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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
- --- Act of 1934
For the quarterly period ended: September 30, 1997
Transition report pursuant to Section 13 or 15(d) of the Securities
- --- Exchange Act of 1934
For the transition period from __________ to __________
Commission File Number 0-23678
BIOSEPRA INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 04-3216867
- ------------------------------- ---------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification Number)
Organization or Incorporation)
111 LOCKE DRIVE, MARLBOROUGH, MASSACHUSETTS 01752
-------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(508) 481-6802
--------------
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
----- -----
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock, par value $.01 per share 8,427,687
- -------------------------------------- --------------------------------
Class Outstanding at November 13, 1997
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BioSepra Inc.
INDEX
Page
----
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Condensed Balance Sheets as of
September 30, 1997 and December 31, 1996 3
Consolidated Condensed Statements of Operations for the
Three and Nine Month Periods Ended September 30, 1997
and 1996 4
Consolidated Condensed Statements of Cash Flows for the
Nine Month Periods Ended September 30, 1997 and 1996 5
Notes to Consolidated Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II - OTHER INFORMATION 13
SIGNATURES 15
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BioSepra Inc.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 1997 1996
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,482 $ 4,142
Marketable securities -- 360
Restricted cash 147 167
Accounts receivable 1,877 3,030
Inventories (Note 2) 3,619 3,481
Prepaid and other current assets 137 54
-------- --------
Total current assets 8,262 11,234
Property and equipment, net (Note 3) 1,898 2,168
Goodwill, net 8,775 9,254
Other assets 578 513
-------- --------
Total assets $ 19,513 $ 23,169
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable, current portion of long-term debt
and capital lease obligations $ 535 $ 497
Accounts payable 896 1,365
Related party payable (Note 4) 371 157
Accrued expenses 1,626 1,921
Deferred contract revenue (Note 8) 3,129 3,646
-------- --------
Total current liabilities 6,557 7,586
Long-term debt and capital lease obligations, net of current portion 823 1,141
-------- --------
Total liabilities 7,380 8,727
Stockholders' equity:
Common stock 84 84
Additional paid-in capital 40,507 40,485
Unearned compensation (201) (322)
Accumulated deficit (27,984) (25,918)
Cumulative translation adjustment (273) 113
-------- --------
Total stockholders' equity 12,133 14,442
-------- --------
Total liabilities and stockholders' equity $ 19,513 $ 23,169
======== ========
</TABLE>
The accompanying notes are an integral part
of the consolidated condensed financial statements.
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BioSepra Inc.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three - month periods Nine - month periods
ended September 30, ended September 30,
------------------- -------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue:
Product sales $1,523 $3,603 $ 6,517 $10,085
License fees -- -- 600 600
Research and development 56 -- 184 --
------ ------ ------- -------
Total revenue 1,579 3,603 7,301 10,685
Costs and expenses:
Cost of products sold 811 1,733 3,737 4,701
Selling, general and administrative 1,182 1,473 3,733 4,704
Research and development 361 510 1,393 1,753
Amortization expense 202 328 666 966
------ ------ ------- -------
Total costs and expenses 2,556 4,044 9,529 12,124
------ ------ ------- -------
Loss from operations (977) (441) (2,228) (1,439)
Other income (expenses), net 9 77 162 (65)
------ ------ ------- -------
Net loss $ (968) $ (364) $(2,066) $(1,504)
====== ====== ======= =======
Net loss per share $(0.11) $(0.04) $ (0.25) $ (0.20)
Weighted average number of common and
Common equivalent shares outstanding 8,426 8,400 8,421 7,637
</TABLE>
The accompanying notes are an integral part
of the consolidated condensed financial statements.
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BioSepra Inc.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Nine - month periods
ended September 30,
-------------------
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $(2,066) $(1,504)
Adjustments to reconcile net loss to net
Cash (used in) provided by operating activities:
Depreciation and amortization 1,201 1,507
Provision for doubtful accounts 276 256
Loss on disposition of long-term assets 4 10
Changes in operating assets and liabilities:
Accounts receivable 718 379
Inventories (439) 81
Prepaid and other current assets (82) (409)
Accounts payable (341) 91
Related party payable 214 (592)
Accrued expenses (198) 102
Accrued expenses relating to acquisition -- (11)
Accrued restructuring (13) (204)
Deferred revenue (509) 569
------- -------
Net cash (used in) provided by operating activities (1,235) 275
------- -------
Cash flows from investing activities:
Additions to property and equipment (282) (696)
Proceeds from sales of equipment 18 99
Decrease in marketable securities 360 (360)
Increase in other assets (131) (25)
------- -------
Net cash used in investing activities (35) (982)
------- -------
Cash flows from financing activities:
Proceeds from issuance of common stock to parent -- 5,548
Proceeds from issuance of common stock to minority stockholders 23 36
Borrowings(repayments) under line of credit agreements 36 (2,300)
Long-term borrowings 49 350
Repayment of long-term borrowings (358) (367)
------- -------
Net cash (used in) provided by financing activities (250) 3,267
------- -------
Effect of exchange rate changes on cash
and cash equivalents (140) 4
------- -------
Net (decrease) increase in cash and cash equivalents (1,660) 2,564
Cash and cash equivalents at beginning of period 4,142 2,079
------- -------
Cash and cash equivalents at end of period $ 2,482 $ 4,643
======= =======
</TABLE>
The accompanying notes are an integral part
of the consolidated condensed financial statements.
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BioSepra Inc.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying consolidated condensed financial statements of BioSepra
Inc. (the "Company") are unaudited and have been prepared on a basis
substantially consistent with the annual audited financial statements. The
consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. All material intercompany balances and
transactions have been eliminated in consolidation.
Certain information and footnote disclosures normally included in the
Company's annual statements have been condensed or omitted. The
consolidated condensed financial statements, in the opinion of management,
reflect all adjustments (including normal recurring accruals) necessary for
a fair statement of the results for the periods ended September 30, 1997
and 1996.
The results of operations for the periods are not necessarily indicative of
the results of operations to be expected for the fiscal year. These
consolidated financial statements should be read in conjunction with the
audited financial statements included in the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1996.
2. Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
<S> <C> <C>
Raw materials $1,112 $1,155
Work in progress 354 310
Finished goods 2,153 2,016
------ ------
$3,619 $3,481
====== ======
</TABLE>
3. Property and Equipment
Property and equipment consists of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
<S> <C> <C>
Property and equipment $ 4,615 $ 4,874
Less accumulated depreciation
and amortization (2,796) (2,752)
------- -------
1,819 2,122
Construction in progress 79 46
------- -------
$ 1,898 $ 2,168
======= =======
</TABLE>
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4. Related party transactions
The payable to related party represents amounts due for certain services
and facilities provided by Sepracor Inc. ("Sepracor"), the Company's
majority stockholder.
In March 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
its 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. Sepracor
currently owns approximately 64% of the outstanding common stock of the
Company, including the shares issued in connection with this transaction.
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 commencing on January 1, 1996 and does not bear interest. The
Company utilized the funds for leasehold improvements to the Company's
facilities. As of September 30, 1997, $266,000 was outstanding under the
promissory note.
5. Net Income (Loss) Per Share
The net income (loss) per share is computed based upon the weighted average
number of common and common equivalent shares outstanding. Common
equivalent shares are not included in the per share calculations where the
effect of their inclusion would be antidilutive.
6. Statements of Cash Flows
Cash payments for interest for the nine months ended September 30,1997 and
1996 were $52,000 and $154,000, respectively.
7. Litigation
The Company and Sepracor are defendants in three lawsuits brought by
PerSeptive Biosystems, Inc. ("PerSeptive"), 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 alleged that
the Company's and Sepracor's manufacture and sale of HyperD(R)
chromatography media infringe four of PerSeptive's United States patents.
PerSeptive sought unspecified monetary damages as well as injunctive
relief. In a separate action, PerSeptive 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.
Two additional perfusion chromatography patents have been issued to
PerSeptive. These new perfusion chromatography patents, which have not yet
been asserted against the Company or Sepracor in the litigation, contain
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 relating to "perfusion chromatography" which PerSeptive has
asserted against the Company and Sepracor. PerSeptive also alleges 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.
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In January 1996, the United States District Court for the District of
Massachusetts in part granted Sepracor and the Company's request for
summary judgment with respect to three of PerSeptive's patents concerning
"Perfusion Chromatography". The Court ruled that the named inventors in the
three "perfusion" patents were not all of the inventors of the alleged
inventions claimed in those patents. PerSeptive moved to correct the
inventorship of the patents to include the unnamed inventors. The Court
ruled in April 1997 that PerSeptive's patents could not be corrected
because of deceptive conduct by the named inventors, and ordered entry of
judgment in favor of the defendants. In response, the Company and Sepracor
requested that, in addition to dismissing PerSeptive's infringement claims
because the named inventor's deceptive conduct prevented the patents from
being corrected, the Court should also dismiss those claims on the grounds
that the patents were obtained as a result of inequitable conduct. In that
event, two theories would have been presented to the Appeals Court upon
appeal by PerSeptive.
Before the Court ruled on the Company's and Sepracor's request for entry of
judgment against PerSeptive on both theories, the United States Court of
Appeal for the Federal Circuit (to which all appeals of patent cases are
directed) ruled in an unrelated case that the deceptive intentions of named
inventors are not relevant to the question whether a patent should be
corrected, but are relevant to the question of inequitable conduct. In
response to the new Appeals Court decision, the Court is likely to modify
its earlier ruling that PerSeptive's patents could not be corrected because
of the named inventors' deceptive intent. The Company and Sepracor have
requested that any modification occur simultaneously with any decision by
the District Court concerning inequitable conduct. If the perfusion patents
were obtained by inequitable conduct, they would be invalid and
unenforceable.
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.
8. Distribution Agreement
On March 14, 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 certain HyperD media and the ProSys workstation for 18
months.
Under the agreement, Beckman has made payments totaling $4,900,000. 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 certain
milestones, if the Company terminates Beckman's right to use and sell
licensed products, including HyperD media, or if a court finds that any
such licensed products infringe any third party patents. The Company
recognized license revenue of $600,000 for each of the nine month periods
ended September 30, 1997 and 1996 and has recorded deferred revenue of
$3,000,000 and $3,900,000 as of September 30, 1997 and 1996, respectively.
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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 systems for use by biopharmaceutical companies in the
purification and production of biopharmaceuticals. The Company's products enable
pharmaceutical companies to reduce the time and cost required to develop and
manufacture biopharmaceuticals. The Company supplies its process chromatography
media and other proprietary product to drug manufacturer for use in the
commercial production of a wide range of biopharmaceuticals. Among these are
interferons, insulin, human growth hormone, special enzymes and vaccines.
Three and nine months ended September 30, 1997 and 1996
Revenue decreased to $1,579,000 for the three months ended September 30, 1997
from $3,603,000 for the same period in 1996. Revenue for the nine months ended
September 30, 1997 decreased to $7,301,000 compared to $10,685,000 for the same
period in 1996. The decrease in revenue is attributed to fluctuations in the
timing of large production-scale media orders and to the absence of stocking
orders from a major distributor of the Company's research instruments.
Cost of products sold as a percentage of product sales increased to 53% for the
three months ended September 30, 1997 compared to 48% for the same period in
1996. For the nine months ended September 30, 1997 and 1996 the cost of products
sold as a percentage of product sales was 57% and 47%, respectively. The
increase in cost as a percentage of product sales is primarily due to product
mix changes and fluctuations in production-scale customer order patterns. The
increase in cost as a percentage of product sales is also attributed to the
transition of resources from the product development phase to production support
associated with the commercialization of new media and instrument products.
Selling, general and administrative expenses decreased to $1,182,000 for the
three months ended September 30, 1997 from $1,473,000 for the three months ended
September 30, 1996. For the first nine months of 1997, selling, general and
administrative expenses decreased to $3,733,000 from $4,704,000 for the
comparable period in 1996. The decrease in expenditures is related to the
reduction in overall personnel costs, the transition of resources to direct
product support of new media and instrument products and to a lesser extent
reduced legal fees related to the lawsuit brought by PerSeptive Biosystems, Inc.
("PerSeptive").
Research and development expenses decreased to $361,000 for the second quarter
of 1997 from $510,000 in the second quarter of 1996. For the first nine months
of 1997, research and development expenses decreased to $1,393,000 from
$1,753,000 for the comparable period in 1996. This decrease is attributed to the
transition of resources from development to production and commercialization
support of new media and instrument products. The decrease in 1997 is partially
offset by additional media product development expenses incurred in the first
nine months of 1997.
Amortization expenses decreased to $202,000 for the second quarter of 1997 from
$328,000 in the second quarter of 1996. For the first nine months of 1997,
amortization expense decreased to $666,000 from $966,000 for the comparable
period in 1996. The decrease in amortization expense is primarily attributed to
the write-off, in the fourth quarter of 1996, of the remaining unamortized
portion of certain technology retained from the sale of Biopass S.A. The
decrease in amortization expense is also attributed to a reduction, due to
employee terminations, in the amount of amortization associated with deferred
compensation.
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Other income, net, decreased to $9,000 for the three months ended September 30,
1997 as compared to $77,000 for the comparable period in 1996. Other income, net
increased to $162,000 for the nine months ended September 30, 1997 as compared
to other expense, net of $65,000 for the comparable period in 1996. The
fluctuation is attributed to the net effect of foreign currency gains and losses
due to changes in the value of the U.S. dollar and, to a lesser extent,
decreased levels of borrowings and changes in the interest rates charged on such
borrowings.
The Company's net loss increased to $968,000 for the three months ended
September 30, 1997 compared to $364,000 for the three months ended September 30,
1996. For the first nine months of 1997, the Company's net loss increased to
$2,066,000 from $1,504,000 for the comparable period in 1996. The increase is
attributed to the decrease in revenue due to fluctuation in the timing of large
production-scale media orders and the absence of stocking orders from a major
distributor of the Company's research instruments. The increase is partially
offset by a reduction in expense as described above.
Litigation
The Company and Sepracor are defendants in three lawsuits brought by
PerSeptive, 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 alleged that the Company's and Sepracor's manufacture
and sale of HyperD(R) chromatography media infringe four of PerSeptive's United
States patents. PerSeptive sought unspecified monetary damages as well as
injunctive relief. In a separate action, PerSeptive 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. Two
additional perfusion chromatography patents have been issued to PerSeptive.
These new perfusion chromatography patents, which have not yet been asserted
against the Company or Sepracor in the litigation, contain 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 relating to
"perfusion chromatography" which PerSeptive has asserted against the Company and
Sepracor. PerSeptive also alleges 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.
In January 1996, the United States District Court for the District of
Massachusetts in part granted Sepracor and the Company's request for summary
judgment with respect to three of PerSeptive's patents concerning "Perfusion
Chromatography". The Court ruled that the named inventors in the three
"perfusion" patents were not all of the inventors of the alleged inventions
claimed in those patents. PerSeptive moved to correct the inventorship of the
patents to include the unnamed inventors. The Court ruled in April 1997 that
PerSeptive's patents could not be corrected because of deceptive conduct by the
named inventors, and ordered entry of judgment in favor of the defendants. In
response, the Company and Sepracor requested that, in addition to dismissing
PerSeptive's infringement claims because the named inventor's deceptive conduct
prevented the patents from being corrected, the Court should also dismiss those
claims on the grounds that the patents were obtained as a result of inequitable
conduct. In that event, two theories would have been presented to the Appeals
Court upon appeal by PerSeptive.
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Before the Court ruled on the Company's and Sepracor's request for entry of
judgment against PerSeptive on both theories, the United States Court of Appeal
for the Federal Circuit (to which all appeals of patent cases are directed)
ruled in an unrelated case that the deceptive intentions of named inventors are
not relevant to the question whether a patent should be corrected, but are
relevant to the question of inequitable conduct. In response to the new Appeals
Court decision, the Court is likely to modify its earlier ruling that
PerSeptive's patents could not be corrected because of the named inventors'
deceptive intent. The Company and Sepracor have requested that any modification
occur simultaneously with any decision by the District Court concerning
inequitable conduct. If the perfusion patents were obtained by inequitable
conduct, they would be invalid and unenforceable.
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. The Company has available a revolving credit
agreement under which the Company may borrow up to $3,000,000, subject to
limitations defined in the agreement. There were no borrowings outstanding under
this agreement as of September 30, 1997. Sepracor is guarantor of any amounts
outstanding under the agreement.
As of September 30, 1997, the Company had $2,482,000 of cash and cash
equivalents and $1,705,000 of working capital. Cash and cash equivalents for the
nine months ended September 30, 1997 decreased by $1,660,000 from $4,142,000 at
December 31, 1996. The Company utilized cash for operations of $1,235,000 for
the nine months ended September 30, 1997 primarily to fund its operating loss
partially offset by changes in working capital. The Company used cash from
investing activities of $35,000 primarily to patent the Company's technology and
to purchase property and equipment, offset by the maturity of a bond. The
Company used cash from financing activities of $250,000 primarily due to
repayment of borrowings.
In March 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 its 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. Sepracor currently owns approximately 64% of the outstanding common
stock of the Company, including the effects of this transaction.
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As of September 30, 1997, there was $743,000 outstanding under two available
credit facilities with a French commercial bank, which are 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 $172,000 as of September 30, 1997.
Based upon the Company's current operating plan, the Company believes that its
current cash balance and available credit lines are sufficient to fund the
Company's operations into mid 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.
FUTURE OPERATING RESULTS
Certain of the information contained in this Quarterly Report on Form 10-Q,
including information with respect to the ability of the Company to obtain
additional financing within the next nine 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 consist of forward-looking
statements. Important factors that could cause actual results to differ
materially from the forward-looking statements are described in the Company's
Annual Report on Form 10-K for the year ended December 31, 1996.
In addition, based upon the Company's current operating plan, the Company
believes that its current cash balance and available credit line are sufficient
to fund the Company's operations into mid 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.
Accordingly, the Company may be required to raise additional funds within the
next nine months, and there can be no assurance that such funds will be
available on favorable terms, if at all. If such funds are not available when
needed, the Company may be required to reduce certain expenditures, discontinue
parts of its business and/or sell portions of its assets. Any reduction in
expenditures or discontinuance of parts of its business could have a material
adverse effect on the Company's business, financial condition and results of
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 continue to fluctuate from period to
period in the future.
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PART II.
OTHER INFORMATION
Item 1. Legal proceedings
The Company and Sepracor are defendants in three lawsuits brought by
PerSeptive Biosystems, Inc. ("PerSeptive"), 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 alleged that the Company's and Sepracor's manufacture and
sale of HyperD(R) chromatography media infringe four of PerSeptive's
United States patents. PerSeptive sought unspecified monetary damages
as well as injunctive relief. In a separate action, PerSeptive 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. Two additional perfusion
chromatography patents have been issued to PerSeptive. These new
perfusion chromatography patents, which have not yet been asserted
against the Company or Sepracor in the litigation, contain 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 relating to "perfusion chromatography" which
PerSeptive has asserted against the Company and Sepracor. PerSeptive
also alleges 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.
In January 1996, the United States District Court for the District of
Massachusetts in part granted Sepracor and the Company's request for
summary judgment with respect to three of PerSeptive's patents
concerning "Perfusion Chromatography". The Court ruled that the named
inventors in the three "perfusion" patents were not all of the
inventors of the alleged inventions claimed in those patents.
PerSeptive moved to correct the inventorship of the patents to include
the unnamed inventors. The Court ruled in April 1997 that PerSeptive's
patents could not be corrected because of deceptive conduct by the
named inventors, and ordered entry of judgment in favor of the
defendants. In response, the Company and Sepracor requested that, in
addition to dismissing PerSeptive's infringement claims because the
named inventor's deceptive conduct prevented the patents from being
corrected, the Court should also dismiss those claims on the grounds
that the patents were obtained as a result of inequitable conduct. In
that event, two theories would have been presented to the Appeals Court
upon appeal by PerSeptive.
Before the Court ruled on the Company's and Sepracor's request for
entry of judgment against PerSeptive on both theories, the United
States Court of Appeal for the Federal Circuit (to which allappeals of
patent cases are directed) ruled in an unrelated case that the
deceptive intentions of named inventors are not relevant to the
question whether a patent should be corrected, but are relevant to the
question of inequitable conduct. In response to the new Appeals Court
decision, the Court is likely to modify its earlier ruling that
PerSeptive's patents could not be corrected because of the named
inventors' deceptive intent. The Company and Sepracor have requested
that any modification occur simultaneously with any decision by the
District Court concerning inequitable conduct. If the perfusion patents
were obtained by inequitable conduct, they would be invalid and
unenforceable.
13
<PAGE> 14
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.
Items 2 - 5. None
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a) Exhibits
10.1 Senior Management Retention Agreement
10.2 Senior Management Retention Agreement
27.1 Financial Data Schedule
b) Reports on Form 8-K
None
14
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BIOSEPRA INC.
November 13, 1997 /s/ Jean-Marie Vogel
--------------------------------------
Jean-Marie Vogel
President, Chief Executive
Officer and Director
(Principal Executive and Financial Officer)
November 13, 1997 /s/ Peter M. Castellanos
--------------------------------------
Peter M. Castellanos
Director, Finance and Administration
(Chief Accounting Officer)
<PAGE> 1
Exhibit 10.1
BIOSEPRA INC.
Senior Management Retention Agreement
-------------------------------------
Mr. Egisto Boschetti
9 Alle du bois Gougenot
78290 - Crossy-sur-Seine
France
Dear Mr. Egisto Boschetti:
BioSepra Inc. (the "Company") recognizes that, as is the case with many
publicly-held corporations, the possibility of a change in control may exist and
that such possibility, and the uncertainty and questions which it may raise
among key personnel, may result in the departure or distraction of key personnel
to the detriment of the Company, its stockholders and its customers.
The Board of Directors of the Company (the "Board") has determined that
appropriate steps should be taken to reinforce and encourage the continued
attention and dedication of the Company's key personnel, including yourself, to
their assigned duties without distraction in the face of potentially disturbing
circumstances arising from the possibility of a change in control of the
Company.
In order to induce you to remain in its employ, the Company agrees that you
shall receive the severance benefits set forth in this letter agreement (the
"Agreement") in the event your employment with the Company is terminated under
the circumstances described below subsequent to a "Change in Control" of the
Company (as defined below).
<PAGE> 2
1. CERTAIN DEFINITIONS.
As used herein, the following terms shall have the following respective
meanings:
(a) A "CHANGE IN CONTROL" shall occur or be deemed to have occurred
only if any of the following events occur: (i) any "person," as such term is
used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), (other than the Company, Sepracor Inc.
("Sepracor"), any trustee or other fiduciary holding securities under an
employee benefit plan of the Company, or any corporation owned directly or
indirectly by the stockholders of the Company in substantially the same
proportion as their ownership of stock of the Company) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Company representing more than 50% of the
combined voting power of the Company's then outstanding securities; (ii)
individuals who, as of the date hereof, constitute the Board (as of the date
hereof, the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board, provided that any person becoming a director subsequent
to the date hereof whose election, or nomination for election by the Company's
stockholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board (other than an election or nomination of an
individual whose initial assumption of office is in connection with an actual or
threatened election contest
-2-
<PAGE> 3
relating to the election of the directors of the Company, as such terms are used
in Rule 14a-11 of Regulation 14A under the Exchange Act) shall be, for purposes
of this Agreement, considered as though such person were a member of the
Incumbent Board; or (iii) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than (A) a merger
or consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than 50% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately after
such merger or consolidation or (B) a merger or consolidation effected to
implement a recapitalization of the Company (or similar transaction) in which no
person (as hereinabove defined), other than a person holding more than 50% of
the combined voting power of the Company's then outstanding securities
immediately prior to such recapitalization, acquires more than 50% of the
combined voting power of the Company's then outstanding securities; or (iv) the
stockholders of the Company approve an agreement for the sale of all or
substantially all of the business of the Company through the disposition by the
Company of all or substantially all of the Company's assets.
(b) A "POTENTIAL CHANGE IN CONTROL" shall be deemed to have occurred
if:
-3-
<PAGE> 4
(A) the Company enters in an agreement, the consummation of which
would result in the occurrence of a Change in Control of the Company,
(B) any person (including the Company and Sepracor) publicly
announces an intention to take or to consider taking actions which if
consummated would constitute a Change in Control of the Company; or
(C) the Board of Directors of the Company adopts a resolution to
the effect that, for purposes of this Agreement, a Potential Change in
Control of the Company has occurred.
2. TERM OF THE AGREEMENT.
The term of this Agreement (the "Term") shall commence as of the date
hereof and shall continue in effect through December 31, 1997; provided,
however, that commencing on January l, 1998 and each January l thereafter, the
Term shall be automatically extended for one additional year unless, not later
than October 30 of the preceding calendar year, the Company shall have given you
written notice that the Term will not be extended; and provided further that, if
a Change in Control of the Company shall have occurred during the original or
extended Term, this Agreement shall continue in effect for as long as you remain
an employee of BioSepra or any acquirer or successor of BioSepra hereunder.
-4-
<PAGE> 5
3. CHANGE IN CONTROL; POTENTIAL CHANGE IN CONTROL.
(a) No benefits shall be payable under this Agreement unless there has
been a Change in Control of the Company during the Term.
(b) You agree that, notwithstanding any provision to the contrary in
this Agreement, in the event of a Potential Change in Control of the Company,
you will not voluntarily resign as an employee of the Company until the earliest
of (A) a date which is six (6) months after the occurrence of such Potential
Change in Control of the Company or (B) the termination by you of your
employment by reason of Disability as defined in Section 4(b)(i) or for Good
Reason as defined in Section 4(b)(iii).
4. EMPLOYMENT STATUS; TERMINATION FOLLOWING CHANGE IN CONTROL.
(a) You acknowledge that this Agreement does not constitute a contract
of employment or impose on the Company any obligation to retain you as an
employee and, except as set forth in Section 3(b), this Agreement does not
prevent you from terminating your employment at any time. If your employment
with the Company terminates for any reason and subsequently a Change in Control
shall have occurred, you shall not be entitled to any benefits hereunder. Any
termination of your employment by the Company or by you following a Change in
Control of the Company during the Term shall be communicated by written notice
of termination ("Notice of Termination") to the other party hereto in accordance
with Section 7. The "Date of Termination" shall mean
-5-
<PAGE> 6
the effective date of such termination as specified in the Notice of Termination
(provided that no such Notice of Termination shall specify an effective date
less than 10 days or more than 90 days after the date of such Notice of
Termination).
(b) Notwithstanding anything to the contrary herein, you shall be
entitled to the benefits provided in Section 5 only if a Change in Control shall
have occurred during the Term and within 24 months after such Change in Control
your employment with the Company is subsequently terminated or terminates,
unless such termination is (A) because of your death, (B) by the Company for
Disability (as defined in Section 4(b)(i)) or Cause (as defined in Section
4(b)(ii)), or (C) by you other than for Good Reason (as defined in Section
4(b)(iii)).
(i) DISABILITY. If, as a result of incapacity due to physical or
mental illness, you shall have been absent from the full-time performance of
your duties with the Company for six (6) consecutive months and, within thirty
(30) days after written notice of termination is given to you, you shall not
have returned to the full-time performance of your duties, your employment may
be terminated for "Disability."
(ii) CAUSE. Termination by the Company of your employment for
"Cause" shall mean termination (A) upon your willful and continued failure to
substantially perform your duties with the Company (other than any such failure
resulting from your incapacity due to physical or mental illness or any such
actual or
-6-
<PAGE> 7
anticipated failure after the issuance of a Notice of Termination by you for
Good Reason as defined in Section 4(b)(iii)), provided that a written demand for
substantial performance has been delivered to you by the Company specifically
identifying the manner in which the Company believes that you have not
substantially performed your duties and you have not cured such failure within
30 days after such demand, or (B) by reason of your willful engaging in conduct
which is demonstrably and materially injurious to the Company.
(iii) GOOD REASON. For purposes of this Agreement, "Good Reason"
shall mean, without your written consent, the occurrence after a Change in
Control of the Company of any of the following circumstances unless, in the case
of paragraphs (A), (C), (D), (F) or (G), such circumstances are fully corrected
prior to the Date of Termination (as defined in Section 4(a)) specified in the
Notice of Termination (as defined in Section 4(a)) given in respect thereof:
(A) any significant diminution in your level of
responsibility as in effect immediately prior to a Change in Control, PROVIDED,
HOWEVER; that a change in your position or title with the Company's successor,
as applicable, that is commensurate with the relative size of such successor and
the Company, shall not be a significant diminution in your level of
responsibility;
-7-
<PAGE> 8
(B) any reduction in your annual base salary as in effect on
the date hereof or as the same may be increased from time to time;
(C) the failure by the Company to (i) continue in effect any
material compensation or benefit plan in which you participate immediately prior
to the Change in Control, unless an equitable arrangement (embodied in an
ongoing substitute or alternative plan) has been made with respect to such plan,
(ii) continue your participation therein (or in such substitute or alternative
plan) on a basis not materially less favorable, both in terms of the amount of
benefits provided and the level of your participation relative to other
participants, as existed at the time of the Change in Control or (iii) award
cash bonuses to you in amounts and in a manner substantially consistent with
past practice in light of the Company's financial performance;
(D) the failure by the Company to continue to provide you
with benefits substantially similar to those enjoyed by you under any of the
Company's life insurance, medical, health and accident, or disability plans in
which you were participating at the time of the Change in Control, the taking of
any action by the Company which would directly or indirectly materially reduce
any of such benefits, or the failure by the Company to provide you with the
number of paid vacation days to which you are entitled on the basis of years of
service with the Company in accordance with
-8-
<PAGE> 9
the Company's normal vacation policy in effect at the time of the Change in
Control;
(E) any requirement by the Company or of any person in
control of the Company that the location at which you perform your principal
duties for the Company be changed to a new location that is not in France, and
if any such new location is not within 50 kilometers of the center of Paris,
France, the Company fails to make reasonable arrangements (including
reimbursement of reasonable travel expenses) enabling you to spend an average of
ten (10) business days per month within 50 kilometers of the center of Paris,
France;
(F) the failure of the Company to obtain a reasonably
satisfactory agreement from any successor to assume and agree to perform this
Agreement, as contemplated in Section 6; or
(G) any purported termination of your employment which is
not effected pursuant to a Notice of Termination satisfying the requirements of
Section 7, which purported termination shall not be effective for purposes of
this Agreement.
5. COMPENSATION UPON TERMINATION. Following a Change in Control of the
Company, you shall be entitled to the following benefits during a period of
disability, or upon termination of your employment, as the case may be, provided
that such period or termination occurs during the Term:
-9-
<PAGE> 10
(a) During any period that you fail to perform your full-time duties
with the Company as a result of incapacity due to physical or mental illness,
you shall continue to receive base salary and all other earned compensation at
the rate in effect at the commencement of any such period (offset by all
compensation payable to you under the Company's disability plan or program or
other similar plan during such period) until your employment is terminated
pursuant to Section 4(b)(i) hereof. Thereafter, or in the event your employment
is terminated by reason of death, your benefits shall be determined under the
Company's long-term disability, retirement, insurance and other compensation
programs then in effect in accordance with the terms of such programs.
(b) If your employment shall be terminated by the Company for Cause or
by you other than for Good Reason, the Company shall pay you your full base
salary and all other compensation through the Date of Termination at the rate in
effect at the time the Notice of Termination is given, plus all other amounts to
which you are entitled under any compensation plan of the Company at the time
such payments are due, and the Company shall have no further obligations to you
under this Agreement.
(c) You shall be entitled to the benefits listed below in Subsections
(c)(i) and (c)(ii) below if your employment with the Company is terminated
within 24 months after a Change in Control (x) by the Company (other than for
Cause, Disability or your death) or (y) by you for Good Reason. Notwithstanding
any
-10-
<PAGE> 11
provision to the contrary herein, in the event a Change in Control occurs as a
result of a sale of all or substantially all of the business of the Company
pursuant to a merger, sale of assets or otherwise and you are entitled to the
Severance Payments (as defined below), the Severance Payments payable to you
shall be reduced to the extent that the net present value of the Severance
Payments (as then reasonably determined by the Board of Directors of the
Company) are greater than 1.0% of the Gross Proceeds. For purposes of this
Agreement "Gross Proceeds" shall equal the gross consideration paid by an
acquirer or acquirers of the Company in connection with the sale of all or
substantially all of the business of the Company pursuant to a merger, sales of
assets or otherwise.
(i) the Company shall pay to you (A) your full base salary and
all other compensation through the Date of Termination at the rate in effect at
the time the Notice of Termination is given, no later than the full fifth day
following the Date of Termination, plus all other amounts to which you are
entitled under any compensation plan of the Company at the time such payments
are due and (B) if you so elect, in lieu of your right to continue to receive
deferred compensation under any deferred compensation plan of the Company then
in effect, no later than the fifth full day following the Date of Termination, a
lump-sum amount, in cash, equal to the deferred amounts together with any
earnings credited on such amounts under such plan; and
-11-
<PAGE> 12
(ii) the Company will pay as severance pay to you, in thirty-six
(36) equal monthly installments, beginning at the end of the first full month
subsequent to the Date of Termination, an aggregate amount equal to the sum of
(A) 300% of the higher of (x) your annual base salary in effect on the Date of
Termination or (y) your annual base salary in effect immediately prior to the
Change in Control, plus (B) 300% of the aggregate cash bonuses paid or awarded
to you in respect of the four fiscal quarters preceding the Date of Termination
(collectively, the "Severance Payments").
(d) Severance Payments under this Agreement shall be made without
regard to whether the deductibility of such payments (or any other payments to
or for your benefit) would be limited or precluded by Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code") and without regard to
whether such payments (or any other payments) would subject you to the federal
excise tax levied on certain "excise parachute payments" under Section 4999 of
the Code; provided, that if the total of all payments to or for your benefit,
after deduction of all federal taxes (including the tax set forth in Section
4999 of the Code, if applicable) with respect to such payments (the "total
after-tax payments"), would be increased by the limitation or elimination of any
payment under this Agreement, amounts payable under this Agreement shall be
reduced to the extent, and only to the extent, necessary to maximize the total
after-tax payments. The
-12-
<PAGE> 13
determination as to whether and to what extent payments under this agreement are
required to be reduced in accordance with the preceding sentence shall be made
by agreement between you and the independent public accounting firm of the
Company. To the extent that any elimination or reduction of payments is made in
accordance with this Section 5(d), the determination as to which payments shall
be eliminated or reduced shall be made by you.
(e) The payments provided for in Subsections 5(b) and (c) shall be
made not later than the fifth day following the Date of Termination, unless
otherwise specified; provided, however, that, if the amounts of such payments
cannot be finally determined on or before such day, the Company shall pay to you
on such day an estimate, as determined in good faith by the Company, of the
minimum amount of such payments and shall pay the remainder of such payments
(together with interest at the rate provided in Section l274(b)(2)(B) of the
Code) as soon as the amount thereof can be determined but in no event later than
the thirtieth day after the Date of Termination. In the event that the amount of
the estimated payments exceeds the amount subsequently determined to have been
due, such excess shall constitute a loan by the Company to you, payable on the
fifth day after demand by the Company (together with interest at the rate
provided in Section 1274(b)(2)(B) of the Code).
(f) Except as provided in the second sentence of Subsection 5(c)(iii)
hereof, you shall not be required to mitigate
-13-
<PAGE> 14
the amount of any payment provided for in this Section 5 by seeking other
employment or otherwise, nor shall the amount of any payment or benefit provided
for in this Section 5 be reduced by any compensation earned by you as a result
of employment by another employer, by government-mandated payments, by
retirement benefits or by offset against any amount claimed to be owed by you to
the Company or otherwise.
6. SUCCESSORS; BINDING AGREEMENT.
(a) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Company expressly to assume
and agree to perform this Agreement to the same extent that the Company would be
required to perform it if no such succession had taken place. Failure of the
Company to obtain an assumption of this Agreement at or prior to the
effectiveness of any succession shall be a breach of this Agreement and shall
constitute Good Reason if you elect to terminate your employment, except that
for purposes of implementing the foregoing, the date on which any such
succession becomes effective shall be deemed the Date of Termination. As used in
this Agreement, Company shall mean the Company as defined above and any
successor to its business or assets as aforesaid which assumes and agrees to
perform this Agreement by operation of law, or otherwise.
-14-
<PAGE> 15
(b) This Agreement shall inure to the benefit of and be enforceable by
your personal or legal representatives, executors, administrators, successors,
heirs, distributees, devisees and legatees. If you should die while any amount
would still be payable to you hereunder if you had continued to live, all such
amounts, unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to your devisee, legatee or other designee or if there
is no such designee, to your estate.
7. NOTICE. For the purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
duly given when delivered or when mailed by registered mail, return receipt
requested, postage prepaid, addressed to the President of the Company, at 111
Locke Drive, Marlborough, Massachusetts 01752, and to you at the address shown
above or to such other address as either the Company or you may have furnished
to the other in writing in accordance herewith, except that notice of change of
address shall be effective only upon receipt.
8. MISCELLANEOUS.
(a) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
-15-
<PAGE> 16
(b) The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the Commonwealth of Massachusetts.
(c) No waiver by you at any time of any breach of, or compliance with,
any provision of this Agreement to be performed by the Company shall be deemed a
waiver of that or any other provision at any subsequent time.
(d) This Agreement may be executed in counterparts, each of which
shall be deemed to be an original but both of which together will constitute one
and the same instrument.
(e) Any payments provided for hereunder shall be paid net of any
applicable withholding required under federal, state or local law.
(f) This Agreement sets forth the entire agreement of the parties
hereto in respect of the subject matter contained herein and supersedes all
prior agreements, promises, covenants, arrangements, communications,
representations or warranties, whether oral or written, by any officer, employee
or representative of any party hereto; and any prior agreement of the parties
hereto in respect of the subject matter contained herein is hereby terminated
and cancelled.
If this letter sets forth our agreement on the subject matter hereof,
kindly sign and return to the Company the enclosed copy of
-16-
<PAGE> 17
this letter, which will then constitute our agreement on this subject.
Sincerely,
BIOSEPRA INC.
By /s/ Jean-Marie Vogel
---------------------------
President
Agreed to as of this ____ day of October, 1997
/s/ Egisto Boschetti
- ----------------------------------------------
Egisto Boschetti
Address: c/o BioSepra Inc., 111 Locke Drive
-------------------------------------
Marlborough, MA 01752
-------------------------------------
-17-
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<PAGE> 1
Exhibit 10.2
BIOSEPRA INC.
Senior Management Retention Agreement
-------------------------------------
Mr. Jean-Marie Vogel
c/o BioSepra Inc.
111 Locke Drive
Marlborough, Massachusetts 01752
Dear Mr. Vogel:
BioSepra Inc. (the "Company") recognizes that, as is the case with many
publicly-held corporations, the possibility of a change in control may exist and
that such possibility, and the uncertainty and questions which it may raise
among key personnel, may result in the departure or distraction of key personnel
to the detriment of the Company, its stockholders and its customers.
The Board of Directors of the Company (the "Board") has determined that
appropriate steps should be taken to reinforce and encourage the continued
attention and dedication of the Company's key personnel, including yourself, to
their assigned duties without distraction in the face of potentially disturbing
circumstances arising from the possibility of a change in control of the
Company.
In order to induce you to remain in its employ, the Company agrees that you
shall receive the severance benefits set forth in this letter agreement (the
"Agreement") in the event your employment with the Company is terminated under
the circumstances described below subsequent to a "Change in Control" of the
Company (as defined below).
<PAGE> 2
1. CERTAIN DEFINITIONS.
As used herein, the following terms shall have the following respective
meanings:
(a) A "CHANGE IN CONTROL" shall occur or be deemed to have occurred
only if any of the following events occur: (i) any "person," as such term is
used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), (other than the Company, Sepracor Inc.
("Sepracor"), any trustee or other fiduciary holding securities under an
employee benefit plan of the Company, or any corporation owned directly or
indirectly by the stockholders of the Company in substantially the same
proportion as their ownership of stock of the Company) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Company representing more than 50% of the
combined voting power of the Company's then outstanding securities; (ii)
individuals who, as of the date hereof, constitute the Board (as of the date
hereof, the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board, provided that any person becoming a director subsequent
to the date hereof whose election, or nomination for election by the Company's
stockholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board (other than an election or nomination of an
individual whose initial assumption of office is in connection with an actual or
threatened election contest
-2-
<PAGE> 3
relating to the election of the directors of the Company, as such terms are used
in Rule 14a-11 of Regulation 14A under the Exchange Act) shall be, for purposes
of this Agreement, considered as though such person were a member of the
Incumbent Board; or (iii) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than (A) a merger
or consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than 50% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately after
such merger or consolidation or (B) a merger or consolidation effected to
implement a recapitalization of the Company (or similar transaction) in which no
person (as hereinabove defined), other than a person holding more than 50% of
the combined voting power of the Company's then outstanding securities
immediately prior to such recapitalization, acquires more than 50% of the
combined voting power of the Company's then outstanding securities; or (iv) the
stockholders of the Company approve an agreement for the sale of all or
substantially all of the business of the Company through the disposition by the
Company of all or substantially all of the Company's assets.
(b) A "POTENTIAL CHANGE IN CONTROL" shall be deemed to have occurred
if:
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(A) the Company enters in an agreement, the consummation of which
would result in the occurrence of a Change in Control of the Company,
(B) any person (including the Company and Sepracor) publicly
announces an intention to take or to consider taking actions which if
consummated would constitute a Change in Control of the Company; or
(C) the Board of Directors of the Company adopts a resolution to
the effect that, for purposes of this Agreement, a Potential Change in Control
of the Company has occurred.
2. TERM OF THE AGREEMENT.
The term of this Agreement (the "Term") shall commence on as of the date
hereof and shall continue in effect through December 31, 1997; provided,
however, that commencing on January l, 1998 and each January l thereafter, the
Term shall be automatically extended for one additional year unless, not later
than October 30 of the preceding calendar year, the Company shall have given you
written notice that the Term will not be extended; and provided further that, if
a Change in Control of the Company shall have occurred during the original or
extended Term, this Agreement shall continue in effect for as long as you remain
an employee of BioSepra or any acquirer or successor of BioSepra hereunder.
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3. CHANGE IN CONTROL; POTENTIAL CHANGE IN CONTROL.
(a) No benefits shall be payable under this Agreement unless there has
been a Change in Control of the Company during the Term.
(b) You agree that, notwithstanding any provision to the contrary in
this Agreement, in the event of a Potential Change in Control of the Company,
you will not voluntarily resign as an employee of the Company until the earliest
of (A) a date which is six (6) months after the occurrence of such Potential
Change in Control of the Company or (B) the termination by you of your
employment by reason of Disability as defined in Section 4(b)(i) or for Good
Reason as defined in Section 4(b)(iii).
4. EMPLOYMENT STATUS; TERMINATION FOLLOWING CHANGE IN CONTROL.
(a) You acknowledge that this Agreement does not constitute a contract
of employment or impose on the Company any obligation to retain you as an
employee and, except as set forth in Section 3(b), this Agreement does not
prevent you from terminating your employment at any time. If your employment
with the Company terminates for any reason and subsequently a Change in Control
shall have occurred, you shall not be entitled to any benefits hereunder. Any
termination of your employment by the Company or by you following a Change in
Control of the Company during the Term shall be communicated by written notice
of termination ("Notice of Termination") to the other party hereto in accordance
with Section 7. The "Date of Termination" shall mean
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the effective date of such termination as specified in the Notice of Termination
(provided that no such Notice of Termination shall specify an effective date
less than 10 days or more than 120 days after the date of such Notice of
Termination).
(b) Notwithstanding anything to the contrary herein, you shall be
entitled to the benefits provided in Section 5 only if a Change in Control shall
have occurred during the Term and your employment with the Company is
subsequently terminated or terminates after such Change in Control, unless such
termination is (A) because of your death, (B) by the Company for Disability (as
defined in Section 4(b)(i)) or Cause (as defined in Section 4(b)(ii)), or (C) by
you within 12 months after a Change in Control other than for Good Reason (as
defined in Section 4(b)(iii)).
(i) DISABILITY. If, as a result of incapacity due to physical or
mental illness, you shall have been absent from the full-time performance of
your duties with the Company for six (6) consecutive months and, within thirty
(30) days after written notice of termination is given to you, you shall not
have returned to the full-time performance of your duties, your employment may
be terminated for "Disability."
(ii) CAUSE. Termination by the Company of your employment for
"Cause" shall mean termination (A) upon your willful and continued failure to
substantially perform your duties with the Company (other than any such failure
resulting from your
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incapacity due to physical or mental illness or any such actual or anticipated
failure after the issuance of a Notice of Termination by you for Good Reason as
defined in Section 4(b)(iii)), provided that a written demand for substantial
performance has been delivered to you by the Company specifically identifying
the manner in which the Company believes that you have not substantially
performed your duties and you have not cured such failure within 30 days after
such demand, or (B) by reason of your willful engaging in conduct which is
demonstrably and materially injurious to the Company.
(iii) GOOD REASON. For purposes of this Agreement, "Good Reason"
shall mean, without your written consent, the occurrence after a Change in
Control of the Company of any of the following circumstances unless, in the case
of paragraphs (A), (C), (D), (F) or (G), such circumstances are fully corrected
prior to the Date of Termination (as defined in Section 4(a)) specified in the
Notice of Termination (as defined in Section 4(a)) given in respect thereof:
(A) any significant diminution in your position, duties,
responsibilities, power, title or office as in effect immediately prior to a
Change in Control;
(B) any reduction in your annual base salary as in effect on
the date hereof or as the same may be increased from time to time;
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(C) the failure by the Company to (i) continue in effect any
material compensation or benefit plan in which you participate immediately prior
to the Change in Control, unless an equitable arrangement (embodied in an
ongoing substitute or alternative plan) has been made with respect to such plan,
(ii) continue your participation therein (or in such substitute or alternative
plan) on a basis not materially less favorable, both in terms of the amount of
benefits provided and the level of your participation relative to other
participants, as existed at the time of the Change in Control or (iii) award
cash bonuses to you in amounts and in a manner substantially consistent with
past practice in light of the Company's financial performance;
(D) the failure by the Company to continue to provide you
with benefits substantially similar to those enjoyed by you under any of the
Company's life insurance, medical, health and accident, or disability plans in
which you were participating at the time of the Change in Control, the taking of
any action by the Company which would directly or indirectly materially reduce
any of such benefits, or the failure by the Company to provide you with the
number of paid vacation days to which you are entitled on the basis of years of
service with the Company in accordance with the Company's normal vacation policy
in effect at the time of the Change in Control;
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<PAGE> 9
(E) any requirement by the Company or of any person in
control of the Company that the location at which you perform your principal
duties for the Company be changed to a new location that is not at the United
States headquarters of the Company or the United States headquarters of the
division of the Company in which you perform your assigned duties;
(F) the failure of the Company to obtain a reasonably
satisfactory agreement from any successor to assume and agree to perform this
Agreement, as contemplated in Section 6; or
(G) any purported termination of your employment which is
not effected pursuant to a Notice of Termination satisfying the requirements of
Section 7, which purported termination shall not be effective for purposes of
this Agreement.
5. COMPENSATION UPON TERMINATION. Following a Change in Control of the
Company, you shall be entitled to the following benefits during a period of
disability, or upon termination of your employment, as the case may be, provided
that such period or termination occurs during the Term:
(a) During any period that you fail to perform your full-time duties
with the Company as a result of incapacity due to physical or mental illness,
you shall continue to receive base salary and all other earned compensation at
the rate in effect at the commencement of any such period (offset by all
compensation payable to you under the Company's disability plan or program or
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other similar plan during such period) until your employment is terminated
pursuant to Section 4(b)(i) hereof. Thereafter, or in the event your employment
is terminated by reason of death, your benefits shall be determined under the
Company's long-term disability, retirement, insurance and other compensation
programs then in effect in accordance with the terms of such programs.
(b) If your employment shall be terminated by the Company for Cause or
by you other than for Good Reason within 12 months after a Change in Control,
the Company shall pay you your full base salary and all other compensation
through the Date of Termination at the rate in effect at the time the Notice of
Termination is given, plus all other amounts to which you are entitled under any
compensation plan of the Company at the time such payments are due, and the
Company shall have no further obligations to you under this Agreement.
(c) You shall be entitled to the benefits listed below in Subsections
(c)(i) through (c)(iii) below if your employment with the Company is terminated
(x) by the Company (other than for Cause, Disability or your death) after a
Change in Control, (y) by you for Good Reason within 12 months after a Change in
Control or (z) by you for any reason or no reason more than 12 months after a
Change in Control. Notwithstanding any provision to the contrary herein, in the
event a Change in Control occurs as a result of a sale of all or substantially
all of the business of the Company pursuant to a merger, sale of assets or
otherwise and you are
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entitled to the Severance Payments (as defined below), the Severance Payments
payable to you shall be reduced to the extent that the net present value of the
Severance Payments (as then reasonably determined by the Board of Directors of
the Company) are greater than 1.5% of the Gross Proceeds. For purposes of this
Agreement "Gross Proceeds" shall equal the gross consideration paid by an
acquirer or acquirers of the Company in connection with the sale of all or
substantially all of the business of the Company pursuant to a merger, sales of
assets or otherwise.
(i) the Company shall pay to you (A) your full base salary and
all other compensation through the Date of Termination at the rate in effect at
the time the Notice of Termination is given, no later than the full fifth day
following the Date of Termination, plus all other amounts to which you are
entitled under any compensation plan of the Company at the time such payments
are due and (B) if you so elect, in lieu of your right to continue to receive
deferred compensation under any deferred compensation plan of the Company then
in effect, no later than the fifth full day following the Date of Termination, a
lump-sum amount, in cash, equal to the deferred amounts together with any
earnings credited on such amounts under such plan;
(ii) the Company will pay as severance pay to you, in thirty-six
(36) equal monthly installments, beginning at the end of the first full month
subsequent to the Date of Termination, an aggregate amount equal to the sum of
(A) 300% of the higher of
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(x) your annual base salary in effect on the Date of Termination or (y) your
annual base salary in effect immediately prior to the Change in Control, plus
(B) 300% of the aggregate cash bonuses paid or awarded to you in respect of the
four fiscal quarters preceding the Date of Termination (together with the
payments provided in paragraph (iii) below, the "Severance Payments"); and
(iii) for a thirty-six (36) month period after such termination,
the Company shall arrange to provide you with life, disability, dental, accident
and group health insurance benefits substantially similar to those which you
were receiving immediately prior to the Notice of Termination. Notwithstanding
the foregoing, the Company shall not provide any benefit otherwise receivable by
you pursuant to this paragraph (iii) if an equivalent benefit is actually
received by you during the thirty-six (36) month period following your
termination, and any such benefit actually received by you shall be reported to
the Company.
(d) Severance Payments under this Agreement shall be made without
regard to whether the deductibility of such payments (or any other payments to
or for your benefit) would be limited or precluded by Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code") and without regard to
whether such payments (or any other payments) would subject you to the federal
excise tax levied on certain "excise parachute payments" under Section 4999 of
the Code; provided, that if the total of all payments to or for your benefit,
after deduction of all federal
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taxes (including the tax set forth in Section 4999 of the Code, if applicable)
with respect to such payments (the "total after-tax payments"), would be
increased by the limitation or elimination of any payment under this Agreement,
amounts payable under this Agreement shall be reduced to the extent, and only to
the extent, necessary to maximize the total after-tax payments. The
determination as to whether and to what extent payments under this agreement are
required to be reduced in accordance with the preceding sentence shall be made
by agreement between you and the independent public accounting firm of the
Company. To the extent that any elimination or reduction of payments is made in
accordance with this Section 5(d), the determination as to which payments shall
be eliminated or reduced shall be made by you.
(e) The payments provided for in Subsections 5(b) and (c) shall be
made not later than the fifth day following the Date of Termination, unless
otherwise specified; provided, however, that, if the amounts of such payments
cannot be finally determined on or before such day, the Company shall pay to you
on such day an estimate, as determined in good faith by the Company, of the
minimum amount of such payments and shall pay the remainder of such payments
(together with interest at the rate provided in Section l274(b)(2)(B) of the
Code) as soon as the amount thereof can be determined but in no event later than
the thirtieth day after the Date of Termination. In the event that the amount of
the estimated payments exceeds the amount subsequently determined
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to have been due, such excess shall constitute a loan by the Company to you,
payable on the fifth day after demand by the Company (together with interest at
the rate provided in Section 1274(b)(2)(B) of the Code).
(f) Except as provided in the second sentence of Subsection 5(c)(iii)
hereof, you shall not be required to mitigate the amount of any payment provided
for in this Section 5 by seeking other employment or otherwise, nor shall the
amount of any payment or benefit provided for in this Section 5 be reduced by
any compensation earned by you as a result of employment by another employer, by
retirement benefits or by offset against any amount claimed to be owed by you to
the Company or otherwise.
6. SUCCESSORS; BINDING AGREEMENT.
(a) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Company expressly to assume
and agree to perform this Agreement to the same extent that the Company would be
required to perform it if no such succession had taken place. Failure of the
Company to obtain an assumption of this Agreement at or prior to the
effectiveness of any succession shall be a breach of this Agreement and shall
constitute Good Reason if you elect to terminate your employment, except that
for purposes of implementing the foregoing, the date on which any such
succession becomes effective shall be deemed the Date of Termination. As
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used in this Agreement, Company shall mean the Company as defined above and any
successor to its business or assets as aforesaid which assumes and agrees to
perform this Agreement by operation of law, or otherwise.
(b) This Agreement shall inure to the benefit of and be enforceable by
your personal or legal representatives, executors, administrators, successors,
heirs, distributees, devisees and legatees. If you should die while any amount
would still be payable to you hereunder if you had continued to live, all such
amounts, unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to your devisee, legatee or other designee or if there
is no such designee, to your estate.
7. NOTICE. For the purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
duly given when delivered or when mailed by United States registered or
certified mail, return receipt requested, postage prepaid, addressed to the
Chairman of the Board of Directors of the Company, at 111 Locke Drive,
Marlborough, Massachusetts 01752, and to you at the address shown above or to
such other address as either the Company or you may have furnished to the other
in writing in accordance herewith, except that notice of change of address shall
be effective only upon receipt.
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8. MISCELLANEOUS.
(a) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
(b) The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the Commonwealth of Massachusetts.
(c) No waiver by you at any time of any breach of, or compliance with,
any provision of this Agreement to be performed by the Company shall be deemed a
waiver of that or any other provision at any subsequent time.
(d) This Agreement may be executed in counterparts, each of which
shall be deemed to be an original but both of which together will constitute one
and the same instrument.
(e) Any payments provided for hereunder shall be paid net of any
applicable withholding required under federal, state or local law.
(f) This Agreement sets forth the entire agreement of the parties
hereto in respect of the subject matter contained herein and supersedes all
prior agreements, promises, covenants, arrangements, communications,
representations or warranties, whether oral or written, by any officer, employee
or representative of any party hereto; and any prior agreement of the
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parties hereto in respect of the subject matter contained herein is hereby
terminated and cancelled.
If this letter sets forth our agreement on the subject matter hereof,
kindly sign and return to the Company the enclosed copy of this letter, which
will then constitute our agreement on this subject.
Sincerely,
BIOSEPRA INC.
By
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Chairman of the Board of Directors
Agreed to as of this 3rd day of October, 1997
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Jean-Marie Vogel
Address:
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