, the FDA
may not approve the NDA in 1999 or at all.
If Sepracor fails to comply with applicable regulatory requirements, it may be
subject to fines, suspension or withdrawal of regulatory approvals, product
recalls, seizure of products, operating restrictions and criminal prosecutions.
Risks Due to Sepracor's Limited Sales and Marketing Experience: Sepracor
currently has very limited sales and marketing experience. If Sepracor
successfully develops and obtains regulatory approval for the products it is
currently developing, Sepracor expects to license some of them to large
pharmaceutical companies and market and sell others through its direct specialty
sales forces or through other arrangements, including co-promotion arrangements.
Sepracor has established a direct sales force to market its single isomer form
of albuterol, Xopenex, in anticipation of expected FDA approval and commercial
introduction of this drug in 1999. Further, as Sepracor begins to enter into
co-promotion arrangements or market and sell additional products directly,
Sepracor will need to significantly expand its sales force. Sepracor expects to
incur significant expense in expanding its direct sales force.
Sepracor's ability to realize significant revenues from direct marketing and
sales activities depends on its ability to attract and retain qualified sales
personnel in the pharmaceutical industry. If Sepracor is unable to attract and
retain qualified sales personnel, Sepracor will not be able to successfully
expand its marketing and direct sales force on a timely or cost effective basis.
Further, Sepracor's sales and marketing efforts may not be successful, and the
need to comply with FDA limits on drug product marketing, including limits on
claims of comparative safety or efficacy, may inhibit the effectiveness of such
marketing. In addition, Sepracor will need to enter into co-promotion
arrangements with third parties where its direct sales force is neither well
situated nor large enough to achieve maximum penetration in the market. Sepracor
may not be successful in entering into any such arrangements, and the terms of
any such arrangements may not be favorable to it.
Manufacturing Uncertainties: Sepracor currently operates a manufacturing plant
that is cGMP compliant and that it believes can produce commercial quantities of
Xopenex and support the production of its other possible products in amounts
needed for its clinical trials. Sepracor believes it has the capability, without
additional expansion, to scale up its manufacturing processes and manufacture
sufficient amounts of the products which may be approved for sale. However,
Sepracor will not have the capability to manufacture in sufficient quantities
all of the products which may be approved for sale. Accordingly, Sepracor may be
required to spend money to expand its current manufacturing facility, build an
additional manufacturing facility or contract the production of these drugs to
third-party manufacturers.
Sepracor currently has a supply contract with ChiRex that commits Sepracor to
purchase through December 31, 2001 all of its annual requirements of those drugs
that it will market directly through its specialty sales force, provided ChiRex
meets certain pricing, supply and quality control conditions. Under this supply
agreement, however, Sepracor retains the right to manufacture commercial
quantities of its drugs in its Nova Scotia manufacturing plant.
Sepracor may not successfully scale up its manufacturing processes or maintain
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 previously granted and for
other regulatory action.
Sepracor Will Be Exposed to Product Liability Claims and Maintain Product
Liability Insurance: Sepracor's business exposes it to the risk of product
liability claims that are inherent in the testing, manufacturing, marketing and
sale of human health care products. Sepracor maintains limited product liability
insurance coverage for both the clinical trials and commercialization of its
products. It is possible that Sepracor will not be able to obtain further
product liability insurance on acceptable terms, if at all, and that insurance
subsequently obtained will not provide adequate coverage against all potential
claims. If Sepracor is unable to obtain insurance at acceptable cost or
otherwise protect against potential product liability claims, Sepracor could be
exposed to significant liabilities. These liabilities could prevent or interfere
with Sepracor's product commercialization efforts.
Sepracor Depends on Collaborative Partners: Sepracor's ability to commercialize
certain drugs that Sepracor develops is likely to depend significantly on its
continued 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, Sepracor has entered
into five such collaborative agreements. Sepracor has licensed to HMRI its U.S.
patent rights to fexofenadine, which is marketed by HMRI as Allegra, and is
entitled to receive royalties on all U.S. sales of Allegra when the patent on
the parent drug expires. Sepracor, however, is currently party to an
interference involving Allegra which, if decided against Sepracor, could result
in the loss of all or substantially all of the royalties to which it is entitled
under the license agreement on future sales of Allegra. See " - Sepracor is
Involved in a Patent Interference." Sepracor has also licensed its worldwide
patent rights in desloratadine to Schering-Plough, pursuant to which it is
entitled to receive royalties from Schering-Plough upon the initial sale of the
product. Sepracor has entered into an agreement with Janssen with respect to the
joint development and co-promotion of norastemizole. Sepracor has exclusively
licensed its norcisapride rights to Janssen, and is entitled to receive
royalties on product sales beginning upon the first commercial sale. These
royalties will escalate upon achievement of sales volume milestones. Sepracor
has exclusively licensed its (R)-fluoxetine rights to Lilly, and, in addition to
initial license and development milestone payments, is entitled to receive
royalties on product sales beginning upon the first commercial sale. This
agreement will be effective on the next business day following the expiration or
earlier termination of the notice and waiting period under the HSR Act. Under
the HSR Act, Sepracor has received a request from the Federal Trade Commission
for additional information in connection with the Lilly (R)-fluoxetine Agreement
and plans to fully respond to the request.
In each of these collaborative arrangements and, to the extent that Sepracor
enters into additional collaborative arrangements, Sepracor depends upon the
efforts of its collaboration partners, and these efforts may not be successful.
If any of Sepracor's collaboration partners were to breach or terminate their
agreements with Sepracor or fail to perform their obligations to Sepracor in a
timely manner, the development and commercialization of the products could be
delayed or terminated. Any delay or termination of this type could have a
material, adverse effect on Sepracor's financial condition and results of
operations. Any failure or inability by Sepracor to perform certain of its
obligations under a collaborative agreement could reduce or extinguish the
benefits to which Sepracor is otherwise entitled under the agreement. Sepracor
may not be able to enter into collaborative agreements for ICEs in the future
and the terms of the collaborative agreements, if any, may not be favorable to
Sepracor.
twenty-seven
<PAGE>
Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Sepracor is Highly Leveraged: As of December 31, 1998, Sepracor's total
long-term debt was approximately $492,100,000 and its stockholders' equity was
approximately $4,400,000. Neither the 6-1/4% convertible subordinated debentures
due 2005 nor the 7% convertible subordinated debentures due 2005 restrict
Sepracor's ability or its subsidiaries' ability to incur additional
indebtedness, including debt that ranks senior to the 6-1/4% debentures or the
7% debentures. Additional indebtedness of Sepracor may rank senior to or pari
passu with the 6-1/4% debentures or the 7% debentures in certain circumstances.
Sepracor's ability to satisfy its obligations will depend upon Sepracor's future
performance, which is subject to many factors, including factors beyond its
control. It is possible that Sepracor will be unable to meet its debt service
requirements on the 6-1/4% debentures or the 7% debentures. Moreover, Sepracor
may be unable to repay the 6-1/4% debentures or 7% debentures at maturity or
otherwise in accordance with the debt instruments.
Sepracor May Need Additional Funds: Sepracor may require additional funds for
its research and product development programs, operating expenses, the pursuit
of regulatory approvals and the expansion of Sepracor's production, sales and
marketing capabilities. Historically Sepracor has satisfied its funding needs
through collaborative arrangements with corporate partners or equity or debt
financings. Sepracor cannot assure you that these funding sources will be
available to it when needed in the future, or, if available, will be on terms
acceptable to Sepracor. Insufficient funds could require Sepracor to delay,
scale back or eliminate certain of its research and product development programs
or to license third parties to commercialize products or technologies that
Sepracor would otherwise develop or commercialize itself. Sepracor's cash
requirements may vary materially from those now planned because of factors
including:
o increased research and development expenses;
o patent developments;
o relationships with collaborative partners;
o the FDA regulatory process; and
o Sepracor's capital requirements.
Sepracor Faces Intense Competition: Sepracor expects to encounter intense
competition in the sale of its future products. Sepracor's competitors include
pharmaceutical companies, biotechnology firms, universities and other research
institutions. The fields in which Sepracor competes are subject to rapid and
substantial technological change. Developments by others may render Sepracor's
products or technologies obsolete or noncompetitive. Many of Sepracor's
competitors and potential competitors have substantially greater resources,
manufacturing and marketing capabilities, research and development staff and
production facilities than Sepracor has.
Fluctuation of Sepracor's Quarterly Operating Results: Sepracor's quarterly
operating results are likely to fluctuate significantly. These fluctuations will
depend on factors which include:
o the timing of collaborative agreements for Sepracor's pharmaceutical
development candidates and development costs for those pharmaceuticals;
o the timing of product sales and market penetration;
o the timing of operating expenses, including marketing expenses and the costs
of expanding and maintaining a direct sales force;
o the timing of significant orders for the products of BioSepra; and
o the losses of HemaSure and Versicor, to the extent Sepracor is required to
recognize these losses.
Sepracor's operating results may be affected by the future operating results of
its subsidiaries: 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.
Additional factors that may affect the future operating results of Sepracor
include the ability of HemaSure to obtain additional financing and HemaSure's
ability to develop commercially viable products.
Because of the foregoing factors, past financial results should not be relied
upon as an indication of future performance. Sepracor 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.
Year 2000 Issue: The year 2000 issue 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. In 1996, Sepracor began a comprehensive
project, fully supported by senior management, to determine the risks and
impacts of the Year 2000 ("Y2K") computer problem on the Company's ability to
operate into the next century. This plan took into account Sepracor's status as
a pharmaceutical research and development company, and its transition to a
fully-developed pharmaceutical company, with research and development,
manufacturing, distribution, and sales functions. The project relates to the
following areas: (i) The Company's internal systems (including information
technology systems, such as financial systems, and non-information technology
systems, such as telephones and facilities); and (ii) the readiness of the
Company's vendors. As an emerging pharmaceutical company, direct customers are
not expected to play a critical role in the Company's Y2K analysis. In addition,
the Company's products under development will not require Y2K compliance.
Department managers in every business area participate in the project, under the
leadership of a Y2K Project Manager. Sepracor began this project in 1996 so as
to incorporate Y2K readiness into its business strategy, and to identify and
replace non-compliant systems and procedures as part of its normal operating
plan and budget.
twenty-eight
<PAGE>
Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Sepracor's goal is to be fully Y2K ready, in respect to both its own systems and
those of its key vendors and strategic alliance partners, no later than July
1999.
To date, Sepracor has spent $145,000 to retrofit or replace computer-based
systems, which were identified as lacking compliance. This included the
migration of all of Sepracor's desktop computers to an operating status Sepracor
considers to be Y2K certified, through software upgrades or full system
replacements. Sepracor's key telecommunications systems were also upgraded
and/or replaced. These costs have been minimal due to the fact that Y2K
compliance has been a prerequisite to all new systems acquisitions and
maintenance upgrades.
The Company estimates approximately $400,000 in additional direct costs to
complete its Y2K certification efforts. This funding will be used to contract
with an independent testing firm to perform a platform and system review of the
Company's IT-based systems. At this time, the Company also plans to contract
with an independent auditor to perform a full review of its compliance efforts,
including contingency planning. This funding will also be used to address any
system or process replacement requirements that may be identified as these
reviews progress.
Areas that need further attention include vendor compliance certification, which
is in progress at this time, and contingency planning. Completion of the vendor
compliance certification is impacted by vendors' respective Y2K efforts. The
Company expects to have initial vendor responses completed by April 1999, and
will determine what follow-up is required at that time. The Company relies on
third party suppliers and service providers. If these or other third parties
experience Year 2000 failures or malfunctions, there could be an adverse impact
on the Company's ability to conduct operations, including conducting continued
pharmaceutical development efforts and manufacturing pharmaceutical products.
The Company has minimal Year 2000 related contingency plans because there are
virtually no legacy systems at Sepracor and because very few potential issues
have surfaced to date. A review of these plans will be held once vendor
certification is completed.
Sepracor's focus for the coming months will be to determine the exact level of
exposure with outside vendors/customers, and to complete independent
verification of internal compliance efforts. Based on the activities described
above, the Company does not believe that the Year 2000 problem will have a
material adverse effect on the Company's business or results of operations.
Supplemental Stockholder Information
Price Range of Common Stock
The Common Stock of Sepracor is traded on the Nasdaq National Market under the
symbol SEPR. On March 15, 1999, the closing price of the Company's Common Stock,
as reported on the Nasdaq National Market, was $134 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>
1998 High Low
<S> <C> <C>
First Quarter 43 5/16 35 1/8
Second Quarter 46 3/4 36 3/4
Third Quarter 70 1/2 41 1/2
Fourth Quarter 88 5/8 53
<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
</TABLE>
On March 15, 1999, Sepracor had approximately 527 stockholders of record.
Dividend Policy
Sepracor has never paid cash dividends on its Common Stock. The Company
currently intends to reinvest its future earnings, if any, for use in the
business and does not expect to pay cash dividends in the foreseeable future.
Form 10-K
A copy of the Company's Annual Report on Form 10-K for the year ended December
31, 1998 is available without charge upon written request to:
Investor Relations
Sepracor Inc.
111 Locke Drive
Marlborough, MA 01752
twenty-nine
<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholders of Sepracor Inc.:
In our opinion, based upon our audits and the report of other auditors, the
accompanying consolidated balance sheets and the related consolidated statements
of operations, stockholders' equity and comprehensive income, and cash flows
present fairly, in all material respects, the financial position of Sepracor
Inc. and its subsidiaries (the "Company") at December 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We did not audit the financial
statements of BioSepra Inc., a majority-owned subsidiary, which statements
reflect total assets of 3% and 12% of total consolidated assets at December 31,
1998 and 1997, respectively, and 43%, 87% and 95% of total consolidated revenues
for each of the three years in the period ended December 31, 1998. Those
statements were audited by other auditors whose report thereon includes an
explanatory paragraph regarding BioSepra's ability to continue as a going
concern and has been furnished to us, and our opinion expressed herein, insofar
as it relates to the amounts included for BioSepra, Inc., is based solely on the
report of the other auditors. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
- ------------------------------
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 19, 1999, except as to the information in
Note W for which the date is February 25, 1999
thirty
<PAGE>
Sepracor Inc. Consolidated Balance Sheets
<TABLE>
<CAPTION>
Year Ended December 31 (in thousands, except par value amounts) 1998 1997
- ----------------------------------------------------------------------------------------------------------
Assets
Current assets:
<S> <C> <C>
Cash and cash equivalents (Notes B and E) $ 295,323 $ 82,579
Marketable securities (Notes B and E) 204,274 9,981
Accounts receivable (Note G) 3,162 2,415
Inventories (Note H) 3,572 2,722
Other assets 2,258 1,543
--------------------------
Total current assets 508,589 99,240
--------------------------
Property and equipment, net (Note I) 17,882 15,126
Investment in affiliates (Notes C and D) 1,490 3,971
Excess of investment over net assets acquired, net (Notes B and J) 4,896 5,288
Other assets (Note N) 18,456 4,882
--------------------------
Total assets $ 551,313 $ 128,507
--------------------------
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 10,132 $ 4,018
Accrued expenses (Note K) 31,915 17,366
Deferred revenue and other current liabilities (Notes B and L) 2,542 325
Notes payable and current portion of capital lease obligation
and long-term debt (Notes M and O) 2,786 861
Convertible redeemable preferred stock (Note Q) - 6,700
--------------------------
Total current liabilities 47,375 29,270
--------------------------
Loan guarantee of affiliate (Note D) 5,000 -
Long-term debt and capital lease obligation (Notes M and O) 2,629 3,388
Convertible subordinated debentures (Notes F and N) 489,475 80,880
--------------------------
Total liabilities 544,479 113,538
--------------------------
Minority interest (Note C) 2,445 2,937
Commitments and contingencies (Notes O and P)
Stockholders' equity (Notes N, Q, and R)
Preferred stock, $1.00 par value, 1,000 shares authorized,
none outstanding in 1998 and 1997
Common stock, $.10 par value, authorized 80,000 in 1998, 40,000 in 1997,
issued and outstanding 32,657 in 1998 and 27,853 in 1997 3,266 2,785
Additional paid-in capital 307,668 222,504
Unearned compensation, net (Note Q) (144) (94)
Accumulated deficit (306,311) (213,028)
Accumulated other comprehensive income (loss) (90) (135)
--------------------------
Total stockholders' equity 4,389 12,032
--------------------------
Total liabilities and stockholders' equity $ 551,313 $ 128,507
==========================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
thirty-one
<PAGE>
Sepracor Inc. Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year Ended December 31, (in thousands, except loss per common share amounts) 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------
Revenues:
<S> <C> <C> <C>
Product sales $ 6,996 $ 9,636 $ 13,784
Collaborative research and development (Note T) 5,044 58 25
License fees and royalties (Note T) 5,366 5,643 1,232
---------------------------------------
Total revenues 17,406 15,337 15,041
---------------------------------------
Costs and expenses:
Cost of revenue 4,604 5,992 6,784
Research and development 63,062 43,055 35,828
Selling, general and administrative 30,883 15,594 15,245
Legal expense related to patents 2,008 1,660 1,067
Restructuring and impairment charges (Note J) (351) 4,179 -
---------------------------------------
Total costs and expenses 100,206 70,480 58,924
---------------------------------------
Loss from operations (82,800) (55,143) (43,883)
---------------------------------------
Other income (expense):
Equity in investee losses (Note D) (7,482) (2,755) (17,539)
Interest income 13,191 5,766 6,713
Interest expense (16,969) (5,976) (6,140)
Gain on sale of ChiRex Inc. (Note D) - 30,069 -
Other income (expense) 124 547 (107)
---------------------------------------
Net loss before minority interests (93,936) (27,492) (60,956)
Minority interests in subsidiaries (Note C) 653 1,369 846
---------------------------------------
Net loss $(93,283) $(26,123) $(60,110)
=======================================
Net loss applicable to common shares (Note B) $(93,433) $(26,723) $(60,710)
=======================================
Basic and diluted net loss per common share (Note B) $ (3.23) $ (0.97) $ (2.25)
Basic and diluted weighted-average number of common shares outstanding (Note B) 28,913 27,599 27,032
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
thirty-two
<PAGE>
Sepracor Inc. Consolidated Statements of Stockholders' Equity and
Comprehensive Income
<TABLE>
<CAPTION>
Accumulated
Additional Other Total
Year ended December 31, 1998, 1997 Common Stock Paid-In Unearned Accumulated Comprehensive Stockholders'
and 1996 (in thousands) Shares Amount Capital Compensation Deficit Income (Loss) Equity
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 26,816 $2,682 $212,814 $(126,795) $ 526 $ 89,227
--------------------------------------------------------------------------------
Issuance of common stock to employees
under stock plans 455 45 2,185 2,230
Accrued dividends from preferred stock (600) (600)
Unearned compensation, net $(234) (234)
Net loss(1) (60,110) (60,110)
Foreign currency translation adjustments (1) (121) (121)
--------------------------------------------------------------------------------
Balance at December 31, 1996 27,271 2,727 214,399 (234) (186,905) 405 30,392
--------------------------------------------------------------------------------
Issuance of common stock to employees
under stock plans 582 58 3,017 3,075
Accrued dividends from preferred stock (600) (600)
Unearned compensation, net 140 140
Gain on issuance of subsidiary's stock 5,688 5,688
Net loss(1) (26,123) (26,123)
Foreign currency translation adjustments (1) (540) (540)
--------------------------------------------------------------------------------
Balance at December 31, 1997 27,853 2,785 222,504 (94) (213,028) (135) 12,032
================================================================================
Issuance of common stock to employees
under stock plans 639 64 6,026 6,090
Issuance of common stock from conversion
of warrants 55 6 401 407
Unearned compensation, net (50) (50)
Accrued dividends from preferred stock (150) (150)
Issuance of common stock from conversion
of subordinated convertible notes 4,110 411 80,469 80,880
Deferred finance costs related to the
conversion of subordinated
convertible notes (1,582) (1,582)
Net loss(1) (93,283) (93,283)
Foreign currency translation adjustments (1) 45 45
--------------------------------------------------------------------------------
Balance at December 31, 1998 32,657 $3,266 $307,668 $(144) $(306,311) $ (90) $ 4,389
================================================================================
</TABLE>
(1) Comprehensive income (loss), i.e., net income (loss) plus other
comprehensive income (loss) totaled $(93,238) in 1998, $(26,663) in 1997
and $(60,231) in 1996.
The accompanying notes are an integral part of the consolidated financial
statements.
thirty-three
<PAGE>
Sepracor Inc. Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31, (in thousands) 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
<S> <C> <C> <C>
Net loss $ (93,283) $(26,123) $ (60,110)
Adjustments to reconcile net loss to net cash used in operating activities:
Minority interests in subsidiaries (653) (1,369) (846)
Depreciation and amortization 5,246 4,614 4,400
Provision for doubtful accounts (263) 150 142
Equity in investee losses 7,482 2,755 17,539
Loss on disposal of property and equipment 517 24 125
Restructuring and impairment charges - 4,018 -
Gain on sale of equity investee - (30,069) -
Changes in operating assets and liabilities:
Accounts receivable (374) 383 2,069
Inventories (625) (46) (72)
Other current assets and liabilities (376) 50 (796)
Accounts payable 6,040 (136) 1,115
Accrued expenses 14,507 5,606 6,176
Deferred revenue 1,891 (3,620) 147
----------------------------------------
Net cash used in operating activities (59,891) (43,763) (30,111)
----------------------------------------
Cash flows from investing activities:
Purchases of marketable securities (366,953) (60,961) (93,328)
Sales and maturities of marketable securities 172,660 71,285 80,454
Additions to property and equipment (7,288) (2,653) (10,121)
Proceeds from sale of equipment 51 7 147
Investment in affiliate 75 (4,046) -
Net proceeds from sale of equity investee - 30,625 -
Proceeds from affiliate's repayment of long-term note - 6,034 -
Decrease in other assets 442 449 1,560
----------------------------------------
Net cash provided by (used in) investing activities (201,013) 40,740 (21,288)
----------------------------------------
Cash flows from financing activities:
Net proceeds from issuance of stock 5,955 3,203 2,047
Proceeds from sale of convertible subordinated debentures 489,475 - -
Costs associated with sale of convertible subordinated debentures (15,615) - -
Repurchase of redeemable preferred stock (6,850) - -
Borrowings under long-term debt, capital lease and line of credit agreements 2,074 174 -
Repayments of long-term debt and line of credit agreements (948) (973) (3,125)
----------------------------------------
Net cash provided by (used in) financing activities 474,091 2,404 (1,078)
----------------------------------------
Effect of exchange rate changes on cash and cash equivalents (443) (146) 3
----------------------------------------
Net increase (decrease) in cash and cash equivalents 212,744 (765) (52,474)
Cash and cash equivalents at beginning of year 82,579 83,344 135,818
----------------------------------------
Cash and cash equivalents at end of year $ 295,323 $ 82,579 $ 83,344
========================================
Supplemental schedule of cash flow information:
Cash paid during the year for interest $ 12,070 $ 5,980 $ 6,337
Non cash activities:
Capital lease obligations incurred $ 270 $ - $ 61
Conversion of Convertible Subordinated Debt (Note N) $ 79,298 $ - $ -
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
thirty-four
<PAGE>
Notes to Consolidated Financial Statements
A - Nature of the Business
Sepracor Inc. ("Sepracor", or the "Company") 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)
(Improved Chemical Entities) Pharmaceuticals. 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 chromatographic media to
biopharmaceutical companies. Sepracor's 33% owned subsidiary, HemaSure Inc., is
dedicated to making blood safer through blood filtration devices (See Note W -
Subsequent Event for HemaSure ownership change to 42%). 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 the safety, efficacy and successful
development of product candidates, fluctuations in operating results, need for
additional funding, protection of proprietary technology, limited sales and
marketing experience, limited manufacturing capacity, risk of product liability,
compliance with government regulations and dependence on key personnel and
collaborative partners.
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, and where Sepracor does not
exercise control, are accounted for using the equity method. Versicor had been a
consolidated entity until December 10, 1997 and since then has been accounted
for under the equity method. ( 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 offsets any gains or
losses against additional paid-in capital for early development stage
subsidiaries. For later stage subsidiaries, the Company records gains and 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.
Reclassifications in the preparation of Financial Statements: Certain prior
amounts have been reclassified to conform with current year presentation.
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 accumulated other comprehensive income (loss). 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.
Marketable Securities: Sepracor has classified its marketable securities as
"available for sale". Marketable securities include government securities and
corporate commercial paper, maturing in primarily less than a year, which can be
readily purchased or sold using established markets. Marketable securities are
stated at fair value. Net realized gains and losses on security transactions are
determined on the specific identification cost basis. The market value of
Sepracor's marketable securities at December 31, 1998 and 1997, was not
materially different from cost.
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, marketable securities and trade
accounts receivable. The Company places its cash, cash equivalents and
marketable securities with high credit quality financial institutions. 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: 1998 1997
- -----------------------------------------------------------
<S> <C> <C>
Customer A - 16%
Customer B 10% -
Customer C 7% 11%
Customer D - 24%
Revenues from significant customers are as follows:
<CAPTION>
Year Ended December 31: 1998 1997 1996
- -----------------------------------------------------------
<S> <C> <C> <C>
Customer A - 33% 24%
Customer B - - 12%
Customer C 9% 10% -
Customer D - 12% -
Customer E 27% - -
Customer F 29% - -
</TABLE>
For financial information by segment and geographic area see Note V.
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
thirty-five
<PAGE>
Notes to Consolidated Financial Statements (continued)
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.
Intangible and Other Assets: The excess of investment over net assets acquired
is amortized using the straight-line method over 20 years. Accumulated
amortization was $7,868,000 and $7,476,000 at December 31, 1998 and 1997,
respectively. 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 convertible subordinated debenture offerings
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 long-lived 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.
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 basis of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to reverse.
Basic and Fully Diluted Net Loss Per Common Share: Basic earnings (loss) per
share ("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
anti-dilutive. 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. For the years ended December 31,
1998, 1997 and 1996, basic and diluted net loss per common share is computed
based on the weighted-average number of common shares outstanding during the
period, because the effect of common stock equivalents would be anti-dilutive.
Included in the years ended December 31, 1998, 1997 and 1996, basic net loss
applicable to common shares is $150,000, $600,000 and $600,000 respectively, of
dividends relating to Series B Redeemable Exchangeable Preferred Stock. Certain
securities were not included in the computation of diluted earnings per share
for the years ended December 31, 1998, 1997 and 1996, because they would have an
anti-dilutive effect due to net losses for such periods. These securities
include (i) options to purchase 4,935,091, 3,485,000 and 3,277,000 shares, of
common stock with a purchase price of $1.50 to $84.75 per share, and $1.50 to
$41.00 and $1.00 to $17.12 per share for the years ended December 31, 1998, 1997
and 1996 respectively; (ii) 6,402,381, 4,109,756 and 4,109,756 shares of common
stock for issuance upon conversion of 6 1/4% subordinated convertible debentures
due 2005 and 7% subordinated convertible debentures due 2005 for the year ended
December 31, 1998, and 7% subordinated convertible debentures due 2002 for the
years ended December 31, 1997 and 1996 and (iii) 312,500 shares of common stock
for conversion of Series B Redeemable Exchangeable Preferred Stock for the years
ended December 31, 1997 and 1996.
Comprehensive Income: The Company adopted Statement of Financial Accounting
Standards ("SFAS") No.130 "Reporting Comprehensive Income" in the first quarter
of 1998, which requires disclosure of comprehensive income, i.e., net income
plus direct adjustments to stockholders' equity.
Other: In June 1998, the Financial Accounting Standards Board issued SFAS No.133
"Accounting for Derivative Instruments and Hedging Activities." This statement
establishes accounting and reporting standards for derivative instruments
embedded in other contracts (collectively referred to as "derivatives"), and for
hedging activities. The statement requires companies to recognize all
derivatives as either assets or liabilities, with the instruments measured at
fair value. The accounting for changes in fair value, gains or losses, depends
on the intended use of the derivative and its resulting designation. The
statement is effective for fiscal years beginning after June 15, 1999. The
Company expects no immediate impact from SFAS No.133 as it currently has no
derivatives.
C - Sepracor Subsidiaries
In 1996, Sepracor loaned BioSepra $5,500,000. The loans, including any interest
thereon, were convertible into shares of BioSepra common stock, at the option of
Sepracor at any time prior to payment. In 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's ownership of BioSepra became approximately 64%.
In 1996, BioSepra signed a promissory note for $350,000 with Sepracor. This
amount is payable over 60 installments and does not bear interest. BioSepra used
the funds for leasehold improvements in its new office space. As of December 31,
1998, $163,600 remained outstanding under the promissory note.
In 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 to Sepracor. The Series A Convertible Preferred Stock was
convertible, at the option of Sepracor, into Versicor common stock on a
one-for-one basis.
In 1995 and 1997, Versicor entered into two loan agreements with Sepracor. The
loans 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. Total interest expense charged to Versicor
under these agreements was $0, $180,000 and $417,000 in 1998, 1997 and 1996,
respectively.
In 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 loan agreements with Versicor with an outstanding amount of $9,530,000.
thirty-six
<PAGE>
Notes to Consolidated Financial Statements (continued)
Versicor repaid the remaining $6,034,000 outstanding under the loans 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.
Sepracor's investment in Versicor was $1,490,000 and $3,971,000 at December 31,
1998 and 1997, respectively. Sepracor's ownership as of December 31, 1998 and
1997 was approximately 22%, thereby making Versicor an affiliate and reportable
under the equity method. (See Note D)
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 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. Sepracor recorded $2,927,000 and $15,021,000 of equity investee
losses of HemaSure in 1997 and 1996, 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 September 1998, Sepracor guaranteed a line of credit for HemaSure of
$5,000,000 and as a result began to record its portion (33%) of HemaSure losses.
Losses of $1,188,000 were recorded for the remainder of 1998 and at December 31,
1998 the Company recorded the balance of the guarantee, or $3,812,000 as a loss
in equity in investee, for a total 1998 equity loss from HemaSure of $5,000,000.
In March 1996, ChiRex Inc. ("ChiRex"), a newly formed corporation that was 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 March 11, 1996, Sepracor
carried its investment in ChiRex using the equity method of accounting and,
accordingly, recorded $383,000 as its share of ChiRex's gains 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. For 1998, Sepracor recorded losses of $2,482,000 as a result of its
22% ownership in Versicor.
The following is the summarized financial information for Versicor and HemaSure:
<TABLE>
<CAPTION>
1998 1997
(In thousands) Versicor HemaSure Versicor HemaSure
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Current assets $ 9,631 $ 3,383 $19,610 $ 9,097
Non-current assets 6,454 2,272 7,300 1,510
Current liabilities 2,293 3,346 1,308 3,026
Non-current liabilities 6,034 5,141 6,034 9,048
Net sales - 25 - 2,357
Gross profit (loss) - (632) - (1,801)
Net income (loss) $(11,280) $(12,170) $ (6,203) $(9,884)
</TABLE>
E - Investments
Investments consist of the following at December 31:
<TABLE>
<CAPTION>
(in thousands) 1998 1997
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Cash & Cash Equivalents:
Cash & money market funds $ 14,279 $21,568
Corporate & Government commercial paper 281,044 61,011
-------------------------
Total cash & cash equivalents $295,323 $82,579
=========================
Marketable Securities:
U.S. Government securities
Due within 1 year $108,239 -
Corporate commercial paper
Due within 1 year 86,035 9,981
Due within 1 to 2 years 10,000 -
-------------------------
Total investments $204,274 $9,981
=========================
</TABLE>
There were no gross realized gains or losses on the sale of marketable
securities for the years ended December 1998, 1997 and 1996.
thirty-seven
<PAGE>
Notes to Consolidated Financial Statements (continued)
F - Financial Instruments
Financial instruments consist of the following at December 31:
<TABLE>
<CAPTION>
1998
Carrying Fair
(in thousands) Amount Value
- -------------------------------------------------------------------------------
<S> <C> <C>
Convertible Subordinated
Debentures - 6-1/4%, due 2005 $189,475 $368,766
Convertible Subordinated
Debentures - 7%, due 2005 $300,000 $300,000
</TABLE>
The fair value of the 6-1/4% Debentures due 2005 is from a quoted market source.
The carrying value of the 7% Debentures due 2005 issued December 10, 1998,
approximate fair value at December 31, 1998.
G - 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 $106,000 and $369,000 at December 31, 1998 and 1997, respectively.
H - Inventories
Inventories consist of the following at December 31:
<TABLE>
<CAPTION>
(in thousands) 1998 1997
- ---------------------------------------------------------------------------------
<S> <C> <C>
Raw materials $ 956 $ 600
Work in progress 136 129
Finished goods 2,480 1,993
------------------
$3,572 $2,722
------------------
</TABLE>
I - Property and Equipment
Property and equipment consist of the following at December 31:
<TABLE>
<CAPTION>
(in thousands) 1998 1997
- ---------------------------------------------------------------------------------
<S> <C> <C>
Land $ 74 $ 74
Building 2,118 1,993
Laboratory and manufacturing equipment 12,051 10,407
Office equipment 7,134 4,450
Leasehold improvements 6,127 5,411
------------------
27,504 22,335
Accumulated depreciation and amortization (10,510) (7,761)
------------------
16,994 14,574
Construction in progress 888 552
------------------
$17,882 $15,126
==================
</TABLE>
Depreciation expense was $3,407,000, $3,129,000 and $2,189,000 for the years
ended December 31, 1998, 1997 and 1996, respectively.
J - Restructuring and Impairment Charges
In 1997, BioSepra recorded restructuring and impairment charges totaling
$4,179,000. Of this amount, $851,000 related to a cost-reduction program and
$3,328,000 related to the write-down of intangible assets to their net
realizable value.
The purpose of the program was to enable BioSepra to focus on the process
segments of the biopharmaceutical market. The program involved the
discontinuance of the ProSys and BioSys product lines 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
paid all of the severance and benefits associated with the workforce reduction
in 1998.
A gain of $351,000 was recognized in 1998 as a result of BioSepra's sale of its
instrument inventory to Beckman Instruments, Inc. ("Beckman"). This inventory
had been previously written off and included in the 1997 restructuring charge.
K - Accrued Expenses
Included in accrued expenses is $16,589,000 and $9,754,000 of accrued research
and development expenses, $5,310,000 and $472,000 of accrued interest and
$3,355,000 and $1,427,000 of accrued compensation as of December 1998 and 1997,
respectively.
L - Deferred Revenue
In March 1998, Sepracor received $1,875,000 from Hoechst Marion Roussel Inc.
("HMRI") as a milestone payment relating to the license agreement on terfenadine
carboxylate, marketed by HMRI as Allegra(R). As a result of the patent
interference issue raised by the United States Patent and Trademark Office,
("PTO") Sepracor deferred recognition of the revenue, pending the outcome of the
patent interference. (See Notes P and T).
In 1995, Sepracor and BioSepra entered into separate agreements with Beckman
Instruments, Inc. ("Beckman"). Beckman entered into a joint distribution and
development agreement with BioSepra, and Beckman purchased certain preferred
stock of Sepracor. In 1997, the agreement was amended due to the settlement of
the PerSeptive lawsuit, eliminating BioSepra's obligation to repay certain
amounts to Beckman under the agreement. As a result of the amendment, BioSepra
recognized $2,700,000 of license fee revenue in December 1997, which otherwise
would have been deferred at December 31, 1997. BioSepra recognized $3,600,000,
and $900,000, of revenue under the agreement in 1997 and 1996, respectively.
There was no deferred revenue under this agreement as of December 31, 1998 or
December 31, 1997. (See Note Q)
thirty-eight
<PAGE>
Notes to Consolidated Financial Statements (continued)
M - 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) 1998 1997
- ------------------------------------------------------------------------------------
<S> <C> <C>
EURIBOR plus .80% French Franc Loan Payable
in quarterly installments through 2000 $ 402 $ 624
EURIBOR plus 1.8%, French Franc Loan Payable
in quarterly installments through 2001 104 138
Variable rate, 7.5% French Franc Line of Credit - 1
LIBOR plus 1.75% Revolving Credit Agreement 2,000 -
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 1,477 1,925
Loan from Atlantic Canada Opportunities Agency,
non-interest bearing, repayable in 60 equal installments
commencing March 15, 1998 277 370
Government grant from Nova Scotia Department
of Economic Development 812 816
Obligations under Capital Leases (See Note O) 343 375
---------------------
5,415 4,249
Less current portion (2,786) (861)
---------------------
Total $ 2,629 $3,388
=====================
</TABLE>
At December 31, 1998, BioSepra's wholly-owned French subsidiary ("BioSepra
S.A.") had three available credit facilities aggregating 4,000,000 French Francs
from three French commercial banks. Sepracor guarantees a certain French Franc
loan held by BioSepra S.A., under which $402,000 and $624,000 were outstanding
as of December 31, 1998 and 1997, respectively. The interest rate on this loan
at December 31, 1998 and 1997 was 4.37% and 4.50%, respectively. Sepracor also
guarantees amounts available under the variable rate credit facility which are
payable on demand and had $0 and $1,000 outstanding at December 31, 1998 and
1997, respectively.
In 1996, Sepracor and BioSepra entered into a revolving credit agreement with a
commercial bank that provides for borrowing of up to $10,000,000, pursuant to
which BioSepra could 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. Sepracor is a
guarantor of all outstanding borrowings. At December 31, 1998, there was
$2,000,000 outstanding under this agreement. The interest rate on these
borrowings at December 31, 1998 was 6.82%.
In 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. In December 1997, Versicor replaced this loan with two term
loans of $4,034,000 and $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: 1999-$2,686,000, 2000-$555,000,
2001-$305,000, 2002-$292,000, 2003-$243,000.
N - Convertible Subordinated Debentures
In 1995, Sepracor issued $80,880,000 of Convertible Subordinated Debentures due
2002 (the "1995 Debentures"). The 1995 Debentures bore interest at 7% payable
semi-annually, commencing on June 1, 1996, and were due on December 1, 2002. The
1995 Debentures were convertible into shares of Common Stock of the Company at
$19.68 per share and were redeemable by the Company on December 1, 1998. As part
of the sale of the 1995 Debentures, Sepracor incurred approximately $2,788,000
of offering costs. These costs were classified in other assets and were being
amortized over the life of the 1995 Debentures, which is seven years.
On October 30, 1998, Sepracor called for the redemption of its 1995 7%
Debentures aggregating $80,880,000. On December 1, 1998, immediately prior to
the redemption, all $80,880,000 of the 1995 Debentures were converted into
4,109,756 shares of Sepracor Common Stock. As a result of the conversion,
Sepracor wrote off $1,582,000 of deferred financing costs against stockholders'
equity (additional paid-in capital).
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 redeemable by the Company on 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 $6,105,000 of offering costs which were recorded as other
assets and are being amortized over seven years, the term of the 6-1/4%
Debentures. The net proceeds to the Company after offering costs were
$183,370,000.
On December 10, 1998, Sepracor issued $300,000,000 of 7% Convertible
Subordinated Debentures due 2005 (the "7% Debentures"). The 7% Debentures are
convertible into Sepracor Common Stock, at the option of the holder, at a price
of $124.875 per share. The 7% Debentures bear interest at 7% payable
semi-annually, commencing on June 15, 1999. The 7% Debentures are redeemable by
the
thirty-nine
<PAGE>
Notes to Consolidated Financial Statements (continued)
Company on December 20, 2001. The Company may be required to repurchase the 7%
Debentures at the option of the holders in certain circumstances. As part of the
sale of the 7% Debentures, Sepracor recorded approximately $9,919,000 of
offering costs, which were recorded as other assets and are being amortized over
seven years, the term of the 7% Debentures. The net proceeds to the Company
after offering costs were $290,081,000.
O - Commitments and Contingencies
In 1994, Sepracor, HemaSure and BioSepra entered into an equipment leasing
arrangement that provides for a total of up to $2,000,000 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. There was $63,000, $64,000 and $193,000, and
$142,000, $150,000 and $459,000, relating to Sepracor, BioSepra and HemaSure,
respectively, outstanding under this agreement at December 31, 1998 and 1997,
respectively.
Future minimum lease payments under all noncancelable leases in effect at
December 31, 1998, are as follows (in thousands):
<TABLE>
<CAPTION>
Year Operating Leases Capital Leases
- ----------------------------------------------------------------------
<S> <C> <C>
1999 $1,276 $181
2000 1,030 54
2001 744 54
2002 769 54
2003 805 -
Thereafter 2,830 -
----------------------------
Total minimum lease payments $7,454 $343
Less amount representing interest (52)
------
Present value of minimum lease payments $291
======
</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
$1,444,000, $1,687,000 and $1,240,000 for the years ended December 31, 1998,
1997 and 1996, respectively.
At December 31, 1998, Sepracor has an accrual relating to the guarantee of a
$5,000,000 HemaSure line of credit. The initial principal payment on this line
of credit is due in August 2000. Interest on the line of credit accrues at 1/2%
above the prime lending rate. Although HemaSure is currently not in default of
the line of credit, Sepracor would be obligated to make payment of $5,000,000
plus accrued interest should a default occur.
P - Litigation
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
the method-of-use patent application held by 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 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 T 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 May 1998, HMRI filed an action in
Belgium alleging that Sepracor's European patent relating to fexofenadine is
invalid in Belgium, or is not infringed by HMRI's sales of fexofenadine in
Belgium and Germany. In September 1998, Sepracor commenced infringement
proceedings in the United Kingdom against HMRI and related companies for
infringement of Sepracor's European patent relating to fexofenadine. Sepracor
and HMRI have agreed to resolve the interference by arbitration. The arbitrator
has been selected and a decision, once rendered, must be submitted to the PTO
for final approval. The proceedings are ongoing and the Company is unable to
predict its outcome.
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 a motion for summary judgment
of noninfringement. Pall filed a cross motion for summary judgment of
infringement at the same time.
In October 1997, the Eastern District of New York granted in part Pall's summary
judgment motion and held that the LeukoNet product infringes a single claim from
the '321 patent. HemaSure has terminated the manufacture, use, sale and offer
for sale of the filter subject to the court's order. HemaSure appealed the
October 1997 decision to the Court of Appeals for the Federal Circuit. Oral
arguments were heard in February 1999. HemaSure now awaits a decision from the
Federal Circuit. Remaining discovery relating to the damages phase of the first
action has been completed.
With respect to the second action concerning U.S. Patent No. 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. Pall has amended its Complaint to add Lydall, Inc., whose
subsidiary supplied filter media for the LeukoNet product, as a co-defendant.
HemaSure has filed for summary judgment of noninfringement, and Pall has
cross-filed for summary judgment of infringement at the same time. Lydall
supported HemaSure's motion for summary judgment of noninfringement, and has
served a motion for summary judgment that the asserted claims of the '572 patent
are invalid as a matter of law. Discovery has been completed in the action.
forty
<PAGE>
Notes to Consolidated Financial Statements (continued)
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 LeukoNet product does not infringe any valid enforceable
claim of the two asserted Pall patents. However, there can be no assurance that
HemaSure will prevail in the pending litigations, and an adverse outcome in a
patent infringement action would have a material adverse effect on HemaSure's
financial condition and future business and operations.
Q - Stockholders' Equity
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. 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.
In May 1998, the stockholders of Sepracor approved an amendment to Sepracor's
Restated Certificate of Incorporation increasing from 40,000,000 to 80,000,000
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 and $14,000 was
recorded as amortization. In 1997, an adjustment of $107,000 was made for
cancelled options and $33,000 was recorded as amortization. In 1998, Sepracor
issued stock options to certain consultants. As a result, $172,000 was recorded
as unearned compensation and $28,000 was recorded as amortization. An adjustment
of $94,000 was made for cancelled options.
R - Stock Plans and Warrants
Stock Plans: The Company has three stock-based compensation plans, which are
described below. The Company records the issuance of stock options using APB
Opinion 25 and related interpretations in accounting for its plans. However, had
compensation cost for the Company's stock-based compensation plans been
determined based on the fair value at the grant dates, the Company's net loss
and basic and diluted loss per share for the years ended December 31, 1998, 1997
and 1996 would have been increased to the pro forma amounts indicated in the
following table:
<TABLE>
<CAPTION>
1998 1997 1996
Net Basic and Diluted Net Basic and Diluted Net Basic and Diluted
(in thousands) Loss(1) Loss Per Share Loss(1) Loss Per Share Loss(1) Loss Per Share
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
As reported $ (93,433) $(3.23) $(26,723) $(0.97) $(60,710) $(2.25)
Pro forma $(105,229) $(3.64) $(30,745) $(1.11) $(63,398) $(2.35)
</TABLE>
(1) Net loss represents net loss applicable to common shares.
The effects of applying the fair value of stock based compensation in this pro
forma disclosure are not indicative of future amounts, since the valuation of
stock options granted was initiated in 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 the
Black-Scholes option-pricing model with the following weighted-average
assumptions: an expected life of 6 years, expected volatility of 50%, a
risk-free interest rate of 4.5% to 5.7% and no dividends in 1998 and an expected
life of 7 years, expected volatility of 60%, a risk-free interest rate of 5.0%
to 7.8% and no dividends in 1997 and 1996.
In 1991, the Board of Directors adopted the 1991 Restated Stock Option Plan (the
"1991 Plan") which amended and restated the 1985 Stock Option Plan. The Plan
provides for the granting of Incentive Stock Options ("ISOs") to officers and
key employees of Sepracor and nonstatutory stock options ("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 May 1996, the stockholders approved an amendment to
the 1991 Plan increasing the number of shares of common stock, which may be
granted to 5,000,000. In May 1998, the stockholders approved an amendment to the
1991 Plan increasing the number of shares of common stock which may be granted
to 7,500,000. Stock option activity related to this plan is summarized in the
table below.
The 1991 Directors Stock Option Plan (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 1991 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 1996, the shareholders approved an amendment to the 1991 Directors
Plan increasing the number of shares of common stock which may be granted to
275,000. In May 1998, the stockholders approved an amendment to the 1991
Directors Plan increasing the number of shares of common stock which may be
granted to 500,000.
In October 1997, the Board of Directors approved the Company's 1997 Stock Option
Plan (the "1997 Plan"). The 1997 Plan permits the Company 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 Plan. ISOs and NSOs granted under the 1997 Plan have a maximum term of
ten years from the date of grant and vest over five years. ISOs may not be
granted at an exercise price less than fair market value.
forty-one
<PAGE>
Notes to Consolidated Financial Statements (continued)
The following tables summarize information about stock options outstanding at
December 31, 1998: (in thousands, except for per share amounts)
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Weighted-
Average 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 - 6.00 653 5.54 $ 5.39 380 $ 5.25
6.38 - 14.13 492 6.20 10.30 201 8.97
14.62 - 14.62 683 6.78 14.62 395 14.62
14.75 - 24.13 384 7.87 18.69 192 18.67
24.25 - 24.25 540 8.54 24.25 15 24.25
24.75 - 24.75 45 8.10 24.75 9 24.75
36.75 - 36.75 1,044 9.42 36.75 - -
38.00 - 48.63 568 9.37 44.75 1 41.00
62.25 - 62.25 166 9.79 62.25 - -
84.75 - 84.75 360 9.93 84.75 - -
- -----------------------------------------------------------------------------
$ 1.50 - 84.75 4,935 8.04 $29.29 1,193 $11.55
=============================================================================
<CAPTION>
1998 1997 1996
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 3,485 $13.16 3,277 $ 9.55 3,225 $ 7.77
Granted 2,153 48.96 757 24.10 651 13.77
Exercised (622) 7.98 (433) 6.00 (429) 3.88
Cancelled (81) 22.59 (116) 9.84 (170) 6.37
- ----------------------------------------------------------------------------------------
Balance at December 31 4,935 $29.29 3,485 $13.16 3,277 $ 9.55
========================================================================================
Options exercisable at
December 31 1,193 1,240 1,088
Weighted-average fair
value of options granted
during the year $26.65 $15.88 $ 9.46
</TABLE>
There were 1,113,000 options available for future grant as of December 31, 1998.
In 1996, the stockholders approved the 1996 Employee Stock Purchase Plan (the
"1996 Plan"). Under the 1996 Plan, an aggregate of 120,000 shares of Common
Stock may be purchased by employees at 85% of market value on the first or last
day of each six month offering period, whichever is lower, through accumulation
of payroll deductions ranging from 1% to 10% of compensation as defined, subject
to certain limitations. Employees purchased 17,216, 31,423 and 23,977 shares for
a total of $583,000, $556,000 and $296,000, during the years ended December 31,
1998, 1997 and 1996, respectively. At December 31, 1998, there were 69,628
shares of authorized but unissued Common Stock reserved for future issuance
under the 1996 Plan.
Stock Warrants: Sepracor received $407,000 from the exercise of warrants to
purchase 55,209 shares of Common Stock in 1998. At December 31, 1998, there were
no outstanding warrants.
S - 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 basis. 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 1998, 1997 and 1996. The effective tax rate was 0% due to net
operating losses ("NOL") and nonrecognition of any deferred tax asset. At
December 31, 1998, Sepracor had federal and state tax NOL carryforwards of
approximately $170,000,000 and $118,000,000, which will expire through 2013 and
2003, 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
$10,000,000. Approximately $6,000,000 of this NOL will expire in 2000; the
remainder may be carried forward indefinitely. Sepracor also has an NOL from its
operation in Canada of approximately $3,000,000, which may be carried forward
indefinitely. At December 31, 1998, Sepracor had federal and state research and
experimentation credit carryforwards of approximately $6,000,000 and $4,800,000,
respectively, which will expire through the year 2013. Sepracor also had
Canadian research and experimentation credits of $1,000,000 which will expire
through 2008.
The components of Sepracor's net deferred taxes were as follows at December 31:
<TABLE>
<CAPTION>
(in thousands) 1998 1997
- -----------------------------------------------------------------------------
Assets
<S> <C> <C>
NOL carryforwards $ 70,066 $ 50,213
Reserves 135 226
Tax credit carryforward 12,243 7,989
Patent 547 489
Accrued expenses 8,756 5,434
Research and development capitalization 20,730 9,827
Equity in loss of investees 10,596 7,638
Other 1,069 1,605
- -----------------------------------------------------------------------------
Liabilities
Basis difference of subsidiaries (13,628) (13,628)
Property and Equipment - -
Valuation allowance $(110,514) $(69,793)
- -----------------------------------------------------------------------------
Net deferred taxes $ - $ -
=============================================================================
</TABLE>
forty-two
<PAGE>
Notes to Consolidated Financial Statements (continued)
T - Agreements
In 1993, Sepracor licensed to Marion Merrell Dow (now HMRI) its U.S. patent
application covering the use of terfenadine carboxylate, a metabolite of
terfenadine, marketed by HMRI as Seldane, to be developed by HMRI. 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
called for future license fees of up to $3,750,000 subject to certain other
milestones and royalties on sales if and when they occur. In 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. In March 1998, Sepracor received $1,875,000 from HMRI as the final
milestone payment. As a result of the patent interference issue raised by the
PTO, Sepracor deferred recognition of this revenue, pending the outcome of the
patent interference. (See Notes L and P).
In December 1997, Sepracor signed a license agreement with Schering-Plough
Corporation ("Schering") giving Schering exclusive worldwide rights to
Sepracor's patents covering descarboethoxyloratadine ("DCL"), an active
metabolite of loratadine that in preclinical studies has shown the potential for
greater potency. Under the agreement, Schering paid Sepracor an initial license
fee of $5,000,000 in January 1998. The agreement includes royalties on DCL
sales, if any, beginning at product launch. The royalty rate paid to Sepracor
will escalate over time and upon the achievement of sales volume and other
milestones.
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 this 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 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 over-the-counter rights to norastemizole.
On July 20, 1998, Sepracor signed a second license agreement with Janssen (the
"Janssen Norcisapride Agreement") giving Janssen exclusive worldwide rights to
Sepracor's patents covering norcisapride, an isomer of the active metabolite of
Propulsid(TM). Under the terms of the Janssen Norcisapride Agreement, Sepracor
has exclusively licensed its norcisapride rights to Janssen, which expects to
develop and market the norcisapride product worldwide. Under the Janssen
Norcisapride Agreement, Janssen would pay Sepracor royalties on norcisapride
sales, if any, beginning at first product launch. Royalty rates paid to Sepracor
will escalate upon the achievement of sales volume milestones.
On December 4, 1998, Sepracor signed a license agreement (the "Lilly
(R)-fluoxetine Agreement") with Eli Lilly and Company ("Lilly") giving Lilly
exclusive worldwide rights to Sepracor's patents covering (R)-fluoxetine, which
is a modified form of an active ingredient found in Prozac(R). Under the terms
of the Lilly (R)-fluoxetine Agreement, and subject to approval under the Hart
Scott Rodino Antitrust Improvements Act of 1976, (as amended, the "HSR Act"),
Sepracor will receive an initial milestone payment and license fee of
$20,000,000 and up to $70,000,000 in additional milestone payments, based on the
progression of (R)-fluoxetine through development. In addition, Sepracor will
receive royalties on (R)-fluoxetine worldwide sales, if any, beginning at
product launch. Under the HSR Act, Sepracor has received a request from the
Federal Trade Commission for additional information in connection with the Lilly
(R)-fluoxetine Agreement and plans to fully respond to the request.
U - Employees' Savings Plan
Sepracor has a 401K 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. Sepracor
incurred expenses of $177,000, $119,000 and $49,000 in 1998, 1997 and 1996,
respectively, as its matching contribution.
V - Business Segment and Geographic Area Information
Effective for the year ended December 31, 1998, the Company adopted Statement of
Financial Accounting Standards No. ("SFAS") 131, "Disclosures about Segments of
an Enterprise and Related Information". This approach designates the Company's
internal organization as used by management for making operating decisions and
assessing performance as the source of business segments.
Sepracor primarily assesses performance and makes operating decisions based on
Sepracor and Sepracor Group, which includes BioSepra and equity investments in
HemaSure, Versicor and ChiRex as its business segments. Sepracor is a specialty
pharmaceutical company that develops and commercializes potentially improved
versions of widely-prescribed drugs. BioSepra develops, manufactures and markets
processes and products for the synthesis, separation and purification of
pharmaceutical and biopharmaceutical compounds. Financial information by segment
and geographic area is presented below with adjustments and eliminations
including items such as equity in investee losses and minority interests.
forty-three
<PAGE>
Notes to Consolidated Financial Statements (continued)
<TABLE>
<CAPTION>
Reconciliation to Sepracor Group
Sepracor Eliminations/
Year Ended December 31, 1998 Sepracor Group BioSepra Adjustments
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue from unaffiliated customers $ 10,007 $ 17,406 $ 7,399 -
Interest income 13,041 13,191 150 -
Interest expense 16,747 16,969 222 -
Depreciation and amortization 4,219 5,246 1,045 (18)
Restructuring charges - (351) (351) -
Equity in investee losses - 7,482 - 7,482
Gain on sale of ChiRex Inc. - - - -
Net loss 84,659 93,283 1,813 6,811
Total assets 535,733 551,313 14,717 863
Investment in affiliates -- 1,490 - 1,490
Loan guarantee of affiliate -- 5,000 - 5,000
Capital expenditures 6,920 7,288 368 -
<CAPTION>
Year Ended December 31, 1997
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue from unaffiliated customers $ 2,043 $ 15,337 $13,294 -
Interest income 5,608 5,766 158 -
Interest expense 5,904 5,976 72 -
Depreciation and amortization 3,048 4,614 1,566 -
Restructuring charges - 4,179 4,179 -
Equity in investee losses - 2,755 - 2,755
Gain on sale of ChiRex Inc. - 30,069 - 30,069
Net loss 51,003 26,123 3,804 (28,684)
Total assets 110,253 128,507 14,906 3,348
Investment in affiliates - 3,971 - 3,971
Loan guarantee of affiliate - - - -
Capital expenditures 2,372 2,653 281 -
<CAPTION>
Year Ended December 31, 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue from unaffiliated customers $ 718 $ 15,041 $14,323 -
Interest income 6,527 6,713 186 -
Interest expense 5,926 6,140 214 -
Depreciation and amortization 2,002 4,400 2,398 -
Restructuring charges - - - -
Equity in investee losses - 17,539 - 17,539
Gain on sale of ChiRex Inc. - - - -
Net loss 41,294 60,110 2,120 16,696
Total assets 120,914 146,689 23,169 2,606
Investment in affiliates - 3,100 - 3,100
Loan guarantee of affiliate - - - -
Capital expenditures 9,103 10,121 1,018 -
<CAPTION>
Geographic area data:
(in thousands) 1998 1997 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues
United States:
Unaffiliated customers $11,740 $ 9,810 $11,651
Related parties 7 - -
Transfer to other geographic areas - (16) 3,050
-------------------------------------------
Total 11,747 9,794 14,701
-------------------------------------------
Europe:
Unaffiliated customers 5,666 5,527 6,187
Transfer to other geographic areas 1,278 1,571 2,999
-------------------------------------------
Total 6,944 7,098 9,186
-------------------------------------------
Eliminations and adjustments (1,285) (1,555) (8,846)
-------------------------------------------
Total Revenues $17,406 $15,337 $15,041
===========================================
Long-lived Assets
United States $34,475 $18,567 $24,288
Europe 766 753 700
Canada 6,137 5,836 6,016
-------------------------------------------
Total Long-lived Assets $41,378 $25,156 $31,004
===========================================
</TABLE>
Of the $11,740,000, $9,810,000 and $11,651,000 United States sales to
unaffiliated customers for the years ended December 31, 1998, 1997 and 1996,
respectively, $243,000, $168,000, and $630,000, respectively, were export sales
to the Far East. Revenues are attributed to geographic locations based on the
selling location.
W - Subsequent Event
On February 25, 1999, Sepracor entered into an agreement with HemaSure pursuant
to which Sepracor invested $2,000,000 in HemaSure in exchange for 1,333,334
shares of HemaSure Common Stock and for warrants to purchase 667,000 of
additional shares of HemaSure Common Stock. This has resulted in Sepracor's
ownership of HemaSure increasing from 33% to 42% as of February 25, 1999.
On February 25, 1999, BioSepra acquired 51% of the outstanding common stock of
Biosphere Medical, S.A. ("Biosphere"), a French societe anonyme. BioSepra
acquired the 51% ownership by granting an exclusive license pertaining to
certain patents and technology and the transfer of certain other technology to
Biosphere. BioSepra has the option to acquire the remaining 49% of the
outstanding common stock of Biosphere through December 31, 2004, as defined.
Additionally, the holder of the remaining 49% of the outstanding common stock of
Biosphere has an option to require BioSepra to purchase its shares from December
31, 2003 until December 31, 2004 at a price of not less than FF6,000,000
($1,072,000 December 31, 1998). The results of operations for Biosphere will be
included in BioSepra's operations from the date of acquisition. The historical
results of operations of Biosphere are not material to BioSepra's financial
statements.
forty-four
<PAGE>
Annual Meeting Information
The Annual Meeting of Shareholders will be held at 9:00 a.m. on May 19, 1999 at
the offices of Hale and Dorr LLP, 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 LLP, Boston, MA
Patent Counsel
Pennie & Edmonds, New York, NY
Independent Accountants
PricewaterhouseCoopers LLP, Boston, MA
Corporate Headquarters
Sepracor Inc.
111 Locke Drive
Marlborough, MA 01752
Telephone: (508) 481-6700
Facsimile: (508) 357-7499
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
Directors
James G. Andress
Former Chairman, Beecham Pharmaceuticals,
Former President and COO, Sterling Drug Inc.
Timothy J. Barberich
President and Chief Executive Officer, Sepracor Inc.
Digby W. Barrios
Former President and CEO, Boehringer Ingelheim Corporation
Robert J. Cresci
Managing Director, Pecks Management Partners Ltd.
Robert F. Johnston
Managing Director, Johnston Associates
Keith Mansford, Ph.D.
Former Chairman, R&D, SmithKline Beecham plc
James F. Mrazek
Former Vice President and General Manager,
Healthcare Division of Johnson & Johnson Products Inc.
Alan A. Steigrod
Former Executive Vice President, Glaxo Holdings plc
Officers
Timothy J. Barberich
President and Chief Executive Officer
David S. Barlow
Executive Vice President and President, Pharmaceuticals
David P. Southwell
Executive Vice President; Chief Financial Officer and Secretary
Paul D. Rubin, M.D.
Executive Vice President, Drug Development & ICE Research
James R. Hauske, Ph.D.
Senior Vice President, Discovery
Douglas E. Reedich, Ph.D., J.D.
Senior Vice President, Legal Affairs & Chief Patent Counsel
Robert F. Scumaci
Senior Vice President, Finance & Administration, and Treasurer
Stephen A. Wald
Vice President, Chemical R&D
[PHOTO OF EXECUTIVES WITH CAPTION BELOW]
Pictured left to right: Paul D. Rubin, M.D., James R. Hauske, Ph.D., David S.
Barlow, Timothy J. Barberich, Stephen A. Wald, David P. Southwell and Robert F.
Scumaci, Not pictured here: Douglas E. Reedich, Ph.D., J.D.
Sepracor and ICE are trademarks of Sepracor Inc. HemaSure and LeukoNet are
trademarks of HemaSure Inc. BioSepra is a trademark, and Hyper D is a registered
trademark 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 Rhne-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. Pantozol is a trademark of Byk Gulden Lomberg
Chemische Fabrik GMBH.
EXHIBIT 21
----------
List of Subsidiaries
--------------------
<TABLE>
<CAPTION>
Name Jurisdiction of Incorporation
- ---- -----------------------------
<S> <C>
BioSepra Inc. (64% owned subsidiary of Sepracor) Delaware
HemaSure Inc. (33%* 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
Sepracor, N.V. Netherlands Antilles
</TABLE>
- -------------
*42% as of February 25, 1999.
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. 33-43460, 33-44808, 33-48428, 333-05217,
333-05219, 333-94774, 333-48719, 333-05221, 333-58557, 333-58559, 333-58563,
33-48429, 33-63710 and 33-79724) and Form S-3 (File Nos. 333-460 and 333-51879)
of our reports dated February 19, 1999, except as to the information in Note W
for which the date is February 25, 1999, on our audits of the consolidated
financial statements and financial statement schedule of Sepracor Inc. as of
December 31, 1998 and 1997 and for each of the three years in the period ended
December 31, 1998, which reports are incorporated by reference in this Annual
Report on Form 10-K.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
March 29, 1999
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated February 2, 1999 on the financial statements of BioSepra Inc. and
subsidiaries as of and for the year ended December 31, 1998, included in this
Form 10-K.
/s/ ARTHUR ANDERSEN LLP
Boston, Massachusetts
March 30, 1999
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, 1998 and 1997, 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, 1998 and 1997, and the results of their operations and their
cash flows for the years then ended in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note A to the financial
statements, the Company has suffered recurring losses from operations that raise
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note A. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/ ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 2, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 295,323,000
<SECURITIES> 204,274,000
<RECEIVABLES> 3,267,200
<ALLOWANCES> 106,000
<INVENTORY> 3,572,000
<CURRENT-ASSETS> 508,589,000
<PP&E> 28,393,000
<DEPRECIATION> 10,511,000
<TOTAL-ASSETS> 551,313,000
<CURRENT-LIABILITIES> 47,375,000
<BONDS> 489,475,000
0
0
<COMMON> 3,266,000
<OTHER-SE> 1,123,000
<TOTAL-LIABILITY-AND-EQUITY> 551,313,000
<SALES> 6,996,000
<TOTAL-REVENUES> 17,406,000
<CGS> 4,124,000
<TOTAL-COSTS> 4,604,000
<OTHER-EXPENSES> 95,602,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,969,000
<INCOME-PRETAX> (93,433,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (93,433,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (93,433,000)
<EPS-PRIMARY> (3.23)
<EPS-DILUTED> (3.23)
</TABLE>
