<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For The Year Ended December 31, 1996 Commission File No. 0-23678
- ------------------------------------ ---------------------------
BioSepra Inc.
-------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 04-3216867
--------------------------- ------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
111 Locke Drive, Marlborough, Massachusetts 01752
------------------------------------------------- --------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (508) 481-6802
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
-------------------
Common Stock, $.01 par value
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---
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. [X]
The aggregate market value of voting Common Stock held by non-affiliates of the
registrant was $29,455,776, based on the last reported sale price of the Common
Stock on the Nasdaq consolidated transaction reporting system on March 14, 1997.
Number of shares outstanding of the registrant's class of Common Stock as of
March 14, 1997: 8,415,936
Documents incorporated by reference:
1996 Annual Report to Stockholders - Part II
Proxy Statement for the 1997 Annual Meeting of Stockholders - Part III
<PAGE> 2
PART I
Item 1. BUSINESS
BioSepra Inc. ("BioSepra" or the "Company") develops, manufactures and
sells chromatographic media and systems for use by pharmaceutical companies in
the purification and production of biopharmaceuticals. BioSepra's products
enable pharmaceutical companies to reduce the time and cost required to develop
and manufacture biopharmaceuticals. The Company's media products are currently
used by pharmaceutical companies in the production of several commercial bio-
pharmaceuticals, including interferons, insulin, human growth hormone, special
enzymes and vaccines.
BioSepra was incorporated in December 1993 as a wholly-owned subsidiary of
Sepracor Inc., a Delaware corporation ("Sepracor"). Effective as of January 1,
1994, Sepracor transferred to BioSepra its chromatography business, including
all of the outstanding shares of BioSepra S.A., formerly called IBF S.A. In
March 1994, BioSepra completed an initial public offering of its common stock
resulting in net proceeds to BioSepra of approximately $17.9 million. Sepracor
owns approximately 64% of the outstanding common stock of BioSepra. The
Company's principal offices are located at 111 Locke Drive, Marlborough,
Massachusetts 01752 and its telephone number is (508) 481-6802. Unless the
context indicates otherwise, the "Company" and "BioSepra" include BioSepra Inc.
and its subsidiaries, including BioSepra S.A.
INDUSTRY 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. At both the laboratory and
commercial stages, a biopharmaceutical is typically produced by
genetically-engineered cells that are grown in a fermentation broth containing
cell culture media. The target biopharmaceutical molecules in the fermentation
broth must be purified from the host cells, contaminants and cell culture media.
This purification process is complex because the host cells produce extremely
small quantities of the target biomolecules relative to the volume of the
fermentation broth and because the contaminants produced in the broth are often
similar in size and structure to the target biomolecules. For example, each
liter of fermentation broth might yield only a few milligrams of purified
recombinant protein. Several critical purification steps are therefore required
to extract and purify the final product, which must be at least 99.9% pure. 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
1
<PAGE> 3
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).
In designing the purification process for any biopharmaceutical, a process
engineer or biochemist must typically evaluate a large number of different
chromatographic steps to determine the specific chemistries, column sizes, media
and process sequences that are able to yield the required process
characteristics and product purity on the most cost-effective basis. The design
process has historically involved a large number of time-consuming trial and
error experiments in which the engineer is required to set up, perform and
evaluate different process steps. Because a typical process purification step
can take hours to run, the trial and error method of process development can be
both inefficient and costly. Moreover, a process that operates effectively at
laboratory-scale may prove to be less than optimal when scaled-up for commercial
production.
The Company believes that the markets for both improved chromatographic
media and process development systems are growing as pharmaceutical companies
develop and commercialize biopharmaceuticals at an accelerating pace. As of
December 31, 1996, over 25 recombinant biopharmaceuticals had been approved by
the United States Food and Drug Administration ("FDA") for commercial sale.
United States biotechnology companies currently have over 200 therapeutics in
human clinical development. It is estimated that over 1,500 biopharmaceuticals
are in various stages of development.
In particular, BioSepra is targeting the purification of monoclonal
antibodies. The Company believes that there are more monoclonal antibody-based
drugs currently in Phase II and Phase III clinical trials than any other class
of biopharmaceuticals. A vast majority of these therapeutics are being developed
for patients with the most serious and poorly managed human diseases; e.g.,
cancer, AIDS, other immune-system disorders such as multiple sclerosis and
rheumatoid arthritis, and heart disease. The first therapeutic monoclonal
antibody was approved for sale by the FDA at the end of 1996, and more
therapeutic monoclonal antibodies are expected to be approved in 1997.
Therapeutic monoclonal antibodies are used in very high doses as compared
with most other biopharmaceuticals. Hormones, vaccines, growth factors and
immune-system modulators, for example, all act as catalysts that stimulate a
biological response. They therefore need only be present in the body in
relatively small doses. Antibodies, on the other hand, act directly on
disease-causing agents, binding to them and removing them from circulation. They
are most effective when available in larger quantities and for extended periods
of time.
Separation and purification can account for anywhere from 30 to 80
percent of the cost of making monoclonal antibody-based drugs. Therefore, the
Company
2
<PAGE> 4
believes that purification of monoclonal antibody may represent a large
opportunity for use of the Company's proprietary media, although there can be no
assurance that companies producing monoclonal antibody-based drugs will use the
Company's media in such production.
PRODUCTS
BioSepra has developed chromatographic media products and systems to enable
biopharmaceutical companies to increase the productivity of their purification
processes. The Company offers a line of chromatographic products (media,
software, hardware and systems). The media products are based on both its
recently developed HyperD media and established technologies. In late 1994, the
Company introduced its ProSys Workstation and software. Pursuant to a strategic
market alliance with Beckman Instruments, Inc. ("Beckman"), in 1996 BioSepra has
introduced additional hardware and software products for the research market.
HyperD Media
In March 1993, the Company introduced its advanced HyperDiffusion
Chromatography media, called HyperD media, which the Company believes can
increase the productivity of many purification applications.
The productivity of chromatographic media depends on both the capacity of
the media to bind target biomolecules and the speed at which biomolecules can
reach the binding sites. Conventional chromatography media, such as soft gels,
have high binding capacity for target proteins, but are typically operated at
relatively slow flow rates because the high pressures resulting from the attempt
to increase flow rates would compress the soft media gels and impede or stop
flow. While more rigid porous materials have been developed to overcome the
compressibility of soft gels and thus facilitate higher flow rates, these rigid
porous materials have typically been unable to bind as much protein as
traditional gels.
BioSepra's HyperD media combines the high protein binding capacity of soft
gels with the higher flow advantages of rigid porous materials. The soft gel
provides a high number of protein binding sites, while the rigid porous
materials (or shell) enables the media to resist compression even as solution is
flowing at high speeds. The media is therefore able to achieve rapid flow rates
while maintaining a high level of protein binding capacity.
The Company believes that HyperD media can, in many applications,
significantly increase productivity. HyperD media is currently being used by
several major pharmaceutical companies in production of biopharmaceuticals.
HyperD media is produced in various particle sizes and with various
hydrogel chemistries as required by specific applications. Chromatography
chemistries currently offered by the Company include Q, S, CM and DEAE Ion
Exchange, Protein
3
<PAGE> 5
A, Basilen Blue, Heparin, Lysine and certain customized ligands. FDA Drug Master
Files have been submitted on the Company's HyperD media products to assist the
Company's customers in obtaining regulatory approval of production processes
using HyperD media.
The Company believes that the unique structure of BioSepra's HyperD
chromatography media can enable companies to produce monoclonal antibody-based
drugs faster and at higher purity and yield than they could using other products
currently on the market. In 1996, BioSepra introduced a CM HyperD specifically
designed for the purification of IgGs -- the largest class of monoclonal
antibodies. The increased benefits of CM HyperD are due to targeted performance
characteristics which will differentiate it from competitive protein
purification products. BioSepra currently intends to reinforce the HyperD
product line with the development of products specifically designed for the
purification of various classes of monoclonal antibodies. There can be no
assurance that such companies using HyperD media for the production of
monoclonal antibody based drugs will be successful in producing such drugs or
that additional companies will use HyperD media for such purpose in the future.
In March 1995, the Company entered into a strategic marketing alliance with
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, the Company extended the
agreement to include Japan and the non-exclusive distribution of additional
media for use in the research and method development market. The Company
believes that sales of its HyperD media products, which were introduced in 1993,
have been adversely affected by, and may continue to be adversely affected by,
pending patent litigation with PerSeptive Biosystems, Inc. ("PerSeptive"). See
"Item 3. Legal Proceedings."
Established Media Products
The Company offers a line of established chromatographic media products,
most of which were introduced in the 1980s. These products, which were developed
for use primarily in the blood fractionation industry, currently account for a
significant but declining percentage of the Company's sales. The Company 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.
The Company's established media products offer different capabilities for
purifying specific target molecules based on molecular charge, molecular size,
degree of hydrophobicity and binding affinity. The Company's products include
the following:
4
<PAGE> 6
Ultrogel(TM) Gel Filtration Media. These products are used in the
separation of macromolecules such as immunoglobulins, interleukins and enzymes.
Spherosil, Trisacryl(TM) and Spherodex(TM) Ion Exchange Media. These
products are used in the purification of albumin from blood plasma and the
fractionation of serum proteins; purification of growth factors, antibodies,
glycoproteins, enzymes, and other cell products from cell culture and
fermentations; separation of nucleotides and oligonucleotide mixtures including
sugars, polynucleotides, amino acids and peptides.
HA Ultrogel Adsorption Media. These are used for separation of human serum
proteins, glycoproteins, nucleic acids and immunoglobulins.
Protein A, Basilen Blue and Heparin Affinity Media. These products use
ligands such as those used for the purification of growth factors, coagulation
factors, fibronectin from fibroblasts or mammalian plasma, lipoproteins, and DNA
and RNA polymerases.
ProSys and BioSys Workstations
In late 1994, the Company introduced its ProSys Workstation, a
computer-controlled HPLC instrument that provides both computer-aided bioprocess
engineering capabilities and automation of process experiments. The ProSys
Workstation is controlled by the Company's ProSys RPD(TM) Software, which is
designed to enable customers to optimize process parameters based on a small
number of experiments and simulate the performance of alternative designs in a
commercial environment to determine resulting process characteristics, equipment
requirements and operating and capital costs.
Traditionally, process development has required the laborious investigation
of a large number of experimental parameters requiring long periods of time to
test the performance of alternative purification processes. In addition, it is
difficult to test whether a process designed for laboratory-scale purification
will operate optimally at commercial-scale. The Company's ProSys Workstation is
designed to be used early in the product development cycle to create effective
production methods and guide process design engineers toward an optimal process
for all levels of production. Using the ProSys Workstation, a customer is able
to:
- -- Automatically Perform Experiments. By enabling the customer to rapidly
set-up and complete multiple experiments, the ProSys Workstation can
decrease the time required to evaluate alternative chromatographic methods.
- -- Determine Optimal Purification Methods. A typical production process
involves several purification steps using different chromatographic
5
<PAGE> 7
methods. The ProSys Workstation helps the user to determine the optimal
methods for each purification step based on data generated from a
relatively small number of chromatographic experiments.
- -- Simulate Commercial-Scale Production. The ProSys RPD Software introduced in
1996 enables the user to simulate the operation of different process
designs based on both operational and economic parameters. Through this
simulation process, the user can simulate the performance of individual
steps of a process in a commercial environment and determine the resulting
operating costs, capital costs and process characteristics.
- -- Clinical-Scale Production. The ProSys Workstation is capable of producing
up to 250 grams of purified biopharmaceutical per day.
Major hardware components, including the pumping modules, for the ProSys
Workstation are purchased from a major supplier of HPLC equipment. In 1995, the
Company entered into a long-term supply contract with such supplier. While the
Company believes that alternative sources of supply for these components could
be developed, the integration of the new components could require system design
changes which could interrupt the Company's production and delivery of systems
to customers. Accordingly, the Company's operating results could be materially
and adversely affected if the Company were to incur an extended interruption in
its current source of supply.
As part of the strategic alliance established in March 1995 with Beckman,
the Company developed the BioSys Workstation which is being marketed by Beckman
in the research segment of the protein purification market.
The BioSys Workstation is similar to the ProSys Workstation. But while the
ProSys Workstation focuses on the needs of the process development market, the
BioSys Workstation targets the research and method development market which is
earlier in the drug development paradigm. Using the BioSys Workstation, a
customer is able to automatically perform experiments and determine improved
purification methods. The first BioSys Workstation production unit was delivered
to Beckman in the first quarter of 1996 and Beckman started market introduction
in the second quarter of 1996.
Other Products
The Company sells several chemical products used in biopharmaceutical
research. The Company offers its proprietary UpScale(TM) Process columns
designed for larger scale applications with volume capacities ranging from one
to 130 liters of media.
6
<PAGE> 8
The Company expects that sales of its historical line of chromatography
bioprocessing products will not increase in 1997 and that the future success of
its business will depend on market acceptance of the Company's more recent
products, such as HyperD, the ProSys Workstation and the BioSys Workstation, in
the faster growing Markets of the biopharmaceutical industry such as monoclonal
antibodies. Additional growth may result from new products currently under
development which tailor BioSepra's core chemistry and solid phase technology to
the genomics markets and to some segments of the medical industry; however,
there can be no assurance that such additional growth will occur or that such
products will be developed or be commercially viable.
COMPETITION
The Company encounters intense competition in the sale of its current and
future products. The Company's principal competitors are Pharmacia Biotech
("Pharmacia"), Bio-Rad, and PerSeptive. These competitors as well as other
companies selling or developing products for the bioseparations market, have
financial, marketing and other resources greater than those of the Company. In
addition, certain competitors have had long-term relationships with many of the
Company's existing and potential customers.
Sales of chromatographic media products typically involve long lead times
and customers generally evaluate several different media products before
committing to a volume purchase. Also, customers typically are reluctant to
change the media used in a production process previously approved by the FDA
because such a change would require extensive validation and in certain cases
would require additional FDA approval. For these reasons, the Company's success
will depend in large part on its ability to sell its products to customers at
the early stages of their product development cycles. There can be no assurance
that the Company will be able to compete effectively against its existing or
future competitors or that developments by others will not render BioSepra's
product or technologies obsolete or noncompetitive.
MARKETING AND SALES
In 1996, the Company marketed its products to the biopharmaceutical
industrial market through direct sales efforts in the United States and some
parts of Europe and through distributors in other countries. The Company markets
and sells its products through field sales representatives and distributors,
supported by application specialists, product managers, and technical
support/application development personnel in the Company's research and
development department. Pursuant to the Company's agreement with Beckman,
Beckman distributes worldwide certain HyperD media products and the BioSys
Workstation.
In 1994, 1995 and 1996, 58%, 60% and 47%, respectively, of the Company's
sales were outside the United States. In 1994, 1995 and 1996, media and
biochemicals accounted for 52%, 51% and 69%, respectively, of the Company's
revenues. In 1996,
7
<PAGE> 9
sales to two major biopharmaceutical companies accounted for approximately 25%
and 13% of the Company's revenues, respectively. The loss of either or both of
these customers could have a material adverse effect on the results of
operations of the Company.
RESEARCH AND DEVELOPMENT
BioSepra's research and development group consists of 12 persons. The
Company'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 1994, 1995 and 1996, the Company
spent $3,383,000, $2,761,000 and $2,399,000, respectively, on research and
development.
GOVERNMENT REGULATION
FDA and comparable foreign regulations pertain not only to health care
products, but also to the processes and production facilities used to produce
such products. Among the conditions for FDA approval of a biopharmaceutical is
the requirement that the manufacturer's quality control and manufacturing
processes conform to current Good Manufacturing Practices ("GMP").
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 the Company'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 the Company's customers for compliance with applicable rules and
regulations. The Company's customers will often review and inspect the Company's
manufacturing facilities prior to ordering products for use in an FDA-approved
production process. The Company believes that its production and documentation
procedures are consistent with GMP. Also, the Company files with the FDA Drug
Master Files that facilitate the use by pharmaceutical companies of the
Company's media for both clinical trial production and commercial production.
In the production of a biopharmaceutical, any material change by a
manufacturer of process or equipment traditionally necessitates additional FDA
review and approval. Manufacturers are therefore typically reluctant to change
production methods for existing products. For this reason, BioSepra is likely to
encounter difficulties in selling its media products to customers which have
already applied for or obtained FDA licenses for production processes that
specify a different supplier's product.
8
<PAGE> 10
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 RIGHTS
BioSepra holds several patents and patent applications, including a United
States composition of matter patent (and comparable foreign patent applications)
on HyperD media. The Company's additional patents relate primarily to the
composition of its other media products and certain biopharmaceutical production
processes. There can be no assurance that any of the Company's issued patents
will afford the Company any significant protection, that any pending patent
applications will result in the issuance of patents or that competitors will not
successfully challenge the Company's patents or circumvent the Company's patent
position. The invalidation of key patents owned by BioSepra or the failure of
patents to issue on pending applications could result in increased competition.
The Company also relies on unpatented trade secrets and licensed
technology. The Company has a royalty-free license to use certain of the
simulation software be used in its ProSys Workstation.
The patent positions of companies in the biopharmaceutical industry are
highly uncertain, involve complex legal and factual questions and recently have
been the subject of much litigation. A significant number of patents have been
applied for by and issued to other companies in BioSepra's industry, and other
companies may have filed applications for, may have been issued patents or may
obtain additional patents and proprietary rights relating to products
competitive with those of the Company.
In addition, the Company's products may give rise to claims that they
infringe on the products or proprietary rights of others. See "Item 3. Legal
Proceedings." No assurance can be given that any license required under any such
patents or rights would be made available on terms acceptable to the Company, if
at all. If the Company does not obtain such licenses, it could encounter delays
in product market introductions while it attempts to design around such patents,
or could find that the development, manufacture or sale of products requiring
such licenses could be precluded. Litigation may be necessary to defend against
or assert claims of infringement, to enforce patents issued to the Company, to
protect trade secrets or know-how owned by the Company, or to determine the
scope and validity of the proprietary rights of others, and could result in
substantial costs to and diversion of effort by, and may have a material adverse
impact on, the Company.
9
<PAGE> 11
EMPLOYEES
As of March 1, 1997, the Company employed 59 persons, of whom 12 were
primarily engaged in research and development activities, 17 in manufacturing,
and the remainder in marketing, sales, administration and accounting. Of the 59
persons, 24 are located in the United States and 35 are in Europe.
The Company's employees in the United States are not covered by a
collective bargaining-agreement. In Europe, its employees are covered by the
provisions of two agreements setting forth national guidelines and standards for
labor relations in the chemical and metal industry. The Company considers its
relations with its employees to be good.
RELATIONSHIP WITH SEPRACOR
Sepracor, which owns approximately 64% of the outstanding capital stock of
the Company, is engaged in the business of using chiral chemistry to develop
single- isomer forms of existing, widely-sold pharmaceuticals and to supply
major pharmaceutical companies with bulk quantities of chiral intermediates.
Under applicable provisions of the Delaware General Corporation Law, Sepracor
will have the ability, acting alone, to approve any action requiring approval of
the holders of a majority of the outstanding shares of Common Stock.
Technology Transfer and License Agreement. The Company and Sepracor entered
into a Technology Transfer and License Agreement (the "Technology Transfer
Agreement") pursuant to which Sepracor transferred to the Company all technology
owned or controlled by Sepracor, including trade secrets, patents and patent
applications, that relates to and is used in researching, developing or
manufacturing products in the "Company Field." The Company Field means generally
the separation of biological molecules. Further, Sepracor has granted an
exclusive license to the Company for any improvements to the transferred
technology useful in the Company Field which are developed, or otherwise
acquired, by Sepracor during the period beginning on the date of the Technology
Transfer Agreement and terminating on the earlier of January 1, 1998 or the
acquisition of Sepracor or the Company (the "Effective Period"). The Company has
granted to Sepracor an exclusive license to the transferred technology for the
development, manufacture, use or sale of any products within the field of chiral
synthesis, chiral separations and the development, manufacture, use or sale of
chiral drugs and chiral drug intermediates (the "Sepracor Field"), as well as a
non-exclusive license to the transferred technology for the development,
manufacture, use or sale of any products outside the Company Field. All licenses
are royalty-free. Sepracor has also granted the Company a right of first refusal
to any product which Sepracor proposes to sell, or license a third party to
sell, during the Effective Period, for use within the Company Field.
10
<PAGE> 12
Cross-License Agreement. The Company has entered into a Cross License
Agreement (the "Cross License Agreement"), dated as of January 1, 1994 with
HemaSure Inc. ("HemaSure"), a subsidiary of Sepracor. Under the terms of the
Cross License Agreement, HemaSure and the Company have each granted to the other
a perpetual, royalty-free and non-exclusive right and license to technology and
improvements owned or controlled by the licensing party for use in the HemaSure
Field or Company Field as the case may be. The HemaSure Field comprises the
development, manufacture, use or sale of medical devices for the purification of
blood, blood products or blood components and membrane filter design. The Cross
License Agreement will terminate on the earlier of January 1, 1998 or the
acquisition of all or substantially all of the business or assets, by merger,
sale of assets or otherwise, of either the Company or HemaSure.
Corporate Services Agreement. The Company and Sepracor entered into a
one-year Corporate Services Agreement which provides for a monthly fee to be
paid by the Company for basic services, such as accounting, human resources
support services, data processing and laboratory support services provided by
Sepracor. This fee was determined by estimating Sepracor's cost of the Company's
expected usage of such basic services. The Company may purchase additional
services from Sepracor for a fixed rate based on the number of hours spent by
each Sepracor employee providing such services. For items with identifiable
costs such as insurance coverage, Sepracor charges the Company based upon costs
directly attributable to the Company. Management believes that the charges under
the Corporate Services Agreement are reasonable and that the terms of the
Corporate Services Agreement are at least as favorable to the Company as the
terms that could be obtained from an unaffiliated third party. This Agreement
had an initial term of one year and has been extended by the Company for [three]
additional one-year terms. Sepracor retains the right to decline to provide any
services which cause an unreasonable burden to Sepracor. The Agreement permits
the Company to terminate at any time following 60 days' notice to Sepracor, and
automatically terminates six months after Sepracor's ownership percentage of the
Company decreases to less than 50% of the Company's issued and outstanding
shares. The aggregate payments made by the Company to Sepracor for basic
services under this Agreement were $197,000 in 1995, 208,000 in 1996 and are
expected to be approximately $208,000 in 1997.
Sublease Agreements. Sepracor has entered into a Sublease Agreement with
the Company under which Sepracor subleases a portion of its facilities in
Marlborough, Massachusetts to the Company. The amount payable to Sepracor under
the Sublease Agreement is equal to Sepracor's rental costs under its lease
allocable to the portion of the premises subleased to the Company plus a pro
rata allocation of the estimated facility maintenance, utilities and other
operating costs. The rental payment made by the Company under this Agreement was
approximately $77,000 in 1995 and $72,000 in 1996, exclusive of operating costs
and is estimated to be approximately $75,000 in 1997.
11
<PAGE> 13
Registration Rights. Sepracor has certain registration rights with respect
to its shares in the Company as provided in the Technology Transfer Agreement.
Loan Agreement. On March 29, 1996, the Company issued a Convertible
Subordinated Note due March 2000 (the "Note") to Sepracor providing for the
borrowing by BioSepra from Sepracor of up to $5,500,000 (the "Loans") at an
interest rate of 7%. The Loans, including any accrued interest thereon, were
convertible into shares of the Company's Common Stock, $.01 par value ("Common
Stock"), at the option of Sepracor at any time prior to repayment. Since March
29, 1996, an aggregate of $5,500,000 was borrowed under the Note. On June 10,
1996, Sepracor converted the outstanding principal, plus accrued interest, of
the Loans into an aggregate of 1,369,788 shares of the Company's Common Stock.
As a result of the conversion of the Note, Sepracor's ownership of the Company's
outstanding Common Stock increased from approximately 58% to approximately 64%.
Promissory Note. In January 1996, the Company entered into a Promissory
Note for $350,000, or so much of such sum as shall have been advanced by
Sepracor. This amount is payable to Sepracor over sixty monthly installments and
does not bear interest.
All future arrangements and transactions between the Company and Sepracor
will continue to be on terms which the Company determines are fair and
reasonable to the Company.
Item 2. PROPERTIES
BioSepra's facilities are located in Marlborough, Massachusetts and
Villeneuve-la-Garenne, France. In Massachusetts, the Company subleases
approximately 13,000 square feet of office, laboratory and assembly space from
Sepracor. In Villeneuve-la-Garenne, France, the Company leases approximately
28,500 square feet of office, laboratory and manufacturing space. Of the total,
approximately 20,440 square feet are used for manufacturing operations, and the
balance is used for research and development and administration. The lease
charges at the Massachusetts facility are equal to a pro rata portion of
Sepracor's costs, including maintenance, utilities and other operating costs
based upon square footage occupied.
At its facility in Villeneuve-la-Garenne, France, the Company produces its
chromatographic media. The plant is currently operating at approximately
one-half of full capacity, and, therefore, the Company has the capability to
expand production as product sales increase. ProSys and BioSys Workstations are
designed and assembled in the Company's Marlborough, Massachusetts facility. The
Marlborough facility is currently operating at 60% capacity and, therefore, the
Company has the capability to expand production to the extent product sales
increase in the future.
12
<PAGE> 14
Item 3. LEGAL PROCEEDINGS
BioSepra and Sepracor are defendants in three lawsuits brought by
PerSeptive Biosystems, Inc. ("PerSeptive"), a competitor of BioSepra, in the
United States District Court for the District of Massachusetts. In actions
commenced in October 1993 and January 1995, PerSeptive has alleged that
BioSepra's and Sepracor's manufacture and sale of HyperD(TM) chromatography
media infringe four of PerSeptive's United States patents. PerSeptive is seeking
unspecified monetary damages as well as injunctive relief. In a separate action,
PerSeptive has alleged that certain statements made by BioSepra and Sepracor
with respect to the performance of HyperD media, performance of PerSeptive's
POROS(R) media, and the internal structures of POROS and HyperD media, including
statements made in BioSepra's Prospectus dated March 24, 1994, constitute false
advertising. PerSeptive also asserts that an additional perfusion chromatography
patent has been allowed, and that another patent related to perfusion
chromatography has been issued. The new perfusion chromatography patent contains
claims similar to the other patents BioSepra and Sepracor are alleged to have
infringed.
The Company has received an opinion of its patent counsel, Pennie &
Edmonds, to the effect that a properly informed court should conclude the
manufacture, use and/or sale by BioSepra or its customers of the present HyperD
products do not infringe any valid claims of the three U.S. patents held by
PerSeptive relating to "perfusion chromatography." PerSeptive has not formally
claimed that the present HyperD products infringe the fourth perfusion patent.
Allegations have also been made that another U.S. patent which relates to the
chemistry of certain coatings applied during the manufacture of HyperD (the
"coatings patent"), is infringed by the manufacture, sale or use of HyperD.
BioSepra and Sepracor have asserted a counterclaim charging PerSeptive with
unfair competition.
On January 9, 1996, the United States District Court for the District of
Massachusetts in part granted BioSepra's and Sepracor's request for summary
judgment with respect to three of PerSeptive's patents concerning "Perfusion
Chromatography" (the "January 9 Order"). The Court ruled that persons in
addition to those named in the "perfusion" patents were inventors of the alleged
inventions claimed in those patents. This ruling may ultimately dispose of
PerSeptive's claims concerning the "perfusion" patents, depending on the Court's
resolution of PerSeptive's effort to correct the patents and the outcome on
appeal by PerSeptive of the January 9 Order or appeal by any party of any ruling
regarding correction of inventorship.
In its January 9 Order, the Court ruled that PerSeptive's claims related to
the three "perfusion" patents would be dismissed on January 19, 1996, if
PerSeptive had not requested correction of inventorship by that date. The Court
postponed this deadline pending its ruling on PerSeptive's request for
certification of an immediate appeal of the January 9 Order to the United States
Court of Appeals for the Federal Circuit. On March 12, 1996, the Court denied
PerSeptive's motion for immediate
13
<PAGE> 15
appeal and scheduled a hearing on deceptive intent on the part of PerSeptive, if
PerSeptive moved to correct inventorship (the "March 12 Order"). The Court
required PerSeptive to make any motion to correct by March 31, 1996. In
response, PerSeptive requested that the Court vacate its January 9 and March 12
Orders, or in the alternative, correct the patents in such a way that the
presently unnamed inventors obtained no rights to license the patents. The Court
denied PerSeptive's motion to vacate and scheduled a hearing on PerSeptive's
motion to correct the patents which was completed in August 1996. The District
Court has not rendered a decision based on the August hearing.
According to the January 9 and March 12 Orders, PerSeptive could correct
inventorship if it bears the burden of proving that its initial designation of
inventors was done without deceptive intent. PerSeptive has asserted that no
motion to correct need be filed, and that BioSepra and Sepracor bear the burden
of proving deceptive intent. PerSeptive also asserts that the unnamed inventors
should not be added to the patents or given any right to license the patents,
and that as a matter of law they did not err in not naming the two unnamed
inventors, and did not name inventors with deceptive intent. BioSepra and
Sepracor contend that if PerSeptive is able to correct inventorship, the
presently unnamed inventors would have independent rights to license the
"perfusion" patents unless the Court ruled that the unnamed inventors are not
entitled to such rights. If inventorship could not be corrected, the "perfusion"
patents would be held invalid, subject to appeal by PerSeptive. A decision by
the District Court to correct inventorship, or preventing the unnamed inventors
from licensing the "perfusion" patents, would be subject to appeal by any party.
PerSeptive could appeal any decision invalidating the patents for willful
misdesignation of inventors.
There can be no assurance that BioSepra will prevail in the pending
litigation, and an adverse outcome in any of the patent infringement actions on
any of the chromatography patents would have a materially adverse effect on the
Company's future business and operations. The Company would be required to repay
to Beckman part of certain payments if the Company terminates Beckman's right to
use and sell HyperD media because a court finds HyperD media infringes any third
party patents.
Substantial funds have been and continue to be expended in connection with
the defense of the litigation. Sepracor has agreed to control the defense of the
litigation, and Sepracor and BioSepra share equally in expenses, net of
insurance payments. In addition, in the event of any settlement or judgment
adverse to BioSepra, Sepracor has agreed to indemnify BioSepra from and against
any damages that BioSepra is required to pay with respect to its manufacture,
use or sale of HyperD media products occurring prior to March 24, 1994.
14
<PAGE> 16
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders of the Company,
through solicitation of proxies or otherwise, during the last quarter of the
year ended December 31, 1996.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the names, ages and positions of the
executive officers of the Company.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Jean-Marie Vogel 46 President, Chief Executive Officer
and Director
James A. Prendergast 56 Executive Vice President
Egisto Boschetti, Ph.D. 51 Senior Vice President and Chief
Scientific Officer
Therese Bourdy 46 Vice President of Media Operations
Gary G. Gaudet 49 Vice President, Sales and
Marketing
</TABLE>
- --------------------
Mr. Vogel has served as President, Chief Executive Officer and a director
of the Company since September 1994. From January 1994 to August 1994, Mr. Vogel
has served as Executive Vice President and Chief Operating Officer of the
Company. From 1992 to 1993, Mr. Vogel served as President of the European
Operation of Cuno, Inc., a supplier of filtration processes, equipment and
devices used in the production of biological drugs and food products. From 1977
to 1992, Mr. Vogel served in various capacities with Millipore Corporation
("Millipore"), a manufacturer of membrane filtration-based products, in its
international operations with experience in Asia, Latin America, the former
Soviet Union, the Middle East and Australia. Most recently, Mr. Vogel served as
Vice President and General Manager of Millipore's Asian Operations. Mr. Vogel is
a French citizen.
Mr. Prendergast has served as Executive Vice President of the Company since
January 1997. From 1991 to 1997 he served as Vice President, World-Wide Sales,
Marketing and Service Operations for CEM Corp., a manufacturer of microwave
instrumentation in the chemical, food and pharmaceutical markets. From 1971 to
1991, Mr. Prendergast served in a number of positions at Millipore/Waters, a
manufacturer of membrane liquid chromatography products, including service as
15
<PAGE> 17
President of its Intertech Division and as President of Millipore/Waters Canada,
a subsidiary of Millipore/Waters.
Dr. Boschetti has served as Senior Vice President and Chief Scientific
Officer of the Company since January 1997 and served as Vice President and Chief
Scientific Officer from January 1994 to January 1997. From June 1991 to January
1994, Dr. Boschetti served as Vice President of Research and Development and
Technical Operations -- Sepracor Europe. From 1986 until 1991, Dr. Boschetti was
Vice President of R&D and Technical Director of IBF. Dr. Boschetti has been
associated with IBF and its predecessor, Pointet-Girard S.A. for 20 years. Dr.
Boschetti has published over 130 articles in international scientific journals
and is a member of the editorial board of Preparative Chromatography. Dr.
Boschetti is Vice Chairman of the Biotechnology Commission of the French
Ministry of Research and is a French citizen.
Ms. Bourdy has served as Vice President of Media Operations of the Company
since January 1997 and served as General Manager and Director of Operations,
BioSepra S.A. from August 1995 to January 1997. From 1992 to 1995, Ms. Bourdy
served as Quality Assurance, Operations and Marketing manager for Cuno, Inc., a
supplier of filtration processes, equipment and devices used in the production
of biological drugs and food products. From 1991 to 1992, Ms. Bourdy was an
independent consultant. From 1983 to 1991, Ms. Bourdy served in various
operational positions with National Fractionation Center France, a bioprocessing
company focusing on blood products. From 1974 to 1983, Ms. Bourdy served in
various capacities with Millipore, a manufacturer of membrane filtration-based
products, in its pharmaceutical, agrofood and water treatment divisions.
Mr. Gaudet has served as Vice President, Sales and Marketing of the Company
since June 1995. From January 1995 to May 1995, Mr. Gaudet served as a Business
Manager, Process Chromatography of the Company. From March 1994 to January 1995,
Mr. Gaudet served as National Marketing Manager for Buss Process Technologies, a
supplier of process equipment and plants to the fine chemical, polymer, food and
pharmaceutical industries in North America. From April 1992 to March 1994, Mr.
Gaudet served as Corporate Sales Manager for CompUSA, a retail supplier of
computer products.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock of BioSepra Inc. has been traded on the Nasdaq National
Market under the symbol BSEP since March 25, 1994. On March 26, 1997, the last
reported sale price of the Company's Common Stock on the Nasdaq Stock Market was
$3.375. Prior to March 25, 1994, the Company's Common Stock was not publicly
traded. The following table sets forth
16
<PAGE> 18
for the periods indicated the high and low sales prices per share of the Common
Stock as reported by the Nasdaq National Market for the last two fiscal years.
<TABLE>
<CAPTION>
1995
----
High Low
---- ---
<S> <C> <C>
First Quarter .................................. $4 7/8 $3 1/4
(January 1 through March 31, 1995)
Second Quarter ................................. $4 5/8 $2 3/4
(ended June 30, 1995)
Third Quarter .................................. $6 7/8 $3 3/4
(ended September 30, 1995)
Fourth Quarter ................................. $5 3/4 $3
(ended December 31, 1995)
</TABLE>
<TABLE>
<CAPTION>
1996
----
<S> <C> <C>
First Quarter .................................. $6 $3 3/8
(January 1 through March 31, 1996)
Second Quarter ................................. $5 11/16 $3 5/8
(April 1 though June 30, 1996)
Third Quarter .................................. $4 1/8 $2 1/2
(July 1 through September 30, 1996)
Fourth Quarter ................................. $3 5/8 $2 9/16
(October 1 through December 31, 1996)
</TABLE>
On March 14, 1997, the Company had approximately 41 stockholders of record.
The Company believes that the number of record holders is not representative of
the number of beneficial holders because many shares are held by depositaries,
brokers or other nominees. The Company has never paid dividends on its Common
Stock. The Company currently intends to reinvest its earnings, if any, for use
in the business and does not expect to pay cash dividends in the foreseeable
future.
Item 6. SELECTED FINANCIAL DATA
Incorporated by reference from the Company's 1996 Annual Report to
Stockholders under the heading "Selected Financial Data."
17
<PAGE> 19
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Incorporated by reference from the Company's 1996 Annual Report to
Stockholders 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 listed under Item 14 below and are incorporated by reference from the
Company's 1996 Annual Report to Stockholders.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
On January 26, 1996, the Company, upon the recommendation of its Audit
Committee and the approval of its Board of Directors, determined that it would
dismiss Coopers & Lybrand L.L.P. as its principal accountant and retain Arthur
Andersen LLP as its principal accountant, effective upon completion of the audit
by Coopers & Lybrand L.L.P. of the Company's financial statements for the fiscal
year ended December 31, 1995 (the "1995 Audit"). The determination to dismiss
Coopers & Lybrand L.L.P. was made because Coopers & Lybrand L.L.P. agreed to
serve as independent accountants for PerSeptive Biosystems, Inc., a competitor
of the Company.
The Company had no disagreement with Arthur Andersen L.L.P. on any matter
of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure in connection with the audits of the Company's
financial statements for the fiscal year ended December 31, 1996.
The Company had no disagreement with Coopers & Lybrand L.L.P. on any matter
of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure in connection with the audits of the Company's
financial statements for the fiscal years ended December 31, 1995 and December
31, 1994. Coopers & Lybrand L.L.P.'s reports on the Company's financial
statements for the fiscal years ended December 31, 1995 and December 31, 1994
did not contain any adverse opinion or a disclaimer of an opinion nor were they
qualified as to uncertainty, audit scope, or accounting principles.
18
<PAGE> 20
PART III
ITEMS 10-13.
The information required for Part III in this Annual Report on Form 10-K is
incorporated by reference from the Company's definitive proxy statement for the
Company's 1997 Annual Meeting of Stockholders. Such information will be
contained in the sections of such proxy statement captioned "Stock Ownership of
Certain Beneficial Owners and Management", "Election of Directors", "Board and
Committee Meetings", "Compensation for Directors", "Compensation of Executive
Officers", and "Certain Relationships and Related Transactions". 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 as part of this Annual
Report on Form 10-K or are incorporated by reference from the Company's 1996
Annual Report to Stockholders.
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. The following financial statements (and related notes)
of the Company are incorporated by reference from the
Company's 1996 Annual Report to Stockholders.
Report of Arthur Andersen, LLP, Independent Public Accountants
on Financial Statements F-11*
Consolidated Balance Sheets at December 31, 1996 and 1995 F-12*
Consolidated Statements of Operations for the years ended
December 31, 1996, 1995 and 1994. F-13*
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 1996, 1995 and 1994. F-14*
Consolidated Statements of Cash Flows for the years
ended December 31, 1996, 1995 and 1994. F-15*
Notes to Consolidated Financial Statements. F-16*
</TABLE>
19
<PAGE> 21
*Refers to page number of 1996 Annual Report to Stockholders
2. The Report of Coopers & Lybrand L.L.P., Independent Accountants,
is filed as part of this Annual Report on Form 10-K.
3. The Schedule listed below and the Reports of Independent Accountants
on financial statement schedules are filed as part of this Annual
Report on 10-K.
Reports of Independent Public Accountants on Financial Statement
Schedules
Schedule II - Valuation and Qualifying Accounts
4. 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.
5. The Exhibits listed in the Exhibit Index immediately preceding the
Exhibits are filed as a part of this Annual Report on Form 10-K.
(b) No Current Reports on Form 8-K were filed by the Company
during the last quarter of the period covered by this report.
The following trademarks are mentioned in this Annual Report on Form 10-K:
HyperD, ProSys, Rational Process Design, RPD, Trisacryl, Spherodex,
Ultrogel and UpScale are trademarks of the Company. Perfusion Chromatography and
POROS are trademarks of PerSeptive Biosystems, Inc.
20
<PAGE> 22
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Board of Directors and Shareholders of BioSepra Inc.:
We have audited the accompanying consolidated balance sheet of BioSepra Inc. as
of December 31, 1995 and the related consolidated statements of operations,
shareholders' equity and cash flows for each of the two years in the period
ended December 31, 1995. 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 consolidated financial position of BioSepra Inc. as
of December 31, 1995, and the consolidated results of its operations and cash
flows for each of the two years in the period ended December 31, 1995 in
conformity with generally accepted accounting principles.
/s/ Coopers & Lybrand LLP
Boston, Massachusetts
February 27, 1996, except as to information contained in the fourth paragraph
of Note H and the seventh paragraph of Note C for which the date is March 29,
1996.
21
<PAGE> 23
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To the Board of Directors and Shareholders of BioSepra Inc. and subsidiaries:
We have audited, in accordance with generally accepted auditing standards, the
consolidated financial statements of BioSepra Inc. and subsidiaries and have
issued our report thereon dated January 29, 1997. Our audit was made for the
purpose of forming an opinion on the basic financial statement taken as a
whole. The schedule listed in Item 14(a)2 herein is the responsibility of the
Company's managements and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states, in all material respects, the financial data required
to be set forth therein, in relation to the basic financial statements taken as
a whole.
/s/ Arthur Andersen LLP
Boston, Massachusetts
January 29, 1997
22
<PAGE> 24
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Board of Directors and Shareholders of
BioSepra Inc.:
Our report on the consolidated financial statements of BioSepra Inc. as of
December 31, 1995 and for each of the two years in the period then ended has
been included in this Form 10-K. In connection with our audits of such
financial statements, we have also audited the related financial statements
schedule listed in Item 14(a) of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects the information required to be
included therein.
/s/ Coopers & Lybrand LLP
Boston, Massachusetts
February 27, 1996, except as to information contained
in the fourth paragraph of Note H and the seventh paragraph
of Note C, for which the date is March 29, 1996
23
<PAGE> 25
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- -------- -------- -------- --------
ADDITIONS
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS (1) DEDUCTIONS (2) PERIOD
----------- --------- -------- ------------ -------------- ------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996
Allowance for doubtful accounts $92,000 $142,000 $ (1,000) $233,000
Year ended December 31, 1995
Allowance for doubtful accounts $61,000 $269,000 $(214,000) $(24,000) $ 92,000
Year ended December 31, 1994
Allowance for doubtful accounts $ 6,000 $ 61,000 $ (6,000) $ 61,000
</TABLE>
(1) These amounts relate to changes in the translation rate of the Company's
international subsidiary.
(2) Collections and bad debt write-offs.
24
<PAGE> 26
SIGNATURES
Pursuant to the requirements of the 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 on the 28th day of
March, 1997.
BIOSEPRA INC.
By: /s/ Jean-Marie Vogel
---------------------------
Jean-Marie Vogel, President
and Chief Executive Officer
25
<PAGE> 27
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>
/s/ Jean-Marie Vogel
- ----------------------------------- President, Chief Executive )
Jean-Marie Vogel Officer and Director )
(Principal Executive )
and Financial Officer) )
)
/s/ Peter Castellanos )
- ----------------------------------- Director of Finance )
Peter Castellanos (Principal Accounting )
Officer) )
)
/s/ Timothy J. Barberich )
- ----------------------------------- Director )
Timothy J. Barberich )
March 28, 1997 )
)
/s/ William M. Cousins, Jr. )
- ----------------------------------- Director )
William M. Cousins, Jr. )
)
)
/s/ Alexander M. Klibanov, Ph.D. )
- ----------------------------------- Director )
Alexander M. Klibanov, Ph.D. )
)
)
- ----------------------------------- Director )
Paul A. Looney )
)
)
- ----------------------------------- Director )
William E. Rich, Ph.D. )
)
)
/s/ Riccardo Pigliucci )
- ----------------------------------- Director )
Riccardo Pigliucci )
)
)
/s/ David P. Southwell )
- ----------------------------------- Director )
David P. Southwell )
</TABLE>
26
<PAGE> 28
<TABLE>
<CAPTION>
Exhibit Index
-------------
The following exhibits are filed as part of this Annual Report on Form 10-K.
Exhibit No. Description
- ----------- -----------
<S> <C> <C> <C>
3.1* -- Certificate of Incorporation, as
amended, of the Company.
3.2* -- By-Laws of the Company.
4* -- Specimen Certificate for shares of
Common Stock, $.01 par value, of the
Company.
(1) 10.1* -- 1994 Stock Option Plan.
(1) 10.2* -- 1994 Director Option Plan.
10.3* -- Form of Technology Transfer and
License Agreement dated as of
January 1, 1994 between the Company
and Sepracor Inc.
10.4* -- Form of Corporate Services Agreement
dated as of January 1, 1994 between
the Company and Sepracor Inc.
10.5* -- Form of Cross License Agreement dated
as of January 1, 1994, between the
Company and HemaSure Inc.
10.6* -- Service Contract dated June 28, 1991
between IBF and Rhne-Poulenc Rorer
Principes Actifs (translated from
French).
10.7* -- Contract for Supply of Spherosil
Media dated May 22, 1991 between IBF
and Pasteur Mrieux Srums et Vaccins
(translated from French).
10.8* -- Agreement for the Purchase and Supply
of Silica Media dated June 27, 1991
between IBF and Societe Franaise des
Produits pour Catalyse, S.A.
</TABLE>
27
<PAGE> 29
<TABLE>
<CAPTION>
<S> <C> <C> <C>
(translated from French).
10.9** -- Sale of Shares Contract by and among
the stockholders of Biopass, S.A.
listed therein and BioSepra S.A.
(includes original document in French,
together with English language
translation).
10.10***+ -- Distribution Agreement dated March 14,
1995 between the Company and Beckman
Instruments, Inc.
10.11 -- Amended and Restated Revolving Credit and Security
Agreement by and between Fleet National Bank
and the Company dated as of December 31, 1996.
10.12*** -- Intellectual Property Security
Agreement by and between Fleet Bank of
Massachusetts, N.A. and the Company
dated December 28, 1994.
10.13*** -- Sub-Sublease dated December 12, 1995 by and
between Sepracor Inc. and the Company.
10.14*** -- Sublease dated January 1, 1996 by and between
Sepracor Inc. and the Company.
10.15*** -- Promissory Note dated January 1, 1996 made in
favor of Sepracor Inc. by the Company.
10.16 -- Confirmation of and Amendment to Intellectual
Property Security Agreement by and between
Fleet National Bank and the Company dated
as of December 31, 1996.
11 -- Statement regarding computation of
earnings per share.
13 -- 1996 Annual Report to Stockholders
(which shall be deemed filed only
with respect to those portions specifically
incorporated by reference herein).
21 -- Subsidiaries of the Company.
</TABLE>
28
<PAGE> 30
<TABLE>
<CAPTION>
<S> <C> <C> <C>
23.1 -- Consent of Coopers & Lybrand L.L.P.
23.2 -- Consent of Arthur Andersen LLP
27 -- Financial Data Schedule
</TABLE>
- --------------------
(1) Management contract or compensatory plan or arrangement filed as an exhibit
to this Form pursuant to Items 14(a) and 14(c) of Form 10-K.
* Incorporated herein by reference to the Company's Registration Statement on
Form S-1, as amended (File No. 33-75212).
** Incorporated herein by reference to the Company's 8-K filed on September
30, 1994.
*** Incorporated herein by reference to the Company's 10-K for the year ended
December 31, 1994.
+ Confidential treatment requested as to certain portions.
29
<PAGE> 1
EXHIBIT 10.11
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AMENDED AND RESTATED
REVOLVING CREDIT AND SECURITY AGREEMENT
BETWEEN
FLEET NATIONAL BANK
AND
BIOSEPRA INC.
------------------------------------------------
Dated as of December 31, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
Title
-----
Section Page
- ------- ----
SECTION 1.
----------
DEFINITIONS
-----------
1.1. Definitions........................................................ 1
-----------
1.2. Accounting Terms................................................... 9
----------------
SECTION 2.
----------
DESCRIPTION OF CREDIT
---------------------
2.1. The Revolving Loans................................................ 10
-------------------
2.2. Commitment Fee..................................................... 10
--------------
2.3. Reduction of Revolving Commitment Amount........................... 11
----------------------------------------
2.4. The Note........................................................... 11
--------
2.5. Capital Requirements............................................... 11
--------------------
2.6. Payments and Prepayments of the Revolving Loans.................... 11
-----------------------------------------------
2.7. Method of Payment.................................................. 12
-----------------
2.8. Overdue Payments................................................... 12
----------------
2.9. Holidays........................................................... 12
--------
2.10. Interest........................................................... 12
--------
2.11. Certain LIBOR Provisions........................................... 13
------------------------
2.12. Conditions for Basing Interest on the Libor Rate................... 15
------------------------------------------------
2.13. Indemnification for Funding and Other Losses....................... 15
--------------------------------------------
2.14. Change in Applicable Laws, Regulations, etc........................ 16
-------------------------------------------
2.15. Taxes.............................................................. 16
-----
2.16. Foreign Exchange Facility.......................................... 16
-------------------------
SECTION 3.
----------
CONDITIONS OF LOANS
-------------------
3.1. Conditions Precedent to Initial Revolving Loan..................... 17
----------------------------------------------
3.2. Conditions Precedent to all Revolving Loans........................ 18
-------------------------------------------
3.3. Conditions Precedent to each Transaction under Foreign Exchange
---------------------------------------------------------------
Facility
--------
SECTION 4.
----------
<PAGE> 3
Section Page
- ------- ----
REPRESENTATIONS AND WARRANTIES
------------------------------
4.1. Organization and Qualification...................................... 19
------------------------------
4.2. Corporate Authority................................................. 19
-------------------
4.3. Valid Obligations................................................... 20
-----------------
4.4. Consents or Approvals............................................... 20
---------------------
4.5. Title to Properties; Absence of Encumbrances........................ 20
--------------------------------------------
4.6. Financial Statements................................................ 20
--------------------
4.7. Changes............................................................. 20
-------
4.8. Defaults............................................................ 21
--------
4.9. Taxes............................................................... 21
-----
4.10. Material Agreements................................................. 21
-------------------
4.11. Material Licenses................................................... 21
-----------------
4.12. Litigation.......................................................... 21
----------
4.13. Use of Proceeds..................................................... 21
---------------
4.14. Existing Indebtedness............................................... 21
---------------------
4.15. Existing Investments................................................ 21
--------------------
4.16. Subsidiaries........................................................ 22
------------
4.17. Investment Company Act.............................................. 22
----------------------
4.18. Compliance With Erisa............................................... 22
---------------------
4.19. Fda Compliance, Etc................................................. 22
-------------------
4.20. Environmental Matters............................................... 22
---------------------
SECTION 5.
----------
AFFIRMATIVE COVENANTS
---------------------
5.1. Financial Statements and other Reporting Requirements............... 24
-----------------------------------------------------
5.2. Conduct of Business................................................. 25
-------------------
5.3. Maintenance and Insurance........................................... 25
-------------------------
5.4. Taxes............................................................... 26
-----
5.5. Inspection by the Bank.............................................. 26
----------------------
5.6. Maintenance of Books and Records.................................... 27
--------------------------------
5.7. Maintenance of Accounts............................................. 27
-----------------------
5.8. New Accounts and Investments........................................ 27
----------------------------
5.9. Minimum Consolidated Tangible Capital Base.......................... 27
------------------------------------------
5.10. Minimum Cash or Equivalents......................................... 27
---------------------------
5.11. Further Assurances.................................................. 27
------------------
SECTION 6.
----------
NEGATIVE COVENANTS
------------------
6.1. Indebtedness........................................................ 27
------------
ii
<PAGE> 4
Section Page
- ------- ----
6.2. Contingent Liabilities.............................................. 28
----------------------
6.3. Sale and Leaseback.................................................. 28
------------------
6.4. Encumbrances........................................................ 28
------------
6.5. Lines of Business................................................... 29
-----------------
6.6. Merger; Consolidation; Sale or Lease of Assets...................... 29
----------------------------------------------
6.7. Additional Stock Issuance........................................... 29
-------------------------
6.8. Restricted Payments................................................. 29
-------------------
6.9. Transactions with Affiliates........................................ 30
----------------------------
6.10. Investments......................................................... 30
-----------
6.11. Erisa............................................................... 30
-----
6.12. Observance of Subordination Provisions, etc......................... 30
-------------------------------------------
SECTION 7.
----------
SECURITY
--------
7.1. Security Interest................................................... 31
-----------------
7.2. Location of Records and Collateral; Name Change..................... 32
-----------------------------------------------
7.3. Status of Collateral................................................ 32
--------------------
SECTION 8.
----------
DEFAULTS
--------
8.1. Events of Default................................................... 32
-----------------
8.2. Remedies............................................................ 34
--------
SECTION 9.
----------
MISCELLANEOUS
-------------
9.1. Notices............................................................. 36
-------
9.2. Expenses............................................................ 37
--------
9.3. Set-off............................................................. 37
-------
9.4. Term of Agreement................................................... 37
-----------------
9.5. No Waivers.......................................................... 37
----------
9.6. Governing Law; Jurisdiction......................................... 37
---------------------------
9.7. Amendments.......................................................... 38
----------
9.8. Binding Effect of Agreement;assignments; Participations............. 38
-------------------------------------------------------
9.9. Amendment and Termination Of Prior Loan Agreement................... 39
-------------------------------------------------
9.10. Currency Conversion................................................. 39
-------------------
9.11. Counterparts........................................................ 39
------------
9.12. Partial Invalidity.................................................. 39
------------------
9.13. Captions............................................................ 39
--------
iii
<PAGE> 5
Section Page
- ------- ----
9.14. Waiver of Jury Trial................................................ 39
--------------------
9.15. Entire Agreement.................................................... 40
----------------
EXHIBITS AND SCHEDULES
Exhibit A Amended and Restated Promissory Note
Exhibit B Compliance Certificate
Schedule 4.10 Material Agreements
Schedule 4.11 Material Licenses
Schedule 4.12 Litigation
Schedule 4.15 Investments
Schedule 4.16 Subsidiaries
Schedule 6.1 Indebtedness
Schedule 6.2 Guarantees
Schedule 6.4 Encumbrances
iv
<PAGE> 6
AMENDED AND RESTATED REVOLVING CREDIT AND SECURITY AGREEMENT
Dated as of December 31, 1996
THIS AMENDED AND RESTATED REVOLVING CREDIT AND SECURITY AGREEMENT is
made as of December 31, 1996, by and between BIOSEPRA INC., a Delaware
corporation having its chief executive office at 111 Locke Drive, Marlborough,
Massachusetts 01752, (the "COMPANY") and FLEET NATIONAL BANK (the "BANK"),
formerly known as Fleet National Bank of Connecticut, successor by merger to
Fleet Bank of Massachusetts, N.A., and having its office at 75 State Street,
Boston, Massachusetts 02109.
This Agreement amends, restates and supersedes the Revolving Credit and
Security Agreement dated as of December 28, 1994 as amended to date (the "PRIOR
CREDIT AGREEMENT") by and among the Company, Biosepra S.A., a wholly-owned
Subsidiary of the Company ("BSA"), and Fleet Bank of Massachusetts, N.A.,
pursuant to which the Bank agreed to establish a Revolving Line of Credit and
make Revolving Credit Loans (the "PRIOR LOANS") in an aggregate principal amount
at any time outstanding not in excess of the Available Aggregate Revolving
Commitment (as defined in the Prior Credit Agreement).
NOW, THEREFORE, the parties hereby agree as follows:
SECTION 1.
----------
DEFINITIONS
-----------
1.1. DEFINITIONS.
All capitalized terms used in this Agreement or in the Note or in any
certificate, report or other document made or delivered pursuant to this
Agreement (unless otherwise defined therein) shall have the meanings assigned to
them below:
ACCOUNT AND ACCOUNT RECEIVABLE. Include all rights to payment for goods
sold or leased or for services rendered, all sums of money or other proceeds due
or becoming due thereon, all instruments pertaining thereto, all guaranties and
security therefor, and all goods giving rise thereto and the rights pertaining
to such goods, including the right of stoppage in transit, and all related
insurance.
AFFILIATE. As applied to any Person, a spouse or relative of such
Person, any member, director or officer of such Person, any corporation,
association, firm or other entity of which such Person is a member, director or
officer, and any other Person directly or indirectly controlling, controlled by
or under direct or indirect common control with such Person.
AGREEMENT. This Amended and Restated Revolving Credit and Security
Agreement, as the same may be supplemented, amended or restated from time to
time.
<PAGE> 7
ALTERNATIVE CURRENCY. The lawful currency of a foreign country which
may be established as an alternate currency by mutual agreement entered into
between the Bank and the Company hereafter as confirmed in writing, so long as
any such currency is freely transferable, convertible into Dollars and traded on
the inter-bank currency deposits market in which the Bank customarily funds
foreign currency loans.
ALTERNATIVE CURRENCY COMMITMENT. A commitment, to the extent mutually
agreed by the Bank and the Company, for (i) the exchange, for future delivery,
of an Alternative Currency into Dollars or Dollars into an Alternative Currency
or (ii) the purchase, for future delivery, of an Alternative Currency with
Dollars or Dollars with an Alternative Currency, in accordance with the Bank's
prevailing customs and practices; PROVIDED, that the aggregate Exchange Contract
Amount with respect to all such Alternative Currency Commitments shall not
exceed the Foreign Exchange Facility Sublimit.
ALTERNATIVE CURRENCY EQUIVALENT. The amount in Alternative Currency of
Dollars at the quoted spot rate at which the Bank's principal office in the
United States offers to exchange such Alternative Currency for Dollars at 11:00
a.m (Boston time) two (2) Business Days prior to the date on which such
equivalent is determined.
AUTHORIZED OFFICER. The president, chief financial officer or treasurer
of the Company.
AVAILABLE AGGREGATE REVOLVING COMMITMENT. The excess, if any, of (1)
the Revolving Commitment Amount MINUS (2) the excess of (a) the sum of (i) the
aggregate principal amounts of revolving loans outstanding under the Sepracor
Credit Agreement plus (ii) the sum of the Exchange Contract Amount of the
Company and the Exchange Contract Amount of Sepracor (as defined in Sepracor
Credit Agreement) MINUS (b) $4,000,000.
BANK. See Preamble.
BASE ACCOUNTS. Accounts Receivable of the Company as to which the Bank
has a perfected first security interest.
COMPANY. See Preamble.
BUSINESS DAY. Any day other than a Saturday, Sunday or legal holiday on
which banks in Boston, Massachusetts are open for the conduct of a substantial
part of their commercial banking business.
CAPITAL EXPENDITURE. Any payment made directly or indirectly for the
purpose of acquiring or constructing fixed assets, real property or equipment
which in accordance with GAAP would be added as a debit to the fixed asset
account of the Person making such expenditure, including, without limitation,
amounts paid or payable under any conditional sale or other title retention
agreement or under any lease or other periodic payment arrangement which is of a
nature that payment obligations of the lessee or obligor thereunder would be
required by GAAP to be capitalized and shown as liabilities on the balance sheet
of such lessee or obligor.
2
<PAGE> 8
CAPITAL LEASE. Any lease of property (real, personal or mixed) which,
in accordance with GAAP, should be capitalized on the lessee's balance sheet or
for which the amount of the asset and liability thereunder as if so capitalized
should be disclosed in a note to such balance sheet.
CASH EQUIVALENT AMOUNT. The sum of the following, without duplication,
none of which may be subject to any Encumbrances except for Encumbrances in
favor of the Bank or any of its Affiliates: (1) cash held by the Company in the
United States and at the Bank, PLUS (2) Qualified Investments of the Company
held in the United States, France and Canada, PLUS (3) Net Outstanding Amount of
Base Accounts.
CODE. The Internal Revenue Code of 1986 and the rules and regulations
thereunder, collectively, as the same may from time to time be supplemented or
amended and remain in effect.
COLLATERAL. See Section 7.1.
COMPANY. See Preamble.
CONFIRMATION OF INTELLECTUAL PROPERTY SECURITY AGREEMENT. The
Confirmation of the Intellectual Property Security Agreement dated as of the
date hereof between the Company and the Bank.
CONSOLIDATED TANGIBLE CAPITAL BASE. At any date as of which the amount
thereof shall be determined, the stockholders' equity of the Company and its
Subsidiaries on a consolidated basis determined in accordance with GAAP PLUS the
outstanding principal amount of any Subordinated Indebtedness MINUS the sum of
any amounts attributable to (a) goodwill, (b) intangible items such as
unamortized debt discount and expense, patents, trade and service marks and
names, copyrights and research and development expenses except prepaid expenses,
(c) all reserves not already deducted from assets, (d) any write-up in the book
value of assets resulting from any revaluation thereof subsequent to the date of
the financial statements referred to in Section 4.6 and (e) any and all items
included as assets on the consolidated balance sheet of the Company and its
Subsidiaries if and to the extent such items consist of the equity in
Subsidiaries or other joint venture holdings or similar investments.
CONTROLLED GROUP. All trades or businesses (whether or not
incorporated) under common control that, together with the Company, are treated
as a single employer under Section 414(b) or 414(c) of the Code or Section 4001
of ERISA.
CORPORATE AFFILIATE. As applied to any Person, any corporation,
association, firm or other entity directly or indirectly controlling, controlled
by or under direct or indirect common control with such Person.
CORPORATE SERVICES AGREEMENT. The Corporate Services Agreement dated as
of January 1, 1994 between Sepracor and the Company as originally executed and
delivered.
3
<PAGE> 9
CROSS LICENSE AGREEMENT. The Cross License Agreement dated as of
January 1, 1994 between the Company and Hemasure Inc. as originally executed and
delivered.
DEFAULT. Any event or condition that, with the giving of notice or
lapse of time, or both, would constitute an Event of Default.
DOLLARS or $. The lawful currency of the United States of America.
DOLLAR EQUIVALENT. The amount in Dollars of any Alternative Currency at
the quoted spot rate at which the Bank's principal office in the United States
offers to exchange Dollars for such Alternative Currency at 11:00 a.m. (Boston
time) two (2) Business Days prior to the date on which such equivalent is to be
determined.
ENCUMBRANCES. See Section 6.4.
ENVIRONMENTAL LAWS. Any and all applicable foreign, federal, state and
local environmental, health or safety statutes, laws, regulations, rules,
ordinances, policies and rules or common law (whether now existing or hereafter
enacted or promulgated), of all governmental agencies, bureaus or departments
which may now or hereafter have jurisdiction over the Company or any of its
Subsidiaries and all applicable judicial and administrative and regulatory
decrees, judgments and orders, including common law rulings and determinations,
relating to injury to, or the protection of, real or personal property or human
health or the environment, including, without limitation, all requirements
pertaining to reporting, licensing, permitting, investigation, remediation and
removal of emissions, discharges, releases or threatened releases of Hazardous
Materials, chemical substances, pollutants or contaminants whether solid, liquid
or gaseous in nature, into the environment or relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of such Hazardous Materials, chemical substances, pollutants or
contaminants.
ERISA. The Employee Retirement Income Security Act of 1974 and the
rules and regulations thereunder, collectively, as the same may from time to
time be supplemented or amended and remain in effect.
EXCHANGE CONTRACT AMOUNT. At any time, the amount in Dollars or the
Dollar Equivalent of an Alternative Currency, as the case may be, which the Bank
is obligated to deliver to or exchange with the Company pursuant to Alternative
Currency Commitments.
EVENT OF DEFAULT. Any event described in Section 8.1.
FDA. See Section 4.19.
FOREIGN EXCHANGE FACILITY. See Section 2.16.
FOREIGN EXCHANGE FACILITY SUBLIMIT. $1,000,000 (including the Dollar
Equivalent of an Alternative Currency); PROVIDED that the Foreign Exchange
Facility Sublimit shall be (i) proportionately reduced in connection with any
reduction of the Revolving Commitment Amount in accordance with Section 2.3 or
(ii) terminated in accordance with the termination of the
4
<PAGE> 10
Bank's commitment to make further the Revolving Loans under Section 8.2 and, in
either case, shall not be subject to reinstatement.
GAAP. Generally accepted accounting principles as defined by the United
States Financial Accounting Standards Board, as from time to time in effect.
GUARANTEES. As applied to the Company and its Subsidiaries, all
guarantees, endorsements or other contingent or surety obligations with respect
to obligations of others whether or not reflected on the consolidated balance
sheet of the Company and its Subsidiaries, including any obligation to furnish
funds, directly or indirectly (whether by virtue of partnership arrangements, by
agreement to keep-well or otherwise), through the purchase of goods, supplies or
services, or by way of stock purchase, capital contribution, advance or loan, or
to enter into a contract for any of the foregoing, for the purpose of payment of
obligations of any other Person or entity.
GUARANTY AGREEMENT (BIOSEPRA). That certain Guaranty Agreement dated as
of the date hereof executed by Sepracor guarantying the Obligations of the
Company to the Bank.
GUARANTY AGREEMENT (VERSICOR). That certain Guaranty Agreement dated as
of the date hereof executed by Sepracor guarantying the obligations of Versicor
to the Bank.
HAZARDOUS MATERIAL. Any substance (i) the presence of which requires or
may hereafter require notification, investigation or remediation under any
Environmental Law; (ii) which is or becomes defined as a "hazardous waste",
"hazardous material" or "hazardous substance" or "controlled industrial waste"
or "pollutant" or "contaminant" under any present or future Environmental Law or
amendments thereto including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act (42 U.S.C. Section 9601
et seq.) and any applicable local statutes and the regulations promulgated
thereunder; (iii) which is toxic, explosive, corrosive, flammable, infectious,
radioactive, carcinogenic, mutagenic or otherwise hazardous and is or becomes
regulated by any governmental authority, agency, department, commission, board,
agency or instrumentality of any foreign country, the United States, any state
of the United States, or any political subdivision thereof to the extent any of
the foregoing has or had jurisdiction over the Company; or (iv) without
limitation, which contains gasoline, diesel fuel or other petroleum products,
asbestos or polychlorinated biphenyls ("PCB's").
---
INDEBTEDNESS. As applied to the Company and its Subsidiaries, (i) all
obligations for borrowed money or other extensions of credit whether or not
secured or unsecured, absolute or contingent, including, without limitation,
Capital Leases, unmatured reimbursement obligations with respect to letters of
credit or guarantees issued for the account of or on behalf of the Company and
its Subsidiaries and all obligations representing the deferred purchase price of
property, other than accounts payable arising in the ordinary course of
business, (ii) all obligations evidenced by bonds, notes, debentures or other
similar instruments, (iii) all obligations secured by any mortgage, pledge,
security interest or other lien on property owned or acquired by the Company or
any of its Subsidiaries whether or not the obligations secured thereby shall
have been assumed, (iv) that portion of all obligations arising under Capital
Leases that is required to be capitalized on the consolidated balance sheet of
the Company and its Subsidiaries, (v) all Guarantees, and (vi) all obligations
that are immediately due and payable
5
<PAGE> 11
out of the proceeds of or production from property now or hereafter owned or
acquired by the Company or any of its Subsidiaries.
INTELLECTUAL PROPERTY. See Section 7.1.
INTELLECTUAL PROPERTY SECURITY AGREEMENT. The Intellectual Property
Security Agreement dated as of December 28, 1994 between the Company and the
Bank whereby the Company has granted to the Bank a security interest in its
Intellectual Property, as amended and confirmed on the date hereof by the
Confirmation to the Intellectual Property Security Agreement.
INVENTORY. Goods, merchandise and other personal property, now owned or
hereafter acquired by the Company, which are held for sale or lease or are
furnished or to be furnished under a contract of service or are raw materials,
work in process or materials used or consumed or to be used or consumed in the
Company's business.
INVESTMENT. As applied to the Company and its Subsidiaries, the
purchase or acquisition of any share of capital stock, partnership interest,
evidence of indebtedness or other equity security of any other Person or entity,
any loan, advance or extension of credit to, or contribution to the capital of,
any other Person or entity, any real estate held for sale or investment, any
commodities futures contracts held other than in connection with bona fide
hedging transactions, any other investment in any other Person or entity, and
the making of any commitment or acquisition of any option to make an Investment.
LOAN ACCOUNT. The account on the books of the Bank in which will be
recorded Revolving Loans made by the Bank to the Company pursuant to this
Agreement, payments made on such Revolving Loans and other appropriate debits
and credits as provided by this Agreement.
LOAN DOCUMENTS. See Section 8.2.
MANAGERIAL EXPENSE. All salaries, costs, fees and other expenses
directly or indirectly paid or payable by the Company to any shareholder or to
any Affiliate of the Company for management services, except the direct salaries
and expenses of executive personnel, the expenses of directors and fees and
expenses among and between the Company and its Affiliates in the ordinary course
of business and consistent with past practices.
MATERIAL LICENSES. See Section 4.11.
MONEY MARKETS. See Section 9.10.
NET OUTSTANDING AMOUNT OF BASE ACCOUNTS. The net amount of Base
Accounts outstanding after (a) eliminating from the aggregate amount of
outstanding Base Accounts (i) such Accounts past due under the original terms of
sale more than sixty (60) days, (ii) any Base Account owed by any account debtor
whose principal place of business or chief executive office is not within the
United States or the District of Columbia ("FOREIGN ACCOUNT DEBTORS"), (iii)
such Accounts due from Affiliates or Subsidiaries of the Company, (iv) such
Accounts for services not yet rendered or goods not yet delivered, and (v) such
Accounts representing
6
<PAGE> 12
obligations in respect of any joint venture interest owned by the Company and in
respect of royalties and license fees payable to the Company by any such joint
venture or any joint venture therein, and (b) deducting from the aggregate face
amount of the remaining Base Accounts (i) net offsets from accounts owing from
account debtors, other than Foreign Account Debtors, which maintain both
receivable and payable balances with the Company, (ii) the aggregate amount of
outstanding claims asserted by account debtors, other than Foreign Account
Debtors, against the Company and (iii) all payments, adjustments, and credits
applicable thereto and all amounts due thereon considered by the Bank to be
difficult to collect or uncollectible by reason of return, rejection,
repossession, loss or damage of or to the merchandise giving rise thereto, a
merchandise or other dispute, insolvency of the account debtor or any other
reason, all as determined by the Bank in its sole and reasonable discretion,
which determination shall be final and binding upon the Company.
NOTE. The Amended and Restated Promissory Note of the Company,
substantially in the form of EXHIBIT A hereto, evidencing the obligations of the
Company to the Bank to repay the Revolving Loans.
NOTICE OF BORROWING. See Section 2.1(b).
OBLIGATIONS. Any and all obligations of the Company to the Bank of
every kind and description (i) hereunder and under the Note, and (ii) under
Alternative Currency Commitments and under any and all documents pertaining
thereto, direct or indirect, absolute or contingent, primary or secondary, due
or to become due, now existing or hereafter arising, regardless of how they
arise or by what agreement or instrument, if any, and including obligations to
perform acts and refrain from taking action as well as obligations to pay money.
ORIGINAL CURRENCY. See Section 9.10.
PBGC. The Pension Benefit Guaranty Corporation or any entity succeeding
to any or all of its functions under ERISA.
PERMITTED ENCUMBRANCES. See Section 6.4.
PERSON. A corporation, an association, a partnership, a limited
liability company or partnership, a joint venture, an organization, a business,
an individual, a government or political subdivision thereof or a governmental
agency.
PLAN. At any time, an employee pension or other benefit plan that is
subject to Title IV of ERISA or subject to the minimum funding standards under
Section 412 of the Code and is either (i) maintained by the Company or any
member of the Controlled Group for employees of the Company or any member of the
Controlled Group or (ii) if such Plan is established, maintained pursuant to a
collective bargaining agreement or any other arrangement under which more than
one employer makes contributions and to which the Company or any member of the
Controlled Group is then making or accruing an obligation to make contributions
or has within the preceding five Plan years made contributions.
7
<PAGE> 13
PRIME RATE. The rate of interest announced from time to time by the
Bank at its office in Boston, Massachusetts as its prime rate.
PRIOR CREDIT AGREEMENT. See Preamble.
PRIOR LOANS. See Preamble.
QUALIFIED INVESTMENTS. As applied to the Company and its Subsidiaries,
investments in (i) notes, bonds or other obligations of the United States of
America or any agency thereof that as to principal and interest constitute
direct obligations of or are guaranteed by the United States of America; (ii)
certificates of deposit or other deposit instruments or accounts of banks or
trust companies organized under the laws of the United States or any state
thereof that have capital and surplus of at least $100,000,000, (iii) commercial
paper issued by companies organized under the laws of the United States or any
state thereof and that is rated not less than prime-two or A-2 or their
equivalents by Moody's Investors Service, Inc. or Standard & Poor's Corporation,
respectively, or their successors, (iv) mutual or closed end funds that invest
solely in investments described in clauses (i) through (iii) of this definition
and (v) any repurchase agreement secured by any one or more of the foregoing.
RESTRICTED PAYMENTS. (a) Any dividend or other distribution, direct or
indirect, on or on account of any shares of any class of stock of any of the
Company now or hereafter outstanding and (b) any redemption, purchase or other
acquisition, direct or indirect, of any shares of any class of stock of the
Company now or hereafter outstanding or of any warrants or rights to purchase
any such stock (including without limitation the repurchase of any such stock or
warrant or any refund of the purchase price thereof in connection with the
exercise by the holder thereof of any right of rescission or similar remedies
with respect thereto), (c) any Managerial Expense, and (d) any payment of
principal of, premium, if any, or interest on, or otherwise in respect of any
Subordinated Indebtedness.
REVOLVING COMMITMENT AMOUNT. Three Million Dollars ($3,000,000) or any
lesser amount, including zero, resulting from a termination or reduction of such
amount in accordance with Section 2.3 or Section 8.2.
REVOLVING CREDIT PERIOD. The period beginning on the date hereof and
extending through and including the Revolving Credit Termination Date.
REVOLVING CREDIT TERMINATION DATE. April 30, 1999 or such earlier date
on which the commitment to make Revolving Loans is terminated or the Revolving
Commitment Amount is reduced to zero in accordance with the terms of this
Agreement.
REVOLVING LOANS. See Section 2.1(a).
SECOND CURRENCY. See Section 9.10.
SEPRACOR. Sepracor Inc., a Delaware corporation and the parent of the
Company and Versicor.
8
<PAGE> 14
SEPRACOR CREDIT AGREEMENT. That certain Amended and Restated Revolving
Credit and Security Agreement dated as of the date hereof among Sepracor,
Sepracor Securities Corporation and the Bank.
SUBORDINATED INDEBTEDNESS. (a) the existing Indebtedness of the Company
which is designated as "Subordinated Indebtedness" in SCHEDULE 6.1 attached
hereto, and (b) any other Indebtedness of the Company consented to in writing by
the Bank which matures in its entirety later than the Note and by its terms (or
by the terms of the instrument under which it is outstanding and to which
appropriate reference is made in the instrument evidencing such Subordinated
Indebtedness) is made subordinate and junior in right of payment to the Note and
to the Company's other obligations to the Bank hereunder by provisions
reasonably satisfactory in form and substance to the Bank and its counsel.
SUBSIDIARY. Any corporation, association, limited liability company,
joint stock company, business trust or other similar organization of which 50%
or more of the ordinary voting power for the election of a majority of the
members of the board of directors or other governing body of such entity is held
or controlled by the Company or its Subsidiaries; or any other such organization
the management of which is directly or indirectly controlled by the Company or a
Subsidiary of the Company through the exercise of voting power or otherwise; or
any joint venture, whether incorporated or not, in which the Company has, at
least, a 50% ownership interest.
TECHNOLOGY TRANSFER AGREEMENT. The Technology Transfer and License
Agreement dated as of January 1, 1994 between Sepracor and the Company as
originally executed and delivered.
U.S. SUBSIDIARY. With respect to any Person, each of such Person's
Subsidiaries having a principal place of business located in the United States.
VERSICOR. Versicor Inc., a Delaware corporation, an Affiliate of the
Company and a Subsidiary of Sepracor.
VERSICOR CREDIT AGREEMENT. That certain Revolving Credit, Term Loan and
Security Agreement dated as of the date hereof between Versicor and the Bank.
1.2. ACCOUNTING TERMS. All terms of an accounting character shall have
the meanings assigned thereto by GAAP applied on a basis consistent with the
financial statements referred to in Section of this Agreement, modified to the
extent, but only to the extent, that such meanings are specifically modified
herein.
SECTION 2.
----------
DESCRIPTION OF CREDIT
---------------------
2.1. THE REVOLVING LOANS.
9
<PAGE> 15
(a) Upon the terms and subject to the conditions of this
Agreement, and in reliance upon the representations, warranties and covenants of
the Company made herein, the Bank agrees to make loans ("REVOLVING LOANS") to
the Company pursuant to Notices of Borrowing as delivered by the Company to the
Bank from time to time, from and after the date hereof and during the Revolving
Credit Period; PROVIDED, that (1) the aggregate principal amount of Revolving
Loans outstanding at any time shall not exceed the lesser of (i) the Revolving
Commitment Amount at such time MINUS the Exchange Contract Amount and (ii) the
Available Aggregate Revolving Commitment at such time and (2) at the time the
Company requests a Revolving Loan and after giving effect to the making thereof
there has not occurred and is not continuing any Default or Event of Default.
The Company agrees that it shall be an Event of Default if at any time the debit
balance of the Loan Account shall exceed the lesser of (i) the Revolving
Commitment Amount MINUS the Exchange Contract Amount and (ii) the Available
Aggregate Revolving Commitment unless the Company shall, upon demand by the
Bank, pay, within two (2) Business Days, cash to the Bank to be credited to the
Loan Account in such amount as shall be necessary to eliminate the excess.
(b) Prior to 12:00 noon (Boston time) on the Revolving Loan
request date, the president, an Authorized Officer shall notify the Bank in
writing or by telephone confirmed by (1) telex, (2) telecopy or (3) other
facsimile transmission, on the same day as the telephonic request (the "NOTICE
OF BORROWING"), of the proposed date of borrowing and the principal amount
requested. No Notice of Borrowing shall be revocable by the Company.
(c) The Bank shall enter the Revolving Loans as debits in the Loan
Account. The Bank shall also record in the Loan Account all payments made by the
Company on account of the Revolving Loans, and may also record therein, in
accordance with customary accounting practices, other debits and credits, and
all interest, fees, charges and expenses chargeable to the Company under this
Agreement. The debit balance of the Loan Account shall reflect the amount of the
Company's Obligations to the Bank from time to time by reason of the Revolving
Loans and other appropriate charges hereunder. Periodically, the Bank shall
render a statement of account showing as of its date the debit balance of the
Loan Account which, unless within thirty (30) days of such date notice to the
contrary is received by the Bank from the Company, absent manifest error, shall
be considered correct and accepted by the Company and conclusively binding upon
it.
(d) Subject to the terms and conditions of this Agreement, the
Bank shall make each Revolving Loan on the effective date specified therefor by
crediting the amount of such Revolving Loan to the Company's demand deposit
account with the Bank.
2.2. COMMITMENT FEE. The Company shall pay to the Bank during the
Revolving Credit Period a commitment fee computed at the rate of one quarter of
one percent (0.25%) per annum on the average daily amount of the unborrowed
portion of the Revolving Commitment Amount during each quarter or portion
thereof. Commitment fees shall be payable quarterly in arrears, on the first day
of January, April, July and October of each year beginning on April 1, 1997, and
on the last day of the Revolving Credit Period.
2.3. REDUCTION OF REVOLVING COMMITMENT AMOUNT. The Company may from
time to time by written notice delivered to the Bank by the Company at least
five Business Days prior
10
<PAGE> 16
to the date of the requested reduction, reduce by integral multiples of Ten
Thousand Dollars ($10,000) any unborrowed portion of the Revolving Commitment
Amount. No reduction of the Revolving Commitment Amount shall be subject to
reinstatement.
2.4. THE NOTE.
(a) The Revolving Loans shall be evidenced by the Note which is
payable to the order of the Bank and with a final maturity on the Revolving
Credit Termination Date. The Note shall be dated on or before the date of the
first Revolving Loan and shall have the blanks therein appropriately completed.
(b) The Bank shall, and is hereby irrevocably authorized by the
Company to, enter on the schedule forming a part of the Note or otherwise in its
records appropriate notations evidencing the date and the amount of each
Revolving Loan, the interest rate applicable thereto and the date and amount of
each payment of principal made by the Company with respect thereto; and in the
absence of manifest error, such notations shall constitute conclusive evidence
thereof. The Bank is hereby irrevocably authorized by the Company to attach to
and make a part of the Note a continuation of any such schedule as and when
required. No failure on the part of the Bank to make any notation as provided in
this subsection (b) shall in any way affect any Revolving Loan or the rights or
obligations of the Bank or the Company with respect thereto.
2.5. CAPITAL REQUIREMENTS. If after the date hereof, the Bank shall
have determined that the adoption or implementation of any applicable law, rule
or regulation regarding capital requirements for banks or bank holding
companies, or any change therein (including, without limitation, any change
according to a prescribed schedule of increasing requirements, whether or not
known on the date hereof), or any change in the interpretation or administration
thereof by any governmental authority, central bank or comparable agency charged
with the interpretation or administration thereof, or compliance by the Bank
with any request or directive of such entity regarding capital adequacy (whether
or not having the force of law) has the effect of reducing the return on the
Bank's capital to a level below that which the Bank could have achieved (taking
into consideration the Bank's policies with respect to capital adequacy
immediately before such adoption, implementation, change or compliance and
assuming that the Bank's capital was fully utilized prior to such adoption,
implementation, change or compliance) but for such adoption, implementation,
change or compliance as a consequence of its Commitment to make Revolving Loans
hereunder by any amount deemed by the Bank to be material, the Company shall pay
to the Bank as an additional fee from time to time on demand such amount as the
Bank shall have determined to be necessary to compensate it for such reduction.
The determination by the Bank of such amount, if done on the basis of any
reasonable averaging and attribution methods, shall in the absence of manifest
error be conclusive, and at the Company's request, the Bank shall demonstrate
the basis of such determination.
2.6. PAYMENTS AND PREPAYMENTS OF THE REVOLVING LOANS. On at least
two (2) Banking Days prior written notice to the Bank with respect to Revolving
Loans subject to an exercised LIBOR Option and on at least one (1) Banking Day
prior written notice to the Bank with respect to all other Revolving Loans, the
Company may, at its option, prepay the Note in whole at any
11
<PAGE> 17
time or in part from time to time without penalty or premium; PROVIDED, that any
prepayment of any LIBOR Portion shall be made together with the applicable LIBOR
Premium. Any interest accrued on the amounts so prepaid to the date of such
payment must be paid at the time of any such payment. No prepayment of the
Revolving Loans shall affect the Revolving Commitment Amount or impair the
Company's right to borrow as set forth in Section 2.1. On the Revolving Credit
Termination Date, the Company shall repay all outstanding Revolving Loans and
the Note, together with all unpaid interest thereon and all fees and other
amounts due hereunder with respect to the Revolving Loans.
2.7. METHOD OF PAYMENT. All payments and prepayments of principal
and all payments of interest shall be made by the Company to the Bank at 75
State Street, Boston, Massachusetts 02109 in immediately available funds, on or
before 11:00 a.m. on the due date thereof, free and clear of, and without any
deduction or withholding for, any taxes or other payments. The Bank may, and the
Company hereby authorizes the Bank to, debit the amount of any payment not made
by such time to the demand deposit account of the Company with the Bank.
2.8. OVERDUE PAYMENTS. (a) Upon the occurrence and during the
continuance of an Event of Default, interest on the outstanding principal amount
of the Note and (to the extent permitted by law) on accrued but unpaid interest
shall thereafter be payable on demand at a rate per annum equal to two percent
(2%) above the interest rate otherwise in effect with respect to such Revolving
Loans. Upon the cure of an Event of Default and the payment of interest at the
default rate through the date of such cure, the interest rate shall revert to
that provided for in Section 2.10.
(b) If a payment of principal or interest hereunder is not made in
full within 10 days of date when due, the Company will pay to the Bank a late
fee equal to five percent (5%) of the amount of such payment. Nothing in the
preceding sentence shall affect the Bank's right to exercise any of its rights
or remedies, including those provided in Section 8.2, if an Event of Default has
occurred.
2.9. HOLIDAYS. If any payment required by this Agreement becomes
due on a day that is not a Business Day such payment may be made on the next
succeeding Business Day, and such extension shall be included in computing
interest in connection with such payment.
2.10. INTEREST. The Note shall bear interest on the unpaid principal
amount thereof until paid in full at the rate or rates per annum determined (on
the basis of the actual number of days elapsed over a 360-day year) and payable
as follows:
(a) The rate of interest for any portion of the outstanding
principal amount of the Revolving Loans which is not then subject to an
exercised LIBOR Option under Section 2.11 of this Agreement shall be computed
at the Prime Rate.
(b) The rate for any LIBOR Portion of the Revolving Loans shall be
computed at a rate equal to one and three-quarters percent (1.75%) above the
applicable LIBOR Rate.
12
<PAGE> 18
(c) Interest on the Note shall be payable monthly in arrears on
the first Business Day of each month, commencing on January 1, 1997 and, in
addition, interest on any LIBOR Portion of the Revolving Loans in respect of any
LIBOR Period shall also be payable on the last day of such LIBOR Period, on the
last day of the third month for each LIBOR Portion with a 180-day LIBOR Period
and at maturity (whether by acceleration or otherwise). The rate of interest
payable on any portion of the outstanding principal balance of any Revolving
Loan which is not then subject to a LIBOR Option shall take effect
simultaneously with the corresponding change in the Prime Rate.
2.11. CERTAIN LIBOR PROVISIONS.
(a) LIBOR OPTION. Subject to the provisions of this Section 2, the
Company shall have the right to have the interest on all or any portion of the
principal amount of any Revolving Loan, based on a LIBOR Rate.
(b) CERTAIN DEFINITIONS. As used herein, the following terms have
the following respective meanings:
BANKING DAY. (i) When used with respect to the LIBOR Option, a day on
which transactions may be effected in deposits of U.S. dollars in the London
interbank foreign currency deposits market and on which banks may conduct
business in London, England and Boston, Massachusetts and (ii) when used with
respect to the other provisions of this Agreement, any day excluding Saturday
and Sunday and excluding any other day which shall be in Boston, Massachusetts,
a legal holiday or a day on which banking institutions are authorized by law to
close.
BOARD. The Board of Governors of the Federal Reserve System of the
United States.
LEGAL REQUIREMENT. Any requirement imposed upon the Bank by any law of
the United States of America or the United Kingdom or by any regulation, order,
interpretation, ruling or official directive (whether or not having the force of
law) of the Board, the Bank of England or any other board, central bank or
governmental or administrative agency, institution or authority of the United
States of America, the United Kingdom or any political subdivision of either
thereof.
LIBOR OPTION. The option granted pursuant to this Section 2 to have the
interest on all or a portion of the principal amount of the Revolving Loan based
on a LIBOR Rate.
LIBOR PERIOD. Any period, as provided below in this Section 2.11, of
30, 60, 90 or 180 days, commencing on any Banking Day; PROVIDED, however, that
no LIBOR Period with respect to any LIBOR Portion of any Revolving Loan shall
extend beyond the maturity date of the Note. If any LIBOR Period so selected
would otherwise end on a date which is not a Banking Day, such LIBOR Period
shall instead end on the next preceding or succeeding Banking Day as determined
by the Bank in accordance with the then current banking practice in London. Each
determination by the Bank of any LIBOR Period shall, in the absence of manifest
error, be conclusive, and at the Company's request the Bank shall demonstrate
the basis for such determination.
13
<PAGE> 19
LIBOR PORTION. That portion of the Revolving Loan specified in a LIBOR
Request, (i) which is not less than Five Hundred Thousand Dollars ($500,000),
(ii) which is an integral multiple of Ten Thousand Dollars ($10,000), (iii)
which does not exceed the outstanding balance of the Revolving Loan not already
subject to an exercised LIBOR Option, (iv) which, as of the date of the LIBOR
Request specifying such LIBOR Portion, has met the conditions for basing
interest on the LIBOR Rate in Section 2.12 of this Agreement and (v) the LIBOR
Period of which has commenced and not terminated.
LIBOR PREMIUM. With respect to the prepayment of any LIBOR Portion of
any Revolving Loan, whether voluntary or as a result of acceleration, an amount
equal to the product of (i) the excess, if any, of the rate of interest on the
principal amount so prepaid over the rate of interest on debt securities issued
by the Treasury of the United States of America on a date approximating the date
of payment of such principal amount and having a maturity date approximating the
last Banking Day of the applicable LIBOR Period, multiplied by (ii) the
principal amount so prepaid, multiplied by (iii) a fraction, the numerator of
which is the number of days remaining in the related LIBOR Period and the
denominator of which is 360.
LIBOR RATE. With respect to any LIBOR Portion for the related LIBOR
Period, an interest rate per annum (rounded upwards, if necessary,to the next
higher 1/8 of 1%) equal to the product of (a) the Base LIBOR Rate (as
hereinafter defined) and (b) Statutory Reserves. For purposes of this
definition, the term "BASE LIBOR RATE" shall mean the rate (rounded to the
nearest 1/8 of 1% or, if there is no nearest 1/8 of 1%, the next higher 1/8 of
1%) at which deposits of U.S. dollars approximately equal in principal amount to
the LIBOR Portion and for a maturity equal to the applicable LIBOR Period are
offered to the Bank in the London interbank foreign currency deposits market at
approximately 11:00 a.m., London time, two (2) Banking Days prior to the
commencement of such LIBOR Period, for delivery on the first day of such LIBOR
Period. Each determination by the Bank of any LIBOR Rate shall, in the absence
of manifest error, be conclusive, and at the Company's request, the Bank shall
demonstrate the basis for such determination.
LIBOR REQUEST. Notice in writing (or by telephonic communications
confirmed by telex, telecopy or other facsimile transmission on the same day as
the telephone request) from the Company to the Bank requesting that interest on
a LIBOR Portion be based on the LIBOR Rate, specifying: (i) the first day of the
LIBOR Period, (ii) the length of the LIBOR Period consistent with the definition
of that term and (iii) a dollar amount of the LIBOR Portion consistent with the
definition of that term.
STATUTORY RESERVES. A fraction, the numerator of which is the number
one and the denominator of which is the number one minus the aggregate of the
maximum reserve percentages (including, without limitation, any marginal,
special, emergency or supplemental reserves), expressed as a decimal,
established by the Board and any other banking authority to which the Bank is
subject for Eurocurrency Liabilities (as defined in Regulation D of the Board).
Such reserve percentages shall include, without limitation, those imposed under
such Regulation D. LIBOR Portions of the Revolving Loans shall be deemed to
constitute Eurocurrency Liabilities and as such shall be deemed to be subject to
such reserve requirements without benefit of or credit for proration, exceptions
or offsets which may be available from time to time to the
14
<PAGE> 20
Bank under such Regulation D. Statutory Reserves shall be adjusted automatically
on and as of the effective date of any change in any reserve percentage.
TAX. In relation to any LIBOR Portion and the applicable LIBOR Rate,
any tax, levy, impost, duty, deduction, withholding or other charges of whatever
nature required by any Legal Requirement (i) to be paid by the Bank and/or (ii)
to be withheld or deducted from any payment otherwise required hereby to be made
by the Company to the Bank, PROVIDED that the term "Tax" shall not include any
taxes imposed upon the net income of the Bank by the United States of America or
any political subdivision thereof (including state and local governmental
authorities).
2.12. CONDITIONS FOR BASING INTEREST ON THE LIBOR RATE. Upon the
condition that:
(a) The Bank shall have received a LIBOR Request from the Company
prior to noon at least two (2) Banking Days prior to the first day of the LIBOR
Period requested;
(b) There shall have occurred no change in applicable law which
would make it unlawful for the Bank to obtain deposits of U.S. dollars in the
London interbank foreign currency deposits market;
(c) As of the date of the LIBOR Request and the first day of the
LIBOR Period, there shall exist no Event of Default, nor any Default, which has
not been waived by the Bank;
(d) The Bank shall not have determined in good faith that it is
unable to determine the LIBOR Rate in respect of the requested LIBOR Period or
that it is unable to obtain deposits of U.S. dollars in the London interbank
foreign currency deposits market in the applicable amounts and for the requested
LIBOR Period; and
(e) As of the first date of the LIBOR Period specified in such
LIBOR Request, and after having given effect thereto, there shall be no more
than an aggregate of four (4) LIBOR Portions outstanding;
then interest on the LIBOR Portion requested during the LIBOR Period requested
will be at the applicable LIBOR Rate.
2.13. INDEMNIFICATION FOR FUNDING AND OTHER LOSSES. Each LIBOR
Request shall be irrevocable and binding on the Company. Without limiting the
generality of Section 2.14, the Company shall indemnify the Bank against any
loss or expense incurred by the Bank as a result of any failure on the part of
the Company to fulfill, on or before the date specified in any LIBOR Request,
the applicable conditions set forth in this Agreement, including, without
limitation, any loss (including loss of anticipated profits) or expense incurred
by reason of the liquidation or redeployment of deposits or other funds acquired
by the Bank to fund or maintain the requested LIBOR Portion when interest on
such LIBOR Portion, as a result of such failure on the part of the Company, is
not based on the applicable LIBOR for the requested LIBOR Period. The Bank shall
determine the amount of such loss or expense incurred by it, and absent manifest
error such determination shall be conclusive, and at the Company's request the
Bank shall demonstrate the basis for such determination.
15
<PAGE> 21
2.14. CHANGE IN APPLICABLE LAWS, REGULATIONS, ETC. If any Legal
Requirement shall make it unlawful for the Bank to fund through the purchase of
U.S. dollar deposits any LIBOR Portion, or otherwise to give effect to its
obligations as contemplated hereby, or shall impose on the Bank any costs based
on or measured by the excess above a specified level of the amount of a category
of deposits or other liabilities of the Bank, which includes deposits by
reference to which the LIBOR Rate is determined as provided herein or a category
of extensions of credit or other assets of the Bank which includes any LIBOR
Portion, or shall impose on the Bank any restrictions on the amount of such a
category of liabilities or assets which the Bank may hold, (a) the Bank may by
notice thereof to the Company terminate the LIBOR Option, (b) any LIBOR Portion
subject thereto shall immediately bear interest thereafter at the rate provided
for in Section 2.10(a), and (c) the Company shall indemnify the Bank against
any loss, penalty or expense incurred by the Bank by reason of the liquidation
or redeployment of deposits or other funds acquired by the Bank to fund or
maintain such LIBOR Portion, as provided in Section 2.13.
2.15. TAXES. It is the understanding of the Company and the Bank that
the Bank shall receive payments of amounts of principal of and interest on the
Revolving Loan with respect to the LIBOR Portions from time to time subject to a
LIBOR Option free and clear of, and without deduction for, any Taxes. If (a) the
Bank shall be subject to any such Tax in respect of any such LIBOR Portion or
part thereof or (b) the Company shall be required to withhold or deduct any such
Tax from any such amount, and (c) such Tax shall not have existed as of the date
of the applicable LIBOR Request, the LIBOR applicable to such LIBOR Portion
shall be adjusted by the Bank to reflect all additional costs incurred by the
Bank in connection with the payment by the Bank or the withholding by the
Company of such Tax and the Company shall provide the Bank with a statement
detailing the amount of any such Tax actually paid by the Company. Determination
by the Bank of the amount of such costs shall, in the absence of manifest error,
be conclusive, and at the Company's request, the Bank shall demonstrate the
basis of such determination. If after any such adjustment, any part of any Tax
paid by any Bank is subsequently recovered by the Bank, the Bank shall reimburse
the Company to the extent of the amount so recovered. A certificate of an
officer of the Bank setting forth the amount of such recovery and the basis
therefor shall, in the absence of manifest error, be conclusive.
2.16. FOREIGN EXCHANGE FACILITY. During the Revolving Credit Period,
the Bank agrees to provide the Company with a foreign exchange facility (the
"FOREIGN EXCHANGE FACILITY") pursuant to which the Bank will issue Alternative
Currency Commitments from time to time, consistent with the definition thereof.
In determining the amount of Dollars or an Alternative Currency purchased or
exchanged, the Bank shall use the same method employed in determining the Dollar
Equivalent or Alternative Currency Equivalent as set forth in each such
definition. All Alternative Currency Commitments of the Company including,
without limitation, fees, charges and any currency loss or similar loss, shall
be Obligations of the Company hereunder and shall be secured by the security
interest granted by the Company to the Bank in the Collateral. The Exchange
Contract Amount shall be recalculated hereunder on each date that it shall be
necessary to determine the unused portion of the Revolving Commitment Amount.
SECTION 3.
----------
16
<PAGE> 22
CONDITIONS OF LOANS
-------------------
3.1. CONDITIONS PRECEDENT TO INITIAL REVOLVING LOAN. The obligation
of the Bank to make its initial Revolving Loan and to provide the Foreign
Exchange Facility is subject to the condition precedent that the Bank shall have
received, in form and substance satisfactory to the Bank and its counsel, the
following:
(a) this Agreement, duly executed by the Company;
(b) the Note, duly executed by the Company;
(c) the Confirmation of the Intellectual Property Security
Agreement duly executed by the Company in form and substance satisfactory to the
Bank and its counsel;
(d) the Guaranty Agreement (Biosepra), duly executed by Sepracor;
(e) the Sepracor Credit Agreement, the Deposit Pledge Agreement
and the Guaranty Agreement (Versicor) duly executed by Sepracor and the Versicor
Credit Agreement duly executed by Versicor and the consummation of all
transactions contemplated thereby;
(f) a certificate of the Secretary or an Assistant Secretary of
the Company with respect to resolutions of the Board of Directors authorizing
the execution and delivery of this Agreement, the Confirmation of the
Intellectual Property Security Agreement and the Note and identifying the
officer(s) authorized to execute, deliver and take all other actions required
under this Agreement, and providing specimen signatures of such officers;
(g) a certificate signed by an Authorized Officer, certifying that
the conditions of Section 3.2.(b) have been fulfilled;
(h) the certificate of incorporation of the Company and all
amendments and supplements thereto, filed in the office of the Secretary of
State of the State of Delaware, each certified by said Secretary of State as
being a true and correct copy thereof;
(i) the Bylaws of the Company and all amendments and supplements
thereto, certified by the Secretary or an Assistant Secretary as being a true
and correct copy thereof;
(j) a certificate of the Secretary of State of the State of
Delaware, as to legal existence and good corporate standing of the Company in
such state and listing all documents on file in the office of said Secretary of
State;
(k) UCC-1 Financing Statements, for any new locations of the
Company duly executed by the Company and UCC-3 Financing Statements, changing
the name of the Bank as set forth in the preamble to this Agreement and any
other necessary revisions duly executed by the Company and the Bank, each
recorded in the appropriate filing offices;
(l) Lien searches against the Company in all appropriate state
filing offices and in the United States Patent and Trademark Office and the
United States Copyright Office;
17
<PAGE> 23
(m) if necessary, UCC-3 Termination Statements and other
appropriate lien discharge documentation terminating all liens except those
consisting of Permitted Encumbrances.
(n) Landlord Waiver as to the real property leased by the Company
located at 111 Locke Drive, Marlborough, Massachusetts duly executed by the
lessor of such property;
(o) an insurance binder demonstrating compliance with Section 5.3;
(p) a certificate signed by an Authorized Officer, certifying that
there has been no material adverse change in the condition (financial or
otherwise), operations, properties, assets, liabilities or earnings of the
Company since the date of its most recent financial statement;
(q) an opinion addressed to it from Hale & Dorr, counsel to the
Company, in form and substance satisfactory to the Bank and its counsel; and
(r) such other documents, and completion of such other matters, as
counsel for the Bank may deem necessary or appropriate.
3.2. CONDITIONS PRECEDENT TO ALL REVOLVING LOANS. The obligation of
the Bank to make each Revolving Loan, including the initial Revolving Loan, or
continue or convert the Revolving Loans to loans of another type, is further
subject to the following conditions:
(a) timely receipt by the Bank of the Notice of Borrowing as
provided in Section ;
(b) the representations and warranties contained in Section 4
shall be true and accurate in all material respects on and as of the date of
such Notice of Borrowing and on the effective date of the making, continuation
or conversion of each Revolving Loan as though made at and as of each such date
(except to the extent that such representations and warranties expressly relate
to an earlier date), and no Default or Event of Default shall have occurred and
be continuing, or would result from such Revolving Loan;
(c) the resolutions referred to in Sections 3.1.(f) shall remain
in full force and effect; and
(d) no change shall have occurred in any law or regulation or
interpretation thereof that, in the opinion of counsel for the Bank, would make
it illegal or against the policy of any governmental agency or authority for the
Bank to make Revolving Loans hereunder.
The making of each Revolving Loan shall be deemed to be a
representation and warranty by the Company on the date of the making,
continuation or conversion of such Revolving Loan as to the accuracy of the
facts referred to in subsection (b) of this Section 3.2.
3.3. CONDITIONS PRECEDENT TO EACH TRANSACTION UNDER FOREIGN
EXCHANGE FACILITY. The obligation of the Bank to deliver Dollars or an
Alternative Currency, as the case may be, under the Foreign Exchange Facility is
subject to the following conditions:
18
<PAGE> 24
(a) the Bank and the Company shall have agreed upon the
Alternative Currency for the purchase or exchange;
(b) timely receipt by the Bank of written confirmation of each
proposed exchange or purchase in form and substance satisfactory to the Bank,
duly executed by the Company;
(c) No reasonably identifiable disruption of international money
markets shall have occurred, and the Bank shall not have determined that it
shall be unable, in the exercise of reasonable efforts and through customary
means to affect foreign exchange transactions generally or with respect to the
Alternative Currency agreed upon in subsection (a) above;
(d) the Company shall have given the Bank reasonable notice of the
proposed purchase or exchange;
(e) no change shall have occurred in any law or regulation or
interpretation thereof that, in the opinion of counsel for the Bank, would make
it illegal or against the policy of any governmental agency or authority for the
Bank to make Revolving Loans hereunder; and
(f) such other documents, and completion of such other matters, as
the Bank and counsel for the Bank may deem necessary or appropriate.
SECTION 4.
----------
REPRESENTATIONS AND WARRANTIES
------------------------------
In order to induce the Bank to enter into this Agreement and to make
the Revolving Loans hereunder and to agree to the Foreign Exchange Facility, the
Company represents and warrants to the Bank that as of February __, 1997
(notwithstanding that this Agreement is dated as December 31, 1996):
4.1. ORGANIZATION AND QUALIFICATION. Each of the Company and its
Subsidiaries (a) is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation, (b) has all
requisite corporate power to own its property and conduct its business as now
conducted and as presently contemplated and (c) is duly qualified and in good
standing as a foreign corporation and is duly authorized to do business in each
jurisdiction where the nature of its properties or business requires such
qualification, except where the failure to be so qualified would not have a
material adverse effect on the financial condition, operations, properties or
business.
4.2. CORPORATE AUTHORITY. The execution, delivery and performance
of this Agreement and the Note and the transactions contemplated hereby are
within the corporate power and authority of the Company and the execution,
delivery and performance of the Note are within the corporate power and
authority of the Company and have been authorized by all necessary corporate
proceedings, and do not and will not (a) require any consent or approval of the
stockholders of the Company, (b) contravene any provision of the charter
documents or by-laws of the Company or any law, rule or regulation applicable to
the Company, (c)
19
<PAGE> 25
contravene any provision of, or constitute an event of default or event that,
but for the requirement that time elapse or notice be given, or both, would
constitute an event of default under, any other agreement, instrument, order or
undertaking binding on the Company, or (d) result in or require the imposition
of any Encumbrance on any of the properties, assets or rights of the Company.
4.3. VALID OBLIGATIONS. This Agreement and the Note and all of their
respective terms and provisions are the legal, valid and binding obligations of
the Company, each enforceable in accordance with their respective terms except
as limited by bankruptcy, insolvency, reorganization, moratorium or other laws
affecting the enforcement of creditors' rights generally, and except as the
remedy of specific performance or of injunctive relief is subject to the
discretion of the court before which any proceeding therefor may be brought.
4.4. CONSENTS OR APPROVALS. The execution, delivery and performance of
this Agreement and the Note and the transactions contemplated herein do not
require any approval or consent of, or filing or registration with, any
governmental or other agency or authority, or any other party.
4.5. TITLE TO PROPERTIES; ABSENCE OF ENCUMBRANCES. Each of the Company
and its Subsidiaries has good and marketable title to all of the properties,
assets and rights of every name and nature now purported to be owned by it,
including, without limitation, such properties, assets and rights as are
reflected in the financial statements referred to in Section 4.6 (except such
properties, assets or rights as have been disposed of in the ordinary course of
business since the date thereof), free from all Encumbrances except Permitted
Encumbrances hereto, and, except as so disclosed, free from all defects of title
that might materially adversely affect such properties, assets or rights, taken
as a whole.
4.6. FINANCIAL STATEMENTS. The Company has furnished the Bank the
consolidated and consolidating balance sheets of the Company and its
Subsidiaries as of December 31, 1995, and the related consolidated and
consolidating statements of income, changes in stockholders' equity and cash
flow for the fiscal year then ended, and related footnotes, audited and
certified by Coopers & Lybrand. The Company has also furnished the foregoing
unaudited financial statements to the Bank for the nine-month period ending
September 30, 1996 and financial projections for the 1996 fiscal year prepared
by the Company. All such financial statements, except for such projections, were
prepared in accordance with GAAP applied on a consistent basis throughout the
periods specified and present fairly the financial position of the Company and
its Subsidiaries as of such date and the results of the operations of the
Company and its Subsidiaries for such period. The projections were prepared in
good faith and based on assumptions which were reasonable when made. There are
no liabilities, contingent or otherwise, not disclosed in such financial
statements that involve a material amount.
4.7. CHANGES. Since the date of the financial statements for the
nine-month period ending September 30, 1996 referred to in Section 4.6, there
have been no changes in the assets, liabilities, financial condition, business
or prospects of the Company or any of its Subsidiaries other than changes in the
ordinary course of business, the effect of which has not, in the aggregate, been
materially adverse.
20
<PAGE> 26
4.8. DEFAULTS. As of the date hereof, no Default or Event of
Default exists.
4.9. TAXES. The Company and each Subsidiary has filed all federal,
state and other tax returns required to be filed, and all taxes, assessments and
other governmental charges due from the Company and each Subsidiary have been
fully paid. The Company and each Subsidiary have established on their books
reserves adequate for the payment of all federal, state and other tax
liabilities.
4.10. MATERIAL AGREEMENTS. SCHEDULE 4.10 hereto accurately and
completely lists all material leases, management, stockholder, partnership,
joint venture, stock redemption or retirement, employment (including severance),
non-competition and related agreements, if any, which are presently in effect in
connection with the conduct of business of the Company and its Subsidiaries.
4.11. MATERIAL LICENSES. SCHEDULE 4.11 hereto accurately and
completely lists all material licenses and related agreements, if any, which are
presently in effect in connection with the conduct of business of the Company
and its Subsidiaries (the "MATERIAL LICENSES"), and all such Material Licenses
are in full force and effect.
4.12. LITIGATION. Except as set forth in SCHEDULE 4.12 hereto, there
is no litigation, arbitration, proceeding or investigation pending, or, to the
knowledge of the Company's or any Subsidiary's officers, threatened, against the
Company or any Subsidiary that, if adversely determined, could result in a
material judgment not fully covered by insurance, could result in a forfeiture
of all or any substantial part of the property of the Company or its
Subsidiaries, or could otherwise have a material adverse effect on the assets,
business or prospects of the Company or any Subsidiary.
4.13. USE OF PROCEEDS. (a) The Company will not, directly or
indirectly, use any part of the proceeds of any of the Revolving Loans (i) for
the purpose of making any Restricted Payment which is prohibited by Section 6.8
hereof, (ii) for the purpose of purchasing or carrying any margin stock within
the meaning of Regulations U and X (12 C.F.R. Part 221 and 224) of the Board, or
(iii) for any other purpose which would violate any provision of any other
applicable statute, regulation, order or restriction.
(b) The proceeds of the Revolving Loans shall be used exclusively
for the working capital purposes of the Company, including, without limitation,
for the issuance of letters of credit.
4.14. EXISTING INDEBTEDNESS. SCHEDULE 6.1 hereto accurately and
completely lists all existing Indebtedness of the Company and its Subsidiaries
as of the date hereof.
4.15. EXISTING INVESTMENTS. SCHEDULE 4.15 hereto accurately and
completely lists the record owner, location and any relevant account numbers of
all depository and operating accounts and marketable securities owned by the
Company and its Subsidiaries as of the date hereof.
21
<PAGE> 27
4.16. SUBSIDIARIES. As of the date hereof, all the Subsidiaries of
the Company are listed in SCHEDULE 4.16 hereto. The Company or a Subsidiary of
the Company is the owner, free and clear of all liens and encumbrances, except
as expressly provided in such schedule, of all of the issued and outstanding
stock of each Subsidiary. All shares of such stock have been validly issued and
are fully paid and nonassessable, and no rights to subscribe to any additional
shares have been granted, and no options, warrants or similar rights are
outstanding.
4.17. INVESTMENT COMPANY ACT. Neither the Company nor any of its
Subsidiaries is subject to regulation under the Investment Company Act of 1940,
as amended.
4.18. COMPLIANCE WITH ERISA. The Company and each member of the
Controlled Group have fulfilled their obligations under the minimum funding
standards of ERISA and the Code with respect to each Plan and are in compliance
in all material respects with the applicable provisions of ERISA and the Code,
and have not incurred any liability to the PBGC or a Plan under Title IV of
ERISA; and no "prohibited transaction" or "reportable event" (as such terms are
defined in ERISA) has occurred with respect to any Plan.
4.19. FDA COMPLIANCE, ETC. Without limiting the scope of
Section 4.2, the Company and its Subsidiaries are in compliance in all material
respects with all applicable foreign and federal and state laws and regulations,
including all material rules, regulations and administrative orders of the
United States Food and Drug Administration (the "FDA") and of foreign
authorities with jurisdiction over the Company and its Subsidiaries. The Company
and its Subsidiaries are in compliance in all material respects with all of the
applicable provisions of the Food, Drug and Cosmetic Act, as amended.
4.20. ENVIRONMENTAL MATTERS.
(a) The Company and its Subsidiaries have obtained all permits,
licenses and other authorizations which are required under all Environmental
Laws, except to the extent failure to have any such permit, license or
authorization would not have a material adverse effect on the business,
financial condition or operations of the Company and its Subsidiaries. The
Company and its Subsidiaries are in compliance with the terms and conditions of
all such permits, licenses and authorizations, and are also in compliance with
all other limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules and timetables contained in any applicable
Environmental Law or in any regulation, code, plan, order, decree, judgment,
injunction, notice or demand letter issued, entered, promulgated or approved
thereunder, except to the extent failure to comply would not have a material
adverse effect on the business, financial condition or operations of the Company
and its Subsidiaries.
(b) No notice, notification, demand, request for information,
citation, summons or order has been issued, no complaint has been filed, no
penalty has been assessed and no investigation or review is pending or
threatened by any governmental or other entity with respect to any alleged
failure by the Company or any of its Subsidiaries which could materially
adversely affect the properties, business, prospects, operating results or
condition (financial or otherwise) of the Company, to have any permit, license
or authorization required in connection with the conduct of its business or with
respect to any Environmental Laws, including, without
22
<PAGE> 28
limitation, Environmental Laws relating to the generation, treatment, storage,
recycling, transportation, disposal or release of any Hazardous Materials.
(c) To the best of the Company's knowledge no oral or written
notification of a release of a Hazardous Material which could materially
adversely affect the properties, business, prospects, operating results or
condition (financial or otherwise) of the Company, has been filed by or on
behalf of the Company or any of its Subsidiaries and no property now or
previously owned, leased or used by the Company or any of its Subsidiaries is
listed or proposed for listing on the National Priorities List under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended, or on any similar state list of sites requiring investigation or
clean-up.
(d) There are no liens or encumbrances arising under or pursuant to any
Environmental Laws on any of the real property or properties owned, leased or
used by the Company or any of its Subsidiaries and no governmental actions have
been taken or are in process which could subject any of such properties to such
liens or encumbrances or, as a result of which the Company or any of its
Subsidiaries would be required to place any notice or restriction relating to
the presence of Hazardous Materials at any property owned by it in any deed to
such property.
(e) Neither the Company nor any of its Subsidiaries nor, to the best
knowledge of the Company, any previous owner, tenant, occupant or user of any
property owned, leased or used by the Company or any of its Subsidiaries has (i)
engaged in or permitted any operations or activities upon or any use or
occupancy of such property, or any portion thereof, for the purpose of or in any
way involving the handling, manufacture, treatment, storage, use, generation,
release, discharge, refining, dumping or disposal (whether legal or illegal,
accidental or intentional) of any Hazardous Materials on, under, in or about
such property, except to the extent commonly used in day-to-day operations of
such property and in such case only in compliance with all Environmental Laws,
or (ii) transported any Hazardous Materials to, from or across such property
except to the extent commonly used in day-to-day operations of such property
and, in such case, in compliance with, all Environmental Laws, except, in the
case of both clause (i) and clause (ii) above, where so doing would not have a
material adverse affect on the business, prospects, operating results or
condition (financial or otherwise) of the Company; nor to the best knowledge of
the Company have any Hazardous Materials migrated from other properties upon,
about or beneath such property, nor, to the best knowledge of the Company, are
any Hazardous Materials presently constructed, deposited, stored or otherwise
located on, under, in or about such property except to the extent commonly used
in day-to-day operations of such property and, in such case, in compliance with,
all Environmental Laws.
SECTION 5.
----------
AFFIRMATIVE COVENANTS
---------------------
So long as the Bank has any commitment to lend hereunder or to deliver
Dollars or an Alternative Currency, as the case may be, under the Foreign
Exchange Facility or any Revolving Loan or other Obligation hereunder remains
outstanding, the Company covenants as follows:
23
<PAGE> 29
5.1. FINANCIAL STATEMENTS AND OTHER REPORTING REQUIREMENTS. The
Company shall furnish to the Bank:
(a) as soon as available to the Company and its Subsidiaries, but
in any event within 90 days after the end of each of fiscal year, the
consolidated and consolidating balance sheet of the Company and its Subsidiaries
as of the end of, and the related consolidated and consolidating statement of
income, changes in stockholders' equity and cash flow for, such year, audited
and certified by Coopers & Lybrand (or other independent nationally recognized
certified public accountants reasonably acceptable to the Bank) in the case of
such consolidated statements, and certified by an Authorized Officer in the case
of such consolidating statements; and, concurrently with such financial
statements, a copy of said certified public accountants' management report and a
written statement by such accountants that, in the making of the audit necessary
for their report and opinion upon such financial statements they have obtained
no knowledge of any Default or Event of Default or, if in the opinion of such
accountants any such Default or Event of Default exists, they shall disclose in
such written statement the nature and status thereof;
(b) as soon as available to the Company, but in any event within
45 days after the end of each fiscal quarter, the consolidated and consolidating
balance sheets of the Company and its Subsidiaries as of the end of, and the
related consolidated and consolidating statements of income for, the period then
ended, certified by an Authorized Officer but subject, however, to normal,
recurring year-end adjustments;
(c) as soon as available to the Company, but in any event
concurrently with the delivery of each financial statement pursuant to
subsection 5.1.(a), a copy of each management letter submitted to the Company
or any of its Subsidiaries by independent certified public accountants in
connection with each annual audit of the books of the Company and its
Subsidiaries by such accountants or in connection with any interim audit thereof
pertaining to any phase of the business of the Company or any such Subsidiary;
(d) concurrently with the delivery of each financial statement
pursuant to subsections 5.1.(a) and 5.1.(b) and at any time reasonably
requested by the Bank, a completed compliance certificate substantially in the
form of EXHIBIT B hereto signed on behalf of the Company by an Authorized
Officer;
(e) as soon as available to the Company and its Subsidiaries, but
in any event within 90 days after the end of each fiscal year, projections for
the Company and its consolidated Subsidiaries on a consolidating and
consolidated basis for the current fiscal year, including projected balance
sheets, income statements, cash flow statements and such other statements as the
Bank may reasonably request and in form and substance satisfactory to the Bank,
all prepared in good faith and based on assumptions which were reasonable when
made;
(f) if and when the Company gives or is required to give notice to
the PBGC of any "Reportable Event" (as defined in Section 4043 of ERISA) with
respect to any Plan that might constitute grounds for a termination of such Plan
under Title IV of ERISA, or knows that any member of the Controlled Group or the
plan administrator of any Plan has given or is required to give notice of any
such Reportable Event, a copy of the notice of such Reportable Event given or
required to be given to the PBGC;
24
<PAGE> 30
(g) immediately upon becoming aware of the existence of any
condition or event that constitutes a Default or Event of Default, written
notice thereof specifying the nature and duration thereof and the action being
or proposed to be taken with respect thereto;
(h) promptly upon becoming aware of any litigation or of any
investigative proceedings by a governmental agency or authority commenced or
threatened against the Company or any of its Subsidiaries of which it has
notice, the outcome of which would or might have a materially adverse effect on
the assets, business or prospects of the Company or the Company and its
Subsidiaries on a consolidated basis, written notice thereof and the action
being or proposed to be taken with respect thereto;
(i) promptly upon becoming aware of any investigative proceedings
by a governmental agency or authority commenced or threatened against the
Company or any of its Subsidiaries regarding any potential violation of
Environmental Laws or any spill, release, discharge or disposal of any Hazardous
Material, written notice thereof and the action being or proposed to be taken
with respect thereto; and
(j) promptly after the same become available, copies of all proxy
statements and annual, quarterly and interim reports (excluding reports in
respect of the beneficial ownership of officers, directors and certain other
shareholders on Forms 3, 4 and 5 promulgated under the Securities Exchange Act
of 1934, as amended) as the Company shall send to shareholders or as the Company
may file with the Securities and Exchange Commission or any governmental
authority at any time having jurisdiction over the Company; and
(k) from time to time, such other financial data and information
about the Company or its Subsidiaries, including, without limitation, a current
aging of Accounts, as the Bank may reasonably request.
5.2. CONDUCT OF BUSINESS. Each of the Company and its Subsidiaries
shall:
(a) duly observe and comply in all material respects with all
applicable laws and valid requirements of any governmental authorities relative
to its corporate existence, rights and franchises, to the conduct of its
business and to its property and assets (including, without limitation, the
Food, Drug and Cosmetic Act, and all regulations promulgated by the FDA, all
Environmental Laws and ERISA), and shall maintain and keep in full force and
effect all licenses and permits necessary in any material respect to the proper
conduct of its business;
(b) maintain its corporate existence; and
(c) maintain its business in developing and commercializing
process technology and chromatographic media and instrument products and
transacting related business.
5.3. MAINTENANCE AND INSURANCE. Each of the Company and its
Subsidiaries shall maintain and keep its properties in good repair, working
order and condition, and from time to time make all needful improvements thereto
so that its business may be properly and advantageously conducted at all times.
The Company will maintain or cause to be maintained on all insurable properties
now or hereafter owned by the Company insurance against loss or
25
<PAGE> 31
damage by fire or other casualty to the extent customary with respect to like
properties of companies conducting similar businesses and will maintain or cause
to be maintained, products liability, public liability and workmen's
compensation insurance insuring the Company to the extent customary with respect
to companies conducting similar businesses and, upon request, will furnish to
the Bank satisfactory evidence of the same. Each insurance policy pertaining to
any of the Collateral shall: (i) name the Bank as an insured pursuant to a
so-called "standard mortgagee clause"; (ii) provide that no action of the
Company, or any tenant or subtenant shall void such policy as to the Bank; and
(iii) provide that the Bank shall be notified of any proposed cancellation of
such policy at least thirty (30) days in advance of such proposed cancellation
and will have sufficient time to correct any deficiencies justifying such
proposed cancellation. All such policies shall be delivered to the Bank upon
request. In the event of a casualty loss, the Company may apply the proceeds of
any insurance to the restoration or replacement of the property or asset which
was the subject of such loss, PROVIDED that (A) the Company shall have
demonstrated to the reasonable satisfaction of the Bank that such property or
asset will be restored to substantially its previous condition or will be
replaced by a substantially identical property or asset, and (B) the Bank shall
have received, if requested by it, a favorable opinion from counsel for the
Company satisfactory in scope and form to the Bank, as to the Bank's having a
prior security interest in and valid first lien on such restored or replaced
property or asset.
5.4. TAXES. The Company shall pay or cause to be paid all taxes,
assessments or governmental charges on or against it or any of its Subsidiaries
or its or their properties on or prior to the time when they become due;
PROVIDED that this covenant shall not apply to any tax, assessment or charge
that is being contested in good faith by appropriate proceedings and with
respect to which adequate reserves have been established and are being
maintained in accordance with GAAP.
5.5. INSPECTION BY THE BANK. The Company shall permit the Bank or its
designees, at any reasonable time, and upon reasonable notice (or if a Default
or Event of Default shall have occurred and is continuing, at any time and
without prior notice), to (i) visit and inspect the properties of the Company
and its Subsidiaries, (ii) examine and make copies of and take abstracts from
the books and records of the Company and its Subsidiaries, (iii) discuss the
affairs, finances and accounts of the Company and its Subsidiaries with their
appropriate officers, employees and accountants, and (iv) to arrange for
verification of Accounts Receivable, under reasonable procedures, directly with
account debtors or by other methods; and shall do, make, execute and deliver all
such additional and further acts, things, deeds, assurances, and instruments as
the Bank may reasonably require more completely to vest in and assure to the
Bank its rights hereunder or in any Collateral and to carry into effect the
provisions and intent of this Agreement. In handling such information the Bank
shall exercise the same degree of care that it exercises with respect to its own
proprietary information of the same types to maintain the confidentiality of any
non-public information thereby received or received pursuant to Section 5
except that disclosure of such information may be made (i) to the subsidiaries
or affiliates of the Bank in connection with their present or prospective
business relations with the Company and its Subsidiaries, (ii) to prospective
transferees or purchasers of an interest in the Revolving Loans if they agree to
be bound by the confidentiality obligations of this Section 5.5, (iii) as
required by law, regulation, rule or order, subpoena, judicial order or similar
order and (iv) as may be required in connection with the examination, audit or
similar investigation of the Bank.
26
<PAGE> 32
5.6. MAINTENANCE OF BOOKS AND RECORDS. Each of the Company and its
Subsidiaries shall keep adequate books and records of account, in which true and
complete entries will be made reflecting all of its business and financial
transactions, and such entries will be made in accordance with GAAP consistently
applied and applicable law.
5.7. MAINTENANCE OF ACCOUNTS. The Company and each of its U.S.
Subsidiaries will maintain its principal depository and operating accounts and
cash management services with the Bank at all times and shall maintain in such
accounts sufficient funds to make all principal and interest payments when due.
5.8. NEW ACCOUNTS AND INVESTMENTS. The Company will notify the Bank
in writing of any additions or changes in the ownership, location or relevant
account numbers of any depository and operating accounts with a balance equal or
greater than $100,000 and marketable securities owned by the Company and its
Subsidiaries.
5.9. MINIMUM CONSOLIDATED TANGIBLE CAPITAL BASE. The Company and
its Subsidiaries shall maintain at all times a Consolidated Tangible Capital
Base of not less than $2,000,000.
5.10. MINIMUM CASH OR EQUIVALENTS. The Company shall maintain at all
times a Cash Equivalent Amount of not less than $2,500,000.
5.11. FURTHER ASSURANCES. At any time and from time to time the
Company shall, and shall cause each of its Subsidiaries to, execute and deliver
such further instruments and take such further action as may reasonably be
requested by the Bank to effect the purposes of this Agreement and the Note.
SECTION 6.
----------
NEGATIVE COVENANTS
------------------
So long as the Bank has any commitment to lend hereunder or to deliver
Dollars or an Alternative Currency, as the case may be, under the Foreign
Exchange Facility or any Revolving Loan or other Obligation hereunder remains
outstanding, the Company covenants as follows:
6.1. INDEBTEDNESS. Neither the Company nor any of its Subsidiaries
shall create, incur, assume, guarantee or be or remain liable with respect to
any Indebtedness other than the following:
(a) Indebtedness of the Company or any of its Subsidiaries to the
Bank or any of its Affiliates, including, without limitation, the Exchange
Contract Amount not in excess of the Foreign Exchange Facility Sublimit;
(b) Indebtedness existing as of the date hereof and disclosed in
SCHEDULE 6.1 hereto and Guarantees disclosed on SCHEDULE 6.2 hereto and any
refinancing of such Indebtedness in
27
<PAGE> 33
amounts not exceeding the principal amount thereof and on terms which are
substantially the same as the terms of the refinanced Indebtedness;
(c) Indebtedness of the Company to or from Sepracor and Versicor
so long as the Company and Versicor remain Subsidiaries of Sepracor;
(d) Indebtedness of the Company to or from its Corporate
Affiliates (except Sepracor and Versicor so long as the Company and Versicor
remain Subsidiaries of Sepracor) in the aggregate principal amount outstanding
at any time not in excess of $10,000,000 and, with respect to each such
Corporate Affiliate, not in excess of $5,000,000 principal amount outstanding at
any time;
(e) Indebtedness secured by Permitted Encumbrances;
(f) Indebtedness of BSA to BNP Gennevilliers disclosed on
SCHEDULE 6.1 hereto, and the refinancing of such Indebtedness in amounts not
exceeding the principal amount thereof and on terms which are substantially the
same as the terms of the refinanced Indebtedness;
(g) Indebtedness in respect of Capital Leases and purchase money
financing for tangible property used in the business of the Company in the
aggregate principal amount outstanding at any time not in excess of $5,000,000
LESS with respect to each of Sepracor and Versicor, any indebtedness in respect
of Capital Leases and purchase money financing for tangible property used in
their businesses; and
(h) Indebtedness of BSA to the government of the Republic of
France or a French financial institution in the maximum principal amount of
22,725,000 French Francs incurred in connection with the construction of, the
purchase of equipment for, and the related expenses for, a new facility located
in the Paris/Cerge Pontise/Roissy Charles de Gaulle region of France.
6.2. CONTINGENT LIABILITIES. Neither the Company nor any of its
Subsidiaries shall create, incur, assume or remain liable with respect to any
Guarantees other than the following:
(a) Guarantees in favor of the Bank or any of its Affiliates; and
(b) Guarantees disclosed in SCHEDULE 6.2 hereto.
6.3. SALE AND LEASEBACK. Neither the Company nor any of its
Subsidiaries shall enter into any arrangement, directly or indirectly, whereby
it shall sell or transfer any property owned by it in order to lease such
property or lease other property that the Company or any such Subsidiary intends
to use for substantially the same purpose as the property being sold or
transferred.
6.4. ENCUMBRANCES. Neither the Company nor any of its Subsidiaries
shall create, incur, assume or suffer to exist any mortgage, pledge, security
interest, lien or other charge or encumbrance, including the lien or retained
security title of a conditional vendor upon or with respect to any of its
property or assets ("ENCUMBRANCES"), or assign or otherwise convey any
28
<PAGE> 34
right to receive income, including the sale or discount of accounts receivable
with or without recourse, except the following ("PERMITTED ENCUMBRANCES"):
(a) Encumbrances in favor of the Bank or any of its Affiliates;
(b) Encumbrances existing as of the date hereof and disclosed in
SCHEDULE 6.4 hereto and securing any refinancing of Indebtedness provided that
such refinancing is permitted pursuant to Section 6.1(b);
(c) Encumbrances for purchase money obligations or Capital Leases
permitted pursuant to Section 6.1(f); PROVIDED that such Encumbrances shall not
attach to property and assets of the Company or any Subsidiary not purchased
with the proceeds of such purchase money obligations;
(d) liens for taxes, fees, assessments and other governmental
charges to the extent that payment of the same may be postponed or is not
required in accordance with the provisions of Section 5.4; and
(e) landlords' and lessors' liens in respect of rent not in
default or liens in respect of pledges or deposits under workmen's compensation,
unemployment insurance, social security laws, or similar legislation (other than
ERISA) or in connection with appeal and similar bonds incidental to litigation;
mechanics', laborers' and materialmen's and similar liens, if the obligations
secured by such liens are not then delinquent; liens securing the performance of
bids, tenders, contracts (other than for the payment of money); and statutory
obligations incidental to the conduct of its business and that do not in the
aggregate materially detract from the value of its property or materially impair
the use thereof in the operation of its business.
6.5. LINES OF BUSINESS. Neither the Company nor any Subsidiary will
engage in any line of business if as a result thereof the business of the
Company and its Subsidiaries taken as a whole would be materially different from
what it was on the date hereof.
6.6. MERGER; CONSOLIDATION; SALE OR LEASE OF ASSETS. Neither the
Company nor any of its Subsidiaries shall, without the prior written consent of
the Bank, sell, lease or otherwise dispose of assets or properties, other than
sales or leases of inventory in the ordinary course of business; or liquidate,
merge or consolidate into or with any other Person or entity, PROVIDED that any
Subsidiary of the Company may merge or consolidate into or with (i) the Company
if no Default or Event of Default has occurred and is continuing or would result
from such merger and if the Company is the surviving company or (ii) any other
wholly-owned Subsidiary of the Company.
6.7. ADDITIONAL STOCK ISSUANCE. The Company shall not permit any of
its Subsidiaries to issue any additional shares of such Subsidiary's capital
stock or other equity securities, any options therefor or any securities
convertible thereto other than to the Company; PROVIDED, that such Subsidiaries
may issue additional shares of its capital stock if after any such issuance the
Company has 50% or more of the ordinary voting power for the election of a
majority of the members of the board of directors or other governing body of
such entity or the Company has, at least, a 50% ownership interest.
29
<PAGE> 35
6.8. RESTRICTED PAYMENTS. The Company will not directly or
indirectly declare, order, pay or make any Restricted Payment or set aside any
sum or property therefore if at the time of such proposed action or immediately
after giving effect thereto, any condition or event shall exist which
constitutes a Default or an Event of Default and unless such Restricted Payment
is expressly permitted by this Section 6.8.
Subject to the foregoing, the Company may (a) make distributions of
shares of its capital stock as stock splits or stock dividends, (b) make
payments under the Corporate Services Agreement, and (c) make any other
Restricted Payment; PROVIDED, that in the last event the Company shall have
received the prior written consent of the Bank to such proposed Restricted
Payment.
The amount involved in any Restricted Payment declared, ordered, paid,
made or set apart in property shall be deemed to be the greater of the fair
market value thereof at the time of such distribution or payment (or the date of
such transaction, as the case may be), as determined in good faith by the
Company, or the net book value thereof on the books of the Company as at such
time.
6.9. TRANSACTIONS WITH AFFILIATES. Except for Sepracor's
Subsidiaries on the date hereof so long as they remain Subsidiaries of Sepracor,
the Company will not, and will not permit any Corporate Affiliate to, directly
or indirectly, enter into any lease or other transaction with any shareholder or
with any Affiliate of the Company or such shareholder, on terms that are less
favorable to the Company or such Subsidiary than those which might be obtained
at the time from Persons who are not a shareholder or an Affiliate.
Notwithstanding the preceding sentence, the Company may (1) sublease its
facilities from Sepracor; (2) enter into and perform the Corporate Services
Agreement, the Technology Transfer Agreement and [the Cross License Agreement,
(3) enter into an amended and restated cross license agreement replacing the
Cross License Agreement if such amended and restated agreement is in form and
substance acceptable to the Bank and its counsel] and (4) engage in transactions
expressly permitted by Sections 6.1, 6.6, and 6.7.
6.10. INVESTMENTS. Neither the Company nor any of its Subsidiaries
shall make or maintain any investments other than (i) existing and additional
investments in Subsidiaries on the date hereof so long as they remain
Subsidiaries of the Company, (ii) Qualified Investments, (iii) investments
consisting of foreign deposit accounts used for ordinary course working capital
purposes of the Company or its Subsidiaries; PROVIDED, that the aggregate
balance of foreign deposit accounts of Sepracor and its Subsidiaries shall not
at any time exceed $1,500,000 and (iv) investments in French Subsidiaries in
existence on or prior to December 28, 1994 but only to the extent such
investments are required for compliance with French statutory requirements
regarding corporate capitalization.
6.11. ERISA. Neither the Company nor any member of the Controlled
Group shall permit any Plan maintained by it to (i) engage in any "prohibited
transaction" (as defined in Section 4975 of the Code, (ii) incur any
"accumulated funding deficiency" (as defined in Section 302 of ERISA) whether or
not waived, or (iii) terminate any Plan in a manner that could result in the
imposition of a lien or encumbrance on the assets of the Company or any of its
Subsidiaries pursuant to Section 4068 of ERISA.
30
<PAGE> 36
6.12. OBSERVANCE OF SUBORDINATION PROVISIONS, ETC. The Company will
not make, or cause or permit to be made, any payments in respect of any
Subordinated Indebtedness in contravention of the subordination and other
payment provisions contained in the evidence of such Subordinated Indebtedness
or in contravention of any written agreement pertaining thereto, nor will the
Company (a) amend, modify or change in any manner any of such subordination or
other payment provisions without the prior written consent of the Bank or (b)
amend, modify or change in any manner adverse to the interests of the Bank any
of the other provisions set forth in the agreements under which such
Subordinated Indebtedness is outstanding or contained in the evidence of such
Subordinated or other Indebtedness.
SECTION 7.
----------
SECURITY
--------
7.1. SECURITY INTEREST. As security for the payment and performance
of all Obligations, the Bank shall have and the Company hereby grants to the
Bank a continuing security interest in all property of the Company of every kind
and description, tangible or intangible, whether now or hereafter existing,
whether now owned or hereafter acquired, and wherever located, including but not
limited to the following (and together with all property in which the Bank may
have a security interest pursuant to any other security agreements, pledge
agreements, mortgages and other instruments creating a security interest in
favor of the Bank and securing the Obligations, collectively, the "COLLATERAL"):
all furniture, and similar property of the Company; all Accounts of the Company;
all contract rights of the Company; all other rights of the Company, including,
without limitation, amounts due from affiliates, tax refunds, and insurance
proceeds; all investment property (as defined in the Massachusetts Uniform
Commercial Code); all interest of the Company in goods or services as to which
an Account Receivable shall have arisen; all files, records (including, without
limitation, computer programs, tapes and related electronic data processing
software) and writings of the Company or in which it has an interest in any way
relating to the foregoing property; all goods, instruments, documents of title,
policies and certificates of insurance, securities, chattel paper, deposits,
cash or other property owned by the Company or in which it has an interest which
are now or may hereafter be in the possession of the Bank or as to which the
Bank may now or hereafter control possession by documents of title or otherwise;
all general intangibles of the Company (including, without limitation, all
patents, trademarks, trade names, service marks, copyrights and applications for
any of the foregoing; all rights to use patents, trademarks, trade names,
service marks, and copyrights of any Person and all trade secrets, know how and
other intellectual property rights (collectively "INTELLECTUAL PROPERTY"); and
any rights of the Company to retrieval from third parties of electronically
processed and recorded information pertaining to any of the types of collateral
referred to in this Section 7.1); any other property of the Company, real or
personal, tangible or intangible, in which the Bank now has or hereafter
acquires a security interest or which is now or may hereafter be in the
possession of the Bank; any sums at any time credited by or due from the Bank to
the Company, including deposits; and proceeds and products of all of the
foregoing; PROVIDED THAT the Bank shall not be deemed to have a security
interest in any technology license entered into by the Company and any third
party other than an Affiliate or Subsidiary of the Company prior to December 28,
1994 if the granting of such security interest by the Company would be a
violation of such technology
31
<PAGE> 37
license. The provisions of this Section 7.1 applicable to general intangibles
consisting of Intellectual Property are supplemented by the provisions of the
Intellectual Property Security Agreement and any conflict between the provisions
of this Agreement as applicable to such general intangibles and the Intellectual
Property Security Agreement shall be resolved in favor of such Intellectual
Property Security Agreement.
7.2. LOCATION OF RECORDS AND COLLATERAL; NAME CHANGE. The Company
shall give the Bank written notice of each location at which Collateral is or
will be kept and of each office of the Company at which the records pertaining
to its Accounts Receivable and contract rights are kept. Except as such notice
is given, all Collateral is and shall be kept, and all records of the Company
pertaining to Accounts and contract rights are and shall be kept at the
Company's chief executive offices at 111 Locke Drive, Marlborough, Massachusetts
01752 or at the Bank. The Company shall give the Bank thirty (30) days prior
written notice of any change in the name or corporate form of the Company or any
change in the name under which the Company's business is transacted.
7.3. STATUS OF COLLATERAL. As of the date hereof, the Company has
good and marketable title to all of its properties, assets and rights of every
name and nature now purported to be owned by it, including, without limitation,
the Collateral, free from all liens, charges and encumbrances whatsoever, except
as disclosed on SCHEDULE 6.4 hereof. At the time the Company pledges, sells,
assigns or transfers to the Bank any instrument, document of title, security,
chattel paper or other property (including Inventory, contract rights and
Accounts) or any proceeds or products thereof, or any interest therein, the
Company shall be the lawful owner thereof and shall have good right to pledge,
sell, assign or transfer the same; none of such property shall have been
pledged, sold, assigned or transferred to any Person other than the Bank or in
any way encumbered, except as disclosed in SCHEDULE 6.4 of this Agreement; and
the Company shall defend the same against the claims and demands of all Persons.
SECTION 8.
----------
DEFAULTS
--------
8.1. EVENTS OF DEFAULT. There shall be an Event of Default
hereunder if any of the following events occurs:
(a) the Company shall fail to pay when due (i) any amount of
principal of any Revolving Loans, or (ii) any amount of interest thereon; or
(b) the Company shall fail to pay within three (3) days after
receipt of notice from the Bank any fees or expenses payable hereunder or under
the Note; or
(c) the Company shall fail to perform any term, covenant or
agreement contained in Sections 5 (except Section 5.3) or or shall fail to
perform any term, covenant or agreement contained in the Intellectual Property
Security Agreement; or
32
<PAGE> 38
(d) the Company shall fail to perform any term, covenant or agreement
(other than those referred to above in this Section ) contained in this
Agreement and such default shall continue for twenty (20) days; or
(e) any representation or warranty of the Company made in this
Agreement or in the Note, or by the Company in the Intellectual Property
Security Agreement, or by the Company in any other documents or agreements
executed in connection with the transactions contemplated by this Agreement or
in any certificate delivered hereunder shall prove to have been false in any
material respect upon the date when made or deemed to have been made; or
(f) the occurrence of an Event of Default under the Sepracor Credit
Agreement; or
(g) the failure to pay at maturity, or within any applicable period of
grace, any obligations of Sepracor or the Company or one of its Subsidiaries in
excess of One Hundred Thousand Dollars ($100,000) in the aggregate for borrowed
monies or advances, or for the use of real or personal property, or fail to
observe or perform any term, covenant or agreement evidencing or securing such
obligations, the result of which failure is to permit the holder or holders of
such indebtedness to cause such indebtedness to become due prior to its stated
maturity upon delivery of required notice, if any; or
(h) the Company or Sepracor shall default in any payment due on any
Indebtedness in respect of borrowed money, any Capital Lease or the deferred
purchase price of property with an outstanding principal amount in excess of One
Hundred Thousand Dollars ($100,000) and such default shall continue for more
than the period of grace, if any, specified therein and shall not have been
waived pursuant thereto;
(i) the Company or any of its Subsidiaries shall (i) apply for or
consent to the appointment of, or the taking of possession by, a receiver,
custodian, trustee, liquidator or similar official of itself or of all or a
substantial part of its property, (ii) be generally not paying its debts as such
debts become due, (iii) make a general assignment for the benefit of its
creditors, (iv) commence a voluntary case under the Federal Bankruptcy Code (as
now or hereafter in effect), (v) take any action or commence any case or
proceeding, as debtor, under any law relating to bankruptcy, insolvency,
reorganization, winding-up or composition or adjustment of debts, or any other
law providing for the relief of debtors, (vi) fail to contest in a timely or
appropriate manner, or acquiesce in writing to, any petition filed against it in
an involuntary case under the Federal Bankruptcy Code or other law, (vii) take
any action under the laws of its jurisdiction of incorporation or organization
similar to any of the foregoing, or (viii) take any corporate action for the
purpose of effecting any of the foregoing; or
(j) a proceeding or case shall be commenced, without the application or
consent of the Company or any of its Subsidiaries in any court of competent
jurisdiction, seeking (i) the liquidation, reorganization, dissolution, winding
up, or composition or readjustment of its debts, (ii) the appointment of a
trustee, receiver, custodian, liquidator or the like of it or of all or any
substantial part of its assets, or (iii) similar relief in respect of it, under
any law relating to bankruptcy, insolvency, reorganization, winding-up or
composition or adjustment of debts or any other law providing for the relief of
debtors, and such proceeding or case shall continue undismissed, or unstayed and
in effect, for a period of 60 days; or an order for relief shall be
33
<PAGE> 39
entered in an involuntary case under the Federal Bankruptcy Code, against the
Company or such Subsidiary; or action under the laws of the jurisdiction of
incorporation or organization of the Company or any of its Subsidiaries similar
to any of the foregoing shall be taken with respect to the Company or such
Subsidiary and shall continue unstayed and in effect for any period of 60 days;
or
(k) a judgment or order for the payment of money shall be entered
against the Company or any of its Subsidiaries by any court, or a warrant of
attachment or execution or similar process shall be issued or levied against
property of the Company or such Subsidiary, that in the aggregate exceeds one
hundred thousand dollars ($100,000) in value and such judgment, order, warrant
or process shall continue undischarged or unstayed for 30 days; or
(l) the Company or any member of the Controlled Group shall fail
to pay when due an amount or amounts aggregating in excess of Fifty Thousand
Dollars ($50,000) that it shall have become liable to pay to the PBGC or to a
Plan under Title IV of ERISA; or notice of intent to terminate a Plan or Plans
shall be filed under Title IV of ERISA by the Company, any member of the
Controlled Group, any plan administrator or any combination of the foregoing; or
the PBGC shall institute proceedings under Title IV of ERISA to terminate or to
cause a trustee to be appointed to administer any such Plan or Plans or a
proceeding shall be instituted by a fiduciary of any such Plan or Plans against
the Company and such proceedings shall not have been dismissed within 30 days
thereafter; or a condition shall exist by reason of which the PBGC would be
entitled to obtain a decree adjudicating that any such Plan or Plans must be
terminated; or
(m) if Sepracor shall cease to own directly at least 51% of the
issued and outstanding shares of the capital stock of the Company having
ordinary voting power to elect a majority of the board of directors of the
Company; or
(n) a final nonappealable judgment shall be entered against the
Company or Sepracor by any court with respect to any patent litigation involving
HyperD chromatography media or the Company or Sepracor shall have entered into a
settlement in respect of any such litigation, which, in either case would have a
material adverse affect on the Company;
(o) the termination, expiration or non-renewal of any license or
other Material Agreement which termination, expiration or non-renewal has a
material adverse effect on the existing business or prospects of the Company; or
(p) the Company shall fail to perform with respect to any material
term, covenant or agreement of any Alternative Currency Commitment.
8.2. REMEDIES. Upon the occurrence of an Event of Default described
in Sections 8.1.(i) and 8.1.(j), immediately and automatically, and upon the
occurrence of any other Event of Default, at any time thereafter while such
Event of Default is continuing, at the Bank's option and upon the Bank's
declaration:
34
<PAGE> 40
(a) the Bank's commitment to make any further Revolving Loans hereunder
and to deliver Dollars or an Alternative Currency under any Alternative Currency
Commitment or under the Foreign Exchange Facility, generally, shall terminate;
(b) the unpaid principal amount of the Revolving Loans together with
accrued interest and all other Obligations hereunder shall become immediately
due and payable, including the unpaid principal amount of any Revolving Loan
subject to an exercised LIBOR Option together with accrued interest thereon and
the related LIBOR Premium in the same manner as though the Company had exercised
its right to prepayment pursuant to Section 2.6 of this Agreement, without
presentment, demand, protest or further notice of any kind, all of which are
hereby expressly waived; and
(c) the Bank may exercise any and all rights it has under this
Agreement, the Note or any other documents or agreements executed in connection
herewith, or at law or in equity, and proceed to protect and enforce the Bank's
rights by any action at law, in equity or other appropriate proceeding.
(d) Upon the occurrence of any Event of Default and at any time
thereafter (unless such Event of Default shall theretofore have been remedied),
at the Bank's option: (i) the Bank shall thereupon be relieved of all of its
obligations to make any Revolving Loans hereunder; (ii) the Bank shall thereupon
be relieved of all of its obligations with respect to Alternative Currency
Commitments or under the Foreign Exchange Facility, generally; (iii) the unpaid
principal amount of the Note together with accrued interest thereon and all
other Obligations shall become immediately due and payable without presentment,
demand, protest or notice of any kind, all of which are hereby expressly waived;
and (iv) the Bank may exercise any and all rights it has under this Agreement,
the Note, the Intellectual Property Security Agreement or any other documents or
agreements executed in connection with the transactions contemplated by this
Agreement (the "LOAN DOCUMENTS"), or by law or equity, and proceed to protect
and enforce the Bank's rights by any action at law, suit in equity or other
appropriate proceeding, whether for specific performance or for an injunction
against a violation of any covenant contained herein or in any Loan Document or
in aid of the exercise of any power granted hereby or thereby or by law.
(e) Without limiting the rights of the Company set forth in this
Section 8.2 above, upon the occurrence of any Event of Default and at any time
thereafter (such default not having been cured), the Bank shall have the right
to take immediate possession of the Collateral, and for that purpose the Bank
may, so far as the Company can give authority therefor, enter upon any premises
on which the Collateral may be situated and remove the same therefrom. The
Company waives demand and notice with respect to and assents to any repossession
of the Collateral. The Bank may dispose of the Collateral in any order and in
any manner it chooses and may refrain from the sale of any real property, held
as the Collateral, until the sale of personal property. Except for the
Collateral which is perishable or threatens to decline speedily in value or
which is of a type customarily sold on a recognized market, the Bank shall give
to the Company at least ten (10) days' prior written notice of the time and
place of any public sale of the Collateral or of the time after which any
private sale or any other intended disposition is to be made. The residue of any
proceeds of collection or sale, after satisfying all Obligations in such order
of preference as the Bank may determine and making proper allowance for interest
35
<PAGE> 41
on Obligations not then due, shall be credited to any deposit account which the
Company may maintain with the Bank, or, if there is no such account, held
pending instructions from the Company. The Company shall remain liable for any
deficiency.
(f) The Bank may at any time in its sole discretion (after an
Event of Default has occurred) transfer any securities or other property
constituting the Collateral into its own name or that of its nominee and receive
the income thereon and hold the same as security for Obligations or apply it on
principal or interest due on Obligations. Insofar as the Collateral shall
consist of Accounts or instruments, the Bank may, upon the occurrence of an
Event of Default, without notice to or demand on the Company, demand and collect
such Collateral as the Bank may determine. For the purpose of realizing the
Bank's rights therein, the Bank may receive, open and dispose of mail addressed
to the Company and endorse notes, checks, drafts, money orders, documents of
title or other evidences of payment, shipment or storage or any form of
Collateral on behalf of and in the name of the Company. The powers conferred on
the Bank by this Section are solely to protect the interest of the Bank and
shall not impose any duties on the Bank to exercise any powers.
(g) In addition to all other rights and remedies provided
hereunder or by law, the Bank shall have in any jurisdiction where enforcement
of this Agreement is sought the rights and remedies of a secured party under the
Uniform Commercial Code of Massachusetts.
SECTION 9.
----------
MISCELLANEOUS
-------------
9.1. NOTICES. Unless otherwise specified herein, all notices
hereunder to any party hereto shall be in writing and shall be deemed to have
been given when delivered by hand, or three (3) days after being properly
deposited in the mails postage prepaid, or when sent by telex, answerback
received, or electronic facsimile transmission, or when delivered to the
telegraph company or overnight courier, addressed to such party at its address
indicated below:
If to the Company, at
BioSepra Inc.
111 Locke Drive
Marlborough, Massachusetts 01752
Attention: Robert F. Scumaci
Chief Financial Officer and Treasurer
Fax No.: 508-357-7494
If to the Bank, at
Fleet National Bank
75 State Street
Boston, Massachusetts 02109
Attention: Kimberly A. Martone
36
<PAGE> 42
Vice President
Fax No.: 617-346-1633
or at any other address specified by such party in writing.
9.2. EXPENSES. The Company will pay on demand all expenses of the
Bank in connection with the preparation, waiver or amendment of this Agreement,
the Note, or other documents executed in connection therewith, or the
administration, default or collection of the Revolving Loans or other
Obligations, or collection of amounts due with respect to Alternative Currency
Commitments or the Foreign Exchange Facility, or in connection with the Bank's
exercise, preservation or enforcement of any of its rights, remedies or options
thereunder, including, without limitation, reasonable fees and disbursements of
outside legal counsel or accounting, consulting, brokerage or other similar
professional fees or expenses, and any fees or expenses associated with any
travel or other costs relating to any appraisals or examinations conducted in
connection with the Obligations or any Collateral therefor, and the amount of
all such expenses shall, until paid, bear interest at the rate applicable to
principal hereunder (including any default rate).
9.3. SET-OFF. Regardless of the adequacy of any Collateral or other
means of obtaining repayment of the Obligations, any deposits, balances or other
sums credited by or due from the head office of the Bank or any of its branch
offices to the Company, may, at any time and from time to time after the
occurrence of an Event of Default hereunder, without notice to the Company or
compliance with any other condition precedent now or hereafter imposed by
statute, rule of law, or otherwise (all of which are hereby expressly waived) be
set off, appropriated, and applied by the Bank against any and all Obligations
of the Company to the Bank or any of its affiliates in such manner as the head
office of the Bank or any of its branch offices in their sole discretion may
determine, and the Company hereby grants the Bank a continuing security interest
in such deposits, balances or other sums for the payment and performance of all
such obligations.
9.4. TERM OF AGREEMENT. This Agreement shall continue in force and
effect so long as the Bank has any commitment to make Revolving Loans hereunder
or any Revolving Loan or any Obligation hereunder shall be outstanding.
9.5. NO WAIVERS. No failure or delay by the Bank in exercising any
right, power or privilege hereunder or under the Note or under any other
documents or agreements executed in connection herewith shall operate as a
waiver thereof; nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege. The rights and remedies herein and in the Note provided are
cumulative and not exclusive of any rights or remedies otherwise provided by
agreement or law.
9.6. GOVERNING LAW; JURISDICTION. This Agreement and the Note shall
be deemed to be contracts made under seal and shall be construed in accordance
with and governed by the laws of Massachusetts (without giving effect to any
conflicts of laws provisions contained therein). The Company, to the extent that
it may lawfully do so, hereby consents to the jurisdiction of the courts of the
Commonwealth of Massachusetts and the United States District Court for the
District of Massachusetts, as well as to the jurisdiction of all courts to which
an
37
<PAGE> 43
appeal may be taken from such courts, for the purpose of any suit, action or
other proceeding arising out of any of its obligations hereunder or with respect
to the transactions contemplated hereby, and expressly waives any and all
objections it may have as to venue in any such courts. The Company further
agrees that a summons and complaint commencing an action or proceeding in any of
such courts shall be properly served and shall confer personal jurisdiction if
served personally or by certified mail to it at its address provided in Section
of this Agreement or as otherwise provided under the laws of the Commonwealth of
Massachusetts.
9.7. AMENDMENTS. Neither this Agreement nor the Note nor any
provision of this Agreement or thereof may be amended, waived, discharged or
terminated except by a written instrument signed by the Bank and, in the case of
amendments, by the Company.
9.8. BINDING EFFECT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS. (a)
This Agreement shall be binding upon and inure to the benefit of the Company and
the Bank and their respective successors and assigns; PROVIDED that the Company
may not assign or transfer its rights or obligations hereunder.
(b) ASSIGNMENTS BY THE BANK. From and after the date hereof, the
Bank may at any time assign all, or a proportionate part of all, of its rights,
interests and duties with respect to the Revolving Commitment Amount and the
Note (1) to any one or more of its Affiliates without the consent or approval of
the Company or (2) to one or more banks or other financial institutions with the
consent of the Company which consent shall not be unreasonably withheld (each
assignee under clauses (1) and (2), an "Assignee"), in each case on such terms,
as between the Bank and each of its Assignees, as the Bank may think fit, and
such Assignee shall assume such rights, interests and duties pursuant to an
instrument executed by such Assignee and the Bank, and for this purpose the Bank
may make available to each of its potential Assignees such information relating
to the Company, this Agreement and the transactions contemplated hereby as the
Bank may think necessary or desirable, which information shall be held by each
potential Assignee strictly in confidence. Upon execution and delivery of such
an instrument and payment by such Assignee to the Bank of an amount equal to the
purchase price agreed between the Bank and such Assignee, such Assignee shall be
a Bank party to this Agreement and shall have all the rights, interests and
duties of a Bank with a Revolving Commitment Amount and Revolving Loan as set
forth in such instrument of assumption, and the Bank shall be released from its
obligations hereunder to a corresponding extent, and no further consent or
action by any party shall be required. Upon the consummation of any assignment
pursuant to this paragraph (i), the Bank and the Company shall make appropriate
arrangements so that, if required, a new Note is issued to the Assignee.
(c) PARTICIPATIONS BY THE BANK. From and after the date hereof,
the Bank shall be at liberty to offer the participations in the Revolving
Commitment Amount and the Note to one or more banks or other financial
institutions on such terms as the Bank may think fit, and for this purpose the
Bank may make available to each of its potential participants such information
relating to the Company, this Agreement and the transactions contemplated hereby
as the Bank may think necessary or desirable, which information shall be held by
each potential participant strictly in confidence; PROVIDED, that the Bank shall
not offer any participations to foreign banks or other financial institutions
without the prior written consent of the Company; PROVIDED FURTHER, that the
Bank shall retain the sole right to consent to amendments to, or waivers of, the
38
<PAGE> 44
provisions of this Agreement and the Note and the sole right and responsibility
to enforce the obligations of the Company hereunder and under the Note; PROVIDED
FURTHER, that the Bank may agree with each of its participants that the Bank
will not agree, without the consent of the participant, to any amendment or
waiver of any provision of this Agreement which would increase or otherwise
change such Revolving Commitment Amount or reduce the principal of or rate of
interest on the Revolving Loans subject to such participation, or postpone the
date fixed for any payment of principal or of interest on any Revolving Loans.
9.9. AMENDMENT AND TERMINATION OF PRIOR LOAN AGREEMENT. Upon the
execution and delivery of this Agreement, (i) Section 1.1 of the Prior Loan
Agreement shall be amended to change the "Revolving Credit Termination Date to
"December 31, 1996," and (ii) the Prior Loan Agreement shall be terminated and
of no further force and effect except for the obligation of the Company to pay
any and all of its obligations incurred thereunder or in respect thereof
(including the payment of the entire unpaid amount of principal of, if any, and
accrued interest on the Prior Loans and the payment in full of all fees and
expenses provided for in the Prior Loan Agreement) and except for the
continuation of the Bank's security interest in the Collateral as provided
herein and in the other Loan Documents which continuing security interest is
hereby acknowledged and confirmed.
9.10. CURRENCY CONVERSION. If, for the purpose of obtaining or
enforcing judgment in any court or for any other purpose hereunder it is
necessary to convert an amount due hereunder in the currency in which it is due
(the "ORIGINAL CURRENCY") into another currency (the "SECOND CURRENCY") the rate
of exchange applied shall be that at which, in accordance with normal banking
procedures, the Bank could purchase, in the United States money market or the
United States foreign exchange market (the "MONEY MARKETS"), as the case may be,
the Original Currency with the Second Currency on the Business Day on which
judgment is given or the amount is due. The Company agrees that its obligations
in respect of any amounts due from it to the Bank, in the Original Currency
hereunder shall, notwithstanding any judgment expressed or payment made in the
Second Currency, be discharged only to the extent that on the Business Day
following receipt of any sums so paid or adjudged to be due hereunder in the
Second Currency, the Bank may, in accordance with normal banking procedure
purchase, in the appropriate Money Market, the Original Currency with the amount
of the Second Currency so paid or so adjudged to be due; and if the amount of
the Original Currency so purchased is less than the amount originally due in the
Original Currency, the Company agrees as a separate obligation, and
notwithstanding any such payment or judgment to indemnify the Bank.
9.11. COUNTERPARTS. This Agreement may be signed in any number of
counterparts with the same effect as if the signatures hereto and thereto were
upon the same instrument.
9.12. PARTIAL INVALIDITY. The invalidity or unenforceability of any one
or more phrases, clauses or sections of this Agreement shall not affect the
validity or enforceability of the remaining portions of it.
9.13. CAPTIONS. The captions and headings of the various sections and
subsections of this Agreement are provided for convenience only and shall not be
construed to modify the meaning of such sections or subsections.
39
<PAGE> 45
9.14. WAIVER OF JURY TRIAL. THE BANK AND THE COMPANY AGREE THAT NEITHER
OF THEM NOR ANY ASSIGNEE OR SUCCESSOR SHALL (A) SEEK A JURY TRIAL IN ANY
LAWSUIT, PROCEEDING, COUNTERCLAIM OR ANY OTHER ACTION BASED UPON, OR ARISING OUT
OF, THIS AGREEMENT, ANY RELATED INSTRUMENTS, ANY COLLATERAL OR THE DEALINGS OR
THE RELATIONSHIP BETWEEN OR AMONG ANY OF THEM, OR (B) SEEK TO CONSOLIDATE ANY
SUCH ACTION WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT
BEEN WAIVED. THE PROVISIONS OF THIS PARAGRAPH HAVE BEEN FULLY DISCUSSED BY THE
BANK AND THE COMPANY, AND THESE PROVISIONS SHALL BE SUBJECT TO NO EXCEPTIONS.
NEITHER THE BANK NOR THE COMPANY HAS AGREED WITH OR REPRESENTED TO THE OTHER
THAT THE PROVISIONS OF THIS PARAGRAPH WILL NOT BE FULLY ENFORCED IN ALL
INSTANCES.
9.15. ENTIRE AGREEMENT. This Agreement, the Note and the documents and
agreements executed in connection herewith constitute the final agreement of the
parties hereto and supersede any prior agreement or understanding, written or
oral, with respect to the matters contained herein and therein.
40
<PAGE> 46
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized officers as of the day and year first above
written.
BIOSEPRA INC.
By: /s/ Robert F. Scumaci
---------------------------------------------
Name: Robert F. Scumaci
Title: Chief Financial Officer and Treasurer
FLEET NATIONAL BANK
By: /s/ Kimberly A. Martone
---------------------------------------------
Name: Kimberly A. Martone
Title: Vice President
41
<PAGE> 47
EXHIBIT A
FORM OF
BIOSEPRA INC.
AMENDED AND RESTATED PROMISSORY NOTE
December 31, 1996
$3,000,000 Boston, Massachusetts
For value received, the undersigned hereby promises to pay to FLEET
NATIONAL BANK (the "BANK"), or order, at the head office of the Bank at 75 State
Street, Boston, Massachusetts 02109, the principal amount of THREE MILLION
DOLLARS ($3,000,000) or such lesser amount as shall equal the principal amount
outstanding hereunder on April 30, 1999 or such earlier date as provided in the
Agreement (as defined below) in lawful money of the United States of America and
in immediately available funds, and to pay interest on the unpaid principal
balance hereof from time to time outstanding, at said office and in like money
and funds, for the period commencing on the date hereof until paid in full, at
the rates per annum and on the dates provided in the Agreement.
Upon the occurrence and during the continuance of an Event of Default,
interest on the unpaid principal amount hereof and (to the extent permitted by
law) on unpaid interest shall thereafter be payable on demand at a rate per
annum equal to two percent (2%) above the interest rate otherwise in effect with
respect to such Revolving Loans. Upon the cure of an Event of Default and the
payment of interest at the default rate through the date of such cure, the
interest rate shall revert to that provided for in the Agreement.
If the entire amount of any required principal and/or interest is not
paid in full within ten (10) days after the same is due, the undersigned shall
pay to the Bank a late fee equal to five percent (5%) of the required payment;
PROVIDED, that such late fee shall be reduced to three percent (3%) of any
required principal and interest payment that is not paid within fifteen (15)
days of the date it is due if this Note is secured by a mortgage on an
owner-occupied residence, 1-4 units. Nothing in the preceding sentence shall
affect the Bank's rights to exercise any of its rights and remedies provided in
the Agreement (as defined below) if an Event of Default (as defined in the
Agreement) has occurred.
This Note is issued pursuant to, and entitled to the benefits of, and
is subject to, the provisions of a certain Amended and Restated Revolving Credit
and Security Agreement dated as of December 31, 1996, by and between the
undersigned and the Bank (herein, as the same may from time to time be amended
or extended, referred to as the "AGREEMENT"), but neither this reference to the
Agreement nor any provision thereof shall affect or impair the absolute and
unconditional obligation of the undersigned makers of this Note to pay the
principal of and interest on this Note as herein provided.
As provided in the Agreement, this Note is secured by certain assets of
the undersigned.
<PAGE> 48
In case an Event of Default (as defined in the Agreement) shall occur,
the aggregate unpaid principal of and accrued interest on this Note shall become
or may be declared to be due and payable in the manner and with the effect
provided in the Agreement.
The undersigned may at its option prepay all or any part of the
principal of this Note before maturity upon the terms provided in the Agreement,
and this Note is subject to mandatory prepayment in certain circumstances, which
repayment shall in certain cases require the payment of a premium and in certain
cases not require the payment of a premium.
The undersigned makers hereby waive presentment, demand, notice of
dishonor, protest and all other demands and notices in connection with the
delivery, acceptance, performance and enforcement of this Note.
This instrument shall have the effect of an instrument executed under
seal and shall be governed by and construed in accordance with the laws of the
Commonwealth of Massachusetts (without giving effect to any conflicts of laws
provisions contained therein).
BIOSEPRA INC.
By:
--------------------------------------------
Name: Robert F. Scumaci
Title: Chief Financial Officer and Treasurer
2
<PAGE> 49
SCHEDULE I TO PROMISSORY NOTE
AMOUNT OF INTEREST AMOUNT NOTATION
DATE REVOLVING RATE PAID MADE BY
LOAN
3
<PAGE> 50
EXHIBIT B
COMPLIANCE CERTIFICATE
----------------------
Fleet National Bank
75 State Street
Boston, Massachusetts 02109
Attention: Kimberly A. Martone
Vice President
Ladies and Gentlemen:
As required by Section 5.1(c) of the Amended and Restated Revolving
Credit and Security Agreement dated as of December 31, 1996 (the "CREDIT
AGREEMENT") by and between BioSepra Inc. (the "COMPANY") and Fleet National Bank
(the "BANK"), a review of the activities of the Company for the fiscal year
and/or fiscal quarter ending ___________, 19___ (the "FISCAL PERIOD") has been
made under my supervision to determine whether the Company has performed and/or
maintained all of its respective obligations under the Credit Agreement. Based
upon such review, I hereby certify to you, as an Authorized Officer of the
Company, that the Company has performed and maintained all such obligations
under the Credit Agreement, the Note and the Loan Documents for the Fiscal
Period and, to the best of my knowledge, no event has occurred that constitutes
a Default or an Even of Default as defined in the Credit Agreement. Other
capitalized terms used herein without definition have the same meanings as in
the Credit Agreement.
As required by Section [5.1(a)][5.1(b)] of the Credit Agreement
financial statements of the Company (the "FINANCIAL STATEMENTS") for the Fiscal
Period and other information required by such sections accompany this
certificate. The Financial Statements present fairly the financial position of
the Company as of the date thereof and the statements of operation of the
Company for the Fiscal Period covered thereby.
I further certify to you, as an Authorized Officer of the Company, that
the figures set forth below accurately represent amounts required to be
calculated under the various provisions or covenants of the Credit Agreement
indicated, each as of the last day of the Fiscal Period unless otherwise
indicated.
Dated: _________ __, 199__ ___________________________________
Title:
<PAGE> 51
I. Section 5.9 - Minimum Consolidated Tangible Capital Base
--------------------------------------------------------
(1) Stockholders' equity $____________
(2) Subordinated Indebtedness $____________
(3) Goodwill $____________
(4) Intangible items $____________
(5) Reserves not already deducted from assets $____________
(6) Write-ups from revaluations $____________
(7) Equity in Subsidiaries or joint ventures $____________
(8) Actual Consolidated Tangible Capital Base $____________
(1 + 2) - (sum of 3 through 7)
Required Minimum Consolidated Tangible Capital Base: $2,000,000
II. Section 5.10 - Minimum Cash or Equivalents
------------------------------------------
A. Qualified Investments held in the U.S.
--------------------------------------
(9) Obligations of the United
States of America held in the U.S. $____________
(10) Certificates of deposit, other
deposit instruments, bank accounts
held in the U.S. $____________
(11) Commercial Paper held in the U.S.
(see definition
of Qualified Investments) $____________
(12) Mutual/closed end funds that invest
only in investments set forth
in clauses (9) through (11) $____________
(13) Repurchase agreements secured by
any one or more of the
foregoing held in the U.S. $____________
2
<PAGE> 52
(14) Qualified Investments: $____________
(sum of 9 through 13)
B. Net Outstanding Amount of Base Accounts
---------------------------------------
(15) Base Accounts $____________
(16) Ineligible as of ________________1
(i) over 60 days from invoice date $____________
(ii) Accounts outside of US $____________
(iii) Accounts due from Affiliates $____________
(iv) Prepayments $____________
(v) Joint venture accounts $____________
(17) Ineligible Accounts $____________
(sum of 16(i through v))
(18) Contra Account offsets $____________
(19) Net Outstanding Amount of Base Accounts $____________
(15 - 17 - 18)
C. Cash Equivalent Amount
----------------------
(20) Unencumbered Cash held in the United States $____________
(21) Qualified Investments (from (14)) $____________
(22) Net Outstanding Amount of Base Accounts $____________
(from (19))
(23) Actual Cash Equivalent Amount $____________
(20 + 21 + 22)
Required Minimum Cash Equivalent Amount $2,500,000
Dated: _________ __, 199__ __________________________
Title:
- ---------------
1 Ineligible calculated monthly
3
<PAGE> 1
EXHIBIT 10.16
CONFIRMATION OF AND AMENDMENT TO
INTELLECTUAL PROPERTY SECURITY AGREEMENT
THIS AGREEMENT, dated as of the 31st day of December, 1996, by and
between BIOSEPRA INC., a Delaware corporation having its principal place of
business at 111 Locke Drive, Marlborough, Massachusetts 01752 ("Pledgor"), in
favor of FLEET NATIONAL BANK, formerly known as Fleet National Bank of
Connecticut, successor by merger to Fleet Bank of Massachusetts, N.A., having an
office at 75 State Street, Boston, Massachusetts 02109 (the "Bank").
WHEREAS, the Bank has made certain loans (the "Original Loans") to the
Pledgor pursuant to the terms of a Revolving Credit and Security Agreement dated
as of December 28, 1994 (the "Original Credit Agreement");
WHEREAS, as collateral security for the Original Loans, the Pledgor
entered into an Intellectual Property Security Agreement with the Bank dated as
of December 28, 1994 (as amended, the "Security Agreement"), which Security
Agreement was filed with the United States Patent and Trademark Office on March
6, 1995 in Reel 7372, Frame 0072 with respect to patents and on May 22, 1995 in
Reel 1358, Frame 0758 with respect to trademarks;
WHEREAS, the Pledgor has requested that the Bank amend certain
provisions of the Original Credit Agreement pursuant to the terms of a certain
Amended and Restated Revolving Credit and Security Agreement dated of even date
herewith (the Original Credit Agreement as so amended and as may be further
amended, restated, increased or modified from time to time is herein
collectively referred to as the "Credit Agreement");
WHEREAS, the Pledgor acknowledges that it has been benefitted directly
and indirectly by the Original Loans and will continue to be benefitted directly
and indirectly by the Loans (as defined in the Credit Agreement) made pursuant
to the Credit Agreement; and
WHEREAS, the Bank is willing to modify the terms of the Original Credit
Agreement and to make the Loans provided for in the Credit Agreement upon the
condition, among others, that the Pledgor enter into this Agreement to secure
all of the Obligations (as defined in the Credit Agreement) of the Pledgor to
the Bank under the Credit Agreement.
NOW, THEREFORE, for and in consideration of the premises and the Credit
Agreement and the Loans made by the Bank to the Pledgor and other good and
valuable consideration, the receipt of which is hereby acknowledged, and
intending to be legally bound hereby, the parties hereto covenant and agree as
follows:
1. CONFIRMATION. The Pledgor hereby agrees that the Security Agreement
and the grant of the security interest thereunder are hereby expressly ratified,
confirmed and, to the extent necessary, amended so that the term "Credit
Agreement" shall mean the Amended and Restated Revolving Credit and Security
Agreement between the Pledgor and the Bank dated as of December 31, 1996, as the
same may be amended, restated, replaced, superseded or modified from time to
time. SCHEDULES A, B, C, D, E AND F to the Security Agreement are hereby
<PAGE> 2
amended to include the additional items listed on the schedules attached hereto.
Except as expressly amended hereby, the Security Agreement shall remain in full
force and effect.
2. NO DEFAULT; REPRESENTATIONS AND WARRANTIES, ETC. The Pledgor hereby
represents and warrants to the Bank that: (a) the representations and warranties
of the Pledgor contained in the Security Agreement are true on and as of the
date hereof as if made on such date (except to the extent that such
representations and warranties expressly relate to an earlier date; (b) the
Pledgor is in compliance in all material respects with all of the terms and
provisions set forth in the Security Agreement on their part to be observed or
performed thereunder; (c) no Default or Event of Default (as such terms are
defined in the Credit Agreement) has occurred or is continuing; (d) the Pledgor
has all necessary corporate power and have taken all corporate action necessary
to make the Security Agreement, as supplemented and amended hereby, the valid
and enforceable obligation it purports to be; and (e) neither the execution nor
delivery of this Agreement or the Security Agreement, as supplemented and
amended hereby, or the consummation of any transaction contemplated hereby, nor
the fulfillment of the terms hereof, has constituted or resulted in or will
constitute or result in a breach of the provisions of the charter or by-laws of
the Pledgor, or any other agreement to which the Pledgor is a party or by which
the Pledgor is bound or any presently existing applicable law, judgment, decree
or governmental order, rule or regulation applicable to the Pledgor.
3. GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with and governed by the laws of the Commonwealth of Massachusetts
(without regard to its conflicts of laws provisions).
4. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the different parties on different counterparts, each of
which when so executed and delivered shall be an original, but all of which
shall together constitute one in the same instrument.
5. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns.
- 2 -
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
BIOSEPRA INC.
By: /s/ Robert F. Scumaci
---------------------------------------------
Name: Robert F. Scumaci
Title: Chief Financial Officer and Treasurer
FLEET NATIONAL BANK
By: /s/ Kimberly A. Martone
---------------------------------------------
Name: Kimberly A. Martone
Title: Vice President
- 3 -
<PAGE> 1
EXHIBIT 11
<TABLE>
BioSepra Inc.
STATEMENT RE COMPUTATION OF EARNINGS PER SHARE
<CAPTION>
Year Ended Year Ended Year Ended
(in thousands) December 31, 1996 December 31, 1995 December 31, 1994
----------------- ----------------- -----------------
<S> <C> <C> <C>
Weighted average number of common shares outstanding 7,832 7,004 6,326
Issuance of cheap stock and cheap stock equivalents (1) -- -- 91
----- ----- -----
Total weighted average number of common shares outstanding 7,832 7,004 6,417
===== ===== =====
<FN>
(1) Pursuant to Securities and Exchange Commission Staff Accounting Bulletin No. 83, common stock, convertible
preferred stock and warrants issued at prices below the initial public offering price of $7.00 per share
("cheap stock") during the twelve-month period immediately preceding the initial filing date of the
Registration Statement, have been included as outstanding for all periods prior to the offering, which
impact is anti-dilutive to the net loss in each period.
</TABLE>
<PAGE> 1
EXHIBIT 13
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
(In thousands, except per share amounts) 1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C>
Revenues:
Revenues from existing product sales $ 13,333 $ 9,658 $ 8,763 $ 7,022 $ 10,086
Revenues from discontinued product sales 90 2,722 2,157 -- --
License fees 900 -- -- -- --
Collaborative research and development -- 107 376 45 134
- ---------------------------------------------------------------------------------------------------------
Total revenues 14,323 12,487 11,296 7,067 10,220
- ---------------------------------------------------------------------------------------------------------
Costs and expenses:
Cost of products sold 6,338 8,344 5,933 4,423 4,735
Research and development 2,399 2,761 3,383 2,726 1,570
Selling, general and administrative 7,573 9,544 9,605 6,469 6,941
Restructuring and impairments -- 4,144 -- -- --
Purchase of in-process research and
development -- -- 3,500 -- --
- ---------------------------------------------------------------------------------------------------------
Total costs and expenses 16,310 24,793 22,421 13,618 13,246
- ---------------------------------------------------------------------------------------------------------
Loss from operations (1,987) (12,306) (11,125) (6,551) (3,026)
Other income (expense):
Interest income 186 381 443 -- 10
Interest expense (214) (448) (250) (274) (272)
Other income (expense) (105) (302) (191) (4) (32)
- ---------------------------------------------------------------------------------------------------------
Net loss $ (2,120) $(12,675) $(11,123) $ (6,829) $ (3,320)
- ---------------------------------------------------------------------------------------------------------
Net loss per common or common equivalent share $ (.27) $ (1.81) $ (1.73) -- --
Weighed average number of common and
common equivalent shares outstanding 7,832 7,004 6,417 -- --
- ---------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA:
Cash and cash equivalents $ 4,142 $ 3,693 $ 7,983 $ 50 $ 40
Working capital 3,648 (1,269) 6,972 1,624 2,864
Total assets 23,169 23,824 35,605 18,341 21,506
Long-term debt and capital leases 1,141 1,308 359 85 136
Shareholders' equity 14,442 10,914 23,010 14,891 16,969
</TABLE>
<PAGE> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Overview
BioSepra Inc. and subsidiaries (the "Company") develop, manufacture and
sell chromatographic media and instruments for use by biopharmaceutical
companies in the purification and production of biopharmaceuticals. The Company
offers a line of chromatographic products (media, hardware, software and
instruments) that enable biopharmaceutical companies to reduce the time and cost
required to develop and manufacture biopharmaceuticals. The media products are
based on both its recently developed HyperD(TM) media and established
technologies.
In March 1995, the Company and Beckman Instruments, Inc. ("Beckman")
entered into a joint distribution and development agreement. The agreement was
extended in July 1996, allowing Beckman to market on a worldwide exclusive basis
for a period of three years certain HyperD chromatographic columns and provides
for the development (in accordance with certain milestones) and manufacture by
the Company of chromatographic systems for Beckman. Under the agreement, Beckman
made payments of $1,400,000 and $3,500,000 in 1996 and 1995, respectively. The
Company may be required to return to Beckman part of such payments made by
Beckman under the agreement if the Company fails to meet such milestones or if
the Company terminates Beckman's right to use and sell licensed products,
including HyperD media, because a court finds that any such licensed products
infringe any third party patents.
In June 1995, The Company announced a major cost-reduction program that
involved the consolidation of its facilities and a significant reduction in the
number of employees. The purpose of the program was to enable the Company to
focus on the process development and process segments of the biopharmaceutical
market. In connection with this program in July 1995, the Company completed the
sale of Biopass S.A. ("Biopass"), one of its French subsidiaries. As part of the
cost-reduction program, the Company recorded restructuring and impairment
charges totaling $4,144,000 in the second quarter of 1995. Of this amount
$1,180,000 represents severance and benefits related to the reduction in
workforce in the U.S. and France, and $2,964,000 relates to impairment of assets
and intangibles to net realizable value. The Company has completed its reduction
in workforce related to this cost-reduction program resulting in the termination
of 55 employees consisting of research and development, administrative,
production and marketing/sales personnel. The Company has paid $1,165,000 of the
costs relating to this employee reduction as of December 31, 1996, and expects
the remaining severance and medical payments to be completed in 1997. There can
be no assurances that this program will not result in loss of customers or
temporary sales or production disruptions that could have a materially adverse
effect on the Company's operations. See "Future Operating Results".
In July 1995, the Company completed the sale of its subsidiary, Biopass,
while the Company retained the chromatography column technology that it assumed
when it acquired Biopass in 1994. The results of Biopass' operations through
July 19, 1995, have been included in the consolidated results for the year ended
December 31, 1995. The revenues, loss from operations and net loss for Biopass
for this period are $1,878,000, $1,208,000 and $44,000, respectively. The loss
of $2,964,000, on the sale of Biopass, was recorded in restructuring and
impairment costs in the income statement for the year ended December 31, 1995.
On, March 29, 1996, the Company entered into a $5,500,000 Convertible
Subordinated Note (the Note) with Sepracor. Principal and interest were due and
payable on March 29, 2000. The Note bore interest per annum at Sepracor's
borrowing rate less 1/2%. On June 10, 1996, Sepracor exercised it's option to
convert the outstanding principal and interest on the Note into shares of common
stock. The Note was converted into one share of common stock for every $4.05 of
principal and interest outstanding resulting in 1,369,788 shares of common stock
issued to Sepracor. After the conversion, Sepracor owns approximately 64% of the
outstanding common stock of the Company.
In January 1996, the Company entered into a promissory note for $350,000
with Sepracor. This amount is payable to Sepracor over sixty monthly
installments and does not bear interest. The Company used the funds for
leasehold improvements to the Company's facilities. As of December 31, 1996,
$327,000 was outstanding under the promissory note.
<PAGE> 3
The Company's primary operations are located in facilities leased in France
and in facilities subleased from Sepracor in the United States for which the
Company is charged a portion of Sepracor's rent and operating costs based upon
the amount of space it occupies. In addition, Sepracor provides support
services, including laboratory support, data processing, accounting and finance,
legal and other administrative functions. Sepracor allocates a portion of the
costs of these activities to the Company based upon its pro rata usage of such
services.
Years Ended December 31, 1996, 1995 and 1994
The Company's revenue increased to $14,323,000 in 1996 compared to
$12,487,000 in 1995 and $11,296,000 in 1994. The increase in sales from 1995 to
1996 is the result of (i) increased media sales, (ii) new sales generated
through the joint distribution and development agreement with Beckman and (iii)
licensing revenue recognized as the result of achieving certain milestones
related to the Beckman agreement. Included in 1995 revenue was $2,722,000 of
sales from certain low margin hardware products which were discontinued in
mid-1995. The increase in sales from 1994 to 1995 is the result of increased
instrument product sales, primarily related to sales of the ProSys(TM) line of
products, which was introduced in the fourth quarter of 1994. These increased
sales were offset by a decrease in media sales as a result of changes in order
patterns of certain production scale media customers.
Costs of products sold decreased to $6,338,000 in 1996 compared to
$8,344,000 in 1995 and $5,933,000 in 1994, representing 47% , 67% and 54% of
product revenue, respectively. The reduced cost of goods sold as a percentage of
product sales in 1996, as compared to both 1995 and 1994 was due primarily to
favorable product mix, the discontinuation of certain low margin hardware
products and to the transition of manufacturing facilities from external
contract to internal assembly. The increased cost of goods sold as a percentage
of product sales from 1994 to 1995 is attributable to unfavorable product mix,
and to a lesser extent, costs associated with the closing and transition of
manufacturing facilities. Management expects fluctuations in gross margin as
changes in product mix occur from period to period.
Research and development expenses decreased to $2,399,000 in 1996 from
$2,761,000 in 1995 and $3,383,000 in 1994. The reduction in expenses from 1995
to 1996 is primarily the result of further commercialization of media and
instrument products and to a lesser extent, the cost reduction program announced
in June 1995. The reduction in expenses from 1994 to 1995 is primarily the
result of reduced development expenses for the Company's ProSys Workstation
which was introduced in the fourth quarter of 1994, and to a lesser extent, the
cost-reduction program announced in June 1995, as described above. In addition,
upon acquisition of Biopass in September 1994, the Company recorded a
non-recurring charge of $3,500,000 for the purchase of in-process research and
development representing that portion of the purchase price paid for Biopass's
ongoing research and development projects that had not yet resulted in
commercially viable products.
Selling, general and administrative expenses decreased to $7,573,000 in
1996 from $9,544,000 in 1995 and $9,605,000 in 1994. The reduction in expenses
from 1995 to 1996 was due primarily to the cost reduction program announced in
June 1995 and reduced legal expenses associated with the lawsuits brought
against the Company by PerSeptive Biosystems, Inc. ("PerSeptive"), as further
described below. The decrease in 1996 was partially offset by the write off in
1996 of certain technologies acquired from BioPass. The reduction in expenses
from 1994 to 1995 was due primarily to the cost reduction program announced in
June 1995. The decrease in 1995 was partially offset by increased legal expenses
incurred in defense of lawsuits brought against the Company by PerSeptive, as
further described below, and to a lesser extent increased goodwill amortization
related to the purchase of Biopass.
The Company also incurred $4,144,000 in restructuring and impairment
charges in 1995 as a result of the implementation of its cost-reduction program,
as announced in June 1995, as further detailed herein.
Interest income decreased to $186,000 in 1996 from $381,000 in 1995 and
$443,000 in 1994. The decrease from 1995 to 1996 was due primarily to changes in
the level of cash investments throughout the year and to changes in the interest
rates earned on such investments. The decrease from 1994 to 1995 was due
primarily to the decreased levels of cash investments and changes in the
interest rates earned on such investments. Interest expense decreased to
$214,000 in 1996 from $448,000 in 1995 and from $250,000 in 1994. The decrease
in 1996 from both 1995 and 1994 is primarily attributed to decreasing levels of
borrowings and changes in the interest rates charged on such borrowings.
Other expense, net, decreased to $105,000 in 1996 from $302,000 in 1995 and
$191,000 in 1994. The decrease in 1996 was due primarily to costs incurred to
sell BioPass in 1995 and the net effect of foreign currency gains and losses due
<PAGE> 4
to changes in the value of the U.S. dollar. Other expense, net, increased in
1995 from 1994 due primarily to costs incurred to sell Biopass.
Other
On March 3, 1997, the Financial Accounting Standards Board issued SFAS No.
128, Earnings Per Share. SFAS No. 128 establishes standards for computing and
presenting earnings per share and applies to entities with publicly held common
stock or potential common stock. This statement is effective for fiscal years
ending after December 15, 1997 and early adoption is not permitted. When
adopted, the statement will require restatement of prior years' earnings per
share. The Company will adopt this statement for its fiscal year ended December
31, 1997. In addition, the Company believes that the adoption of SFAS No. 128
will not have a material effect on its financial statements.
Litigation
The Company and Sepracor are defendants in three lawsuits brought by
PerSeptive Biosystems, Inc., a competitor of the Company, in the United States
District Court for the District of Massachusetts. In actions commenced in
October 1993 and January 1995, PerSeptive has alleged that the Company's and
Sepracor's manufacture and sale of HyperD chromatography media infringe four of
PerSeptive's United States patents. PerSeptive is seeking unspecified monetary
damages as well as injunctive relief. In a separate action, PerSeptive has
alleged that certain statements made by the Company and Sepracor with respect to
the performance of HyperD media, performance of PerSeptive's POROS(R) media, and
the internal structures of POROS and HyperD media, including statements made in
the Company's Prospectus dated March 24, 1994, constitute false advertising.
PerSeptive also asserts that an additional perfusion chromatography patent has
been allowed, and that another patent related to perfusion chromatography has
been issued. The new perfusion chromatography patent contains claims similar to
the other patents the Company and Sepracor are alleged to have infringed.
The Company has received an opinion of its patent counsel, Pennie &
Edmonds, to the effect that a properly informed court should conclude the
manufacture, use and/or sale by the Company or its customers of the present
HyperD products do not infringe any valid claims of the three United States
patents held by PerSeptive relating to "perfusion chromatography." Allegations
have also been made that another United States patent which relates to the
chemistry of certain coatings applied during the manufacture of HyperD (the
"coatings patent"), is infringed by the manufacture, sale or use of HyperD. The
Company and Sepracor have asserted a counterclaim charging PerSeptive with
unfair competition.
On January 9, 1996, the United States District Court for the District of
Massachusetts in part granted Sepracor and the Company's request of summary
judgment with respect to three of PerSeptive's patents concerning "Perfusion
Chromatography" (the "January 9 Order"). The Court ruled that persons in
addition to those named in the three "perfusion" patents were inventors of the
alleged inventions claimed in those patents. This ruling may ultimately dispose
of PerSeptive's claims concerning the "perfusion" patents, depending on the
Court's resolution of any effort to correct the patents and the outcome on
appeal by PerSeptive of the January 9 Order or appeal by any party of any ruling
regarding correction of inventorship.
In its January 9 Order, the Court ruled that PerSeptive's claims related to
the three "perfusion" patents would be dismissed on January 19, 1996, if
PerSeptive had not requested correction of inventorship by that date. The Court
postponed this deadline pending its ruling on PerSeptive's request for
certification of an immediate appeal of the January 9 Order to the United States
Court of Appeals for the Federal Circuit. On March 12, 1996, the Court denied
PerSeptive's motion for immediate appeal and scheduled a hearing on deceptive
intent on the part of PerSeptive, if PerSeptive moves to correct inventorship,
for April 29, 1996 (the "March 12 Order"). The Court required PerSeptive to make
any motion to correct by March 31, 1996. In response, PerSeptive requested that
the Court vacate its January 9 and March 12 Orders, or in the alternative,
correct the patents in such a way that the presently unnamed inventors obtained
no rights to license the patents. The Court denied PerSeptive's motion to vacate
and scheduled a hearing on PerSeptive's motion to correct the patents which was
completed in August 1996. The District Court has not rendered a decision based
on the August hearing.
According to the January 9 and March 12 Orders, PerSeptive could correct
inventorship if it bears the burden of proving that its initial designation of
inventors was done without deceptive intent. PerSeptive has asserted that no
motion to correct need be filed, and that the Company and Sepracor bear the
burden of proving deceptive intent. PerSeptive also asserts that the unnamed
inventors should not be added to the patents or given any right to license the
patents, and that as a matter of law they did not err in not naming the two
unnamed inventors, and did not name inventors with deceptive intent.
<PAGE> 5
Sepracor and The Company contend that if PerSeptive is able to correct
inventorship, the presently unnamed inventors would have independent rights to
license the "perfusion" patents unless the Court ruled that the unnamed
inventors are not entitled to such rights. If inventorship could not be
corrected, the "perfusion" patents would be held invalid, subject to appeal by
PerSeptive. A decision by the district Court to correct inventorship, or
preventing the unnamed inventors from licensing the "perfusion" patents, would
be subject to appeal by any party. PerSeptive could appeal any decision
invalidating the patents for willful misdesignation of inventors.
There can be no assurance that the Company and Sepracor will prevail in the
pending litigation, and an adverse outcome in any of the patent infringement
actions on any of the chromatography patents would have a materially adverse
effect on the Company's future business and operations. The Company would be
required to repay to Beckman part of certain payments if the Company terminates
Beckman's right to use and sell HyperD media because a court finds HyperD media
infringes any third party patents.
Substantial funds have been and continue to be expended in connection with
the defense of the litigation. Sepracor has agreed to control the defense of the
litigation, and Sepracor and the Company share equally in expenses, net of
insurance payments. In addition, in the event of any settlement or judgment
adverse to the Company, Sepracor has agreed to indemnify the Company from and
against any damages that the Company is required to pay with respect to its
manufacture, use or sale of HyperD media products occurring prior to March 24,
1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations to date primarily from net proceeds
provided from the Company's initial public offering, funds provided by Sepracor
and equipment financing leases. As of December 31, 1996, the Company had
$4,142,000 of cash and cash equivalents and $3,648,000 of working capital. Cash
and cash equivalents of for the year ended December 31, 1996 increased by
$2,063,000. In 1996, the Company generated cash from operations of $195,000. The
improvement in cash provided by operations is primarily the result of the cost
reduction program announced in 1995 and improved working capital management. The
Company generated cash from financing activities of $3,190,000. The improvement
in cash provided by financing activities is primarily due to converting the
$5,500,000 Note payable to Sepracor into 1,369,788 shares of the Company's
common stock. The proceeds from the conversion of the Note were offset by
repayment of borrowings of $2,776,000. The Company used cash of $1,326,000 in
investing activities primarily for the purchase of property and equipment.
As of December 31, 1996, there was $1,025,000 outstanding under an
available credit facility with a French commercial bank which is currently
guaranteed by Sepracor. In addition, Sepracor guarantees certain capital lease
obligations of the Company. The outstanding balance of the capital lease
obligation guaranteed by Sepracor was $235,000 as of December 31, 1996.
On December 31, 1996, the Company, in collaboration with Sepracor and
certain of its other subsidiaries, amended its revolving credit agreement under
which the Company may borrow up to $3,000,000, subject to limitations defined in
the agreement and on borrowings outstanding by other companies. There were no
borrowings outstanding under this agreement as of December 31, 1996. Interest is
payable monthly in arrears at prime (8.25% at December 31, 1996) or, at the
Company's discretion, the LIBOR rate (5.53% at December 31, 1996) plus 1.75%.
The Company is required to pay a commitment fee equal to 1/2% per annum on the
average unused line. The agreement requires the Company to maintain certain
financial ratios and levels of cash balances, net worth and profitability. This
facility is available until April 30, 1999 and is collateralized by the personal
property of the Company. Sepracor is guarantor of any amounts outstanding under
the agreement.
Based upon the Company's current operating plan, the Company believes that
its current cash balance is sufficient to fund the Company's operations into
1998. The Company's cash requirements may vary materially from those now planned
because of factors such as the timing of significant product orders, commercial
acceptance of new products, patent developments, the introduction of competitive
products and acquisitions.
<PAGE> 6
FUTURE OPERATING RESULTS
Certain information contained in this Annual Report, including information
with respect to the ability of the Company to obtain additional financing within
the next twelve months, the success of the Company's HyperD media and the ProSys
Workstation and information with respect to the Company's other plans and
strategy for its business, including its plans to introduce products for use in
producing monoclonal antibody-based drugs, consist of forward-looking
statements. Important factors that could cause actual results to differ
materially from the forward-looking statements include the following:
The Company and Sepracor are defendants in three lawsuits brought by
PerSeptive, a competitor of the Company, alleging that the Company's and
Sepracor's manufacture and sale of HyperD chromatography media infringe four of
PerSeptive's United States patents dealing with liquid chromatography.
PerSeptive is seeking unspecified monetary damages as well as injunctive relief.
In response to certain allegations, the Company and Sepracor have asserted a
counterclaim charging PerSeptive with unfair competition. See "Results of
Operations" herein. There can be no assurance that the Company or Sepracor will
prevail in pending litigation, and an adverse outcome in any of the patent
infringement actions on any of the chromatography patents would have a
materially adverse effect on the Company's future business and operations.
The future success of the Company will depend largely on the success of two
product lines: HyperD media, which was introduced in March 1993, and the
chromatography workstation product line, which was introduced in late 1994.
Sales of HyperD media have been, and are expected to continue to be, affected
adversely by the pending litigation with PerSeptive described above. There can
be no assurance that the Company's HyperD media or chromatography workstation
product line will achieve commercial success, and any failure of such products
to achieve such success would have a materially adverse effect on the business
and results of operations of the Company.
The Company could require additional funds in 1997 if, and to the extent,
it fails to achieve its operating plan, which contemplates significant increases
in sales of HyperD media and chromatography workstation product lines. At such
time, as the Company requires additional financing, there can be no assurance
that such financing will be available on favorable terms, if at all. If the
Company requires additional financing and such capital is not available on
acceptable terms from third parties, Sepracor may, but is not obligated to,
guarantee or provide such financing.
Sales of chromatographic media products, such as HyperD media, typically
involve long lead times, and customers generally evaluate several different
media products before committing to a volume purchase. Also, customers are
typically reluctant to change media used in the production process for a
pharmaceutical previously approved by the Federal Drug Administration ("FDA")
because such a change would, in certain cases, require additional FDA approval.
For these reasons, the Company's future success will depend in large part on its
ability to sell its products to customers at the early stage of their product
development cycles. There can be no assurance that the Company will be able to
compete effectively against its existing or future competitors.
In March 1995, the Company and Beckman Instruments, Inc. ("Beckman")
entered into a joint distribution and development agreement, as discussed above.
The Company may be required to return to Beckman all or part of payments made by
Beckman under the agreement if the Company fails to meet certain milestones or
if the Company terminates Beckman's right to use and sell licensed products,
including HyperD media, because a court finds that any such licensed products
infringe any third-party patents.
In June 1995, the Company announced a major cost-reduction program that
involved the consolidation of its facilities and a significant reduction in the
number of employees, and in July 1995, in connection with this program, the
Company completed the sale of Biopass, one of its French subsidiaries. The
Company announced that the principal purpose of the program was to enable it to
focus on the process development and process segments of the biopharmaceutical
market. In connection with this program, the Company recorded restructuring and
impairment charges totaling $4,144,000 in the second quarter of 1995. There can
be no assurance that this program will not result in loss of customers or
temporary sales or production disruptions that could have a materially adverse
effect on the Company's operations.
Because of the foregoing factors, the Company believes that
period-to-period comparisons of its financial results are not necessarily
meaningful and it expects that its results of operations may fluctuate from
period to period in the future.
<PAGE> 7
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of BioSepra Inc. and subsidiaries:
We have audited the accompanying consolidated balance sheet of BioSepra
Inc. (a Delaware Corporation) and subsidiaries as of December 31, 1996, and the
related consolidated statement of operations, shareholders' equity and cash
flows for the year then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit. The consolidated balance sheet
of BioSepra Inc. and subsidiaries as of December 31, 1995, and the related
consolidated statements of operations, shareholders' equity and cash flows for
the two years in the period then ended were audited by other auditors whose
report dated February 27, 1996 (except as to information contained in the
fourth paragraph of Note H and the seventh paragraph of Note C for which the
date is March 29, 1996), expressed an unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of BioSepra Inc. and
subsidiaries as of December 31, 1996 and the results of their operations and
their cash flows for the year then ended in conformity with generally accepted
accounting principles.
/s/ Arthur Andersen LLP
Boston, Massachusetts
January 29, 1997
<PAGE> 8
BioSepra Inc.
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
- ---------------------------
DECEMBER 31, (In thousands, except par value amounts) 1996 1995
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (Note B) $ 4,142 $ 2,079
Cash held in escrow (Note I) -- 1,614
Marketable securities 360 --
Restricted Cash 167 --
Accounts receivable (less allowance for doubtful
accounts, $233 in 1996 and $92 in 1995) 3,030 3,495
Inventories (Note D) 3,481 3,120
Prepaid and other current assets 54 25
- --------------------------------------------------------------------------------------------------
Total current assets 11,234 10,333
- --------------------------------------------------------------------------------------------------
Property and equipment, net (Note E) 2,168 2,139
Goodwill, net 9,254 9,892
Other assets 513 1,460
- --------------------------------------------------------------------------------------------------
Total assets $ 23,169 $ 23,824
- --------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable and current portion of long-term debt
and capital leases (Notes F and G) $ 497 $ 2,781
Accounts payable 1,365 966
Related parties payable (Note C) 157 812
Accrued expenses 1,555 1,387
Accrued expenses relating to acquisition (Note I) 352 371
Accrued restructuring (Note K) 14 171
Deferred contract revenue (Note L) 3,646 3,500
Acquisition payable (Note I) -- 1,614
- --------------------------------------------------------------------------------------------------
Total current liabilities 7,586 11,602
- --------------------------------------------------------------------------------------------------
Long-term debt and capital leases, net of current portion (Notes F and G) 1,141 1,308
Commitments and contingencies (Notes G and H)
- --------------------------------------------------------------------------------------------------
Total liabilities 8,727 12,910
- --------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY (Note O)
Preferred stock, $0.01 par value, 1,000 shares authorized;
none issued and outstanding -- --
Common stock, $0.01 par value, 12,000 shares authorized;
issued and outstanding 8,416 shares in 1996
and 7,021 shares in 1995 84 70
Additional paid-in capital 40,485 35,085
Unearned compensation, net (322) (685)
Accumulated deficit (25,918) (23,798)
Cumulative translation adjustments 113 242
- --------------------------------------------------------------------------------------------------
Total shareholders' equity 14,442 10,914
- --------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 23,169 $ 23,824
- --------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 9
BioSepra Inc.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
- -------------------------------------
FOR THE YEARS ENDED DECEMBER 31,(In thousands, except per share amounts) 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES (NOTE B):
Product sales $13,423 $ 12,380 $ 10,920
License fees 900 -- --
Related party collaborative research and development -- 107 146
Collaborative research and development -- -- 230
- ------------------------------------------------------------------------------------------------------------
Total revenues 14,323 12,487 11,296
- ------------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES:
Cost of products sold 6,338 8,344 5,933
Research and development 2,399 2,761 3,383
Selling, general and administrative 7,573 9,544 9,605
Restructuring and impairment costs (Notes J and K) -- 4,144 --
Purchase of in-process research and development (Note I) -- -- 3,500
- ------------------------------------------------------------------------------------------------------------
Total costs and expenses 16,310 24,793 22,421
- ------------------------------------------------------------------------------------------------------------
Loss from operations (1,987) (12,306) (11,125)
OTHER INCOME (EXPENSE):
Interest income 186 381 443
Interest expense (214) (448) (250)
Other income (expense) (105) (302) (191)
- ------------------------------------------------------------------------------------------------------------
Net loss $(2,120) $(12,675) $(11,123)
- ------------------------------------------------------------------------------------------------------------
Net loss per common and common equivalent share (Note B) $ (.27) $ (1.81) $ (1.73)
Weighted average number of common and common equivalent shares outstanding 7,832 7,004 6,417
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 10
BioSepra Inc.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
- -----------------------------------------------
<TABLE>
<CAPTION>
Additional Unearned Accumu- Cumulative Total
FOR THE YEARS ENDED DECEMBER 31, Common Stock Paid-in Compen- lated Translation Shareholders'
1996, 1995 AND 1994 (IN THOUSANDS) Shares Amount Capital sation Deficit Adjustment Equity
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 4,000 $40 $ 14,970 -- -- $(119) $ 14,891
- ----------------------------------------------------------------------------------------------------------------------------
Investment by Parent Company -- -- 1,042 -- -- -- 1,042
Issuance of common stock options -- -- 1,131 (1,131) -- -- --
Unearned compensation amortization -- -- -- 223 -- -- 223
Issuance of common stock in initial
public offering (net of issuance
costs totaling $3,106) 3,000 30 17,894 -- -- -- 17,924
Net loss -- -- -- -- (11,123) -- (11,123)
Change in translation adjustment -- -- -- -- -- 53 53
- ----------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 7,000 70 35,037 (908) (11,123) (66) 23,010
- ----------------------------------------------------------------------------------------------------------------------------
Unearned compensation amortization -- -- -- 223 -- -- 223
Issuance of common stock under
stock plans 21 -- 48 -- -- -- 48
Net loss -- -- -- -- (12,675) -- (12,675)
Change in translation adjustment -- -- -- -- -- 308 308
- ----------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 7,021 70 35,085 (685) (23,798) 242 10,914
- ----------------------------------------------------------------------------------------------------------------------------
Unearned compensation amortization
and termination -- -- (202) 363 -- -- 161
Issuance of common stock under
stock plans 25 -- 68 -- -- -- 68
Issuance of common stock upon
conversion of subordinated
convertible note 1,370 14 5,534 -- -- -- 5,548
Net loss -- -- -- -- (2,120) -- (2,120)
Change in translation adjustment -- -- -- -- -- (129) (129)
- ----------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 8,416 $84 $ 40,485 $ (322) $(25,918) $ 113 $ 14,442
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 11
<TABLE>
<CAPTION>
BioSepra Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------
FOR THE YEARS ENDED DECEMBER 31, (In thousands) 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(2,120) $(12,675) $(11,123)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization 2,400 2,037 1,503
Provision for doubtful accounts 142 269 61
Loss on disposition of long-term assets 10 10 45
Restructuring and impairment costs -- 2,629 --
Purchase of in-process research and development -- -- 3,500
Changes in operating assets and liabilities, net of effects of disposed
business:
Accounts receivable 230 (393) (2,790)
Inventories (364) 1,676 (265)
Prepaid and other current assets (30) 74 (427)
Accounts payable 443 (1,501) 1,501
Related parties payable (654) 567 247
Accrued expenses 208 (352) 906
Accrued expenses relating to acquisition (13) (170) 191
Accrued restructuring (204) 162 --
Deferred contract revenue 147 2,757 (110)
- ---------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 195 (4,910) (6,761)
- ---------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of property and equipment (1,018) (404) (948)
Proceeds from sales of equipment 147 34 2
Decrease in notes receivable from employees -- -- 100
Increase in marketable securities (360) -- --
Increase in restricted cash (170) -- --
Decrease (Increase) in other assets 75 (66) (303)
Cash paid for purchase of Biopass S.A., net of cash acquired -- -- (3,306)
Cash purchase price of Biopass S.A. held in escrow 1,614 -- (1,483)
Decrease in acquisition payable (1,614) -- --
- ---------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (1.326) (436) (5,938)
- ---------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from investment by parent company 5,548 -- 1,042
Net proceeds from initial public offering -- -- 17,924
Proceeds from issuance of common stock 68 48 --
Borrowings (repayments) under line of credit agreements (2,299) (1,701) 1,706
Long-term borrowings 350 1,503 73
Repayments on long-term borrowings (477) (381) (137)
- ---------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 3,190 (531) 20,608
- ---------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash equivalents 4 (27) 24
- ---------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 2,063 (5,904) 7,933
Cash and cash equivalents at beginning of year 2,079 7,983 50
- ---------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year 4,142 $ 2,079 $ 7,983
- ---------------------------------------------------------------------------------------------------------------------
Supplemental schedule of cash flows information:
Cash paid for interest $ 231 $ 431 $ 214
Acquisition of equipment under capital lease $ 61 $ 347 $ 90
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
A. NATURE OF THE BUSINESS:
BioSepra Inc. and subsidiaries (the "Company") was established in December 1993
as a wholly owned subsidiary of Sepracor Inc. ("Sepracor"). Effective as of
January 1, 1994, Sepracor transferred to the Company the chromatography business
of Sepracor, including all of the outstanding shares of Sepracor S.A. (now
BioSepra S.A., a wholly-owned subsidiary of the Company). The Company develops,
manufactures and sells chromatographic media and process design instruments for
use by pharmaceutical companies in the purification of biopharmaceuticals.
Operating losses from inception through the January 1, 1994, effective date of
Sepracor's transfer of assets and technology, were recorded as a reduction in
the net balance advanced to the Company by Sepracor. As of January 1, 1994, the
Company entered into various agreements wherein Sepracor agreed to provide
certain services and facilities to the Company in accordance with the terms
described in Note C. Sepracor provided the working capital to fund the Company's
business until the closing of the initial public offering in March, 1994.
The 1994 financial statements include the results of operations and net assets
of Biopass S.A. since the date of acquisition, September 1994. The acquisition
was accounted for under the purchase method of accounting. The 1995 financial
statements include the results of operations of Biopass S.A. through July 19,
1995, when the sale of Biopass S.A. was completed.
The Company is subject to risks common to companies in its industry including,
but not limited to, development by the Company or its competitors of new
technological innovations, dependence on key personnel and protection of
proprietary technology.
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION
Consolidated financial statements include the accounts of the Company and its
wholly owned subsidiaries. All material intercompany balance and transactions
have been eliminated in consolidation.
TRANSLATION OF FOREIGN CURRENCIES
The accounts of the Company's international subsidiaries are translated in
accordance with Statement of Financial Accounting Standards (SFAS) No. 52,
"Foreign Currency Translation". Accordingly, the assets and liabilities of the
Company's international subsidiaries are translated into U.S. dollars using the
exchange rate at each balance sheet date. Statement of operations amounts are
translated at average exchange rates prevailing during the period. The resulting
translation adjustment is recorded in the cumulative translation adjustment
account in shareholders' equity. Foreign exchange transaction gains and losses
are included in other expense in the accompanying statement of operations.
USE OF ESTIMATES
The preparation of financial statements, in conformity with generally accepted
accounting principles, requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS AND MARKETABLE SECURITIES
The Company applies SFAS No. 115, "Accounting for Certain Investments in Debt
and Equity Securities". The Company considers all highly liquid investments with
an original maturity of three months or less to be cash equivalents. At December
31, 1996 cash equivalents primarily consist of $1,763,000 in a repurchase
agreement and $1,612,000 in a money market instrument. At December 31, 1995 cash
equivalents primarily consist of $145,000 in a repurchase agreement and
$1,736,000 in a money market instruments.
The Company's marketable securities are classified as held-to-maturity and are
recorded at amortized cost, which approximates fair market value. At December
31, 1996, marketable securities consisted of a bond with original maturity of
less than six months.
<PAGE> 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
RESTRICTED CASH
The Company has $167,000 of restricted cash at December 31, 1996 held in an
escrow account at a French commercial bank. The restricted cash represents the
portion of a contract advance for the purchase of materials to be used in the
manufacturing process for a customer's product. The amount due the Company is
held as a guarantee for 60 days after the product is shipped to the customer.
CONCENTRATION OF CREDIT RISK
SFAS No. 105, "Disclosure of Information About Financial Instruments with
Off-Balance-Sheet Risk and Financial Instruments with Concentrations of Credit
Risk", requires disclosure of any significant off-balance-sheet and credit risk
concentrations. 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 subject the
Company to credit risk consist primarily of trade accounts receivable. Customers
with amounts due to the Company that represent greater than 10% of the accounts
receivable balance are as follows:
<TABLE>
<CAPTION>
Year Ended December 31: 1996 1995
-------------------------------------------------------
<S> <C> <C>
Customer A 26% 11%
Customer B 15% --
Customer C -- 16%
</TABLE>
Revenue from significant customers are as follows:
<TABLE>
<CAPTION>
Year Ended December 31: 1996 1995 1994
--------------------------------------------------------------
<S> <C> <C>
Customer A 25% -- --
Customer B 13% -- 20%
Customer C -- 11% --
</TABLE>
For financial information by geographic area see Note N.
SOFTWARE DEVELOPMENT COSTS
In accordance with the provision of SFAS No. 86, "Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed", the Company
capitalized $199,000 and $518,000 of software costs in 1995 and 1994,
respectively. The costs are being amortized over the expected number of units to
be shipped. Amortization of $311,000, $165,000 and $19,000 was charged to cost
of sales in 1996, 1995 and 1994, respectively. There were no capitalizable
software costs in 1996.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Costs of major additions and
betterments are capitalized; maintenance and repairs which do not improve or
extend the life of the respective assets are charged to operations. On disposal,
the related cost and accumulated depreciation or amortization are removed from
the accounts and any resulting gain or loss is included in the results of
operations. Depreciation is computed using the straight-line method over the
estimated useful lives of the assets. All laboratory, manufacturing and office
equipment have estimated useful lives of three to ten years. Leasehold
improvements are amortized over the shorter of the estimated useful lives of the
improvements or the remaining term of the lease.
GOODWILL AND OTHER ASSETS
Goodwill is amortized using the straight-line method over 20 years. Accumulated
amortization was approximately $3,510,000 and $2,872,000 in 1996 and 1995,
respectively. The Company capitalizes all significant costs associated with the
successful filing of a patent application as a component of other assets in the
accompanying consolidated balance sheet. Patent costs are being amortized over
their estimated useful lives, not to exceed 17 years. Accumulated amortization
for patent costs was approximately $370,000 and $240,000 in 1996 and 1995,
respectively. Purchased technology is recorded at cost, is included in other
assets in the accompanying consolidated balance sheet and consisted of Biopass
S.A.'s chromatography columns technology and patents. Amortization was provided
over the estimated life of three years. Accumulated amortization was
approximately $148,000 in 1995.
<PAGE> 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
The Company adopted SFAS 121, "Accounting for the Impairment of Long-Lived
Assets to be Disposed Of" in 1995. SFAS 121 requires that long-lived assets be
reviewed for impairment by comparing the fair value of the assets with their
carrying amount. Any write-downs are to be treated as permanent reductions in
the carrying amount of the assets. Accordingly, the Company evaluates the
possible impairment of goodwill and other assets at each reporting period based
on the discounted projected cash flows of the related asset. In 1996, the
Company wrote off the remaining unamortized portion of the technology retained
as part of the sale of BioPass of approximately $741,000.
REVENUE RECOGNITION
Revenues from media and small-scale bioprocess instrument sales are recognized
when goods are shipped, and from production-scale systems when 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 contract revenue represents
progress payments received from customers pursuant to contract revenues not yet
recorded.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed in the period incurred.
NET LOSS PER COMMON SHARE AND COMMON EQUIVALENT SHARE
The net loss per common share for the years ended December 31, 1996, 1995 and
1994 are computed based upon the weighted average number of common shares
outstanding and gives effect to certain adjustments described below. Common
equivalent shares are not included in the per share calculations where the
effect of their inclusion would be antidilutive, except that, in accordance with
Securities and Exchange Commission requirements, common and common equivalent
shares issued during the twelve-month period prior to the Company's initial
public offering have been included in the calculation as if they were
outstanding from January 1, 1994, to the Company's initial public offering in
March, 1994.
OTHER
On March 3, 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings Per Share". SFAS No. 128 establishes standards for computing and
presenting earnings per share and applies to entities with publicly held common
stock or potential common stock. This statement is effective for fiscal years
ending after December 15, 1997 and early adoption is not permitted. When
adopted, the statement will require restatement of prior years' earnings per
share. The Company will adopt this statement for its fiscal year ended December
31, 1997. In addition, the Company believes that the adoption of SFAS No. 128
will not have a material effect on its financial statements.
C. ALLOCATIONS FROM AND AGREEMENTS WITH SEPRACOR AND HEMASURE:
Since the Company's inception, all facilities and support services of U.S.
operations of the Company, including administrative support, have been provided
by Sepracor. For these facilities and services, the Company was charged
approximately $513,000, $584,000 and $481,000 for the years ended December 31,
1996, 1995 and 1994, respectively. These charges represent an allocation of the
Company's proportionate share of Sepracor's overhead costs using formulas which
management believes are reasonable based upon the Company's use of such
facilities and services. All other costs of United States operations, including
payroll costs, are directly attributable to the Company. Net amounts payable to
Sepracor at December 31, 1996 and 1995 were $157,000 and $818,000, respectively.
Prior to March 1994, these amounts had been paid by Sepracor for the Company.
Under a Corporate Services Agreement, commencing January 1, 1994, the Company
receives certain basic support services from Sepracor in exchange for a variable
monthly payment, adjusted annually. These basic services include laboratory
support as well as assistance with certain administrative services, including
recruiting and benefits administration, purchasing, data processing, risk
management, corporate communications, patents and legal, accounting, finance and
treasury activities. The Company may request additional services, if available,
from Sepracor for which it has agreed to pay Sepracor the fully allocated costs
of those services. The Service Agreement is renewable for two one-year
increments by the Company and is cancelable by the Company with 60 days notice.
The fixed monthly payments to Sepracor for basic support services under the
Corporate Services Agreement in 1996 were $17,315 for a total allocated cost of
approximately $208,000. In 1995, the monthly payments to Sepracor ranged from
$15,200 to $17,000, for a
<PAGE> 15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
total allocated cost of $197,000. In 1994, the fixed monthly payments to
Sepracor were $18,300 for a total allocated cost of approximately $220,000.
During 1996, the Company provided warehouse, shipping and receiving services to
Sepracor. Total payments received from Sepracor amounted to $20,750.
Under a Sublease Agreement, the Company leases certain laboratory, research and
office space from Sepracor through 2007 in exchange for monthly rent payments
which increase at various dates and which approximate the Company's
proportionate share of Sepracor's cost of providing the facilities, including
building maintenance, utilities and other operating costs (see Note G).
Under a Technology Transfer and License Agreement, Sepracor transferred to the
Company all technology owned or controlled by Sepracor, including trade secrets,
patents and patent applications, that relates to and is used in researching,
developing or manufacturing products in the Company Field. The Company Field
means generally the separation of biological molecules. Further, Sepracor has
granted an exclusive license to the Company for any improvements to the
transferred technology which are developed, or otherwise acquired, by Sepracor
during the period beginning on the date of the Technology Transfer and License
Agreement and terminating on the earlier of January 1, 1998 or the acquisition
of Sepracor or the Company (the "Effective Period"). The Company has granted to
Sepracor an exclusive license to the transferred technology for the development,
manufacture, use or sale of any products within the field of chiral synthesis,
chiral separations and the development, manufacture, use or sale of chiral drugs
and chiral drug intermediates, as well as a non-exclusive license to the
transferred technology for the development, manufacture, use or sale of any
products outside of the Company Field. All licenses are royalty-free. Sepracor
has also granted the Company a right of first refusal to any product that
Sepracor proposes to sell, or license a third party to sell during the Effective
Period, for use within the Company Field.
In addition, in March 1998, Sepracor is entitled to certain rights with respect
to the registration under the Securities Act of a total of 4,000,000 shares of
Common Stock. These rights provide that Sepracor may require the Company, on two
occasions, to register the shares having an aggregate offering price of at least
$5,000,000, subject to certain conditions and limitations.
Prior to September 1995, the Company provided management information services
and warehouse, shipping and receiving services to Hemasure for a fixed monthly
fee of $6,020. Payments received from Hemasure amounted to $48,160 in 1995. In
September 1995, the Company transferred its warehouse employees and facility
lease to HemaSure. HemaSure provided warehouse, shipping and receiving services
to the Company in exchange for a fixed monthly payment of $4,500. Total charges
paid to HemaSure amounted to $18,100 in 1995. In March 1996, HemaSure
transferred the warehouse employees back to the Company. Total warehouse charges
paid to HemaSure amounted to $7,900 in 1996. Net amounts receivable from
Hemasure at December 31, 1995 was $6,000. There was no amounts receivable from
or due to Hemasure at December 31, 1996.
On, March 29, 1996, the Company entered into a $5,500,000 Convertible
Subordinated Note (the Note) with Sepracor. Principal and interest were due and
payable on March 29, 2000. The Note bore interest per annum at Sepracor's
borrowing rate less 1/2%. On June 10, 1996, Sepracor exercised it's option to
convert the outstanding principal and interest on the Note into shares of common
stock. The Note was converted into one share of common stock for every $4.05 of
principal and interest outstanding resulting in 1,369,788 shares of common stock
issued to Sepracor.
<TABLE>
D. INVENTORIES:
Inventories are stated at the lower of cost (first-in, first-out)
or market and consist of the following at December 31, (in thousands)
<CAPTION>
1996 1995
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Raw materials $1,155 $ 998
Work in progress 310 240
Finished goods 2,016 1,882
- -------------------------------------------------------------------------------------------
$3,481 $3,120
- -------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
E. PROPERTY AND EQUIPMENT:
<TABLE>
<CAPTION>
Property and equipment consists of the following at December 31, (in thousands) 1996 1995
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Laboratory and manufacturing equipment $ 2,454 $ 2,556
Office equipment 1,283 1,112
Leasehold improvements 1,137 784
- --------------------------------------------------------------------------------------------------------
4,874 4,452
Accumulated depreciation and amortization (2,752) (2,348)
- --------------------------------------------------------------------------------------------------------
2,122 2,104
Construction in progress 46 35
- --------------------------------------------------------------------------------------------------------
$ 2,168 $ 2,139
- --------------------------------------------------------------------------------------------------------
</TABLE>
Depreciation and amortization expense was $729,000, $789,000 and $492,000 for
the years ended December 31, 1996, 1995 and 1994, respectively.
F. NOTES PAYABLE AND LONG-TERM DEBT:
<TABLE>
<CAPTION>
Notes Payable and Long-Term Debt consists of the following
at December 31, (in thousands) 1996 1995
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
8.77% French Franc Loan payable in quarterly installments through 2000 $1,012 $1,376
Non-interest bearing Related party promissory note payable in monthly
installments through 2000 327 --
Obligations under capital leases (See Note G) 279 322
Variable rate, 4.95% - 9.6%, French Franc Line of Credit 13 324
8.05% French Franc Term Loan payable in monthly installments through
1997 7 16
Revolving Credit Agreement -- 2,000
8.75% French Franc Term Loan payable in quarterly installments
through 1996 -- 51
- ----------------------------------------------------------------------------------------------
1,638 4,089
Less current portion 497 2,781
- ----------------------------------------------------------------------------------------------
Total long-term debt 1,141 $1,308
- ----------------------------------------------------------------------------------------------
</TABLE>
On December 31, 1996, the Company, in collaboration with Sepracor and certain of
its other subsidiaries, amended its revolving credit agreement under which the
Company may borrow up to $3,000,000, subject to limitation defined in the
agreement and on borrowings outstanding by other companies. Borrowings
outstanding under this agreement were none and $2,000,000 for the Company as of
December 31, 1996 and 1995, respectively. Interest is payable monthly in arrears
at prime (8.25% at December 31, 1996) or, at the Company's discretion, the LIBOR
rate (5.53% at December 31, 1996) plus 1.75%. The Company is required to pay a
commitment fee equal to 1/2% per annum on the average unused line. The agreement
requires the Company to maintain certain financial ratios and levels of cash
balances, net worth and profitability. This facility is available until April
30, 1999 and is collateralized by the personal property of the Company. Sepracor
is guarantor of any amounts outstanding under the agreement.
The Company's French subsidiary has an available credit facility aggregating
$385,000 from one French commercial bank, of which $13,000 and $324,000 was
outstanding at December 31, 1996 and 1995, respectively. The amount available
under this credit facility, which is payable on demand, is guaranteed and
cross-collateralized by Sepracor. The interest rate at December 31, 1996 and
1995 was 5.012% and 6.5%, respectively.
Minimum annual principal repayments of notes payable and long-term debt,
excluding capital leases, in each of the next five fiscal years are as follows:
1997 - $391,000; 1998 - $371,000; 1999 - $371,000; 2000 - $226,000; 2001 - none.
<PAGE> 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
G. COMMITMENTS:
<TABLE>
<CAPTION>
Future minimum payments under all noncancelable leases in effect at December 31,
1996 are as follows (in thousands):
Capital Operating Sub-Lease
Year Leases Leases Sepracor Total
- -----------------------------------------------------------------------------------------
<C> <C> <C> <C> <C>
1997 $136 $301 $ 72 $ 509
1998 136 149 72 357
1999 56 7 72 135
2000 -- -- 72 72
2001 -- -- 72 72
Thereafter -- -- 288 288
- ----------------------------------------------------------------------------------------
Total minimum lease payments $328 $457 $648 1,433
- ----------------------------------------------------------------------------------------
Less amount representing interest 49 -- -- 49
- ----------------------------------------------------------------------------------------
Present value of minimum lease payments $279 $457 $648 $1,384
- ----------------------------------------------------------------------------------------
</TABLE>
Future minimum lease payments under operating and noncancelable capital leases
relate to the French subsidiary's office, laboratory and production facilities,
equipment and motor vehicles as well as office and computer equipment and a
motor vehicle in the U.S. The terms of arrangements with two leasing companies
contain bargain purchase provisions at the expiration of the lease terms of 24
months and 42 months. In some instances, the Company is required to make a
deposit of 20% of the original equipment cost which earns interest at an annual
rate of 4%. Under certain circumstances, Sepracor is the guarantor of debt
incurred to acquire equipment under the leasing facilities. The facility lease
requires the Company 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 $663,000, $556,000 and $597,000 for the years ended December
31, 1996, 1995 and 1994, respectively.
H. LITIGATION:
The Company and Sepracor are defendants in three lawsuits brought by
PerSeptive Biosystems, Inc., a competitor of the Company, in the United States
District Court for the District of Massachusetts. In actions commenced in
October 1993 and January 1995, PerSeptive has alleged that the Company's and
Sepracor's manufacture and sale of HyperD chromatography media infringe four of
PerSeptive's United States patents. PerSeptive is seeking unspecified monetary
damages as well as injunctive relief. In a separate action, PerSeptive has
alleged that certain statements made by the Company and Sepracor with respect to
the performance of HyperD media, performance of PerSeptive's POROS(R) media, and
the internal structures of POROS and HyperD media, including statements made in
the Company's Prospectus dated March 24, 1994, constitute false advertising.
PerSeptive also asserts that an additional perfusion chromatography patent has
been allowed, and that another patent related to perfusion chromatography has
been issued. The new perfusion chromatography patent contains claims similar to
the other patents the Company and Sepracor are alleged to have infringed.
The Company has received an opinion of its patent counsel, Pennie & Edmonds, to
the effect that a properly informed court should conclude the manufacture, use
and/or sale by the Company or its customers of the present HyperD products do
not infringe any valid claims of the three United States patents held by
PerSeptive relating to "perfusion chromatography." Allegations have also been
made that another United States patent which relates to the chemistry of certain
coatings applied during the manufacture of HyperD (the "coatings patent"), is
infringed by the manufacture, sale or use of HyperD. The Company and Sepracor
have asserted a counterclaim charging PerSeptive with unfair competition.
On January 9, 1996, the United States District Court for the District of
Massachusetts in part granted Sepracor and the Company's request of summary
judgment with respect to three of PerSeptive's patents concerning "Perfusion
Chromatography" (the "January 9 Order"). The Court ruled that persons in
addition to those named in the three "perfusion" patents were inventors of the
alleged inventions claimed in those patents. This ruling may ultimately dispose
of PerSeptive's claims concerning the "perfusion" patents, depending on the
Court's resolution of any effort to correct the patents and the outcome on
appeal by PerSeptive of the January 9 Order or appeal by any party of any ruling
regarding correction of inventorship.
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
In its January 9 Order, the Court ruled that PerSeptive's claims related to the
three "perfusion" patents would be dismissed on January 19, 1996, if PerSeptive
had not requested correction of inventorship by that date. The Court postponed
this deadline pending its ruling on PerSeptive's request for certification of an
immediate appeal of the January 9 Order to the United States Court of Appeals
for the Federal Circuit. On March 12, 1996, the Court denied PerSeptive's motion
for immediate appeal and scheduled a hearing on deceptive intent on the part of
PerSeptive, if PerSeptive moves to correct inventorship, for April 29, 1996 (the
"March 12 Order"). The Court required PerSeptive to make any motion to correct
by March 31, 1996. In response, PerSeptive requested that the Court vacate its
January 9 and March 12 Orders, or in the alternative, correct the patents in
such a way that the presently unnamed inventors obtained no rights to license
the patents. The Court denied PerSeptive's motion to vacate and scheduled a
hearing on PerSeptive's motion to correct the patents which was completed in
August 1996. The District Court has not rendered a decision based on the August
hearing.
According to the January 9 and March 12 Orders, PerSeptive could correct
inventorship if it bears the burden of proving that its initial designation of
inventors was done without deceptive intent. PerSeptive has asserted that no
motion to correct need be filed, and that the Company and Sepracor bear the
burden of proving deceptive intent. PerSeptive also asserts that the unnamed
inventors should not be added to the patents or given any right to license the
patents, and that as a matter of law they did not err in not naming the two
unnamed inventors, and did not name inventors with deceptive intent. Sepracor
and The Company contend that if PerSeptive is able to correct inventorship, the
presently unnamed inventors would have independent rights to license the
"perfusion" patents unless the Court ruled that the unnamed inventors are not
entitled to such rights. If inventorship could not be corrected, the "perfusion"
patents would be held invalid, subject to appeal by PerSeptive. A decision by
the district Court to correct inventorship, or preventing the unnamed inventors
from licensing the "perfusion" patents, would be subject to appeal by any party.
PerSeptive could appeal any decision invalidating the patents for willful
misdesignation of inventors.
There can be no assurance that the Company and Sepracor will prevail in the
pending litigation, and an adverse outcome in any of the patent infringement
actions on any of the chromatography patents would have a materially adverse
effect on the Company's future business and operations. The Company would be
required to repay to Beckman part of certain payments if the Company terminates
Beckman's right to use and sell HyperD media because a court finds HyperD media
infringes any third party patents.
Substantial funds have been and continue to be expended in connection with the
defense of the litigation. Sepracor has agreed to control the defense of the
litigation, and Sepracor and the Company share equally in expenses, net of
insurance payments. In addition, in the event of any settlement or judgment
adverse to the Company, Sepracor has agreed to indemnify the Company from and
against any damages that the Company is required to pay with respect to its
manufacture, use or sale of HyperD media products occurring prior to March 24,
1994.
I. ACQUISITION OF BIOPASS:
In September 1994 the Company completed the acquisition of Biopass S.A.
("Biopass"), a French company that manufactures and distributes downstream
production-scale purification and chromatography systems. The purchase price was
$5,024,000 ($3,000,000 paid immediately in cash, $1,500,000 to be paid in either
cash or the Company's common stock, provided the common stock issued does not
exceed 4% of the Company's total outstanding shares or equivalent French Francs,
or a combination of the two in April 1996 and $524,000 of acquisition costs).
The French Francs totaling 7,917,000 were placed in escrow until the Company
paid the final installment of $1,500,000 in April 1996. The acquisition was
accounted for under the purchase method of accounting and, accordingly, the net
assets and operations of Biopass were included in the Company's financial
statements since the date of acquisition. Total assets of $2,802,000 were
acquired and approximately $3,747,000 of liabilities were assumed by the Company
in the acquisition. The Company recorded a non-recurring charge of $3,500,000
identified as "in-process research and development" representing that portion of
the purchase price paid for Biopass' on going research and development projects
that had not yet resulted in commercially viable products. The Company continued
to invest in the development and commercialization of the purchased research and
development until the date of disposition. The remaining excess purchase price
of $2,469,000 was recorded as goodwill; the unamortized balance at June 30, 1995
was written off as part of the sale of Biopass (see Note J).
<PAGE> 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
If the acquisition had taken place at the beginning of the year ended December
31, 1994, giving effect to adjustments for increased depreciation and
amortization, elimination of intercompany transactions and the in-process
research and development charge, the pro forma revenues, net loss and net loss
per common and common equivalent share would have been $12,208,000, $11,875,000
and $1.85 respectively, for the year ended December 31, 1994.
J. DISPOSAL OF BIOPASS:
On July 19, 1995, the Company completed the sale of its subsidiary, Biopass,
while the Company retained the chromatography column technology that it assumed
when it acquired Biopass in 1994 (See Note I). BioSepra S.A. sold its shares in
Biopass for a total sale price of $1.3 million which is payable in quarterly
installments of $100,000 from September 30, 1995 through June 30, 1996, and
$150,000 is payable beginning on September 30, 1996 through December 31, 1997.
The full value of the sale price was reserved for pending the buyer's payment
and will be recognized as payments are received. In 1995 one payment of $100,000
was received. No payments were received in 1996. This sales contract also
provided for a renewable royalty-free technology license. This license allows
the buyer to develop, manufacture and sell products that incorporate the
technology retained by the Company, however, the Company will be the exclusive
seller during the period in which the buyer is required to make installment
payments for the purchase of Biopass. The Company had committed to the minimum
purchase of $1,000,000 per year, provided minimum net gross margins are met. In
January 1996, the commitment to purchase chromatography columns and accessories
was terminated by the Company due to inability of the purchaser to meet certain
commitments.
The results of Biopass' operations through July 19, 1995, have been included in
the accompanying consolidated statement of operations for the year ended
December 31, 1995. Total revenues, loss from operations and net loss for Biopass
for this period are $1,878,000, $1,208,000 and $44,000, respectively. The loss
of $2,964,000, on the disposal, was included in restructuring and impairment
costs in the accompanying consolidated statement of operations for the year
ended December 31, 1995 (see Note K). The net liabilities are excluded from the
Company's consolidated balance sheet for 1995.
K. RESTRUCTURING AND IMPAIRMENT:
In June 1995, the Company announced a major cost-reduction program that involved
the consolidation of its facilities and a significant reduction in the number of
employees. The purpose of the program was to enable the Company to focus on the
process development and process segments of the biopharmaceutical market. In
connection with this program in July 1995, the Company completed the sale of
Biopass, one of its French subsidiaries. As part of the cost-reduction program,
the Company recorded restructuring and impairment charges totaling $4,144,000 in
the second quarter of 1995. Of this amount $1,180,000 represents severance and
benefits related to the reduction in work force in the U.S. and France, and
$2,964,000 represents the write down of assets and intangibles to their net
realizable value. The Company has terminated 55 employees as part of the cost
reduction program consisting of research and development, administrative,
production and marketing/sales personnel. The Company paid $140,000 and
$1,025,000 of the costs relating to the employee reduction in the years ended
December 31, 1996 and 1995, respectively. The Company expects the remaining
severance and medical payments to be completed in 1997. There can be no
assurances that this program will not result in loss of customers, temporary
sales or production disruptions that could have a material adverse effect on the
Company's operations.
L. DISTRIBUTION AGREEMENT:
In March 1995, the Company and Beckman Instruments, Inc. ("Beckman") entered
into a joint distribution and development agreement. The agreement was extended
in July 1996, allowing Beckman to market on a worldwide exclusive basis for a
period of three years certain HyperD(TM) chromatographic columns and provides
for the development (in accordance with certain milestones) and manufacture by
the Company of chromatographic systems for Beckman. Under the agreement, Beckman
made payments of $1,400,000 and $3,500,000 in 1996 and 1995, respectively. The
Company may be required to return to Beckman part of such payments made by
Beckman under the agreement if the Company fails to meet such milestones or if
the Company terminates Beckman's right to use and sell licensed products,
including HyperD media, because a court finds that any such licensed products
infringe any third party patents. The Company recognized revenue totaling
$900,000 and $400,000 during 1996 and 1995, respectively and has recorded
deferred revenue of $3,600,000 and $3,500,000 as of December 31, 1996 and 1995,
respectively.
<PAGE> 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
M. INCOME TAXES:
INCOME TAXES
The Company accounts for income taxes in accordance with the SFAS No.109,
"Accounting for Income Taxes" which requires the recognition of deferred tax
assets or deferred tax liabilities for the expected future tax consequences of
events that have been included in the Company's consolidated financial
statements. Deferred tax assets and liabilities are determined based on the
difference between the financial statement carrying amounts and tax basis of
existing assets and liabilities, using enacted tax rates in effect in the years
in which the differences are expected to reverse.
The Company's statutory and effective tax rates were 34% and 0%, respectively in
1996, 1995 and 1994 due to a net loss in each year and the nonrecognition of any
deferred tax asset for its net operating loss carryforwards. At December 31,
1996, the Company had federal and state tax net operating loss carryforwards of
approximately $9,372,000 and $8,993,000, which will expire in the year 2011 and
the year 2001, respectively. The Company also had a net operating loss
carryforward from its operations in France of approximately $14,329,000.
Approximately $9,328,000 of this net operating loss carryforward will expire
over a three year period between 1998 and 2000, and the remainder may be used
indefinitely. At December 31, 1996, the Company had federal and state research
and experimentation credit carryforwards of approximately $158,000 and $199,000,
respectively, which will expire in the year 2011.
Net operating losses of the Company incurred while operating as a division of
Sepracor are not available for carryforward because the Company's results for
those periods were included in the consolidated tax return of Sepracor.
The components of the Company's net deferred tax asset are as follows at
December 31 (in thousands):
<TABLE>
<CAPTION>
1996 1995
- --------------------------------------------------------------------------
<S> <C> <C>
Assets
Foreign NOL carryforwards $ 4,776 $ 5,240
Domestic NOL carryforwards 3,814 4,783
Deferred revenue 1,442 --
Inventory reserve 282 372
Tax credit carryforwards 357 219
General accruals 294 258
Capitalized technology 427 234
Other 339 395
Liabilities
Property and equipment (173) (225)
- ---------------------------------------------------------------------------
Subtotal 11,558 11,276
Valuation allowance (11,558) (11,276)
- ---------------------------------------------------------------------------
Net deferred tax asset $ -- $ --
- ---------------------------------------------------------------------------
</TABLE>
A valuation reserve is established if all or a portion of the deferred tax asset
is not likely to be realized. Accordingly, a valuation reserve has been
established for the full amount of the deferred tax asset.
<PAGE> 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
N. SEGMENT INFORMATION:
The Company develops, manufactures and markets processes and products for the
separation and purification of biopharmaceutical compounds. The Company operates
exclusively in the separations business, which the Company considers to be one
business segment.
Financial information by geographic area is as follows for the years indicated:
For the years ended December 31, (in thousands)
<TABLE>
<CAPTION>
1996 1995 1994
- ----------------------------------------------------------------------------
REVENUES
<S> <C> <C> <C>
United States
Unaffiliated customers $ 8,136 $ 5,054 $ 4,538
Related parties -- 2 9
Transfer to other geographic areas 431 487 347
- ----------------------------------------------------------------------------
8,567 5,543 4,894
- ----------------------------------------------------------------------------
Europe
Unaffiliated customers 6,187 7,324 6,603
Related parties -- 107 146
Transfer to other geographic areas 2,999 1,596 3,209
- ----------------------------------------------------------------------------
9,186 9,027 9,958
- ----------------------------------------------------------------------------
Eliminations and adjustments (3,430) (2,083) (3,556)
- ----------------------------------------------------------------------------
Total revenues $14,323 $ 12,487 $ 11,296
- ----------------------------------------------------------------------------
OPERATING INCOME (LOSS)
United States $(3,743) $ (6,291) $ (7,403)
Europe 1,753 (6,049) (3,684)
Eliminations and adjustments 3 34 (38)
- ----------------------------------------------------------------------------
Total operating income (loss) $(1,987) $(12,306) $(11,125)
- ----------------------------------------------------------------------------
TOTAL ASSETS
United States $19,917 $ 24,455 $33,068
Europe 6,343 6,713 14,209
Eliminations and adjustments (3,091) (7,344) (11,672)
- ----------------------------------------------------------------------------
Total assets $23,169 $ 23,824 $ 35,605
- ----------------------------------------------------------------------------
</TABLE>
O. SHAREHOLDERS' EQUITY:
Common Stock
The Company's authorized capital stock consists of 12,000,000 shares of common
stock, par value $0.01 per share. At December 31, 1996, 5,369,788 shares of the
Company's common stock outstanding are held by Sepracor. The common stock has no
preemptive, subscription, redemption or conversion rights.
Preferred Stock
In January 1994, the shareholder voted to authorize 1,000,000 shares of
preferred stock, par value $0.01 per share, with such rights, restrictions and
specifications as the Board of Directors may determine.
Stock Option Plans
The 1994 Stock Option Plan (the "Plan") provides for the grant of both incentive
stock options ("ISOs") and nonstatutory stock options ("NSOs") to officers,
directors and key employees of the Company. The Plan also provides for the grant
of NSOs to consultants of the Company who are also not employees of the Company.
In March 1995, the Board of Directors approved an amendment to the Plan
increasing the number of shares of common stock which may be granted to
1,000,000. The exercise price for ISOs must be at least equal to the fair market
value of the stock on the date of grant, and the exercise price of NSOs must be
at least equal to 50% of the fair market value of the stock on the date of
grant. Options generally become exercisable in five equal annual installments
beginning on the first anniversary of the date of grant. ISOs have a maximum
term of ten years from the date of grant. Stock option activity related to this
plan is summarized as follows:
<PAGE> 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
<TABLE>
<CAPTION>
Weighted
Number Exercise Price Average Price
(In thousand, except option price) of Shares per Share per Share
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding, December 31, 1994 692 $2.00-7.50 $2.51
Granted 175 $4.00-4.50 $4.22
Exercised (15) $2.00-2.50 $2.14
Canceled (136) $2.00-7.50 $3.62
- ----------------------------------------------------------------------------------------------
Outstanding, December 31, 1995 716 $2.00-7.50 $2.72
Granted 209 $2.75-4.63 $2.99
Exercised (3) $2.00 $2.00
Canceled (45) $2.00-4.63 $3.39
- ----------------------------------------------------------------------------------------------
Outstanding, December 31, 1996 877 $2.00-7.50 $2.75
Options exercisable at December 31, 1996 193 $2.00-7.50 $2.51
Options available for future grant 106
- ----------------------------------------------------------------------------------------------
</TABLE>
In 1994, 496,000 NSOs were granted to officers, key employees and consultants
prior to the Company's initial public offering. The Company recognized a
compensation charge of $133,000 in 1996 and $186,600 in both 1995 and 1994
related to the NSOs.
The Director Option Plan (the "Director Plan") provides for the granting of NSOs
to directors of the Company who are not officers or employees of the Company or
of any subsidiary of the Company. A total of 150,000 shares of common stock
options may be issued under the Director Plan subject to adjustments as provided
therein. Except as noted below, the exercise price per share will equal the fair
market value of a share of common stock on the date on which the option is
granted. Options granted under the Director Plan will vest in either two or five
equal installments beginning on the first anniversary of the date of the grant
depending on the nature of the grant. Stock option activity related to this plan
is summarized as follows:
<TABLE>
<CAPTION>
Weighted
Number Exercise Price Average Price
(In thousand, except option price) of Shares per Share per Share
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding, December 31, 1994 90 $2.00 $2.00
Granted 18 $3.38-6.13 $4.90
Exercised -- -- --
Canceled -- -- --
- ----------------------------------------------------------------------------------------------
Outstanding, December 31, 1995 108 $2.00-6.13 $2.48
Granted 14 $5.38 $5.38
Exercised (8) $2.00 $2.00
Canceled (14) $2.00-5.38 $2.48
- ----------------------------------------------------------------------------------------------
Outstanding, December 31, 1996 100 $2.00-6.13 $2.93
Options exercisable at December 31, 1996 34 $2.00 $2.40
Options available for future grant 42
- ----------------------------------------------------------------------------------------------
</TABLE>
The weighted average fair value under the Black-Scholes option pricing model of
options granted during the years ended December 31, 1996 and 1995 under these
plans is $3.08 and $3.84, respectively. As of December 31, 1996 and 1995 the
weighted average remaining contractual life of outstanding options under these
plan is 8.05 years and 8.55 years, respectively.
During 1994 and prior to the Company's initial public offering, options to
purchase 90,000 shares of common stock were granted under the Director Plan at
an exercise price of $2.00 per share. The estimated fair market value on the
date of the grant was $4.00 per share. The Company recorded a compensation
charge of $28,000 in 1996 and $36,000 in both 1995 and 1994 related to these
options.
<PAGE> 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
<TABLE>
In October 1995, the FASB issued SFAS No. 123, which requires the measurement of
the fair value of stock options or warrants to be included in the statement of
income or disclosed in the notes to the financial statements. The Company has
determined that it will continue to account for stock-based compensation for
employees under Accounting Principles Board Opinion No. 25 and elect the
disclosure only alternative under SFAS No. 123 for options granted in 1996 using
the Black-Scholes option pricing model prescribed by SFAS No. 123. The weighted
average assumptions are as follows:
<CAPTION>
December 31, 1996 1995
--------------------------------------------------------------
<S> <C> <C>
Risk-free interest rate 5.8% - 6.7% 6.1% - 7.2%
Expected dividend yield -- --
Expected lives 10 years 10 years
Expected volatility 134% - 152% 103% - 120%
</TABLE>
<TABLE>
Had compensation cost for these plans and the employee stock purchase plan been
determined consistent with SFAS No. 123, the Company's net loss and net loss per
share would have been reduced to the following pro forma amounts:
<CAPTION>
December 31,
(in thousands, except per share amounts) 1996 1995
-----------------------------------------------------------------------
<S> <C> <C>
Net loss
As reported (2,120) (12,675)
Pro Forma (2,276) (12,730)
Net loss per share
As reported $(.27) $(1.81)
Pro Forma $(.29) $(1.82)
</TABLE>
Because the method prescribed by SFAS No. 123 has not been applied to options
granted prior to January 1, 1995, the resulting pro forma compensation cost may
not be representative of that to be expected in future years.
The Black-Scholes option pricing model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option-pricing models require the input of highly
subjective assumptions including expected stock price volatility. Because the
Company's employee stock options have characteristics significantly different
from those of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its stock options.
In connection with the initial public offering, the Company granted to the
Underwriter an option to purchase 300,000 shares of common stock at an excise
price equal to 150% of the initial public offering price per share or $10.50 and
subject to adjustment in certain circumstances. The option is exercisable at any
time or from time to time after March 24, 1995, and before March 24, 1999. The
option may be transferred in whole or part at any time under specific
conditions.
In 1995, the Company adopted the 1995 Employee Stock Purchase Plan ("Purchase
Plan"). Under the Purchase Plan, 50,000 shares of common stock may be purchased
by employees at 85% of the fair 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. During 1996 and 1995, there were 14,494 and 6,010 shares,
respectively, issued under the Purchase Plan. At December 31, 1996, 29,496
shares of authorized but unissued common stock were reserved for future issuance
under the Purchase Plan.
<PAGE> 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
P. EMPLOYEES SAVINGS PLAN:
The Company adopted a 401(k) savings plan for all domestic employees in 1994.
Under the provisions of the plan, employees may voluntarily contribute up to 20%
of their compensation subject to statutory limitations. In addition, the Company
can make matching contributions at its discretion. In 1996 the Company matched
50% of the first $2,000 contributed by employees up to $1,000 maximum per
employee. Employer matching contributions amounted to $14,000 for the year ended
December 31, 1996. There were no employer matching contributions to the plan in
1995 or 1994.
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF BIOSEPRA INC.
Name of Subsidiary Jurisdiction of Organization
- ------------------ ----------------------------
BioSepra S.A. France
BioSepra BioMedical Inc. Delaware
<PAGE> 1
Exhibit 23.1
------------
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We consent to the incorporation by reference in the registration statements of
BioSepra, Inc. on Form S-8 (Files Nos. 33-79398, 33-79396, 33-94792,
33-94770, 333-05621) of our reports dated February 27, 1996, except as to the
information in the fourth paragraph of Note H and the seventh paragraph of
Note C, for which the date is March 29, 1996, on our audits of the consolidated
financial statements and the financial statement schedule of BioSepra, Inc. as
of December 31, 1995, and for the years ended December 31, 1995, and 1994,
which reports are included in the Annual Report on Form 10-K.
/s/ Coopers & Lybrand L.L.P.
Boston, Maccachusetts
March 28, 1997
<PAGE> 1
ARTHUR ANDERSEN LLP
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K, into the Company's previously filed
Registration Statement File Nos. 33-79398, 33-79396, 33-94792, 33-94770 and
333-05621.
/s/ Arthur Andersen LLP
Boston, Massachusetts
March 25, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 4,142,000
<SECURITIES> 360,000
<RECEIVABLES> 3,030,000
<ALLOWANCES> 0
<INVENTORY> 3,481,000
<CURRENT-ASSETS> 11,234,000
<PP&E> 2,168,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 23,169,000
<CURRENT-LIABILITIES> 7,586,000
<BONDS> 1,141,000
0
0
<COMMON> 84,000
<OTHER-SE> 14,358,000
<TOTAL-LIABILITY-AND-EQUITY> 23,169,000
<SALES> 13,423,000
<TOTAL-REVENUES> 14,323,000
<CGS> 6,338,000
<TOTAL-COSTS> 6,338,000
<OTHER-EXPENSES> 9,972,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 214,000
<INCOME-PRETAX> (2,120,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,120,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,120,000)
<EPS-PRIMARY> .27
<EPS-DILUTED> .27
</TABLE>
