UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from .......................... to ..................
Commission file number 0-19410
HemaSure Inc.
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(Exact name of registrant as specified in its charter)
Delaware 04-3216862
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State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
140 Locke Drive
Marlborough, Massachusetts 01752
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (508) 485-6850
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name on each exchange on which registered
None None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
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(Title of class)
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss.229.405 of this chapter) 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 this Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates of the
registrant was $34,889,841 on January 31, 1997.
Number of shares outstanding of the registrant's class of common stock as of
January 31, 1997: 8,106,324.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement for 1997 Annual Meeting of Stockholders - Part III
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EXPLANATORY NOTE
This Annual Report on Form 10-K contains predictions, projections and
other statements about the future that are intended to be "forward-looking
statements" within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended (collectively, "Forward-Looking Statements"). Forward-Looking
Statements are included with respect to various aspects of the Company's
strategy and operations, including but not limited to its product development
efforts, including regulatory requirements and approvals; potential development
and strategic alliances; and the Company's liquidity. Each Forward-Looking
Statement that the Company believes is material is accompanied by cautionary
statements identifying important factors that could cause actual results to
differ materially from those described in the Forward-Looking Statement. The
cautionary statements are set forth following the Forward-Looking Statement,
and/or in other sections of the Annual Report on Form 10-K. IN ASSESSING
FORWARD-LOOKING STATEMENTS CONTAINED IN THIS ANNUAL REPORT ON FORM 10-K, READERS
ARE URGED TO READ CAREFULLY ALL CAUTIONARY STATEMENTS -- INCLUDING THOSE
CONTAINED IN OTHER SECTIONS OF THE ANNUAL REPORT ON FORM 10-K.
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PART I
Item 1. BUSINESS
HemaSure Inc. (the "Company") was established in December 1993 as a
wholly-owned subsidiary of Sepracor Inc. ("Sepracor"). Prior to that date, its
business was conducted as part of Sepracor's bioprocessing division. Effective
as of January 1, 1994, in exchange for 3,000,000 shares of common stock, par
value $.01 per share (the "Common Stock"), of the Company, Sepracor transferred
to the Company its technology relating to the manufacture, use and sale of
medical devices for the separation and purification of blood, blood products and
blood components and its membrane filter design technologies.
The Company is applying its proprietary filtration and pathogen
inactivation technologies to develop products to increase the safety of donated
blood and to improve certain blood transfusion and collection procedures. The
Company has developed the following products for use by blood centers, hospital
blood banks and hospitals:
o The LeukoNet Pre-Storage Leukoreduction Filtration System (the
"LeukoNet System") is designed to remove harmful leukocytes
(white blood cells) from donated blood.
o The LeukoVir-MB-Filter is designed to remove methylene blue
that has been used to inactivate viruses in blood plasma and
to remove contaminating leukocytes, microaggregates and excess
lipids that may compromise the integrity of plasma.
In addition, the Company is also developing the SteriPath Blood
Pathogen Inactivation System (the "SteriPath System") for use by these blood
centers, hospital blood banks and hospitals. The SteriPath System is designed to
inactivate viruses and other pathogens and remove leukocytes from donated blood.
Industry Background
Individuals suffering physical trauma or anemia, undergoing complex
surgical procedures or hemodialysis or undergoing treatment for cancer are among
the diverse group of patients who require blood transfusions in the course of
their medical care. Health risks, such as transfusion complications and
infections, may arise from contaminated blood and blood products, although
infection risks are lower today than in the recent past as a result of improved
donor education and selection and implementation of screening procedures to
identify certain virus contaminated blood prior to transfusion. Moreover, these
health risks can increase in patients who receive frequent transfusions, such as
those suffering from kidney and liver disorders, and patients who are
immune-suppressed, such as those undergoing treatment for cancer.
The number of units of whole blood, blood components or plasma a
patient receives in a blood transfusion varies significantly. A patient
undergoing routine surgery may typically receive three or four units, while a
cancer patient undergoing platelet transfusion may receive in excess of 100
units over time. The risk of infection to a patient increases as the number of
units transfused increases.
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Transfusion Risks
Health risks from transfusions, including complications and infections,
arise from the presence of leukocytes, viruses and other pathogens in blood,
cellular blood components and plasma. In addition, autologous blood recovery and
reinfusion results in an increased risk of contamination of a patient's blood.
Leukocytes. Leukocytes (white blood cells) may cause adverse reactions
in patients receiving blood transfusions, such as fever, chills, immune system
suppression or development of immunological responses that could cause the
affected patient to reject subsequent blood transfusions. In addition,
leukocytes may harbor infectious viruses, including cytomegalovirus and human
T-cell lymphocyte virus I (HTLV-I). The Company believes that the demand for
filtered blood for transfusions will continue to increase over the next several
years due to the growing recognition in the medical field of the benefits of
leukocyte reduction.
Pathogens. Viruses such as HIV, hepatitis B and hepatitis C may be
contained inside or outside of the leukocytes and may be transmitted during
transfusions. Other viruses may develop or become prevalent over time. Of the
currently known viruses, there has been significant public focus on hepatitis
and HIV.
Other Blood-Borne Pathogens. In addition to viruses, other blood-borne
pathogens may be transmitted by blood transfusions. These include the parasites
which cause malaria and Chagas' disease and the spirochetes which cause syphilis
and Lyme disease. An effective pathogen inactivation system for blood needs to
successfully inactivate a broad range of parasites and spirochetes, in addition
to viruses.
Other Contaminants. During surgical procedures, the walls of red blood
cells can break down and release hemoglobin, the oxygen carrying chemical
component normally contained within red blood cells. In its free form,
hemoglobin is toxic and can result in renal shutdown if present in sufficient
quantities. The contamination of blood by free hemoglobin has limited the use of
reinfusion of recovered blood.
PRODUCTS AND PRODUCTS UNDER DEVELOPMENT
LeukoNet System
The Company's LeukoNet System is designed for leukocyte filtration by
blood centers immediately prior to blood storage, a process which the Company
believes results in improved quality leukocyte reduced blood. The Company
believes that the demand for filtered blood for transfusions will continue to
increase over the next several years and that, while leukocyte filtration
currently takes place primarily at the patient bedside, as the demand for
filtered blood increases, leukocyte removal will shift from bedside filtration
of individual units on an "as needed" basis to centralized filtration performed
at blood centers.
The LeukoNet System is based on a proprietary filter medium comprised
of multiple fibrous components. Leukocytes are removed by a combination of
entrapment and adhesion. With a proprietary automatic internal prime and drain
design, the filter device reduces operator intervention and facilitates
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high volume, centralized processing in a regional blood center environment. The
Company is focusing its marketing efforts exclusively on blood centers for
pre-storage leukocyte reduction.
In December 1994, the Company filed a 510(k) premarket notification
clearance with the United States Food and Drug Administration (the "FDA") for
the LeukoNet System, and in June 1995 the Company received such clearance. The
Company commenced commercialization of the LeukoNet System in the United States
and in foreign countries in the second half of 1995. While the Company believes
that the performance and ease-of-use of the LeukoNet System will compare
favorably with other blood filtration devices, there can be no assurance that
the performance or price of the LeukoNet System will be sufficient to achieve
significant sales, particularly in view of the dominant position in the market
held by Pall Corporation. See "-- Competition."
Sales of the Company's LeukoNet System to the American Red Cross
Biomedical Services accounted for 83% of the Company's total revenues in 1996.
LeukoVir-MB Filter
The Company introduced its LeukoVir-MB Filter in Europe in the second
half of 1996. Developed in collaboration with the German Red Cross of Lower
Saxony and the Swiss Red Cross, the Company's LeukoVir-MB Filter is designed to
remove the virucidal agent methylene blue, which is used to treat plasma for
transfusion. Methylene blue has not been approved for use in the United States.
The LeukoVir-MB Filter, currently awaiting marketing approval in Europe, is
designed to process individual units of plasma by a single, disposable system,
eliminating the potential infection-spreading danger of systems requiring
pooling of many units before processing. The Company believes that the reduction
of this viral inactivation agent to undetectable levels should eliminate
concerns regarding methylene blue's potential toxicity. Additionally, the
LeukoVir-MB Filter is designed to remove contaminating leukocytes and eliminate
microaggregates, bacteria and excess lipids that may compromise the integrity of
plasma.
There can be no assurance that the LeukoVir-MB Filter will achieve
market acceptance.
SteriPath System
Although all blood derivatives in the United States and Europe are
treated to inactivate pathogens with FDA validated procedures or other validated
procedures that employ chemical, filtration or thermal inactivation processes,
the Company believes that, to date, no effective treatment is commercially
available for pathogen inactivation of cellular components of blood. The Company
believes that inactivation of all contaminating viruses and other pathogens in
blood and blood components used for transfusion will require pathogen
inactivation and removal procedures similar in effectiveness to those procedures
used for blood derivatives and that an effective pathogen inactivation system
for blood and blood components must be able to:
o introduce a chemical agent to inactivate blood pathogens without causing
toxicity to the patient or impairing the functionality or viability of the
blood;
o remove the chemical agent from the blood prior to transfusion; and
o remove any virus-containing cellular blood components (leukocytes) in the
transfusion product.
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The Company is developing the SteriPath System as an integrated blood
pathogen inactivation system for use with blood and blood components. The
Company's objective is to design a system that will eliminate infectivity,
without adversely affecting circulatory and functional properties of blood cells
and without generating any new immunologic structures that could react with the
patient's immune system. The Company is designing its SteriPath System to
chemically inactivate viruses and other pathogens present in donated blood and
then remove the inactivating agent and leukocytes through specific filtration.
The Company expects to package the SteriPath System as a closed system to
accommodate the normal blood processing operations at blood centers around the
world.
The Company has developed or licensed several compounds for the
inactivation of viruses and other pathogens and is currently evaluating their
potential use in the SteriPath System. The Company is initially investigating
the chemicals hydroxymethylglycinate (HMG) and formaldehyde as pathogen
inactivation candidates for red blood components, and methylene blue technology
for use in single units of donor plasma. See "-- Technologies -- Pathogen
Inactivation Technologies." The Company filed an Investigational Device
Exemption ("IDE") with the FDA for this product in December 1996. The Company
currently procures HMG from a sole source, but does not have a contractual right
to procure HMG in the future. Should the Company need to procure substantial
quantities of HMG in connection with the development and commercialization of
its SteriPath System, the failure to obtain sufficient quantities of HMG from
the sole source, or to identify additional, suitable sources, could have a
material adverse effect on the Company's ability to develop and commercialize
the SteriPath System.
The process of pathogen inactivation to date is most advanced in the
purification of plasma pharmaceuticals. Although blood derivatives in the United
States and Europe are treated to inactivate pathogens, current methods of plasma
pathogen inactivation involve treatment by filtration, solvents/detergents,
thermal inactivation (pasteurizing) and photochemical treatment with methylene
blue (a method used in parts of Europe). Some of these methods are effective
only for certain classes of pathogens and do not function as broad-spectrum
pathogen inactivation agents.
While the Company believes that its proprietary chemistries offer
promising opportunities for blood pathogen inactivation, there can be no
assurance that the SteriPath System will be successfully developed or achieve
market acceptance.
Other Products of the Company
The Company also has proprietary interests in certain other potential
products or technologies, including: (i) the CellWasher Cell Concentrator
(designed to remove excess fluids from blood prior to reinfusion into patients);
(ii) the HemoNet Filter (a filter which is designed to remove tissue
contaminants and free hemoglobin from recovered blood prior to reinfusion during
surgical procedures); (iii) the Surgical Blood Salvage System (designed to
incorporate the features of both the HemoNet Filter and CellWasher Cell
Concentrator); and (iv) the PlasmaSep Plasma Collection System (a hollow-fiber
filtration-based system designed for the collection of plasma for
fractionation). These products are not currently under active development by the
Company; however, to the extent the Company identifies a suitable third party
development partner with respect to any one or more of such products or
technologies who agrees to share development efforts and costs with the Company,
the Company would pursue further the development and commercialization of such
products and technologies with such third party. There can be no assurance,
however, that the Company will identify or enter into definitive agreements with
any such development partner, or that it will successfully develop the products
or technologies described herein.
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Regulatory Approval
The Company believes that its blood filtration products under
development will be classified as medical devices and that it will be able to
secure regulatory approval in the United States for each of its medical device
products through 510(k) premarket notification clearance with the FDA. In April
1996, the FDA informed the Company that its SteriPath System will be classified
as a device and that the Company will be able to seek to secure regulatory
approval in the United States through an IDE/Premarket Approval Application
("PMA") process. There is no assurance, however, that the FDA will determine
that any of the Company's products will meet the requirements for its expected
classification. If the FDA concludes that any product does not meet such
requirements, then the process for obtaining regulatory approval for such
product in the United States would be significantly lengthened.
See "-- Government Regulation."
Membrane Products
Since its inception in December 1993 through the first quarter of 1996,
the Company manufactured and sold certain non-blood related process-scale
membrane devices used for the separation and purification of certain
pharmaceuticals, chemicals and biologics. See "-- Relationship with Sepracor."
Substantially all of the Company's revenues through the first quarter of 1996
have been attributable to sales of these non-blood related membrane filter
products. Revenues from these products were $13,000, $517,000 and $339,000 in
1996, 1995 and 1994, respectively, and are not expected to continue in any
material respect beyond 1996.
Rhone-Poulenc Rorer Inc. accounted for 18% of the Company's total
revenues with respect to such membrane products in 1994. In 1996, 1995 and 1994,
sales to Sepracor with respect to membrane products accounted for 2%, 57% and
50% of the Company's total revenues, respectively. Revenues from the U.S.
Department of the Army related to such products represented 7%, 36% and 18% of
the Company's revenues in 1996, 1995 and 1994, respectively.
Technologies
The Company's current products are based on its proprietary
technologies in the areas of pathogen inactivation, affinity separations,
organic chemical synthesis, membrane technology and device design and
fabrication.
Pathogen Inactivation Technologies
The Company's proprietary pathogen inactivation chemistries are
designed to react with the nucleic acid of various pathogens, thereby
effectively eliminating disease transmission from pathogen infected blood and
blood products. The Company is developing chemical compounds and process
conditions to minimize deleterious changes in the blood product due to the
addition and subsequent removal of such additives. The Company's specialized
filtration and leukoreduction technologies may also be used to remove both
cellular contamination (including intra-cellular viruses) and reaction
by-products of the chemical inactivation process.
The Company has developed or licensed several compounds and is
currently evaluating their use in the Company's SteriPath System and in other
products. In vitro experimentation on these compounds
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is ongoing in both Company laboratories and in those of the American Red Cross.
Animal studies are being performed on behalf of the Company at the Navy Blood
Research Laboratory of Boston University.
The Company is investigating three basic technologies for blood
pathogen inactivation:
Aldehydes. The Company has licensed patented technology on the use of
low concentrations of formaldehyde for pathogen inactivation of cellular blood
products. Formaldehyde is an effective sterilization agent which is well
understood and widely used. The Company has demonstrated that at low
concentrations, formaldehyde is an effective pathogen inactivator in blood and
blood products. Formaldehyde works by forming methylene bridges between adjacent
nucleic acid pairs, thereby rendering them inactive. Formaldehyde at low
concentrations is ubiquitous in food and human tissues and is readily
metabolized to carbon dioxide by enzymes present in a variety of human tissues,
including red blood cells.
The Company's patented formaldehyde-based pathogen inactivation
procedure employs a sufficiently high concentration of formaldehyde to assure
complete pathogen inactivation of enveloped and non-enveloped viruses, bacteria
and parasites. Chemical inactivation is followed by removal of residual
formaldehyde or reaction by-products with a specially modified leukoreduction
filter currently under development.
Hydroxymethyl Amino Acids. The Company is also developing proprietary
pathogen inactivation chemistries based on the reaction of hydroxymethyl amino
acids with nucleic acids. Hydroxymethyl amino acids are synthesized by reacting
amino acids with formaldehyde. The Company has filed patent applications on the
use of these compounds for pathogen inactivation in blood and blood products.
The Company's lead compound of this class has been shown in vitro tests to
effectively inactivate pathogens in blood. This compound is currently widely
used as an anti-microbial agent in topical pharmaceuticals and cosmetics.
The Company has commissioned animal studies to demonstrate the safety
of its hydroxymethyl amino acid-based procedures and experiments to demonstrate
its efficacy in pathogen inactivation. The Company received FDA approval of its
request to classify its SteriPath System as a device in April 1996 and filed an
IDE application with the FDA for a hydroxymethyl amino acid-based SteriPath
System in December 1996.
Methylene Blue. Methylene blue is an effective inactivator of enveloped
viruses and is currently used in Europe for the viral inactivation of fresh
frozen plasma for transfusion. Methylene blue inactivates certain viruses by the
generation of reactive singlet oxygen when exposed to light. Singlet oxygens can
break apart molecules in their vicinity. However, methylene blue treatment is
not effective against non-enveloped viruses (such as hepatitis A) or
intra-cellular viruses present in leukocytes. Also, methylene blue treated
plasma presents a poor appearance, and questions have been raised about its
long-term toxicity. The Company's LeukoVir-MB Filter, currently awaiting
marketing approval in Europe, is designed to remove methylene blue, leukocytes
and other contaminants from treated plasma thereby addressing concerns about
toxicity and appearance.
The Company is also developing technologies to enhance the
effectiveness of methylene blue as an anti-pathogen agent. In addition, the
Company has developed and has filed patent applications on a "viral transform"
technology that seeks to transform non-enveloped viruses found in plasma into an
"enveloped-virus form," thus making these non-enveloped viruses susceptible to
the inactivating action
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of methylene blue. This new "viral transform" technology may allow for
inactivation of both enveloped and non-enveloped viruses by methylene blue
treatment.
Removal of Pathogen Inactivation Agents. The Company is utilizing its
specialized filtration and sorbent technologies to remove excess anti-pathogen
agents and reaction by-products from blood components processed with its
SteriPath System. These technologies are intended to be effective when used in
connection with any of the Company's aldehyde, hydroxymethyl amino acid,
methylene blue and alphahydroxymethyl inactivation chemistries.
Affinity Separations
Leukocytes. The Company has proprietary affinity separations technology
that utilizes ligands, which are molecules that bind to complementary
biomolecules, in connection with the Company's various filtration products. The
Company has identified a family of carbohydrate-based ligands that recognize and
bind to the cell surface receptors on leukocytes. The Company has filed patent
applications covering the use of these carbohydrate-based ligands for removing
leukocytes.
Free Hemoglobin. The Company has developed a proprietary affinity
separations technology for removal of free hemoglobin, the oxygen carrying
chemical component normally contained within red blood cells. The Company has
identified a family of phosphated affinity ligands that bind to free hemoglobin.
The Company believes that these ligands, when chemically bonded to filtration
media, can be used to remove free hemoglobin contamination in blood prior to
reinfusion into patients. The Company has filed patent applications covering the
use of these ligands in removing free hemoglobin. The Company has been issued a
patent on the HemoNet Filter, which incorporates certain phosphated affinity
ligands, including those utilized to remove free hemoglobin.
Organic Chemical Synthesis
The Company is currently utilizing its expertise in organic chemical
synthesis to synthesize pathogen inactivation chemicals as well as to develop
selective ligands for the removal of such chemicals and various biomolecules.
The Company has synthesized hydroxymethyl amino acids, which can be
prepared by reacting formaldehyde with amino acids. The Company intends to
incorporate hydroxymethyl amino acids into its SteriPath System and patent
applications related thereto have been filed in the United States.
Membrane Technology
The Company believes that, as a result of the research and development
work performed at Sepracor over an eight-year period and transferred to the
Company on January 1, 1994, the Company has expertise in the field of
separations technology using both composite matrices and flat- and hollow-fiber
membranes. Successful separation of a substance from its source depends on
matching the properties of that substance, such as size, molecular weight and
surface characteristics, to appropriate separations media. The ability to select
and modify the composition and physical structure of the media is a key to
successful separations technology. The Company can utilize a variety of media
compositions, custom made structures and surface modifications, including the
attachment of selective ligands, to separate a diverse variety of substances.
The Company's separations technologies can be used to separate substances
including particulates, such as cells and debris, macromolecules, such as
enzymes, and low
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molecular weight substances, such as salts, nutrients and anti-viral chemicals.
See "-- Relationship with Sepracor."
Device Design and Fabrication
The Company believes that the benefits of high performance separations
media can only be realized in a well-designed device where access to and
placement of the media, hydrodynamics and selection of biocompatible materials
have been optimized. The Company has expertise in module design, including
theoretical calculations of mass transfer, hydrodynamic modeling, prototyping,
testing and manufacturing engineering.
Drawing from this expertise, the Company is integrating its proprietary
technologies in device design and media development with blood flow control
systems, tubing, collection containers and other assembly components, in devices
which are designed to achieve efficiency in increasing the safety of donated
blood and improving certain blood transfusion and collection procedures. The
Company considers its device design and fabrication capabilities to be
proprietary and intends to file patent applications where appropriate.
The Company has undertaken preliminary studies on the use of the
filtration media used in the LeukoNet System in other applications such as the
removal of tumor cells from peripheral stem cell preparations.
Plasma Pharmaceuticals
In May 1996, the Company acquired, through its United States and Danish
subsidiaries, the plasma product unit of Novo Nordisk A/S, a Danish company
("Novo Nordisk"). See "--Agreements." The Company's plasma product unit
processes blood plasma into plasma pharmaceutical products. In February 1997,
the Company determined to discontinue the development and operation of its
Danish plasma business due, in large part, to Pharmacia & Upjohn's ("P&U")
wrongful termination of the Company's planned acquisition of P&U's plasma
division in Sweden, which was a critical part of the Company's initial strategy
to enter the plasma business, as well as certain other factors. In that regard,
the Company currently is considering various strategic alternatives to effect
that determination promptly, including, but not limited to, the sale or other
disposition of its plasma business, or an orderly liquidation of its assets. The
Company is currently engaged in preliminary discussions with a third party
regarding the potential sale of the Company's Danish plasma business. There can
be no assurance, however, that the Company will enter into a definitive
agreement relating to the sale of such business or that such a sale will be
consummated. See "-- Agreements," Item 3, "Legal Proceedings" and Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." The Company recorded a one-time charge of $15,200,000 in the fourth
quarter of 1996 associated with the exit from the plasma business.
Agreements
Under the terms of the May 1996 agreement relating to the Company's
acquisition of the plasma product unit of Novo Nordisk (the "Denmark
Acquisition"), the purchase price to be paid for the plasma product unit was to
be comprised of three portions. The first portion of $1,800,000 was to be
payable in 1998 in cash or Common Stock of the Company or a subsidiary of the
Company, at the Company's option. The second portion of approximately
$13,000,000 was to be payable from time to time upon the
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sale of acquired inventory (valued at approximately $13,000,000) but in any
event no later than 1998, provided that up to approximately $3,000,000 of such
portion could be forgiven in certain circumstances. The third portion of the
purchase price of approximately $8,000,000 was to be payable in 1998 in cash or
Common Stock of the Company or a subsidiary of the Company, at the Company's
option, provided that all of this portion may be forgiven in certain
circumstances. In January 1997, the Company and Novo Nordisk entered into a
Restructuring Agreement relating to the Novo Acquisition (the "Restructuring
Agreement"). Pursuant to the Restructuring Agreement, approximately $23,000,000
million of indebtedness owed to Novo Nordisk was restructured by way of issuance
by the Company to Novo Nordisk of a 12% convertible subordinated promissory note
in the principal amount of approximately $11,722,000, which is due and payable
on December 31, 2001, with interest payable quarterly (provided that up to
approximately $3,000,000 may be forgiven in certain circumstances).
Approximately $8,500,000 of the reduction of such indebtedness was forgiven. The
remainder of the reduction represents a net amount due from Novo Nordisk to the
Company related to various service arrangements between the two companies. All
amounts outstanding under such note are convertible by either party, commencing
January 1998, into shares of Common Stock of the Company at a conversion price
equal to $10.50 per share. Pursuant to a separate Registration Rights Agreement,
the Company granted Novo Nordisk certain registration rights with respect to any
shares of Common Stock acquired by Novo Nordisk upon conversion.
In June 1996, the Company entered into a ten-year Master Strategic
Alliance Agreement with the American Red Cross BioMedical Services, a
not-for-profit, charitable corporation ("ARCBS"), which provides for, among
other things, the development and expansion of a strategic alliance between the
Company and ARCBS in the areas of (i) pathogen inactivation for blood components
and (ii) the co-development of enhanced versions of the Company's leukoreduction
filter. The agreement also contemplates the establishment of pricing and royalty
arrangements between the parties upon the development and commercialization of
certain products. No assurance can be given, however, that such products will
ultimately be developed or that any definitive development arrangements with
respect to such products will result from the strategic alliance with ARCBS.
In March 1996, the Company entered into a three-year agreement with
ARCBS for the sale of the LeukoNet System. The agreement provides for target
purchases by ARCBS over the term of this agreement. The Agreement does not
include minimum purchase obligations by ARCBS. The ARCBS has the right to
terminate the agreement under certain circumstances. The Company agrees to
indemnify the ARCBS against all losses, damages and liabilities incurred for
infringement of patent rights owned or held by Pall Corporation in connection
with the use of Company products delivered under the terms and conditions of the
contract. See Item 3, "Legal Proceedings."
In February 1996, the Company signed a cooperation agreement with the
German Red Cross of Lower Saxony. Under the terms of the agreement, the Company
will be the worldwide nonexclusive licensing agent for the methylene blue
process (excluding the United States, Canada, Puerto Rico and Switzerland). Both
parties have agreed to collaborate on advancing the methylene blue process in
order to broaden its acceptance worldwide.
Competition
The Company expects to encounter intense competition in the sale of its
products. The Company's products will compete with other products currently on
the market as well as with future products developed by biotechnology and
pharmaceutical companies, hospital supply companies, national
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and regional blood centers, certain governmental organizations and agencies and
academic institutions. Many of the Company's competitors in the field of
leukocyte reduction have substantially greater resources, manufacturing and
marketing capabilities, research and production staffs and production facilities
than the Company. Moreover, some of the Company's competitors have greater
experience in preclinical testing, human clinical trials and other regulatory
approval procedures. The Company's ability to compete successfully will depend,
in part, on its ability to develop and maintain products which are technically
superior to and/or of lower cost than those currently on the market; develop
proprietary products; attract and retain scientific personnel; obtain patent or
other proprietary protection for its products and technologies; obtain required
regulatory approvals; and manufacture, assemble and successfully market any
products it develops. In addition, many of the Company's competitors have
long-standing relationships with the national and regional blood centers to
which the Company will market its products.
Leukocyte Removal. In the area of leukocyte removal, the Company will
compete primarily with Pall Corporation, which manufactures and sells a
substantial majority of leukocyte removal filters currently on the market and
has long-standing and, in certain cases, exclusive, relationships, including
long-term supply contracts, with the blood centers that are the Company's target
customers. In addition, the Company will compete with Baxter Healthcare
Corporation ("Baxter") and Asahi America, Inc. ("Asahi") which have formed an
alliance pursuant to which Baxter exclusively markets Asahi's leukocyte removal
products in North America. The Company expects that the principal competitive
factors in the area of leukocyte removal will be removal efficiency, cost and
ease of use.
Pathogen Inactivation. Although there are viral inactivation systems
available for plasma alone, the Company believes that there are currently no
effective commercially available pathogen inactivation methods for cellular
blood components. However, the Company believes that significant research and
development efforts are being expended and that competitive products will be
developed. An alternative approach to leukocyte removal and pathogen
inactivation is synthetic blood substitutes which might be used in certain
limited transfusion situations. While the Company believes that progress in the
area of blood substitutes has been limited, there can be no assurance that blood
substitutes will not be successfully developed and commercialized.
The Company is pursuing areas of product development in a relatively
new field in which there is a potential for extensive technological innovation
in relatively short periods of time. The Company's competitors may succeed in
developing technologies or products that are more effective than those of the
Company. Rapid technological change or developments by others may result in the
Company's technology or proposed products becoming obsolete or noncompetitive.
Licenses, Patents and Proprietary Information
The Company has entered into a Technology Transfer and License
Agreement with Sepracor under which Sepracor has transferred to the Company all
rights to the technology developed by Sepracor for the development, manufacture,
use and sale of medical devices for the separation and purification of blood and
blood components, including technology relating to (1) optimization of flat
membranes, hollow fiber membranes and fibrous supports; (2) specific affinity
and immunoaffinity ligands; (3) linking chemistries; (4) surface modification
including hydrophilic polymers and coatings; (5) device designs and engineering;
(6) fabrication and manufacturing including encapsulation and assembly
techniques; and (7) organic chemical synthesis. See "-- Relationship with
Sepracor."
-10-
<PAGE>
The Company believes that protection of the proprietary nature of its
products and technology is critical to its business. Accordingly, it has adopted
and will maintain a vigorous program to secure and maintain such protection. The
Company's practice is to file patent applications with respect to technology,
inventions and improvements that are important to its business. The Company also
relies on trade secrets, unpatented know-how, continuing technological invention
and the pursuit of licensing opportunities to develop and maintain its
competitive position. There can be no assurance that others will not
independently develop substantially equivalent proprietary technology or that
the Company can meaningfully protect its proprietary position.
To date, the Company owns or has filed 20 patent applications in the
United States relating to blood filtration and pathogen inactivation
technologies. Corresponding foreign patent applications have been filed with
respect to certain of these United States patent applications. Where
appropriate, the Company intends to file, or cause to be filed on its behalf,
additional patent applications relating to future discoveries and improvements,
including, among other things, the use of certain ligands for affinity
separations. To date, four patents have been issued to the Company (which expire
at various dates from 2011 through 2017) and two patents have been allowed.
The Company's success depends in part on its ability to obtain patents,
to protect trade secrets, to operate without infringing upon the proprietary
rights of others and to prevent others from infringing on the proprietary rights
of the Company. Proprietary rights relating to the Company's planned products
will be protected from unauthorized use by third parties only to the extent that
they are covered by valid and enforceable patents or are maintained in
confidence as trade secrets. There can be no assurance that any patents owned by
or licensed to the Company will afford protection against competitors or that
any pending patent applications now or hereafter filed by or licensed to the
Company will result in patents being issued. Competitors, including those with
substantially greater resources than the Company, may seek to challenge the
validity of the patents owned by or licensed to the Company or may use their
resources to design comparable products that do not infringe these patents. See
Item 3, "Legal Proceedings."
There are many issued third-party patents in the field of blood
filtration, including patents held by competitors of the Company. The Company
may need to acquire licenses to, or contest the validity of, some of such
patents. It is likely that significant funds would be required to defend any
claim that the Company infringes a third-party patent, and any such claim could
adversely affect sales of the challenged product until the claim is resolved.
There can be no assurance that any license required under any such patent would
be made available on acceptable terms or that the Company would prevail in any
litigation involving such patent.
Much of the know-how of importance to the Company's technology and many
of its processes are dependent upon the unpatentable knowledge, experience and
skills of its key scientific and technical personnel. To protect its rights and
to maintain the confidentiality of trade secrets and proprietary information,
the Company requires all of its employees, consultants and commercial partners
and members of its Scientific/Medical Advisory Board to agree to keep the
Company's proprietary information confidential. These agreements generally
prohibit the disclosure of confidential information to anyone outside the
Company and require disclosure and assignment to the Company of ideas,
developments, discoveries and inventions. There can be no assurances, however,
that these agreements will provide meaningful protection for the Company's
proprietary information in the event of unauthorized use or disclosure of such
information.
-11-
<PAGE>
Government Regulation
Government regulations in the United States and other countries are a
significant factor in the research, development and commercialization of the
Company's products. The products manufactured and marketed by the Company are
subject to regulation by the FDA and similar authorities in foreign countries.
The Company believes that all of its products will be classified as "devices"
under federal law and FDA regulations. The process of obtaining approvals from
the FDA and other regulatory authorities can be costly, time consuming and
subject to unanticipated delays. There can be no assurance that the FDA will
approve any of the Company's products for marketing or, if they are approved,
that they will be approved on a timely basis.
Among the conditions for FDA approval of a drug, biologic or device is
the requirement that the manufacturer's quality control and manufacturing
procedures conform to cGMP, which must be followed at all times. Although the
Company's facilities and manufacturing procedures are designed to conform to
cGMP, there can be no assurance that the FDA will determine that they conform.
These practices control every phase of production from the incoming receipt of
raw materials, components and subassemblies to the labeling of the finished
product, tracing of consignees after distribution and follow-up and reporting of
complaint information.
Medical Devices
The Company believes that its blood filtration products will be
classified as medical devices. All medical devices introduced to the market
since 1976 are required by the FDA, as a condition of marketing, to secure
either a 510(k) premarket notification clearance or an approved PMA. A 510(k)
premarket notification clearance indicates FDA agreement with an applicant's
determination that the product for which clearance has been sought is
substantially equivalent to another medical device that was on the market prior
to 1976. An approved PMA application indicates that the FDA has determined that
the device has been proven, through the submission of clinical data and
manufacturing information, to be safe and effective for its labeled indications.
The process of obtaining a 510(k) clearance typically takes at least six months,
and may take several years, and involves the submission of clinical data and
supporting information, while the PMA process typically lasts at least several
years and requires the submission of significant quantities of clinical data and
supporting information. The Company intends to seek 510(k) premarket
notification clearance for its blood filtration products. There can be no
assurance that the FDA will conclude that any of the Company's products, other
than the LeukoNet System, meet the requirements for 510(k) premarket
notification clearance.
In the event the FDA does not classify the Company's planned blood
filtration products as medical devices, these products would probably be
regulated as drugs or biologics. If regulated as drugs or biologics, the
products would require premarket approval, as described below. The Company
believes that the FDA will classify the Company's blood filtration and surgical
blood recovery products as medical devices.
In April 1996, the Company received notification from the FDA that its
SteriPath System will be classified as a device for regulatory purposes. The
activities required before the Company's system, classified as a device, may be
marketed in the United States include (1) preclinical laboratory tests in
animals and formulation and stability studies, (2) the submission to the FDA and
approval of an IDE for human clinical testing, (3) adequate and well controlled
human clinical trials to prove the safety and effectiveness of the system, (4)
the submission of a PMA and (5) the approval by the FDA of the PMA.
-12-
<PAGE>
Manufacturing and Facilities
The Company's facilities consist of approximately 45,000 square feet of
leased office, laboratory and manufacturing space in a modern facility in
Marlborough, Massachusetts, short-term leased office space in Manhattan, and
approximately 48,000 square feet of leased office, laboratory and manufacturing
space in Copenhagen, Denmark. The Company believes that these facilities are
adequate and suitable for its needs through 1997. See Item 2, "Properties."
The leased facilities in Massachusetts include 25,000 square-feet of
product development and manufacturing space. This space is expected to be
adequate to address clinical and early commercial-scale production requirements
of the Company through 1997. The facility is designed to conform to cGMP and
other applicable government standards. The Company anticipates that its facility
will be subject to ongoing inspections by the FDA and foreign regulatory
authorities in connection with their review of the Company's products.
For manufacturing outside the United States, the Company will also be
subject to foreign regulatory requirements governing human clinical trials,
manufacturing and marketing approval for drugs or biologics and medical devices.
The regulatory requirements may vary widely from country to country.
Employees
As of March 1, 1997, the Company employed a total of 213 persons of
whom 25 were in research and development, 143 were in manufacturing and
manufacturing support and 45 were in sales and administration. Four of the
Company's employees hold Ph.D. degrees. A total of 148 employees are located in
Denmark. All but seven of the Company's 65 United States employees are located
at its facilities in Marlborough, Massachusetts.
Relationship with Sepracor
The Company was organized in December 1993 as a wholly-owned subsidiary
of Sepracor. Effective January 1, 1994, Sepracor transferred its blood
filtration and membrane filter design business to the Company in exchange for
3,000,000 shares of Common Stock. Sepracor currently owns 37% of the Company's
Common Stock.
Sepracor 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.
Technology Transfer and License Agreement. The Company and Sepracor
entered into a Technology Transfer and License Agreement, dated as of January 1,
1994 (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 the development, manufacture, use or sale of
medical devices for the purification of blood, blood products or blood
components and membrane filter design. 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
-13-
<PAGE>
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.
Cross-License Agreement. The Company has entered into a Cross-License
Agreement, dated as of January 1, 1994 (the "Cross-License Agreement"), with
BioSepra Inc., a subsidiary of Sepracor ("BioSepra"). Effective January 1, 1994,
Sepracor transferred to BioSepra its technology relating to the separation of
biological molecules, but not for use in the Company Field or the Sepracor Field
(the "BioSepra Field"). Under the terms of the Cross-License Agreement, the
Company and BioSepra 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 BioSepra Field and the Company
Field, respectively. The Cross-License Agreement will terminate on the earlier
of January 1, 1998 or the acquisition of BioSepra or the Company.
Sale of Membrane Products. From inception through December 31, 1995,
the Company's sales of membrane models to Sepracor amounted to $668,000. Such
sales did not continue in any material respect beyond December 31, 1995. See
Item 14, "Exhibits, Financial Statement Schedules, and Reports on Form 8-K--
Financial Statements -- Notes to Consolidated Financial Statements --
Discontinued Business" (Note B).
Registration Rights. Sepracor has certain registration rights with
respect to its shares in the Company as provided in the Technology Transfer
Agreement.
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
The Company's facilities consist of approximately 45,000 square feet of
leased office, laboratory and manufacturing space in a modern facility in
Marlborough, Massachusetts (which lease expires in February 2004, and provides
for two five-year renewal options thereafter), short-term leased office space in
Manhattan, and approximately 48,000 square feet of subleased office, laboratory
and manufacturing space in Copenhagen, Denmark (which subleases expires in 2009,
subject to early termination by the Company in March 1998, under certain
circumstances). The Company believes that these facilities are adequate and
suitable for its needs through 1997. See Item 1. "Business -- Manufacturing and
Facilities."
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<PAGE>
Item 3. LEGAL PROCEEDINGS
The Company is a defendant in two lawsuits brought by Pall Corporation
("Pall"). In complaints filed in February 1996 and November 1996, Pall alleged
that the Company's manufacture, use and/or sale of the LeukoNet product
infringes upon three patents held by Pall.
On October 14, 1996, in connection with the first action concerning
U.S. Patent No. 5,451,321, the Company filed a motion for summary judgment of
noninfringement. Pall filed a cross motion for summary judgment of infringement
at the same time. The parties are awaiting the Court's decision.
With respect to the second action concerning U.S. Patent Nos. 4,340,479
(the "'479 patent") and 4,952,572 (the "'572 patent"), the Company has answered
the complaint stating that it does not infringe any claim of the asserted
patents. Further, the Company has counterclaimed for declaratory judgment of
invalidity, noninfringement and unenforceability of the '572 patent, and a
declaratory judgment of noninfringement of the '479 patent, as a result of a
license.
The Company believes, based on advice of its patent counsel, that a
properly informed court should conclude that the manufacture, use and/or sale by
the Company or its customers of the present LeukoNet product does not infringe
any valid enforceable claim of the three asserted Pall patents. However, there
can be no assurance that the Company will prevail in the pending litigations,
and an adverse outcome in a patent infringement action would have a material
adverse effect on the Company's future business and operations.
On November 1, 1996, the Company filed a complaint in the Supreme
Court, State of New York, County of New York, against Pharmacia & Upjohn, Inc.
The action was removed by P&U to the United States District Court for the
Southern District of New York. P&U has also made a motion to refer the entire
matter to arbitration in Sweden. The Company is opposing P&U's motion, and has
cross moved to remand the action to the Supreme Court, State of New York, County
of New York. This motion is still pending bfore the court. In its complaint, the
Company seeks $168 million in compensatory damages and $100 million in punitive
damages arising out of, among other things, P&U's breach of its commitment to
sell the business to the Company following its year long efforts to acquire
P&U's plasma business. The Company intended to integrate P&U's plasma business
with the complimentary plasma business it previously acquired from Novo Nordisk
in May 1996. There can be no assurance that the Company will prevail in this
litigation or, if the Company does so prevail, as to the amount of damages, if
any, that will be awarded or that the Company may collect.
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.
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<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the names, ages and positions of the
current executive officers of the Company.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C>
Eugene J. Zurlo............................. 59 Chairman and Director
Steven H. Rouhandeh......................... 40 President, Chief Executive Officer and Director
Edward W. Kelly............................. 55 Executive Vice President and Chief Operating
Officer
Hans Heiniger, DVM, Ph.D.................... 58 Executive Vice President and Chief Scientific
Officer
Jeffrey B. Davis............................ 33 Senior Vice President and Chief Financial Officer
James B. Murphy............................. 40 Senior Vice President, Finance and
Administration
</TABLE>
Mr. Zurlo has served as Chairman of the Board of Directors since
December 1996, served as President, Chief Executive Officer and Chairman of the
Company from February 1996 until December 1996, and served as President and
Chief Executive Officer of the Company from its organization in December 1993 to
February 1996. From 1988 to 1993, he was Executive Vice President and Chief
Operating Officer of the New York Blood Center. Previously, he was a Senior Vice
President at Millipore Corporation, a manufacturer of membrane filtration
products, and over a 10-year period held various executive positions at Baxter
Healthcare Corporation in the United States, United Kingdom, Belgium and Puerto
Rico.
Mr. Rouhandeh has served as Chief Executive Officer of the Company
since December 1996 and President of the Company since May 1996. From February
1996 to May 1996, Mr. Rouhandeh served as Executive Vice President and Chief
Financial Officer of the Company. From April 1995 to February 1996, he was
Senior Vice President and Chief Financial Officer of the Company. From October
1994 to March 1995, he was an independent business consultant. From 1993 to
1994, he was a Managing Director at D. Blech & Co., Inc. (an investment banking
firm). From 1990 to 1993, he served as a Managing Director at Metzler
Corporation (a merchant banking firm). Prior to that, Mr. Rouhandeh was an
investment banker at Deutsche Bank and a lawyer at Cravath, Swaine & Moore.
Mr. Kelly has served as Executive Vice President and Chief Operating
Officer of the Company since December 1996 and prior thereto was President,
Medical Devices of the Company since May 1996. From 1976 to April 1996, Mr.
Kelly served in various executive positions with Davol Inc., a subsidiary of
C.R. Bard ("Davol"), and served as General Manager and President of Davol from
1990 to May 1996. Davol is a leading manufacturer of a wide variety of medical
devices.
-16-
<PAGE>
Dr. Heiniger has served as Executive Vice President and Chief
Scientific Officer of the Company since February 1996. From January 1994 to
February 1996, he was Senior Vice President and Chief Scientific Officer. From
1988 to 1993, he was President and Chief Executive Officer of the Swiss Red
Cross Central Transfusion Service. Previously, he was Senior Scientist and
Associate Director of the Jackson Laboratory; Head of the Cell Biology
Laboratory, Institute of Medicine, Kernforschungsanlage Julich, Germany; and
Professor of Immunopathology, University of Berne. Dr. Heiniger holds dual
citizenship in Switzerland and the United States.
Mr. Davis has served as Senior Vice President and Chief Financial
Officer of the Company since June 1996. From June 1990 to May 1996, he was a
Vice President, Corporate Finance and Equity Capital Markets at Deutsche Morgan
Grenfell (an investment banking firm). Previously, Mr. Davis held various
marketing positions at AT&T Bell Laboratories and Philips Medical Systems, Inc.
Mr. Murphy has served as Senior Vice President, Finance and
Administration since February 1996. From April 1994 to January 1996, he served
as Vice President and Corporate Controller of the Company. Prior to that, from
1990 to April 1994, he served as Corporate Controller of Sepracor. Previously,
Mr. Murphy held the positions of Senior Corporate Accountant at Bolt Beranek and
Newman Inc. and Senior Accountant at Arthur Andersen LLP.
-17-
<PAGE>
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
(a) Market Information.
The Common Stock of the Company has been included for quotation on the
Nasdaq National Market under the symbol HMSR since April 7, 1994. Prior to April
7, 1994, the Company's Common Stock was not publicly traded. The following table
sets forth for the periods indicated the range of high and low bid information
per share of the Common Stock as regularly included for quotation on the Nasdaq
National Market.
1995 High Low
---- ---- ---
First Quarter 4 1/2 3
Second Quarter 10 3 1/8
Third Quarter 20 1/2 7 1/8
Fourth Quarter 15 1/4 11 1/2
1996
----
First Quarter 19 1/4 11 3/4
Second Quarter 17 1/4 12 1/2
Third Quarter 15 6 1/2
Fourth Quarter 10 7/8 4 7/8
(b) Holders.
On March 14, 1997, the Company's Common Stock was held by approximately
2,500 stockholders of record or through nominee or street name accounts with
brokers. On March 14, 1997, the last reported sale price of the Company's Common
Stock on the Nasdaq National Market was $4.63.
(c) Dividend Information.
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.
-18-
<PAGE>
Item 6. SELECTED FINANCIAL DATA
STATEMENT OF OPERATIONS DATA
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31 1996 1995 1994 1993 1992
------- ------- ------- ------- -------
Revenues:
<S> <C> <C> <C> <C> <C>
Product sales $ 725 $ 534 $ 339 $ 475 $ 563
Collaborative research
and development 54 300 50 33
-------- -------- -------- --------
Total revenues 779 834 389 508 563
------- -------- -------- ------- -------
Costs and expenses:
Cost of products sold 3,785 1,073 353 471 878
Cost of collaborative research
and development 41 283 32 21
Research and development 6,128 4,061 3,249 1,671 1,877
Selling, general
and administrative 8,069 3,881 1,584 578 590
------- -------- ------- ------- -------
Total costs and expenses 18,023 9,298 5,218 2,741 3,345
------- -------- ------- -------- --------
Loss from operations (17,244) (8,464) (4,829) (2,233) (2,782)
Other income 1,394 1,014 424
--------- --------- --------
Net loss from continuing operations (15,850) (7,450) (4,405) (2,233) (2,782)
--------- --------- -------- -------- --------
Discontinued Operations:
Loss from operations of
discontinued business (9,550)
Loss on disposal of discontinued business (15,198)
Net Loss $(40,598) $(7,450) $(4,405) $(2,233) $(2,782)
--------- -------- -------- -------- --------
Net loss per common or common equivalent
share:
Net loss from continuing operations $ (1.97) $(1.20) $(0.91)
Loss from operations of
discontinued business (1.18)
Loss on disposal of discontinued business (1.88)
Net loss $ (5.03) $(1.20) $(0.91)
-------- ------- -------
Weighted average number of
common and common
equivalent shares outstanding 8,069 6,205 4,858
-------- --------- --------
BALANCE SHEET DATA
Cash and marketable securities $16,896 $47,841 $11,704
Working capital 14,844 46,905 11,261 $ 392 $ 264
Total assets 20,560 50,212 13,048 983 1,054
Capital lease obligations--long term 525 286 52
Convertible subordinated note payable--long term 8,687
Stockholders' equity 7,929 48,002 11,949 983 1,054
</TABLE>
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<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
The Company was established in December 1993 as a wholly-owned
subsidiary of Sepracor. Prior to that date, its business was conducted as part
of Sepracor's bioprocessing division. Since 1986, Sepracor has made significant
investment in the research and development of technology relating to flat- and
hollow-fiber membranes and fibrous supports; specific affinity ligands; linking
chemistries; membrane surface modification; device design and engineering;
fabrication and manufacturing; and organic chemical synthesis. Effective as of
January 1, 1994, in exchange for 3,000,000 shares of Common Stock, Sepracor
transferred to the Company its technology relating to the manufacture, use and
sale of medical devices for the separation and purification of blood, blood
products and blood components and its membrane filter design technologies.
In the second quarter of 1994, The Company completed the initial public
offering of its Common Stock resulting in net proceeds to the Company of
approximately $15 million. In September 1995, the Company completed a follow-on
public offering of its Common Stock. The net proceeds from that public offering
were approximately $43 million. Sepracor currently owns approximately 37% of the
outstanding Common Stock of the Company.
Substantially all of the Company's revenues through 1995 were
attributable to sales of non-blood related membrane filter products to Sepracor.
Revenues from these products were $13,000, $517,000, and $339,000 in 1996, 1995
and 1994, respectively, and are not expected to continue in any material respect
beyond 1996. Fiscal 1996 was the first full year of commercial sale of its
currently marketed blood-related product. A majority of the Company's planned
blood-related products are in the research and development stage, and certain of
these products may require preclinical and clinical testing prior to submission
of any regulatory application for commercial use. The Company's success will
depend on development and commercial acceptance of these blood-related products.
Through 1995, the Company's operations were located in facilities
subleased from Sepracor for which the Company was allocated and charged a
portion of Sepracor's rent and operating costs based upon the amount of spaces
its occupies. During this period, Sepracor also provided support services,
including laboratory support, data processing, accounting and finance, legal and
other administrative functions. Sepracor allocated a portion of the costs of
these activities to the Company based upon its pro rata usage of such services.
The Company signed a long-term lease for its manufacturing, laboratory, research
and office space which took effect in February 1996. Commencing in 1996, the
Company provided the necessary data processing, accounting and finance and other
support services through its own employees or outside contractors engaged
directly by the Company.
In May 1996, the Company acquired the plasma product unit of Novo
Nordisk, and in January 1997, entered into a Restructuring Agreement with Novo
Nordisk with respect to the indebtedness incurred by the Company in connection
with the Denmark Acquisition. In addition, in February 1997, the Company
determined to discontinue the development and operation of its Danish plasma
business due in large part to P&U's wrongful termination of the Company's
planned acquisition of P&U's plasma business in Sweden. The Company recorded a
one-time charge as a result of its exit from the plasma business of $15,200,000
in 1996. See "-- Discontinued Business" and "-- Liquidity and Capital
Resources."
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<PAGE>
Results of Continuing Operations
Revenues were $779,000 in 1996, $834,000 in 1995, and $389,000 in 1994.
Revenues from products sales to Sepracor, a related party, as a percentage of
total revenues were 2% in 1996, 57% in 1995, and 50% in 1994 and represent the
sale of membrane filter products. Product sales to Sepracor are recorded at
prices based on a pricing agreement between the Company and Sepracor. Under this
pricing agreement, product sales to Sepracor for Sepracor's use are at cost
while product sales to Sepracor for subsequent sale or lease to third parties
are at cost plus a 25% margin. Revenues in 1996 include $54,000 related to the
Company's Phase II SBIR program with the United States Department of the Army.
In 1995 and 1994, collaborative research and development revenues were $300,000
and $50,000, respectively. In 1996, one customer represented 83% of total
revenues. In 1995, one customer represented 36% of total revenues while in 1994,
two customers each represented 18% of total revenues.
The cost of products sold was $3,785,000 in 1996, $1,073,000 in 1995,
and $353,000 in 1994. Cost of products sold exceeded product sales in all
periods due to the start-up costs of new product introduction and the high costs
associated with low volume production, particularly in 1996, the first full year
of production of its LeukoNet System, a medical device designed for the removal
of contaminating leukocytes from donated blood.
The cost of collaborative research and development was $41,000 in 1996,
$283,000 in 1995, and $32,000 in 1994. The decrease in 1996 over 1995 reflects
the completion in the first quarter of 1996 of the Company's obligations under
Phase II of the SBIR program. The increase in 1995 over 1994 was related to the
Phase II SBIR program which required a higher level of effort than collaborative
programs in prior years.
Research and development expenses were $6,128,000 in 1996, $4,061,000
in 1995, and $3,249,000 in 1994. The increase in 1996 over the amounts expended
in 1995 and 1994 is primarily attributable to a higher level of spending
associated with development of the Company's SteriPath Blood Pathogen
Inactivation System and preparation for commercialization of the Company's
LeukoNet System.
Selling, general and administrative expenses were $8,069,000 in 1996,
$3,881,000 in 1995, and $1,584,000 in 1994. The increase in 1996 and 1995 over
1994 is primarily attributable to expenses associated with preparation for
commercialization of the LeukoNet System, increased costs related to the hiring
of management with specific industry experience and administrative costs
associated with being a public company. The 1996 expense also includes expenses
for personnel, consultants and travel in connection with the Company's efforts
to expand into other blood related businesses and a one-time charge of
approximately $1,500,000 in connection with the Company's efforts to acquire
P&U's plasma business. See "--Discontinued Business."
Interest income, net in 1996, 1995 and 1994, primarily represents
interest earned on available cash and marketable securities balances during
those periods.
Other expense in 1996 primarily represents the loss recognized on the
disposition of property and equipment.
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<PAGE>
Discontinued Business
In May 1996, the Company consummated the Denmark Acquisition. The
purchase price for the transaction was comprised of a combination of Promissory
Notes, Convertible Subordinated Notes (which would convert to common stock of
the Company or a subsidiary of the Company) and additional consideration payable
in 1998 in cash or Common Stock, at the option of the Company, which would not
be paid in certain events. See Item 1, "Business -- Plasma Pharmaceuticals and
- -- Agreements."
The loss from operations of discontinued business of $9,550,000
reflects the loss from the date of the acquisition through December 31, 1996.
During this eight month period, this business recorded revenues from the sale of
plasma products of $8,200,000 and cost of products sold of $13,400,000. The cost
of products sold includes a reserve for the write down of inventories to the
lower of cost or market of approximately $2,500,000 and loss on the sale of raw
materials inventories of approximately $800,000. Operating costs of this
business during this period were approximately $4,000,000.
In January 1997, the Company and Novo Nordisk entered into a
Restructuring Agreement of the debt related to the Denmark Acquisition. Pursuant
to the Restructuring Agreement, approximately $23,000,000 of indebtedness owed
to Novo Nordisk was restructured by way of issuance by the Company to Novo
Nordisk of a 12% convertible subordinated promissory note in the principal
amount of $11,700,000, which is due and payable on December 31, 2001, with
interest payable quarterly (provided that up to $3,000,000 may be forgiven in
certain circumstances). Approximately $8,500,000 of the reduction of such
indebtedness was forgiven. The remainder of the reduction represents a net
amount due from Novo Nordisk to the Company related to various service
arrangements between the two companies.
On February 20, 1997, the Company's Board of Directors voted to
discontinue the development and operation of its Danish plasma business due in
large part to P&U's wrongful termination of the Company's planned acquisition of
P&U's plasma business in Sweden, which was part of the Company's initial
strategy to enter the plasma business, as well as other factors. In that regard,
the Company is currently considering various strategic alternatives to effect
that determination promptly, including, but not limited to, the sale or other
disposition of its plasma business, or an orderly liquidation of its assets. In
connection with this determination, the Company recorded a one-time charge of
$15,200,000 in 1996 as a result of its exit from the plasma business. The loss
reflects management's assessment of the most probable outcome from this
decision, is net of the $8,500,000 forgiveness of indebtedness and assumes the
$3,000,000 forgiveness contingency.
New Accounting Standards
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS
128), which will be effective for the Company in fiscal 1997. SFAS 128 is
designed to improve the EPS information provided in financial statements by
simplifying the existing computational guidelines (i.e., APB Opinion No. 15,
Earnings Per Share), revising the disclosure requirements, and increasing the
- ------------------
comparability of EPS data on an international basis. SFAS 128 requires dual
presentation of basic and diluted EPS on the face of the income statement for
all entities with complex capital structures regardless of whether basic and
diluted EPS are the same; it also requires a reconciliation of the numerator and
denominator used in computing basic and diluted EPS. Management has not yet
determined the impact of adopting SFAS 128.
-22-
<PAGE>
Litigation
The Company is a defendant in two lawsuits brought by Pall. In
complaints filed in February 1996 and November 1996, Pall alleged that the
Company's manufacture, use and/or sale of the LeukoNet product infringes upon
three patents held by Pall.
On October 14, 1996, in connection with the first action concerning
U.S. Patent No. 5,451,321, the Company filed a motion for summary judgment of
noninfringement. Pall filed a cross motion for summary judgment of infringement
at the same time. The parties are awaiting the Court's decision.
With respect to the second action concerning U.S. Patent Nos. 4,340,479
(the "'479 patent") and 4,952,572 (the "'572 patent"), the Company has answered
the complaint stating that it does not infringe any claim of the asserted
patents. Further, the Company has counterclaimed for declaratory judgment of
invalidity, noninfringement and unenforceability of the '572 patent, and a
declaratory judgment of noninfringement of the '479 patent, as a result of a
license.
The Company believes, based on advice of its patent counsel, that a
properly informed court should conclude that the manufacture, use and/or sale by
the Company or its customers of the present LeukoNet product does not infringe
any valid enforceable claim of the three asserted Pall patents. However, there
can be no assurance that the Company will prevail in the pending litigations,
and an adverse outcome in a patent infringement action would have a material
adverse effect on the Company's future business and operations.
On November 1, 1996, the Company filed a complaint in the Supreme
Court, State of New York, County of New York, against Pharmacia & Upjohn, Inc.
In its complaint, the Company seeks to receive damages arising out of the
alleged breach by P&U of an agreement to sell to the Company P&U's plasma
pharmaceutical business located in Stockholm, Sweden. The complaint seeks
compensatory, consequential and punitive damages. There can be no assurance that
the Company will prevail in this litigation or, if the Company does so prevail,
as to the amount of damages, if any, that will be awarded or that the Company
may collect. See Item 1, "Business -- Legal Proceedings."
Liquidity and Capital Resources
The Company operated as a division of Sepracor through December 31,
1993 and, accordingly, the Company's operating losses (principally research and
development expenditures) were funded by Sepracor and were included in
Sepracor's consolidated financial statements. Therefore, as of December 31,
1993, no retained deficit related to the Company's operations was recorded on
the Company's balance sheet. Sepracor provided working capital to fund the
Company's business until the closing of the initial public offering in April
1994.
The net decrease in cash and cash equivalents in 1996 was $17,501,000.
This net decrease is attributable to net cash used in operating activities of
$25,814,000 offset in part by net cash provided by investing activities of
$8,160,000.
The net cash used in operating activities is attributable to net cash
used in continuing operations of $13,845,000 and net cash used in discontinued
business of $11,969,000. Net cash used in continuing operations is primarily
attributable to the net loss of $40,598,000 and increases in net assets of
discontinued business of $500,000 and accounts receivable of $201,000. This was
offset in part by losses
-23-
<PAGE>
of the discontinued business of $24,748,000, non-cash charges for depreciation
and amortization of $819,000, a decrease in inventories of $380,000 and an
increase in accounts payable and accrued expenses of $1,368,000.
Net cash provided by investing activities was primarily attributable to
net maturities of available for sale marketable securities of $13,465,000,
offset in part by cash used in the acquisition of business net of cash acquired
of $4,092,000 and property and equipment additions of $1,213,000.
In January 1997, the Company entered into the Restructuring Agreement
with respect to the indebtedness incurred by the Company in connection with the
Denmark Acquisition. Pursuant to the Restructuring Agreement, approximately
$23,000,000 of indebtedness owed to Novo Nordisk was restructured by way of
issuance by the Company to Novo Nordisk of a 12% convertible subordinated
promissory note in the principal amount of approximately $11,700,000, which is
due and payable on December 31, 2001, with interest payable quarterly (provided
that up to approximately $3,000,000 may be forgiven in certain circumstances).
Approximately $8,500,000 of the reduction of such indebtedness was forgiven;
such forgiveness is reflected in the 1996 Statement of Operations as a reduction
of the loss on disposal of the discontinued plasma business. The remainder of
the reduction represents a net amount due from Novo Nordisk to the Company
related to various service arrangements between the two companies. All amounts
outstanding under such note are convertible by either party, commencing January
1998, into shares of Common Stock at a conversion price equal to $10.50 per
share.
In June 1994, the Company executed an agreement with a third party to
license certain technology. Pursuant to the terms of the agreement, the Company
is committed to paying license and consulting fees of $1,200,000 payable in four
equal annual installments, and royalties for commercial sales of any product
incorporating this technology. As of December 31, 1996, license and consulting
fees of $900,000 have been paid.
The termination of the Company's revolving credit agreement with a
commercial bank, which was a collaboration arrangement with Sepracor and its
subsidiaries, took effect as of July 1, 1996. The Company does not currently
plan to renew the arrangement. In 1994, in collaboration with Sepracor and
certain of its other subsidiaries, the Company executed an equipment leasing
arrangement that provides for a total of $2 million to Sepracor and certain of
its other subsidiaries for purposes of financing capital equipment. Under
certain circumstances, Sepracor is the guarantor of any amounts outstanding
under this financing arrangement. In October 1996, the Company executed a
replacement leasing arrangement for the benefit of HemaSure only with the same
leasing company providing $1.1 million of equipment lease financing. This
arrangement terminates in March 1997. All amounts outstanding under the 1994
leasing facility are being repaid under the original terms of that leasing
arrangement. The Company has an additional leasing arrangement with another
equipment leasing company that provides for a total of $100,000 of equipment
financing. There was $759,000 outstanding under all leasing arrangements as of
December 31, 1996.
Future Operating Results
Certain of the information contained in this Annual Report in Form 10-K
including information with respect to the commercialization of the Company's
LeukoNet System and the development and commercialization of the Company's
products under development and the Company's other plans and strategy for its
business, consists of forward-looking statements. Important factors that could
cause actual results to differ materially from the forward-looking statements
include the following:
-24-
<PAGE>
The Company believes that the performance of its blood-related products
will be competitive with products sold by other vendors of blood filtration,
transfusion and pathogen inactivation products and expects to encounter intense
competition in the sale of such products from biotechnology and pharmaceutical
companies, hospital supply companies, national and regional blood centers,
certain governmental organizations and agencies and academic institutions. In
the Leukoreduction field, several of the Company's competitors have
substantially greater resources, manufacturing and marketing capabilities,
research and production staffs and production facilities than the Company.
Moreover, some of the Company's competitors have greater experience in
preclinical testing, human clinical trials and other regulatory approval
procedures. Pall Corporation, a principal competitor of the Company, has filed
two complaints against the Company alleging that the manufacture, use and sale
of the Company's LeukoNet System infringes a certain patents held by Pall. See
Item 3, "Business -- Legal Proceedings."
The customers for the Company's potential products are a limited number
of national and regional blood centers, which collect, store and distribute
blood and blood products. In the United States, the American Red Cross collects
and distributes approximately 45% of the nation's supply of blood products.
Other major blood centers include the New York Blood Center, Blood Centers of
America and United Blood Services, each of which distributes 6% to 12% of the
nation's supply of blood and blood products. In Europe, various national blood
transfusion services or Red Cross organizations collect, store and distribute
virtually all of their respective nation's blood and blood products supply. The
Company's principal competitors have long-standing and, in some cases, exclusive
relationships (including long-term supply contracts) with these blood centers
and there can be no assurance that the Company will be successful in marketing
its products to these centers.
The Company currently buys all of its blood filter media from one
supplier under a supply contract. Although the supply agreement provides that
should the supplier be unable to produce the Company's required quantities, the
supplier will assist the Company in finding another source of supply, a
disruption in production from this supplier could cause a delay in manufacturing
and a possible loss in sales which would adversely affect operating results.
All of the Company's planned blood filtration, transfusion and pathogen
inactivation products, other than the LeukoNet System, are in the research and
development stage. The Company will be required to conduct significant research,
development, testing and regulatory compliance activities on these products
that, together with anticipated general and administrative expenses, are
expected to result in substantial losses through 1997. The Company's ability to
achieve a profitable level of operations will depend on successfully completing
development, obtaining regulatory approvals and achieving market acceptance of
its blood-related products.
Some or all of the Company's blood filtration, transfusion and pathogen
inactivation products, other than the LeukoNet System, may require preclinical
and clinical testing prior to submission of any regulatory application for
commercial use. The Company does not expect regulatory approval for commercial
sale in the United States of any of its other planned products before the end of
1997.
Based on the Company's current operating plan, the Company believes
that its available cash, cash equivalents and marketable securities balances
will be 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 successful development of products, results of product testing, approval
process at the FDA and similar foreign agencies, commercial acceptance of its
products, patent developments and the introduction of competitive products.
-25-
<PAGE>
Because of the foregoing factors, past financial results should not be
relied upon as an indication of future performances. The Company believes that
period-to-period comparisons of its financial results to date are not
necessarily meaningful and its expects that its results of operations may
fluctuate from period to period in the future. See "-- Overview."
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements filed as part of this Annual Report on Form
10-K are provided under Item 14 below.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
There have been no disagreements on accounting and financial disclosure
matters.
PART III
Item 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 for 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 (1) Financial Statements
HemaSure Inc. Consolidated Financial Statements as of December
31, 1996 and for each of the three years in the period ended
December 31, 1996. See pages F-1 through F-18, which are
included herein.
a (2) Financial Statement Schedules
All schedules are omitted because they are inapplicable, not
required or the information is included in the consolidated
financial statements or the notes thereto.
a (3) Exhibits
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.
<PAGE>
<TABLE>
<CAPTION>
HemaSure Inc.
Index to Financial Statements
-----------------------------
<S> <C> Page
Report of Independent Accountants on Consolidated Financial Statements.........................................F-2
Consolidated Balance Sheets as of December 31, 1996 and 1995...................................................F-3
Consolidated Statements of Operations
for the Years Ended December 31, 1996,
1995 and 1994..................................................................................................F-4
Consolidated Statements of Stockholders' Equity
for the Years Ended December 31, 1996,
1995 and 1994..................................................................................................F-5
Consolidated Statements of Cash Flows
for the Years Ended December 31, 1996,
1995 and 1994..................................................................................................F-6
Notes to the Consolidated Financial Statements.................................................................F-7
</TABLE>
F-1
<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholders of HemaSure Inc.
We have audited the accompanying consolidated balance sheets of
HemaSure Inc. as of December 31, 1996 and 1995, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1996. These financial statements
are the responsibility of 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
HemaSure Inc. as of December 31, 1996 and 1995, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1996 in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 20, 1997
F-2
<PAGE>
HemaSure Inc.
Consolidated Balance Sheets
December 31, 1996 and 1995
(In thousands, except par value amounts)
<TABLE>
<CAPTION>
ASSETS 1996 1995
---- ----
Current assets:
<S> <C> <C>
Cash and cash equivalents (Note C) $ 5,527 $ 23,028
Marketable securities (Note C) 11,369 24,813
Accounts receivable (Note E) 283 82
Inventories (Note F) 376 756
Net assets of discontinued business (Note B) 500
Prepaid expenses 208 150
-------- ---------
Total current assets 18,263 48,829
Property and equipment, net (Note G) 2,245 1,286
Other assets 52 97
-------- ----------
Total assets $ 20,560 $ 50,212
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,612 $ 1,295
Accrued compensation 344
Accrued fees 300
Accrued expenses 929 522
Current portion of capital lease obligations (Note H) 234 107
--- ---
Total current liabilities 3,419 1,924
Capital lease obligations (Note H) 525 286
Convertible subordinated note payable (Note I) 8,687
------
Total liabilities 12,631 2,210
------ -------
Commitments and contingencies (Notes H and I)
Stockholders' equity (Note K):
Preferred stock, $0.01 par value, 1,000 shares authorized, none issued and
outstanding in 1996 and 1995
Common stock, $0.01 par value, authorized 20,000
in 1996 and 12,000 in 1995, issued and
outstanding 8,098 in 1996 and 8,031 in 1995 81 80
Additional paid-in capital 60,702 60,372
Unearned compensation (398) (595)
Unrealized holding loss of available-for-sale
marketable securities (3)
Accumulated deficit (52,453) (11,855)
-------- --------
Total stockholders' equity 7,929 48,002
------- ------
Total liabilities and stockholders' equity $20,560 $ 50,212
======= ========
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
HemaSure Inc.
Consolidated Statements of Operations
For the years ended December 31,
(In thousands, except per share amounts) 1996 1995 1994
---- ---- ----
Revenues:
Product sales $ 712 $ 20 $ 131
Product sales to related
parties (Note C) 13 514 208
Collaborative research and
development (Note C) 54 300 50
--------- -------- --------
Total revenues 779 834 389
--------- -------- --------
Costs and expenses:
Cost of products sold 3,772 662 205
Cost of products sold to related
parties (Note C) 13 411 148
Cost of collaborative
research and development 41 283 32
Research and development 6,128 4,061 3,249
Selling, general and administrative 8,069 3,881 1,584
--------- -------- --------
Total costs and expenses 18,023 9,298 5,218
--------- -------- --------
Loss from operations (17,244) (8,464) (4,829)
Interest income 1,679 1,052 426
Interest expense (105) (38) (2)
Other expense (180)
Net loss from continuing operations (15,850) (7,450) (4,405)
-------- -------- --------
Discontinued operations (Note B):
Loss from operations of discontinued business (9,550)
Loss on disposal of discontinued business (15,198)
Net Loss $(40,598) $(7,450) $(4,405)
========= ======== ========
Net loss per share:
Net loss from continuing operations $ (1.97) $ (1.20) $ (0.91)
Loss from operations of discontinued business (1.18)
Loss on disposal of discontinued business (1.88)
------
Net Loss $ (5.03) $ (1.20) $ (0.91)
======== ======== ========
Weighted average number of common and common
equivalent shares outstanding 8,069 6,205 4,858
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
HemaSure Inc.
Consolidated Statements of Stockholders' Equity
For the years ended
December 31, 1996,
1995 & 1994 (In thousands)
Additional Total
Common Stock Paid-in Unearned Accumulated Stockholders'
Shares Amount Capital Compensation Other Deficit Equity
-------- ------ --------- ------------ ----- --------- -------
BALANCE AT
<S> <C> <C> <C> <C>
DECEMBER 31, 1993 3,000 $ 30 $ 953 $ 983
Investment by parent
company (Note D) 123 123
Issuance of common
stock options 989 $ (989)
Unearned compensation
amortization 195 195
Issuance of common
stock in initial public
offering (net of
expenses totaling
$2,454) 2,501 25 15,028 15,053
Net loss $ (4,405) (4,405)
------- ---- -------- ------- --------- -------
BALANCE AT
DECEMBER 31, 1994 5,501 55 17,093 (794) (4,405) 11,949
Issuance of common
stock to employees
under stock plans 30 95 95
Unearned compensation
amortization 199 199
Issuance of common
stock in follow-on
offering (net of
expenses totaling
$3,041) 2,500 25 43,184 43,209
Net loss (7,450) (7,450)
-------- ------ -------- -------- -------- ------- -------
BALANCE AT
DECEMBER 31, 1995 8,031 80 60,372 (595) (11,855) 48,002
Issuance of common
stock to employees
under stock plans 67 1 330 331
Unearned compensation
amortization 197 197
Other $ (3) (3)
Net loss (40,598) (40,598)
-------- ------ -------- -------- -------- -------- --------
BALANCE AT
DECEMBER 31, 1996 8,098 $ 81 $60,702 $ (398) $ (3) $(52,453) $ 7,929
===== ======== ======= ========== ========= ========= =========
The accompanying notes are an integral part of the financial statements.
</TABLE>
F-5
<PAGE>
<TABLE>
<CAPTION>
HemaSure Inc.
Consolidated Statements of Cash Flows
For years ended December 31,
(In thousands) 1996 1995 1994
---- ---- ----
Cash flows from operating activities:
<S> <C> <C> <C>
Net loss $(40,598) $(7,450) $(4,405)
Adjustments to reconcile net loss to net
cash used in operating activities:
Discontinued business 24,748
Depreciation and amortization 819 468 401
Accretion of marketable securities discount (24) (173)
Loss on disposal of equipment 176
Changes in operating assets and liabilities:
Net assets of discontinued business (500)
Accounts receivable (201) (72) 64
Inventories 380 (434) (56)
Prepaid expenses (58) 122 (220)
Accounts payable and accrued expenses 1,368 791 1,026
Other assets 45 (18) (15)
--------- -------- --------
Net cash used in continuing operations (13,845) (6,766) (3,205)
Net cash used in discontinued business (11,969)
--------
Net cash used in operating activities (25,814) (6,766) (3,205)
-------- ------- -------
Cash flows from investing activities:
Purchases of available-for-sale marketable securities (219,936) (28,140)
Maturities of available-for-sale marketable securities 233,401 3,500
Acquisition of business net of cash acquired (4,092)
Additions to property and equipment (1,213) (516) (255)
---------- --------- -------
Net cash provided by (used in) investing activities 8,160 (25,156) (255)
---------- -------- -------
Cash flows from financing activities:
Net proceeds from issuance of common stock 331 43,304 15,053
Proceeds from investment by parent company 123
Repayments of capital lease obligations (178) (58) (12)
------- ------- -------
Net cash provided by financing activities 153 43,246 15,164
------- ------- -------
Net (decrease) increase in cash and cash equivalents (17,501) 11,324 11,704
Cash and cash equivalents at beginning of year 23,028 11,704
------- -------
Cash and cash equivalents at end of year $ 5,527 $23,028 $11,704
========= ======= =======
Supplemental schedule of cash flow information:
Cash paid during the year for interest $ 87 $ 38 $ 2
Noncash investing and financing activities:
Acquisition of fixed assets financed by capital leases $ 544 $ 378 $ 85
Reconciliation of assets acquired and liabilities assumed:
Fair value of assets acquired $ 27,092
Liabilities assumed $ 23,000
--------
Cash paid for acquisition $ 4,092
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
HemaSure Inc.
Notes to Consolidated Financial Statements
A. THE COMPANY:
Nature of the Business
HemaSure Inc. (the "Company") is utilizing its proprietary filtration and
pathogen inactivation technologies to develop products to increase the safety of
donated blood and to improve certain blood transfusion procedures. The Company's
currently marketed blood filtration products are designed for use by blood
centers and hospital blood banks worldwide. From the Company's inception through
the first quarter of fiscal 1996, HemaSure has sold non-blood related filter
products primarily to Sepracor, a related party, for use in chemical processing
applications. The Company's collaborative research and development efforts have
been with the US Department of the Army for blood filtration related practices.
The Company is subject to risks common to companies in the medical
technology industry, including, but not limited to, development by the Company
or its competitors of new technological innovations, dependence on key
personnel, protection of proprietary technology, and compliance with FDA
regulations.
Basis of Presentation and Relationship with Sepracor Inc.
The Company was incorporated in December 1993 as a wholly-owned subsidiary
of Sepracor Inc. ("Sepracor") and, prior to that date, its business was
conducted as a division of Sepracor. Effective as of January 1, 1994, in
exchange for 3,000,000 shares of common stock, par value $.01 per share (the
"Common Stock"), of the Company, Sepracor transferred to HemaSure its technology
relating to the manufacture, use and sale of its membrane filter products and
medical devices for the separation and purification of blood, blood products and
blood components. The accompanying financial statements of the Company
retroactively reflect the 1994 transaction.
Certain prior year amounts have been reclassified to be consistent with
the current year presentation.
B. DISCONTINUED BUSINESS:
In May 1996, the Company acquired the plasma product unit of Novo Nordisk
A/S, a Denmark corporation ("Novo Nordisk"), through its newly formed Danish
subsidiary, HemaSure A/S (the "Denmark Acquisition"). The purchase price for the
transaction was comprised of a combination of Promissory Notes, Convertible
Subordinated Notes (which would convert to common stock of HemaSure or a
subsidiary of HemaSure) and additional consideration payable in 1998 in cash or
stock, at the option of HemaSure, which would not be paid in certain events. The
acquisition was accounted for under the purchase method of accounting. Results
of operations proformed for the Denmark Acquisition have not been presented
because the subsequent decision to discontinue the business (see below)
eliminates any comparable continuing impact on the Company's financial
statements.
The loss from operations of discontinued business of $9,550,000 reflects
the loss from the date of the acquisition through December 31, 1996. During this
eight month period, this business recorded revenues from the sale of plasma
products of $8,200,000 and cost of products sold of $13,400,000. The cost of
products sold includes a reserve for the write down of inventories to the lower
of cost or market of approximately $2,500,000 and loss on the sale of raw
materials inventories of approximately $800,000. Operating costs of this
business during this period were approximately $4,000,000.
In January 1997, the Company and Novo Nordisk entered into a Restructuring
Agreement of the debt related to the Denmark Acquisition. Pursuant to the
Restructuring Agreement, approximately $23,000,000 of indebtedness owed to
F-7
<PAGE>
Novo Nordisk was restructured by way of issuance by the Company to Novo Nordisk
of a 12% convertible subordinated promissory note in the principal amount of
approximately $11,700,000, which is due and payable on December 31, 2001, with
interest payable quarterly (provided that up to approximately $3,000,000 may be
forgiven in certain circumstances). Approximately $8,500,000 of the reduction of
such indebtedness was forgiven; such forgiveness is reflected in the 1996
Statement of Operations as a reduction of the loss on disposal of the
discontinued plasma business. The remainder of the reduction represents a net
amount due from Novo Nordisk to the Company related to various service
arrangements between the two companies.
On February 20, 1997, the Company's Board of Directors voted to
discontinue the development and operation of its Danish plasma business due in
large part to Pharmacia & Upjohn's ("P&U") wrongful termination of the Company's
planned acquisition of P&U's plasma business in Sweden, which was part of the
Company's initial strategy to enter the plasma business, as well as other
factors. In that regard, the Company is currently considering various strategic
alternatives to effect that determination promptly, including, but not limited
to, the sale or other disposition of its plasma business, or an orderly
liquidation of its assets.
In connection with this determination, the Company recorded a one-time
charge of $15,200,000 in 1996 as a result of its exit from the plasma business.
The loss reflects management's assessment of the most probable outcome from this
decision and is net of the $8,500,000 forgiveness of indebtedness and assumes
the $3,000,000 forgiveness contingency.
C. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES:
Cash and Cash Equivalents
The Company considers all demand deposits, money market instruments and
repurchase agreements to be cash and cash equivalents. Cash equivalents of
$5,407,000 and $22,599,000 at December 31, 1996 and 1995, respectively, consist
of repurchase agreements with a commercial bank and money market instruments
with a financial management institution. The carrying amount approximates fair
value because of the short maturity of those instruments. A repurchase agreement
for $5,407,000 outstanding at December 31, 1996 was collateralized by a United
States Federal Government Agency, had an interest rate of 4.9% and had a
maturity date of January 2, 1997.
Marketable Securities
Management determines the appropriate classification of its investments in
debt and equity securities at the time of purchase and reevaluates such
determination at each balance sheet date. At December 31, 1996 and 1995, all
marketable securities have been classified as available for sale and are carried
at fair value, with the unrealized gains and losses, if any, reported as a
separate component of stockholders' equity.
The amortized cost of debt securities classified as available for sale is
adjusted for accretion of discounts to maturity. Such accretion is included in
interest income. Realized gains and losses are included in other income or
expense. The cost of securities sold is based on the specific identification
method.
F-8
<PAGE>
The following is a summary of the fair value of available for sale
marketable securities at December 31:
(In thousands) 1996 1995
---- ----
Commercial Paper $10,738
U.S. Government Agency Obligations $11,369 14,075
------ ------
$11,369 $24.813
======= =======
The unrealized holding loss of available for sale marketable securities
approximated $3,000 as of December 31, 1996.
As of December 31, 1995, the fair value of each investment approximated
the amortized cost, and therefore, there are no unrealized gains or losses. All
debt securities available for sale at December 31, 1996 and 1995 are due in
three months or less.
The Company's policy is to diversify the investment portfolio to reduce
risk to principal from credit and investment sector risk. At December 31, 1996
and 1995, investments were placed with a variety of high credit quality
financial institutions or other issuers.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market.
Property and Equipment
Property and equipment are stated at cost. Costs of major additions and
betterments are capitalized; maintenance and repairs which do not improve or
extend the life of the respective assets are charged to operations. On disposal,
the related cost and accumulated depreciation or amortization are removed from
the accounts and any resulting gain or loss is included in the results of
operations. Depreciation is computed using the straight-line method over the
estimated useful lives of the assets. All laboratory, manufacturing and office
equipment have estimated useful lives of three to ten years.
Revenue Recognition
Revenues from product sales are recognized when goods are shipped.
Revenues for research and development contracts are recorded under the
percentage of completion method wherein costs and estimated gross margin are
recorded as revenue as the work is performed.
Product Sales to Related Parties
Revenues for product sales to Sepracor are recorded at prices based on a
pricing agreement between HemaSure and Sepracor. Under this agreement, product
sales to Sepracor for Sepracor's use are at cost while product sales to Sepracor
for subsequent sale or lease to third parties are at cost plus a 25% margin.
Revenues for product sales to Sepracor subsidiaries are recorded at prices that
reflect transactions made on an arm's length basis.
Research and Development
Research and development costs are expensed in the year incurred.
F-9
<PAGE>
Net Loss Per Share
Net loss per share is based on the weighted average number of common and
dilutive common equivalent shares outstanding during the period. Common
equivalent shares are not included in the per share calculation where the effect
of their inclusion would be antidilutive, except that, in accordance with the
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
April 1994.
Income Taxes
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. Deferred
tax assets and liabilities reflect the estimated future tax consequences
attributable to tax benefit carryforwards and to "temporary differences" between
amounts of assets and liabilities for financial reporting purposes and such
amounts as measured by tax laws.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at December 31, 1996 and 1995
and the reported amounts of revenues and expenses during the years ended
December 31, 1996, 1995, and 1994. Actual results could differ from those
estimates.
Other
The Company adopted Statement of Financial Accounting Standards No. 121
(FAS 121), "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of", in 1995. FAS 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. The adoption of FAS 121 did not have any
material financial impact on the Company.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS
128), which will be effective for the Company in fiscal 1997. SFAS 128 is
designed to improve the EPS information provided in financial statements by
simplifying the existing computational guidelines (i.e., APB Opinion No. 15,
Earnings Per Share), revising the disclosure requirements, and increasing the
- ------------------
comparability of EPS data on an international basis. SFAS 128 requires dual
presentation of basic and diluted EPS on the face of the income statement for
all entities with complex capital structures regardless of whether basic and
diluted EPS are the same; it also requires a reconciliation of the numerator and
denominator used in computing basic and diluted EPS. Management has not yet
determined the impact of adopting SFAS 128.
D. ALLOCATIONS FROM AND AGREEMENTS
WITH SEPRACOR:
Since the Company's inception through December 31, 1995, all facilities
and support services of the Company, including administrative support, have been
provided by Sepracor. For these facilities and services, the Company was charged
$771,000 and $635,000 for 1995 and 1994, respectively. These charges represent
an allocation of the Company's proportionate share of Sepracor's overhead costs
using formulas developed by management based upon the Company's use of such
facilities and services. All costs incurred by the Company prior to the
Company's initial public offering in April 1994, including payroll costs, were
paid by Sepracor for the Company.
F-10
<PAGE>
Under a Corporate Services Agreement, effective from January 1, 1994
through December 31, 1995, the Company received certain basic support services
in exchange for a fixed monthly payment, adjusted annually. The Company recorded
an expense of $244,000 and $160,000 for these services in 1995 and 1994,
respectively. These basic services included 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.
Effective in 1996, the Company provided these services through its own employees
or outside contractors engaged directly by the Company.
Under Sublease Agreements, the Company leased certain laboratory, research
and office space from Sepracor through 1995 in exchange for fixed monthly rent
payments which increased at various dates and which approximate the Company's
proportionate share of Sepracor's cost of providing the facilities including
building maintenance, cleaning and certain utilities and other operating costs.
The Company signed a long-term lease for its manufacturing, laboratory, research
and office space in February 1996 (see Note H).
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 as
defined in the agreement. 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 HemaSure (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 which Sepracor proposes to sell,
or license a third party to sell during the Effective Period, for use within the
Company Field.
In addition, beginning in April 1998, Sepracor will be entitled to certain
rights with respect to the registration under the Securities Act of a total of
3,000,000 shares of Common Stock. These rights provide that Sepracor may require
the Company, on two occasions, to register shares having an aggregate offering
price of at least $5,000,000, subject to certain conditions and limitations.
E. ACCOUNTS RECEIVABLE:
The Company's 1996 trade receivables primarily represent amounts due for
product sales. In 1995, the Company's trade receivables primarily represented
amounts due from the United States Department of the Army related to its
collaborative research and development agreement.
The allowance for doubtful accounts was $10,000 at December 31, 1996.
There was no allowance for doubtful accounts at December 31, 1995.
The Company performs ongoing credit evaluations of its customers and
generally does not require collateral.
F-11
<PAGE>
F. INVENTORIES:
Inventories consist of the following at December 31:
(In thousands) 1996 1995
---- ----
Raw materials $ 240 $ 492
Work in progress 122 6
Finished goods 14 258
----- -----
$ 376 $ 756
----- -----
All of the Company's inventory at December 31, 1996 relates to its
recently marketed blood filter product. The Company has not yet established a
consistent sales level for these products in order to determine an appropriate
level of inventory. Management believes that the Company will sell its existing
inventory for these products without a loss. No estimate can be made of a range
of losses that are reasonably possible should the Company not be successful.
G. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following at December 31:
(In thousands) 1996 1995
---- ----
Laboratory and
manufacturing
equipment $ 1,308 $ 2,923
Leased laboratory and
manufacturing
equipment 889 463
Office equipment 723 326
Leasehold improvements 698 21
--- --
3,618 3,733
----- -----
Accumulated depreciation
and amortization (1,421) (2,650)
------- -------
2,197 1,083
Construction in progress 48 203
-- ---
$ 2,245 $ 1,286
------- -------
Depreciation and amortization expense was $622,000, $269,000, and $206,000
in 1996, 1995 and 1994, respectively.
Accumulated amortization of assets under lease was $278,000 and $37,000 as
of December 31, 1996 and 1995, respectively.
F-12
<PAGE>
H. COMMITMENTS AND CONTINGENCIES:
The Company leased certain laboratory, research and office space from
Sepracor through 1995. In 1995, the Company executed a lease for these facility
requirements which commences in February 1996 and extends through February 2004.
The lease provides for two five year renewal options. Under the terms of the
lease, the Company will be required to pay its allocated share of taxes and
operating costs in addition to the base annual rent.
In 1994, the Company, in collaboration with Sepracor and certain of its
other subsidiaries, executed an equipment leasing arrangement that provided for
a total of $2 million to these companies for purposes of financing capital
equipment. In October 1996, the Company executed a separate follow on equipment
leasing arrangement that provides $1.1 million of equipment financing through
March 31, 1997. The Company also executed a leasing arrangement with another
leasing company that provides for a total of $100,000 of equipment financing.
The Company leases various laboratory, manufacturing and computer equipment
under noncancelable capital leases. Terms of arrangements with the two leasing
companies contain bargain purchase provisions at the expiration of the lease
term which range from 24 months to 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 interest rate charged on the Company's capital leases ranges from 14% to
21%.
Future minimum payments under all non-cancelable leases in effect at
December 31, 1996 are as follows:
(In thousands) Operating Capital
Year Leases Leases
1997 214 309
1998 214 316
1999 234 252
2000 236 65
2001 236
Thereafter 515
Total minimum ------ ---
lease payments $1,649 942
------ ---
Less amount
representing interest 183
Present value of minimum
lease payments $759
----
Based on the borrowing rates currently available to the Company for capital
leases with similar terms and average maturities, the fair value of capital
leases approximates the carrying value.
The total charged to rent expense for all noncancelable leases including
amounts for building maintenance, utilities and other operating costs was
$903,000, $527,000, and $475,000 in 1996, 1995 and 1994, respectively.
In June 1994, the Company executed an agreement with a third party to
license certain technology. The Company agreed to pay license and consulting
fees of $1,200,000 payable in four equal annual installments, and royalties for
commercial sale of any product incorporating this technology to the third party
pursuant to the terms of the agreement. Through December 31, 1996, license and
consulting fees of $900,000 have been paid and charged to expense.
F-13
<PAGE>
The Company currently buys all of its blood filter media from one supplier
under a supply contract. Although the supply agreement provides that should the
supplier be unable to produce the Company's required quantities, the supplier
will assist the Company in finding another source of supply, a disruption in
production from this supplier could cause a delay in manufacturing and a
possible loss in sales which would adversely affect operating results.
I. CONVERTIBLE SUBORDINATED NOTE PAYABLE:
In January 1997, the Company entered into a Restructuring Agreement of the
debt related to the Denmark Acquisition. Pursuant to the Restructuring
Agreement, approximately $23,000,000 of indebtedness owed to Novo Nordisk was
restructured by way of issuance by the Company to Novo Nordisk of a 12%
convertible subordinated promissory note in the principal amount of
approximately $11,700,000, which is due and payable on December 31, 2001, with
interest payable quarterly (provided that up to approximately $3,000,000 may be
forgiven in certain circumstances). Approximately $8,500,000 of the reduction of
such indebtedness was forgiven. The remainder of the reduction represents a net
amount due from Novo Nordisk to the Company related to various service
arrangements between the two companies. The amount included in the balance sheet
at December 31, 1996 includes the effect of the Restructuring Agreement net of
the $3,000,000 contingency amount to reflect the most probable result of the
Company's decision to exit the plasma business. All amounts outstanding under
such note are convertible by either party, commencing January 1998, into shares
of Common Stock at a conversion price equal to $10.50 per share.
J. SEGMENT INFORMATION:
The Company operates exclusively in the blood purification business, which
the Company considers to be one business segment.
Revenues from significant unaffiliated customers are as follows:
Year Ended December 31: 1996 1995 1994
---- ---- ----
A. 18%
B. 36% 18%
C. 83%
K. STOCKHOLDERS' EQUITY:
Stock Option Plans
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation", (SFAS No. 123), encourages, but does not require
companies to record compensation cost for stock-based employee compensation
plans at fair value. The Company has chosen to continue to account for
stock-based compensation using the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations. Accordingly, compensation cost for
stock options is measured as the excess, if any, of the quoted market price of
the Company's stock at the date of the grant over the amount an employee must
pay to acquire the stock.
The Company has two stock options plans currently in effect under which
future grants may be issued: the 1994 Stock Option Plan and the 1994 Director
Option Plan. A total of 2,750,000 shares has been authorized by the Company for
grants of options or shares, of which 309,000 are still available for grant.
Stock Options granted during 1996 and 1995 generally have a maximum term of ten
years and vest ratably over a period of two to five years.
F-14
<PAGE>
A summary of the Company's stock option activity for the years ended
December 31 follows:
Number of Options Weighted Average
(in thousands) Exercise Price
- -----------------------------------------------------------------------------
Outstanding at
December 31, 1993
Granted 660 $ 3.53
------ -------
Outstanding at
December 31, 1994 660 $ 3.53
Granted 467 $ 4.50
Exercised (19) $ 2.00
Terminated (158) $ 8.27
------- -------
Outstanding at
December 31, 1995 950 $ 3.25
Granted 1,478 $ 12.87
Exercised (49) $ 3.12
Terminated (6) $ 2.88
-------- -------
Outstanding at
December 31, 1996 2,373 $ 9.24
At December 31, 1996 and 1995, respectively, there were 277,000 and
144,000 options exercisable with a weighted average exercise price of $2.88 and
$2.47. None of the options outstanding at December 31, 1994 were exercisable.
The following table summarizes the status of the Company's stock options at
December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
- ---------------------------------------------------------------------------------------------------------------------
Number Weighted Weighted
Outstanding As Average Average
Of 12/31/96 Remaining Exercise
Range of Exercise Prices (in thousands) Contractual Life Price
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 2.00 - $ 3.38 775 7.6 $2.59
$ 5.50 - $ 8.38 115 8.4 $7.52
$ 10.06 - $ 14.50 1,444 9.2 $12.77
$ 16.26 - $ 16.25 39 9.4 $16.25
------ --- ------
2,373 8.6 $9.24
OPTIONS EXERCISABLE
----------------------------------------
Number
Exercisable Weighted
As of Average
12/31/96 Exercise
(in thousands) Price
----------------------------------------
<C> <C>
257 $2.53
19 $7.33
1 $10.06
0 $0.00
----- ------
277 $2.88
</TABLE>
The weighted average fair value at date of grant for options granted
during 1996 and 1995 was $8.77 and $2.98 per option, respectively. The fair
value of these options at date of grant was estimated using the Black-Scholes
model with the following weighted average assumptions for 1996 and 1995,
respectively: risk-free interest rate of 6.20% and 6.30%; dividend yields of 0%
for both years; volatility factor of the expected market price of the Company's
common stock of 75% for both years; and a weighted average expected life of the
options of 6 years.
F-15
<PAGE>
During 1994 and prior to the Company's initial public offering, options to
purchase 482,000 shares of Common Stock were granted under the Plans at an
exercise price of $2.00 per share. The estimated fair market value on the date
of grant was $4.00 per share. The Company recorded compensation expense of
$197,000, $199,000 and $195,000 in 1996, 1995 and 1994, respectively, related to
these options.
In 1995, HemaSure adopted the 1995 Employee Stock Purchase Plan (the
"Stock Purchase Plan"). Under the Stock Purchase Plan, an aggregate of 100,000
shares of common stock may be purchased by employees at 85% of market value on
the first or last day of each six month offering period, whichever is lower,
through accumulation of payroll deductions ranging from 1% to 10% of
compensation as defined, subject to certain limitations. Options were exercised
to purchase 17,793 shares for a total of $165,000 during the year ended December
31, 1996 and 10,681 shares for a total of $58,000 during the year ended December
31, 1995. At December 31, 1996, 71,346 shares of common stock were reserved for
future issuance under the plan.
Had compensation cost for the Company's stock option plans been determined
based on the fair value at the grant date for awards in 1996 and 1995 consistent
with the provisions of SFAS No. 123, the Company's net income and net income per
share would have been reduced to the pro forma amounts indicated below. The
application of SFAS No. 123 to this employee stock purchase plan would not
result in a significant difference from reported net income and earnings per
share.
1996 1995
---- ----
Net income - as reported $(40,598) $(7,450)
Net income - pro forma $(43,280) $(7,750)
Net income per share - as reported $ (5.03) $ (1.20)
Net income per share - pro forma $ (5.36) $ (1.25)
The pro forma effect on net income for 1996 and 1995 is not representative
of the pro forma effect on net income in future years because it does not take
into consideration pro forma compensation expense related to grants made prior
to 1995.
In connection with the initial public offering, the Company granted to the
Underwriter an option to purchase 217,500 shares of Common Stock at an exercise
price equal to 150% of the initial public offering price or $10.50 and subject
to adjustment in certain circumstances. The option is exercisable at any time or
from time to time after April 14, 1995 and before April 14, 1999. The option may
be transferred in whole or in part at any time under specific conditions.
F-16
<PAGE>
L. INCOME TAXES:
The components of the Company's deferred tax assets and liabilities were
as follows at December 31:
<TABLE>
<CAPTION>
(In thousands) 1996 1995
---- ----
Deferred taxes:
Assets
<S> <C> <C>
Net operating loss carryforwards $10,505 $4,726
Loss on disposal of discontinued business 6,120
Tax credit carryforwards 429 197
Inventory reserves 326 86
Deferred compensation 239 160
Accrued charges not paid 193 143
Other 23 6
Liabilities
Property and equipment (78) (95)
======= =======
17,757 5,223
Valuation allowance (17,757) (5,223)
======== =======
Net deferred taxes $ $
========== =
</TABLE>
Due to the uncertainty surrounding the realization of the favorable tax
attributes in future tax returns, the Company has placed a valuation allowance
against its otherwise recognizable net deferred tax assets.
The Company's statutory and effective tax rates were 34% and 0%,
respectively, for both 1995 and 1994. The effective tax rate was 0% due to a net
operating loss and the nonrecognition of any net deferred tax asset. At December
31, 1996, the Company had net operating loss carryforwards (NOLs) of
approximately $26,086,000 available to offset future regular taxable earnings.
The net operating loss carryforwards expire at various dates through 2011. Tax
credit carryforwards expire at various dates from 2009 through 2011.
M. 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 a matching contribution at its discretion. In 1996, the Company
provided approximately $90,000 of matching contributions. There were no employer
contributions to the plan in 1995 or 1994.
F-17
<PAGE>
N. LITIGATION:
The Company is a defendant in two lawsuits brought by Pall Corporation
("Pall"). In complaints filed in February 1996 and November 1996, Pall alleged
that the Company's manufacture, use and/or sale of the LeukoNet product
infringes upon three patents held by Pall.
On October 14, 1996, in connection with the first action concerning
U.S. Patent No. 5,451,321, the Company filed a motion for summary judgment of
noninfringement. Pall filed a cross motion for summary judgment of infringement
at the same time. The parties are awaiting the Court's decision.
With respect to the second action concerning U.S. Patent Nos. 4,340,479
(the "'479 patent") and 4,952,572 (the "'572 patent"), the Company has answered
the complaint stating that it does not infringe any claim of the asserted
patents. Further, the Company has counterclaimed for declaratory judgment of
invalidity, noninfringement and unenforceability of the '572 patent, and a
declaratory judgment of noninfringement of the '479 patent, as a result of a
license.
The Company believes, based on advice of its patent counsel, that a
properly informed court should conclude that the manufacture, use and/or sale by
the Company or its customers of the present LeukoNet product does not infringe
any valid enforceable claim of the three asserted Pall patents. However, there
can be no assurance that the Company will prevail in the pending litigations,
and an adverse outcome in a patent infringement action would have a material
adverse effect on the Company's future business and operations.
On November 1, 1996, the Company filed a complaint in the Supreme Court,
State of New York, County of New York, against Pharmacia & Upjohn, Inc. In its
complaint, the Company seeks to receive damages arising out of the alleged
breach by Pharmacia & Upjohn ("P&U") of an agreement to sell to the Company
P&U's plasma pharmaceutical business located in Stockholm, Sweden. The complaint
seeks compensatory, consequential and punitive damages. There can be no
assurance that the Company will prevail in this litigation or, if the Company
docs so prevail, as to the amount of damages, if any, that will be awarded or
that the Company may collect.
F-18
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 31st day of
March, 1997.
HEMASURE INC.
Date: March 31, 1997 By: /s/ Steven H. Rouhandeh
-----------------------
Steven H. Rouhandeh, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Steven H. Rouhandeh President, Chief Executive March 31, 1997
- ----------------------- Officer and Director (Principal
Steven H. Rouhandeh Executive Officer)
/s/ Jeffrey B. Davis Senior Vice President and March 31, 1997
- -------------------- Chief Financial Officer
Jeffrey B. Davis (Principal Financial Officer)
/s/ James B. Murphy Senior Vice President, Finance March 31, 1997
- ------------------- and Administration (Principal
James B. Murphy Accounting Officer)
/s/ Eugene J. Zurlo Chairman and Director March 31, 1997
- -------------------
Eugene J. Zurlo
/s/ Timothy J. Barberich Director March 31, 1997
- ------------------------
Timothy J. Barberich
/s/ David S. Barlow Director March 31, 1997
- -------------------
David S. Barlow
/s/ John T. Kimbell Director March 31, 1997
- -------------------
John T. Kimbell
/s/ Rolf S. Stutz Director March 31, 1997
- -----------------
Rolf S. Stutz
/s/ Philip M. Hampton Director March 31, 1997
- ---------------------
Philip M. Hampton
</TABLE>
S-1
<PAGE>
Exhibit Index
The following exhibits are filed as part of this Annual Report on Form 10-K.
<TABLE>
<CAPTION>
Sequential
Exhibit No. Description Page No.
----------- ----------- ----------
<S> <C>
2.1******* Heads of Agreement, dated as of January 31, 1996, between the Company
and Novo Nordisk A/S.
3.1* Certificate of Incorporation of the Company.
3.2* By-Laws of the Company.
4.1* Specimen Certificate for shares of Common Stock, $.01 par value, of the
Company.
4.2 Registration Rights Agreement, dated January 23, 1997, by and among the
Company and Novo Nordisk A/S.
10.1*(1) 1994 Stock Option Plan, as amended.
10.2*(1) 1994 Director Option Plan.
10.3* Form of Technology Transfer and License Agreement between the
Company and Sepracor Inc.
10.4******* Lease Agreement for 140 Locke Drive, Marlborough, MA,
dated as of November 1995, between the Company and First
Marlboro Development Trust.
10.5* Cross License Agreement, dated as of January 1, 1994, between the
Company and BioSepra Inc.
10.6**+ License Agreement, dated June 15, 1994, among the Company, Clinical
Chemistry Consultants, Inc. and Allan L. Louderback.
10.7*+ Letter of Intent, dated as of February 28, 1994, between
and among the Company, Clinical Chemistry Consultants,
Inc., and its principal.
10.8*** Purchase Agreement, dated as of September 14, 1994,
between the Company and Lydall Central, Inc./Westex
Division.
10.9*** Letter of Intent, dated as of February 2, 1995, between the Company and
DRK-Niederschsen.
10.10*** Revolving Credit and Security Agreement, dated December 28, 1994, by
and between Fleet Bank of Massachusetts, N.A. and the Company.
10.11*** Intellectual Property Security Agreement, dated December 28, 1994, by
and between Fleet Bank of Massachusetts, N.A. and the Company.
10.12**** Amendment of Solicitation/Modification of Contract issued by the United
States Army Medical Research Acquisition Activity effective March 15,
1995.
10.13*****+ Purchase Agreement, dated July 28, 1995, by and between the Company
and Blood Centers of America.
10.14***** Employment Agreement between the Company and John McCray, dated
January 4, 1994.
I-1
<PAGE>
10.15***** Employment Agreement between the Company and Dr. Hans Heiniger,
dated January 10, 1994.
10.16*******+ Purchase Agreement between the Company and American Red Cross
Biomedical Services, dated March 11, 1996.
10.17******* Employment Agreement between the Company and Steven H. Rouhandeh,
dated February 16, 1996.
10.18******* Employment Agreement between the Company and Eugene J. Zurlo, dated
February 16, 1996.
10.19*******+ Cooperation Agreement dated February 26, 1996 between the
Company and the German Red Cross.
10.20******+ Purchase Agreement between the Company and Blood Centers of America,
dated September 11, 1995.
10.21******** Asset Purchase Agreement dated as of May 2, 1996 between
the Company, HemaPharm Inc., HemaSure A/S and Novo
Nordisk A/S.
10.22 Employment Agreement between the Company and Jeffrey B. Davis, dated
May 23, 1996.
10.23********* Restructuring Agreement, dated January 23, 1997, between
the Company, HemaPharm Inc., HemaSure A/S and Novo
Nordisk A/S.
10.24 Convertible Subordinated Note Due December 31, 2001 in the amount of
U.S. $11,721,989, issued by the Company to Novo Nordisk A/S, dated
January 23, 1997.
10.25 Master Strategic Alliance Agreement, dated June 5, 1996,
by and between the Company and American Red Cross
BioMedical Services.
10.26(1) Amendment to the Company's 1994 Director Option Plan, dated June 25,
1996.
10.27(1) Amendment to the Company's 1994 Director Option Plan, effective as of
May 16, 1996.
10.28(1) Amendment to the company's 1994 Stock Option Plan, dated June 25,
1996.
10.29(1) Amendment to the Company's 1994 Stock Option Plan, effective as of
May 16, 1996.
10.30 Sublease Agreement, between the Company and Novo Nordisk
A/S, dated May 2, 1996, for the Premises (Denmark), as
amended.
10.31 Sublease Agreement between the Company and Novo Nordisk
A/S, dated May 2, 1996, for the Warehouse (Denmark), as
amended.
11.1 Statement regarding computation of earnings per share.
21.1 Subsidiaries of the Company.
23.1 Consent of Coopers & Lybrand L.L.P.
27.1 Financial Data Schedule.
</TABLE>
I-2
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- -----------------------------
(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. 33-75930).
** Incorporated herein by reference to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1994.
*** Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1994.
**** Incorporated herein by reference to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1995.
***** Incorporated herein by reference to the Company's Registration
Statement on Form S-1, as amended (File No. 33-95540).
****** Incorporated herein by reference to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1994.
******* Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995.
******** Incorporated by reference to the Company's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1996.
********* Incorporated by reference to the Company's Current Report on
Form 8-K filed with the Securities and Exchange Commission
on February 27, 1997.
+ Confidential treatment requested as to certain portions.
I-3
<PAGE>
Exhibit 4.2
HEMASURE INC.
Registration Rights Agreement
This Registration Rights Agreement, dated January 23, 1997 (the
"Agreement"), is entered into by and among HemaSure Inc., a Delaware corporation
with its principal place of business at 140 Locke Drive, Marlborough, MA 01752
USA (the "Company"), and Novo Nordisk A/S, a corporation organized under the
laws of Denmark with its principal place of business at Novo Alle, DK-2880,
Bagsvaerd, Denmark (the "Purchaser").
WHEREAS, the Purchaser is the registered holder of a convertible
subordinated note of the Company in the original principal amount of US
$11,721,989 (the "Note"), pursuant to which shares of capital stock of the
Company may be issued in the future to the Purchaser; and
WHEREAS, the Company and the Purchaser desire to provide for certain
arrangements with respect to the registration of such shares of capital stock of
the Company under the Securities Act of 1933, as amended;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained in this Agreement, the parties hereto agree as follows:
1. Certain Definitions. As used in this Agreement, the following terms
shall have the following respective meanings:
"Commission" means the United States Securities and Exchange
Commission, or any other Federal agency at the time administering the Securities
Act.
"Common Stock" means the common stock, par value $.01 per share, of
the Company.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any similar Federal statute, and the rules and regulations of the Commission
issued under such Act, as they each may, from time to time, be in effect.
"Registration Statement" means a registration statement filed by the
Company with the Commission for a public offering and sale of its equity
securities (other than a registration statement on Form S-8 or Form S-4, or
their successors, or any other form for a similar limited purpose, or any
registration statement covering only securities proposed to be issued in
exchange for securities or assets of another corporation).
<PAGE>
"Registration Expenses" means the expenses described in Section 5.
"Registrable Shares" means (i) the shares of Common Stock issued or
issuable to the Purchaser pursuant to the Note and (ii) any other shares of
Common Stock issued in respect of such shares (because of stock splits, stock
dividends, reclassifications, recapitalizations, or similar events); provided,
however, that shares of Common Stock which are Registrable Shares shall cease to
be Registrable Shares (i) when they have been sold, transferred or otherwise
disposed of or exchanged pursuant to a registration statement under the
Securities Act, (ii) when such shares are eligible for resale pursuant to Rule
144(k) (or its successor) under the Securities Act, or (iii) upon any sale,
transfer, or other disposition in any manner to a person or entity which, by
virtue of Section 12 of this Agreement, is not entitled to the rights provided
by this Agreement.
"Securities Act" means the Securities Act of 1933, as amended, or any
similar Federal statute, and the rules and regulations of the Commission issued
under such Act, as they each may, from time to time, be in effect.
"Stockholders" means the Purchaser and any persons or entities to whom
the rights granted under this Agreement are validly transferred by the
Purchaser, their successors or assigns pursuant to Section 12 hereof.
2. Required Registrations.
(a) Commencing on January 23, 1999, a Stockholder or Stockholders
holding in the aggregate at least 51% of the Registrable Shares may request, in
writing (which request shall state the number of Registrable Shares to be so
registered, the intended method of distribution and a certification as to the
market value of such shares as described below), that the Company effect the
registration of Registrable Shares owned by such Stockholder or Stockholders
having an aggregate offering price of at least $3,000,000 (based on the last
reported sale price for the Common Stock on the business day preceding the date
of such written request, as reported by the NASDAQ National Market System or any
other exchange or market on which the Common Stock is then listed or included
for quotation). Upon receipt of any such request, the Company shall within 10
days give written notice of such proposed registration to all Stockholders. Such
Stockholders shall have the right, by giving written notice to the Company
within 30 days after the Company provides its notice, to elect to have included
in such registration such of their Registrable Shares as such Stockholders may
request in such notice of election; provided that if the underwriter (if any)
managing the offering determines that, because of marketing
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<PAGE>
factors, all of the Registrable Shares requested to be registered by all
Stockholders may not be included in the offering, then all Stockholders who have
requested registration shall participate in the registration pro rata based upon
the number of Registrable Shares which they have requested to be so registered,
provided, however, that the number of Registrable Shares shall not be reduced
unless all securities that are not Registrable Shares are first excluded from
the underwriting. Thereupon, the Company shall file a Registration Statement
under the Securities Act, to the extent necessary to permit the sale or other
disposition of the subject Registrable Shares in accordance with the intended
method of distribution specified in the written registration request.
(b) The Company shall not be required to effect more than two
registrations pursuant to paragraph (a) above. In addition, the Company shall
not be required to effect any registration within six months after the effective
date of any other Registration Statement.
(c) If at the time any request to register Registrable Shares pursuant
to this Section 2 is received by the Company, the Company is engaged in, or the
Board of Directors of the Company has resolved to initiate within 30 days of the
time of the request for a registration as provided in this Section 2, a
registered public offering as to which the Stockholders are entitled to include
Registrable Shares pursuant to Section 3, or is engaged in any activity other
than such a public offering which, in the good faith determination of the
Company's Board of Directors, would be materially adversely affected by the
requested registration, then the Company may at its option direct that such
requested be delayed for a period not in excess of 120 days from (i) the earlier
of (1) the effective date of such offering and (2) the 90th day after the filing
of such offering, or (ii) the date of commencement of such other material
activity, as the case may be, such right to delay a request to be exercised by
the Company not more than once in any consecutive 12-month period.
3. Incidental Registration.
(a) Commencing on January 23, 1998, whenever the Company proposes to
file a Registration Statement (other than pursuant to Section 2) at any time and
from time to time, it will, at least 14 days prior to such filing, give written
notice to all Stockholders of its intention to do so and, upon the written
request of a Stockholder or Stockholders given within 14 days after the Company
provides such notice (which request shall state the number of Registrable Shares
to be registered and the intended method of disposition of such Registrable
Shares), the Company shall, subject to Section 3(b) hereof, cause all
Registrable Shares which the Company has been requested by such
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<PAGE>
Stockholder or Stockholders to register to be registered under the Securities
Act to the extent necessary to permit their sale or other disposition in
accordance with the intended methods of distribution specified in the request of
such Stockholder or Stockholders; provided that the Company shall have the right
to postpone or withdraw any registration effected pursuant to this Section 3
without obligation or liability to any Stockholder.
(b) In connection with any registration under this Section 3 involving
an underwriting, the Company shall not be required to include any Registrable
Shares in such registration unless the holders thereof accept the terms of the
underwriting as agreed upon between the Company and the underwriters selected by
it. If the managing underwriter employed by the Company for the distribution of
equity securities shall determine that the inclusion of all Registrable Shares
requested to be included would interfere with the successful marketing of the
proposed underwritten offering, then the Company shall be required to include in
the registration only that number of Registrable Shares, if any, which the
managing underwriter believes can be sold pursuant to the proposed underwritten
offering; provided that no persons or entities other than the Company, the
Stockholders and persons or entities holding registration rights granted by the
Company (provided that such persons or entities shall participate in such
registration pro rata with the Stockholders based on the number of shares of
Common Stock owned by such persons or entities) shall be permitted to include
securities in the offering. If the number of Registrable Shares to be included
in the offering in accordance with the foregoing is less than the total number
of shares which the holders of Registrable Shares have requested to be included,
then the holders of Registrable Shares who have requested registration and other
holders of securities entitled to include them in such registration shall
participate in the registration pro rata based upon their total ownership of
shares of Common Stock (giving effect to the conversion into Common Stock of all
securities convertible thereunto). If any holder would thus be entitled to
include more securities than such holder requested to be registered, the excess
shall be allocated among other requesting holders pro rata in the manner
described in the preceding sentence.
4. Registration Procedures.
(a) If and whenever the Company is required by the provisions of this
Agreement to effect the registration of any of the Registrable Shares under the
Securities Act, the Company shall:
(i) prepare and file with the Commission within 90 days a Registration
Statement with respect to such Registrable Shares and use its best efforts to
cause that Registration
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<PAGE>
Statement to become and remain effective for such period of the time (not
exceeding six months) as may be necessary to effect the sale or other
disposition of all Registrable Shares covered by such Registration Statement or
until the Registrable Shares covered thereby cease to be Registrable Shares,
whichever is sooner;
(ii) as expeditiously as possible prepare and file with the Commission
any amendments and supplements to the Registration Statement and the prospectus
included in the Registration Statement as may be necessary to keep the
Registration Statement effective for the period described in Section 4(a)(i)
above;
(iii) as expeditiously as possible furnish to each selling Stockholder
such reasonable numbers of copies of the prospectus, including a preliminary
prospectus, and such other documents as the selling Stockholder may reasonably
request in order to facilitate the public sale or other disposition of the
Registrable Shares owned by the selling Stockholder;
(iv) as expeditiously as possible register or qualify the Registrable
Shares covered by the Registration Statement under the securities or Blue Sky
laws of such states as the selling Stockholders shall reasonably request;
provided, however, that (x) the Company shall not for any purpose be required to
qualify to do business as a foreign corporation in any jurisdiction wherein it
is not so qualified or execute a general consent to service of process in any
jurisdiction and (y) if the Company is offering securities for its own account,
it need not register or qualify under securities or Blue Sky Laws of any
jurisdiction in which the managing underwriter has no intention of offering or
selling securities for the account of the Company (except that the Company will
use its best efforts to register or qualify Registrable Shares in such
additional jurisdiction as any Stockholder may request subject to the limitation
of clause (x) and at such Stockholder's expense; and
(v) Cause all such Registrable Shares registered hereunder to be
listed on each securities exchange, or included for quotation on each automated
quotation system, on which similar securities issued by the Company are then
listed or quoted.
(b) Each selling Stockholder of Registrable Shares agrees that, upon
receipt of any notice from the Company of (i) any request by the Commission for
amendments or supplements to a Registration Statement or related prospectus
covering any of such selling Stockholder's Registrable Shares, (ii) the issuance
by the Commission of any stop order suspending the effectiveness of a
Registration Statement covering any of such selling Stockholder's Registrable
Shares or the initiation of any proceedings for that purpose, (iii) the receipt
by the Company of
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<PAGE>
any notification with respect to the suspension of the qualification of any
Registrable Shares for sale in any jurisdiction or the initiation or threatening
of any proceeding for such purpose, (iv) the happening of any event that
requires the making of any changes in the Registration Statement covering any of
such selling Stockholder's Registrable Shares so that it will not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading
or that any related prospectus will not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
misleading, and (v) the Company's reasonable determination that a post-effective
amendment to a Registration Statement covering any of such selling Stockholder's
Registrable Shares or a supplement to any related prospectus is required under
the Securities Act; such selling Stockholder will forthwith discontinue
disposition of such Registrable Shares until it is advised in writing by the
Company that the use of the applicable prospectus (as amended or supplemented,
as the case may be) and disposition of the Registrable Shares covered thereby
pursuant thereto may be resumed provided, however, (x) that such selling
Stockholder shall not resume its disposition of Registrable Shares pursuant to
such Registration Statement or related prospectus unless it has received notice
from the Company that such Registration Statement or amendment has become
effective under the Securities Act and has received a copy or copies of the
related prospectus (as then amended or supplemented, as the case may be) unless
the Registrable Shares are then listed on a national securities exchange and the
Company has advised such selling Stockholder that the Company has delivered
copies of the related prospectus, as then amended or supplemented, in
transactions effected upon such exchange, subject to any subsequent receipt by
such selling Stockholder from the Company of notice of any of the events
contemplated by Stock clauses (i) through (iv) of this paragraph, and, (y) if so
directed by the Company, such holder will deliver to the Company (at the
Company's expense) all copies, other than permanent file copies then is such
Stockholder's possession, of the prospectus covering such Registrable Shares
current at the time of receipt of such notice. In the event the Company is
required to take such action under clauses (i), (iv), and (v) above, the Company
shall do so as expeditiously as possible.
5. Allocation of Expenses. The Company will pay all Registration
Expenses, (as defined below), of all registrations under this Agreement;
provided, however, that if a registration under Section 2 is withdrawn at the
request of the Stockholders requesting such registration (other than as a result
of information concerning the business or financial condition of the Company
which is made known to the Stockholders after the date on which such
registration was requested) and if the requesting
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<PAGE>
Stockholders elect not to have such registration counted as a registration
requested under Section 2, the requesting Stockholders shall pay the
Registration Expenses of such registration pro rata in accordance with the
number of their Registrable Shares included in such registration. For purposes
of this Section 5, the term "Registration Expenses" shall mean all expenses
incurred by the Company in complying with this Agreement, including, without
limitation, all registration and filing fees, exchange listing fees, printing
expenses, fees and expenses of counsel for the Company, state Blue Sky fees and
expenses and accounting fees, but excluding underwriting discounts, selling
commissions, transfer taxes, fees payable by any Selling Stockholder under
Section 4(iv) above, and the fees and expenses of selling Stockholders' own
counsel, which shall be borne by the participating Stockholders in proportion to
the number of Registrable Shares offered by each.
6.
(a) In the event of any registration of any of the Registrable Shares
under the Securities Act pursuant to this Agreement, the Company will indemnify
and hold harmless the seller of such Registrable Shares, such seller's officers
and directors, acting in such capacities, and each other person, if any, who
controls such seller within the meaning of the Securities Act, against any
losses, claims, damages or liabilities, joint or several, to which such seller,
its officers or directors, or controlling person may become subject under the
Securities Act, the Exchange Act, state securities or Blue Sky laws or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement of any
material fact contained in any Registration Statement under which such
Registrable Shares were registered under the Securities Act, any preliminary
prospectus or final prospectus contained in the Registration Statement, or any
amendment or supplement to such Registration Statement, or arise out of or are
based upon the omission to state a material fact required to be stated therein
or necessary to make the statements therein not misleading; and, subject to
paragraph (c) of this Section 6, the Company will reimburse such seller, its
officers or directors, and each such controlling person for any legal or any
other expenses reasonably incurred by such seller, its officers or directors, or
controlling person in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the Company will not
be liable in any such case to the extent that any such loss, claim, damage,
liability, or action arises out of or is based upon any untrue statement or
omission made in such Registration Statement, preliminary prospectus or final
prospectus, or any such amendment or supplement, in conformity with information
furnished to the Company, in writing, by or on behalf of such seller, its
officers or directors, or controlling
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<PAGE>
person specifically for use in the preparation thereof or inclusion therein.
The indemnity provisions in paragraph (a) of this Section 6 are
subject to the condition that, insofar as they related to any untrue statement
or omission made in a preliminary prospectus or prospectus but eliminated or
remedied in a final prospectus or an amended or supplemented prospectus on file
with the Commission at the time the Registration Statement becomes effective or
any amended or supplemented prospectus filed with the Commission pursuant to
Rule 424 or any successor provision under the Securities Act (the "Final
Prospectus"), such indemnity provisions shall not inure to the benefit of any
selling Stockholder of Registrable Shares (x) if such selling Stockholder is not
selling Registrable Shares through an underwriter, if the Company has previously
delivered copies of such Final Prospectus to such selling Stockholder of
Registrable Shares or, if the Registrable Shares are then listed on a national
securities exchange, if the Company has previously delivered copies of such
Final Prospectus to such national securities exchange in accordance with Rule
153 or any successor rule under the Securities Act, or (y) if such selling
Stockholder is selling Registrable Shares through an underwriter or
underwriters, the Company has previously delivered copies of such Final
Prospectus to such underwriter or underwriters.
(b) In the event of any registration of any of the Registrable Shares
under the Securities Act pursuant to this Agreement, each seller of Registrable
Shares, severally and not jointly, will indemnify and hold harmless the Company,
each of its directors and officers, and each person, if any, who controls the
Company within the meaning of the Securities Act, against any losses, claims,
damages, liabilities or actions joint or several, to which the Company, such
directors and officers, or controlling person may become subject under the
Securities Act, the Exchange Act, state securities or Blue Sky laws or
otherwise, insofar as such losses, claims, damages, liabilities or actions in
respect thereof arise out of or are based upon any untrue statement of a
material fact contained in any Registration Statement under which such
Registrable Shares were registered under the Securities Act, any preliminary
prospectus or final prospectus contained in the Registration Statement, or any
amendment or supplement to the Registration Statement or arise out of or are
based upon any omission to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, if the statement or
omission was made in conformity with information relating to such seller
furnished in writing to the Company by or on behalf of such seller specifically
for inclusion in or use in connection with the preparation of such Registration
Statement, prospectus, amendment or supplement; and shall reimburse the Company,
its directors and officers, and each such controlling person for any legal or
other expenses reasonably incurred by any
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<PAGE>
of them in connection with investigation or defending any such loss, claim,
damage, liability or action. This indemnity shall remain in full force and
effect for the applicable statute of limitation period regardless of any
investigation made by or on behalf of the Company or such controlling person and
shall survive the transfer of shares.
(c) Each party entitled to indemnification under this Section 6 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any loss, claim, action, damage, or liability as to
which indemnity may be sought, and shall permit the Indemnifying Party to assume
the defense of any such claim or any litigation resulting therefrom; provided,
that counsel for the Indemnifying Party, who shall conduct the defense of such
claim or litigation, shall be approved by the Indemnified Party (whose approval
shall not be unreasonably withheld); and, provided, further, however, that
failure to notify within such time period shall not rescind or revoke the
indemnifying party's obligation to indemnify but shall only reduce the amount of
the indemnification to the extent that the Indemnifying Party is damaged by such
delay). The Indemnified Party may participate in such defense at such party's
expense; provided, however, that the Indemnifying Party shall pay such expense
(but in no event shall the Indemnifying Party be obligated to pay the fees and
expenses of more than one counsel for the Indemnified Party or Parties) if
representation of such Indemnified Party by the counsel retained by the
Indemnifying Party would be inappropriate due to actual or potential conflict of
interests between the Indemnified Party and the Indemnifying Party represented
by such counsel in such proceeding. No Indemnifying Party, in the defense of any
such claim or litigation shall, except with the consent of an Indemnified Party,
consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party of a release from all liability in respect of such
claim or litigation, and no Indemnified Party shall consent to entry of any
judgment or settle such claim or litigation without the prior written consent of
the Indemnifying Party.
(d) If the indemnification provided for in this Section 6 is finally
determined by a court of competent jurisdiction to be unavailable to an
Indemnified Party with respect to any loss, liability, claim, damage, or expense
referred to therein or contribution is required under the Securities Act in
circumstances for which indemnification is provided under this Section 6, then
the Indemnifying Party, in lieu of indemnifying such Indemnified Party
hereunder, shall contribute to the amount paid or payable by such Indemnified
Party as a result of such loss, liability, claim, damage, or expense (i) in such
proportion as is appropriate to reflect the
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<PAGE>
relative benefits received by the Indemnifying Party on the one hand and the
Indemnified Party on the other or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits received by the Indemnifying Party on
the one hand and the Indemnified Party on the other but also the relative fault
of the Indemnifying Party and the Indemnified Party as well as any other
relevant equitable considerations. The relative fault of the Indemnifying Party
and of the Indemnified Party shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact related to information supplied by the
Indemnifying Party or by the Indemnified Party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission; provided, however, that, in any such case, (A) no
Stockholder will be required to contribute any amount in excess of the gross
proceeds of all Registrable Shares sold by it pursuant to such Registration
Statement, and (B) no person or entity guilty of fraudulent misrepresentation,
within the meaning of Section 11(f) of the Securities Act, shall be entitled to
contribution from any person or entity who is not guilty of such fraudulent
misrepresentation.
(e) The obligations under this Section 6 shall survive the completion
of any offering of Registrable Shares in a registration statement.
7. Indemnification with Respect to Underwritten Offering.
(a) In the event that Registrable Shares are sold pursuant to a
Registration Statement in an underwritten offering pursuant to Section 2, the
Company agrees to enter into an underwriting agreement containing customary
representations and warranties with respect to the business and operations of an
issuer of the securities being registered and customary covenants and agreements
to be performed by such issuer, including without limitation customary
provisions with respect to indemnification by the Company of the underwriters of
such offering.
(b) No Stockholder may participate in any underwritten registration
pursuant to Section 3 hereunder unless such Stockholder (i) agrees to sell the
Registrable Shares which it proposes to sell in such underwritten registration
on the basis provided in any underwriting arrangements approved by the persons
entitled hereunder to approve such arrangements and (ii) completes and executes
all questionnaires, powers of attorney, reasonable and customary indemnities,
underwriting agreements and other documents required under the terms of such
underwriting arrangements and provides such other information and documentation
as the Company or the underwriters may reasonably request in connection with
such underwritten registration.
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<PAGE>
8. Information by Holder. Each Stockholder including Registrable
Shares in any registration shall furnish to the Company such information
regarding such Stockholder and the distribution proposed by such Stockholder as
the Company may reasonably request in writing and as shall be required in
connection with any registration, qualification or compliance referred to in
this Agreement.
9. "Stand-Off" Agreement. Each Stockholder, if requested by the
Company and the managing underwriter of an offering by the Company of Common
Stock or other securities of the Company pursuant to a Registration Statement
filed pursuant to Section 3 hereof in which the Registrable Securities are not
included, shall agree not to sell publicly or otherwise transfer or dispose of
any Registrable Shares or other securities of the Company held by such
Stockholder for a specified period of time (not to exceed 180 days) following
the effective date of such Registration Statement; provided, that, all
stockholders holding not less than the number of shares of Common Stock held by
such Stockholder (including shares of Common Stock issuable upon the conversion
of convertible securities, or upon the exercise of options, warrants or rights)
and all officers and directors of the Company enter into similar agreements.
10. Mergers, Etc. The Company shall not, directly or indirectly, enter
into any merger, consolidation or reorganization in which the Company shall not
be the surviving corporation unless the proposed surviving corporation shall,
prior to such merger, consolidation or reorganization, agree in writing to
assume the obligations of the Company under this Agreement, and for that purpose
references hereunder to "Registrable Shares" shall be deemed to be references to
the securities which the Stockholders would be entitled to receive in exchange
for Registrable Shares under any such merger, consolidation or reorganization;
provided, however, that the provisions of this Section 10 shall not apply in the
event of any merger, consolidation or reorganization in which the Company is not
the surviving corporation if all Stockholders are entitled to receive in
exchange for their Registrable Shares consideration consisting solely of (i)
cash or (ii) securities of the acquiring corporation which may be sold to the
public without registration under the Securities Act within 90 days of such
merger, consolidation or reorganization.
11. Termination. All of the Company's obligations to register
Registrable Shares under this Agreement pursuant to Sections 2 and 3 hereof
shall terminate when there are no Registrable Shares as defined herein.
12. Transfers of Rights. This Agreement, and the rights and
obligations of each Purchaser hereunder, may be assigned by such Purchaser to
any person or entity to which Registrable
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<PAGE>
Shares are transferred by such Purchaser, and such transferee shall be deemed a
"Purchaser" for purposes of this Agreement; provided that the transferee
provides written notice of such assignment to the Company as promptly as
practicable subsequent thereto.
13. Current Public Information. The Company shall furnish to any
Stockholder, so long as the Stockholder owns any Registrable Shares, forthwith
upon request (i) a written statement by the Company as to its compliance with
the current public information condition of Rule 144 (at any time after ninety
(90) days after the effective date of the first registration statement filed by
the Company), the Securities Act and the Exchange Act (at a time after it has
become subject to such reporting requirements), (ii) a copy of the most recent
annual or quarterly report of the Company and such other reports and documents
so filed by the Company, and (iii) such other public information as may be
reasonably requested in availing any Stockholder of any rule or regulation of
the Commission which permits the selling of any such securities without
registration or pursuant to such form.
14. General.
(a) Notices. All notices, requests, consents, and other
communications under this Agreement shall be in writing and shall be delivered
by hand or mailed by first class certified or registered mail, return receipt
requested, postage prepaid.
If to the Company, at the address first written above, Attention:
President, or at such other address or addresses as may have been furnished in
writing by the Company to the Purchaser, with a copy to Battle Fowler LLP, 75
East 55th Street, New York, NY 10022, Attention: Luke P. Iovine, III, Esq.; or
If to a Stockholder, at his or its address first written above or at
such other address or addresses as may have been furnished to the Company in
writing by such Stockholder, with a copy to Novo Nordisk of North America, Inc.,
405 Lexington Ave., Suite 6400, New York, New York 10017; Attention: General
Counsel.
Notices provided in accordance with this Section 14(a) shall be deemed
delivered upon personal delivery or two business days after deposit in the mail.
(b) Entire Agreement. This Agreement embodies the entire agreement and
understanding between the parties hereto with respect to the subject matter
hereof and supersedes all prior agreements and understandings relating to such
subject matter.
-12-
<PAGE>
(c) Amendments and Waivers. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively), with the
written consent of the Company and the holders of at least 51% of the
Registrable Shares; provided, that this Agreement may be amended with the
consent of the holders of less than all Registrable Shares (but not less than
51% of such shares) only in a manner which affects all Registrable Shares in the
same fashion. No waivers of or exceptions to any term, condition or provision of
this Agreement, in any one or more instances, shall be deemed to be, or
construed as, a further or continuing waiver of any such term, condition or
provision.
(d) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
shall be one and the same document.
(e) Severability. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(f) Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York, without regard to its
conflicts of laws provisions.
-13-
<PAGE>
Executed as of the date first written above.
COMPANY:
HEMASURE INC.
By: /s/ Steven H. Rouhandeh
-----------------------
Title: President and Chief Executive Officer
-------------------------------------
PURCHASER:
NOVO NORDISK A/S
By: /s/ Kurt A. Nielsen /s/ Jesper Oveson
--------------------------------------
Title: Deputy CEO Vice President of Corporate
Finance
--------------------------------------
-14-
<PAGE>
Exhibit 10.22
[HemaSure Letterhead]
May 23, 1996
Mr. Jeffrey B. Davis
35 Plymouth Road
Summit, NJ 07901
Dear Mr. Davis:
As we have agreed, the following shall set forth and constitute an offer of
employment between you and HemaSure Inc. (the "Company"), based upon the terms
and conditions set forth herein.
1. Title. You shall hold the title of Senior Vice President and Chief Financial
Officer of the Company, with the attendant responsibilities and perquisites of
such position within the Company.
2. Cash Compensation. You shall earn a base salary of $165,000 per year, subject
to annual increases each year, at the discretion of the Company's Board of
Directors. You shall also receive a signing bonus of $25,000, payable upon
commencement of your employment, and an annual performance bonus targeted at
$50,000 for the first year, based upon mutually agreed upon performance
objectives, payable for the current year in February 1997.
3. Stock Options. You shall receive upon commencement of employment, subject to
approval of the Company's Board of Directors, 100,000 options to purchase the
Company's common stock at the current market price at the time of such Board
approval, which shall vest in equal annual installments over a period of five
years from the date of grant. Additionally, you shall receive 50,000 "Special
Options" to purchase the Company's common stock at the same exercise price as
above, which options shall vest in their entirety ten years from the date of
grant, subject, however, to acceleration and normal five year vesting for 25,000
"Special Options" in the event that the Company's common stock reaches $25 per
share, and similarly for the second 25,000 "Special Options" in the event the
Company's common stock reaches $35 per share, in both cases on a split adjusted
basis.
4. Fringe Benefits. You shall be entitled to such fringe benefits as are
accorded other employees of similar rank within the Company.
<PAGE>
Mr. Jeffrey B. Davis
May 23, 1996
Page 2
5. Termination. If there is a "change in control" of the Company, all options,
other than "Special Options", shall vest immediately, except that "Special
Option" shall vest immediately for a "change in control" at or above the target
price for accelerated vesting set out in the immediately preceding paragraph,
and you shall be entitled to, in the event of a "change in control" or a
termination other than for "cause", 100% of your annualized cash compensation,
whether or not services are performed hereunder.
Very truly yours,
HEMASURE, INC.
/s/ Steven H. Rouhandeh
- ------------------------------
Steven H. Rouhandeh
President
ACCEPTED AND AGREED
As of the date above written,
/s/ Jeffrey B. Davis
- ------------------------------
Jeffrey B. Davis
<PAGE>
Exhibit 10.24
NEITHER THIS NOTE NOR THE SECURITIES ISSUABLE UPON CONVERSION HEREOF HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND NEITHER
THIS NOTE NOR THE SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY BE SOLD,
TRANSFERRED OR ASSIGNED UNLESS SO REGISTERED OR AN EXEMPTION FROM REGISTRATION
UNDER SAID ACT IS AVAILABLE.
HEMASURE INC.
12% Convertible Subordinated Note Due December 31, 2001
U.S.$11,721,989.00 New York, New York
January 23, 1997
--------------------
HemaSure Inc., a Delaware corporation (the "Company"), for value
received, hereby promises to pay to Novo Nordisk A/S (the "Holder") the
principal sum of Eleven Million Seven Hundred Twenty-One Thousand Nine Hundred
Eighty-Nine U.S. Dollars (U.S.$11,721,989.00) amount to be confirmed by HemaSure
and, beginning on the date of this Note (the "Note"), to pay interest (computed
on the basis of a 365-day year) on the unpaid balance of such principal amount
from time to time outstanding at the annual rate of twelve percent (12%),
payable on a quarterly basis in arrears beginning with the first payment on
March 31, 1997.
1. Subordination
(a) The indebtedness evidenced by this Note, and the payment of the
principal hereof, and any interest hereon, is wholly subordinated, junior and
subject in right of payment, to the extent and in the manner hereinafter
provided, to the prior payment of all Senior Indebtedness of the Company.
"Senior Indebtedness" means the principal of, and premium, if any, and interest
on (a) any and all indebtedness and obligations of the Company (including
indebtedness of others guaranteed by the Company) other than the Note, whether
or not contingent, incurred or assumed, outstanding on the date of this Note,
which by its terms or conditions requires that the indebtedness represented by
this Note (or the type, kind or amount of indebtedness represented by this Note)
be subordinated thereto and which (i) is for money borrowed; (ii) is evidenced
by any bond, note, debenture or similar instrument; (iii) represents the unpaid
balance on the purchase price of any property, business or asset of
<PAGE>
any kind; (iv) is an obligation of the Company as lessee under any and all
leases of property, equipment or other assets required to be capitalized on the
balance sheet of the lessee under generally accepted accounting principles; (v)
is a reimbursement obligation of the Company with respect to letters of credit;
(vi) are obligations of the Company with respect to interest swap obligations
and foreign exchange agreements; (vii) are obligations of other secured by a
lien to which any of the properties or assets (including, without limitation,
leasehold interests and any other tangible or intangible property rights) of the
Company are subject, whether or not the obligations secured thereby shall have
been assumed by the Company or shall otherwise be the Company's legal liability;
and (viii) any deferrals, amendments, renewals (including, but not limited to,
the Company's currently expired revolving credit facility), extensions,
modifications and refundings of any indebtedness or obligations of the types
referred to above; and
(b) No payment on account of principal of or interest on the Notes
shall be made, and the Note shall be redeemed or purchased directly or
indirectly by the Company (or any of its subsidiaries), if at the time of such
payment or purchase or immediately after giving effect thereto, (i) there shall
exist a default in any payment with respect to any Senior Indebtedness or (ii)
there shall have occurred an event of default (other than a default in the
payment of amounts due thereon) with respect to any Senior Indebtedness, as
defined in the instrument under which the same is outstanding, permitting the
holders thereof to accelerate the maturity thereof, and such event of default
shall not have been cured or waived or shall not have ceased to exist. Nothing
in this paragraph (b) shall prohibit the conversion of this Note into equity
securities of the Company in accordance with Section 2 hereof.
2. Conversion
(a) General. This Note shall be subject to conversion as set
forth below:
(i) On January 1, 1998, and at any time thereafter prior to
December 31, 2001, the Holder, at its election, may convert all or a portion
(but in no event less than US$500,000) of the outstanding principal amount of
this Note together with accrued and unpaid interest thereon (the "Outstanding
Amount") into such number of fully-paid and non-assessable shares of common
stock, par value $.01 per share, of the Company ("HemaSure Common Stock"), at
the rate of one share of HemaSure Common Stock for each $10.50 of the
Outstanding Amount surrendered for conversion, subject to adjustment as set
forth herein (the "Conversion Price").
(ii) From January 5, 1998 to January 9, 1998 (the "HemaSure
Conversion Period"), the Company, at its election, may cause the holder of this
Note to convert all or a portion of the Outstanding Amount into number of
fully-paid and non-assessable shares of HemaSure Common Stock at the rate of one
share of HemaSure Common Stock for each $10.50 of the Outstanding Amount
surrendered for conversion, subject to adjustment as set forth herein.
2
<PAGE>
(iii) The Company shall cause notice of conversion under
section 2(a)(ii) to be mailed to the registered holder of this Note, at such
holders' address appearing in the Note register maintained by the Company, at
least thirty (30) days prior to the date fixed for conversion during the
HemaSure Conversion Period. On or before the date fixed for conversion, the
holder shall surrender this Note at the place designated in such notice,
together with a statement of the name or names (with address) in which the
certificate or certificates for shares of HemaSure Common Stock, which shall be
issuable on such conversion shall be issued.
(b) Surrender of Note and Delivery of Certificates. When surrendered
for conversion, this Note shall, unless the shares issuable on conversion are to
be issued in the same name as the name in which this Note is then registered, be
duly endorsed by, or accompanied by instruments of transfer in form satisfactory
to the Company duly executed by, the holder or his or its duly authorized
attorney. As promptly as practicable after the surrender of this Note for
conversion, the Company shall deliver to the holder, or on the holder's written
order, a certificate or certificates for the number of full shares issuable upon
the conversion of this Note, or portion hereof, in accordance with the
provisions hereof and, if applicable, a check in lieu of any fractional shares.
(c) Adjustment of Conversion Price.
(i) In case the Company shall:
(A) declare a dividend of HemaSure Common Stock
on HemaSure Common Stock,
(B) subdivide outstanding HemaSure Common Stock
into a larger number of shares of HemaSure
Common Stock by reclassification, stock
split or otherwise, or
(C) combine outstanding HemaSure Common Stock
into a smaller number of shares of HemaSure
Common Stock by reclassification or
otherwise,
the number of shares of HemaSure Common Stock issuable upon conversion of this
Note immediately prior to any such event shall be adjusted proportionately so
that thereafter the holder of this Note shall be entitled to receive upon
conversion of this Note the number of shares of HemaSure Common Stock which such
holder would have owned after the happening of any of the events described above
had this Note been converted into HemaSure Common Stock immediately prior to the
happening of such event, provided that the Conversion Price shall in no event be
reduced to an amount that would cause the Company to issue any HemaSure Common
Stock at less than the per share par value thereof. An adjustment made pursuant
to this Section 2(c) shall become effective immediately after the
3
<PAGE>
record date in the case of a dividend and shall become effective immediately
after the effective date in the case of a subdivision or combination.
(ii) If, prior to maturity of this Note, HemaSure shall at any
time consolidate or merge with another corporation (other than a merger or
consolidation in which HemaSure is the surviving corporation), the registered
holder hereof will thereafter be entitled to receive, upon the conversion
hereof, the securities or property to which a holder of the number of shares of
HemaSure Common Stock then deliverable upon the conversion hereof would have
been entitled upon such consolidation or merger, and HemaSure shall take such
steps in connection with such consolidation or merger as may be necessary to
ensure that the provisions hereof shall thereafter be applicable, as nearly as
reasonably may be, in relation to any securities or property thereafter
deliverable upon the conversion of this Note.
(d) Notice. In case the Company proposes to take any action referred to
in Section 2(c) above, or to effect the liquidation, dissolution or winding up
of the Company, it shall cause notice thereof to be mailed to the registered
holder of this Note, at such holder's address appearing in the Note register or
otherwise provided by such holder to the Company.
(e) Fractional Share. No fractional shares shall be issuable upon
conversion of this Note, but a payment in cash based on the fair market value of
such fraction will be made in respect of any fraction of a share which would
otherwise be issuable upon the surrender of this Note for conversion.
(f) Securities Act of 1933. Upon conversion of this Note, the
registered holder may be required to execute and deliver to the issuer an
instrument, in form satisfactory to the issuer, representing that the shares
issuable upon conversion hereof are being acquired for investment and not with a
view to distribution within the meaning of the Securities Act of 1933, as
amended.
(g) Prepayment. The Outstanding Amount of this Note may be prepaid by
the Company, at its election and without penalty or premium, at any time prior
to December 31, 2001.
3. Default.
Subject to the subordination provisions of Section 1, the entire unpaid
principal of this Note and the interest then accrued on this Note shall become
and be immediately due and payable upon written demand of the holder of this
Note, without any other notice or demand of any kind or any presentment or
protest, if any one of the following events shall occur and be continuing at the
time of such demand, whether voluntarily or involuntarily, or, without
limitation, occurring or brought about by operation of law or pursuant to or in
compliance with any judgment, decree or order of any court or any order, rule or
regulation of any governmental body:
4
<PAGE>
(a) If the Company (i) makes a composition or an assignment for the
benefit of creditors or trust mortgage, (ii) applies for, consents to,
acquiesces in, files a petition seeking or admits (by answer, default or
otherwise) the material allegations of a petition filed against it seeking the
appointment of a trustee, receiver or liquidator, in bankruptcy or otherwise, of
itself or of all or a substantial portion of its assets, or a reorganization,
arrangement with creditors or other remedy, relief or adjudication available to
or against a bankrupt, insolvent or debtor under any bankruptcy or insolvency
law or any law affecting the rights of creditors generally, or (iii) admits in
writing its inability to pay its debts generally as they become due; or
(b) If any order for relief shall have been entered by a bankruptcy
court or if a decree, order or judgment shall have been entered adjudging the
Company insolvent, or appointing a receiver, liquidator, custodian or trustee,
in bankruptcy or otherwise, for the Company or for all or a substantial portion
of its assets, or approving the winding-up or liquidation of the affairs of the
Company on the grounds of insolvency or nonpayment of debts, and such order for
relief, decree, order of judgment shall remain undischarged or unstated for a
period of sixty (60) days.
4. Business Shut Down/Waiver of Repayment.
Reference is hereby made to the Asset Purchase Agreement, dated May 2,
1996, as amended on date hereof (the "Asset Purchase Agreement"), by and among
the Company, HemaPharm, Inc. HemaSure A/S, and Novo Nordisk A/S.
In case a Business Shut Down (as defined in the Asset Purchase
Agreement) shall occur (which Business Shut Down shall occur in the sole
discretion of HemaPharm Inc.), the holder of this Note hereby waives repayment
of an amount of US$3,034,546.00 of the unpaid indebtedness hereunder as of the
effective date of such Business Shut Down.
5. Note Replacement.
Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft, destruction or mutilation of this Note and of indemnity
reasonably satisfactory to it, and upon reimbursement to the Company of all
reasonable expenses incidental thereto, and upon surrender and cancellation of
this Note (in case of mutilation) the Company will make and deliver in lieu of
this Note a new Note of like tenor and unpaid principal amount and dated as of
the date to which interest has been paid on the unpaid principal amount of this
Note in lieu of which such new Note is made and delivered.
6. General.
(a) Successors and Assigns. This Note, and the obligations and rights
of the Company and the Holder shall be binding upon and inure to the benefit of
the Company, the Holder of this Note, and their respective heirs, successors and
assigns.
5
<PAGE>
(b) Recourse. Recourse under this Note shall in no event be to the
officers, directors or stockholders of the Company, and each holer of this Note
waives and releases all such liability.
(c) Changes. Changes in or additions to this Note may be made or
compliance with any term, covenant, agreement, condition or provision set forth
herein may be omitted or waived (either generally or in a particular instance
and either retroactively or prospectively), upon written consent of the Company
and the Holder.
(d) Notices. All notices, requests, consents and demands shall be made
in writing and shall be mailed postage prepaid, or delivered by hand, to the
Company or to the holder hereof at their respective addresses set forth in the
Restructuring Agreement, dated the date hereof, or to such other address as may
be furnished in writing to the other party hereto.
(e) Governing Law. This Note shall be construed and enforced
in accordance with, and the rights of the parties shall be governed by, the laws
of the State of New York, without regard to its conflicts of law provisions.
6
<PAGE>
IN WITNESS WHEREOF, this Note has been executed and delivered on the
date first above written by a duly authorized representative of the Company.
HEMASURE INC.
By:/s/ Steven H. Rouhandeh
------------------------------
Name: Steven H. Rouhandeh
Title: President and
Chief Executive Officer
ATTEST: Meredith Rawlings
------------------------------
7
<PAGE>
Exhibit 10.25
MASTER STRATEGIC ALLIANCE AGREEMENT
-----------------------------------
THIS MASTER STRATEGIC ALLIANCE AGREEMENT ("Agreement") is entered into
this 5th day of June, 1996 by and between HemaSure Inc., a Delaware corporation
("HEMA" or "HemaSure") and the American Red Cross BioMedical Services ("ARCBS").
INTRODUCTION
WHEREAS, ARCBS is the nation's pre-eminent provider of blood services,
serving more than 3,000 hospitals through the generous donations of some 22,000
people daily;
WHEREAS, HEMA is, among other things, in the business of developing
products to increase the safety of donated blood and to improve certain blood
collection and transfusion procedures; and
WHEREAS, ARCBS AND HEMA (collectively, the "Parties") believe that a
strategic alliance and cooperation between them would be in their mutual
interest, all in accordance with the terms and conditions hereinafter set forth,
NOW, THEREFORE, in consideration of the promises and the mutual
covenants of the Parties herein contained, it is hereby agreed as follows:
1. Scope of Agreement
1.1 The Parties' intention under this agreement is to facilitate
the development and expansion of a strategic alliance between them covering the
following areas:
(a) a collaboration in the area of pathogen inactivation for
blood components and plasma for transfusion which collaboration may include (i)
the joint completion of development and commercialization of HEMA's Steripath
product line, (ii) the availability to ARCBS of special pricing arrangements for
HEMA's existing Steripath technology, and/or (iii) a royalty arrangement between
the Parties in the case of any subsequently developed Steripath technology;
(b) a collaboration on HEMA's tumor cell filter project
(which is currently at the basic research level), which may involve a structure
similar to that used in pathogen inactivation;
<PAGE>
(c) a contract to manufacture plasma proteins from American
Red Cross volunteer plasma intermediate fractions, co-marketing arrangement for
recombinant Factor VIII and VIIa (if and to the extent that HemaSure acquires
rights to such products), the possibility of jointly acquiring additional plasma
fractionation capacity or development of alternatives to current methods of
plasmapheresis;
(d) a co-development agreement between the Parties to
accelerate the commercialization of HEMA's second generation leukoreduction
filter in return for a royalty or special pricing arrangement in favor of ARCBS;
(e) a collaboration agreement between the Parties to develop
and produce factors for producing a hemoglobin intermediate solution; and
(f) a long-term supply agreement for the use of platelets
for an infusible platelet membrane product.
Each of the projects, collaborations, programs or agreements set forth above
shall be hereinafter referred to as a "Project".
1.2 Each Party agrees to negotiate in good faith the definitive
terms of the Projects described above as and when determined by the EC.
1.3 It is understood by the Parties that this Agreement is
intended to establish a structure of open communication and coordination so as
to facilitate the expansion of the Parties' cooperation as set forth above and
is not intended to inhibit or restrict either Party from pursuing business
opportunities outside of this Agreement where deemed appropriate by such Party.
2. Administration.
2.1 As soon as practicable after the Effective Date, the Parties
shall establish an Executive Committee ("EC") which shall remain in existence
for the term of this Agreement. The EC shall be composed of one senior
management representative of each of ARCBS and HEMA who shall initially be the
individuals set forth in Section 13 below and who shall each have full authority
to act in the name and on behalf of his or her company in all matters related to
this Agreement. The EC will maintain open communications to coordinate the
overall cooperation of the Parties hereunder. In this regard, the EC shall hold
a meeting at least once every three months to discuss:
(a) Status of any existing Projects and the status of other
business activity between the Parties;
-2-
<PAGE>
(b) General issues of business development and strategic
cooperation between the Parties, including possible multi-party cooperative
efforts with other potential strategic partners;
(c) In each instance that a Project is undertaken, the EC
shall designate the responsibilities of each Party.
2.2 Meetings of the EC shall be held alternately between HEMA's
and ARCBS's facilities. An extraordinary meeting may be convened at any time at
the written request of either Party. The Party hosting a meeting shall prepare
the agenda and minutes for the meeting.
2.3 The decisions of the EC shall be made in writing by unanimous
vote and shall be binding on the Parties.
2.4 In such case as the EC decides to pursue a Project, it shall
establish the guidelines for the Parties' activity. Any issues that may arise
during any phase of a Project which cannot be resolved by the Project teams of
the Parties shall be referred to the EC for resolution.
3. Warrant. Prior to December 31, 1996, ARCBS may elect to receive a
warrant for the purchase of up to 400,000 shares of HemaSure Common Stock, $.01
par value per share, at a purchase price per share of $18.50 pursuant to the
conditions and schedule set forth in Exhibit A hereto (the "Warrant"). The
Warrant shall expire four years from the date of this Agreement. In the event
that ARCBS elects not to exercise its right to receive the Warrant, the Company
and ARCBS will negotiate in good faith a financial component in lieu thereof
that may be in the form of royalties on the sales of products which may be
developed jointly by the parties, a discount on the price of products which may
be purchased by ARCBS from HemaSure or such other form as mutually agreed by
HemaSure and the Company. The value of such financial component will not exceed
the value of the Warrant on the date of this Agreement. In the event that
HemaSure and ARCBS are unable to determine within 60 days after commencement of
negotiations the value of the Warrant, then the matter shall be submitted to a
panel of three independent arbitrators who are investment bankers and whose
decision as to value shall be binding. ARCBS will select one such arbitrator,
HemaSure shall select the second arbitrator, and the two so selected shall
select and designate a third arbitrator.
4. Disputes
(a) Amicable Resolution: It is the intention of the Parties to
settle amicably all differences or disputes arising from this Agreement by
conference and negotiation. The Parties
-3-
<PAGE>
will first attempt to resolve any working level disputes through the Project
team and, if there is no resolution, through the EC. An attempt at settlement in
this manner shall be deemed to have failed when a Party informs the other Party,
in writing, of a failure to resolve the dispute at the EC level and a period of
six months elapses after such written notice without an amicable resolution.
(b) All disputes arising between the Parties hereto in connection
with this Agreement, which cannot be settled amicably and satisfactorily by them
and which attempt at settlement shall have been deemed to have failed in
accordance with Section 4(a) above, shall be subjected to non-binding mediation
reasonably satisfactory to the Parties for a period of [six months]. If
settlement has not been reached after such mediation, the dispute shall be
finally settled under the rules of arbitration of the American Arbitration
Association by one neutral arbitrator appointed under the rules of the American
Arbitration Association.
(c) The arbitration proceedings shall be conducted at a place
mutually acceptable to the Parties. If the place of arbitration cannot be agreed
upon by the Parties, arbitration shall be conducted in Boston, Massachusetts.
Each Party shall be responsible for its respective costs incurred in
arbitration, except that the costs and fees imposed by the arbitrator for his
expenses shall be borne equally by the Parties.
(d) The arbitration award rendered in accordance with this
Article will be final. Judgment upon such award may be entered in any court
having jurisdiction.
(e) In the event of a breach by either Party or any of its
obligations or undertakings under Section 8, the other Party shall be entitled
to immediate injunctive relief. Such right to injunctive relief shall be in
addition to the Parties' other rights under this Agreement.
5. Identification and Publicity. The Parties agree that, with respect
to any Project which the EC has decided to pursue hereunder, they shall be
identified in the marketplace as a team and they shall take all necessary steps
in order to enhance the image of the team and the corporate visibility of each
Party. Neither Party shall make or distribute any public announcement or media
release concerning the subject matter of this Agreement without the prior
written approval of the other Party, except as otherwise required by law.
6. Limitation of Liability and Remedies. IN NO EVENT SHALL A PARTY BE
LIABLE TO THE OTHER PARTY FOR ANY INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL
DAMAGES, INCLUDING WITHOUT LIMITATION FOR LOSS OF ANTICIPATED PROFITS, IN
CONNECTION WITH AN
-4-
<PAGE>
ALLEGED BREACH OF THIS AGREEMENT, HOWEVER CAUSED, BY NEGLIGENCE OR OTHERWISE;
PROVIDED THAT THE LIMITATION ON LIABILITY FOR LOSS OF PROFITS SHALL NOT APPLY IN
THE EVENT OF A WILLFUL OR GROSSLY NEGLIGENT BREACH OF THE PROVISIONS OF SECTION
8 HEREOF.
7. Relationship of the Parties. The relationship of the Parties under
this Agreement is that of independent contractors and that relationship shall
continue as such throughout the term of this Agreement. Nothing contained in
this Agreement shall be construed to constitute either Party as a partner or
agent of the other, and no officer, employee or agent of either Party shall be
deemed to be the officer, employee or agent of the other. Neither Party shall
hold itself out as a partner or agent of the other or have the authority to make
any agreement or commitment, or incur any liability on behalf of the other,
except as specifically authorized in this agreement.
8. Confidential Information. During the term of this Agreement and for
a period of seven (7) years from any termination or expiration hereof, the
Parties agree to keep in confidence and not to disclose to any third party, or
use for any purpose, except pursuant to, and in order to carry out, the terms
and objectives of his Agreement, any Confidential Information. As used herein,
"Confidential Information" shall mean all trade secrets or confidential or
proprietary information designated as such in writing by the disclosing Party,
whether by letter or by the use of an appropriate stamp or legend, prior to or
at the time any such trade secret or confidential or proprietary information is
disclosed by the disclosing Party to the receiving Party. Notwithstanding the
foregoing, information which is orally or visually disclosed to the receiving
Party by the disclosing Party, or is disclosed in writing without an appropriate
letter, stamp or legend, shall constitute Confidential Information if the
disclosing Party, within thirty (30) days after such disclosure, delivers to the
receiving Party a written document or documents describing such information and
referencing the place and date of such oral, visual or written disclosure and
the names of the employees or officers of the receiving Party to whom such
disclosure as made. The restrictions on the disclosure and use of Confidential
Information set forth in the first sentence of this Section 8 shall not apply to
any Confidential Information which (a) was known by the receiving Party (as
evidenced by the receiving Party's written records) prior to disclosure by the
disclosing Party hereunder; (b) is or becomes part of the public domain through
no fault of the receiving Party; (c) is disclosed to the receiving Party by a
third party having a legal right to make such a disclosure; or (d) is required
to be disclosed by law or legal process (provided that the other Party has
received prior notice of such intended disclosure if practicable under the
circumstances).
-5-
<PAGE>
9. Indemnification.
HEMA agrees to indemnify and hold harmless ARCBS and its directors,
officers and employees from and against any and all losses, costs, damages, fees
or expenses arising out of the manufacture or sale of any product developed
pursuant to this Agreement provided that HEMA shall have the right to control
the defense or settlement of any claim for which ARCBS is entitled to
indemnification hereunder. HEMA shall not be liable for any litigation costs or
expense incurred by ARCBS (or its directors, officers or employees) without
HEMA's prior written consent.
10. Term and Termination.
10.1 This Agreement shall become effective upon execution by both
Parties and shall continue in full force and effect for ten years from the date
of this Agreement, unless terminated earlier by the mutual agreement of the
Parties or in accordance with the provisions herein.
10.2 Either Party shall have the right to terminate this
Agreement for "cause" at any time, by giving written notice to the other Party
in the event that the other Party:
(i) commits a noncurable default or violation of this
Agreement; or
(ii) commits a curable default or violation of this
Agreement which is not remedied within thirty (30) days after written notice
thereof.
11. Entire Agreement. This Agreement is the complete and exclusive
statement of the agreement between the Parties, which supersedes and merges all
prior proposals, understandings and all other agreements, oral and written,
between the Parties relating to the subject matter of this Agreement. This
Agreement cannot be modified or altered except by a written instrument duly
executed by both parties.
12. Successors, Assignment. This Agreement shall be binding upon, and
shall inure to, the benefit of successors to a Party hereto, but shall not
otherwise be assignable without the prior written consent of both Parties.
13. Notices.
13.1 All notices, requests, consents and other communications
under this Agreement shall be in writing and shall be delivered by hand or
telecopier or mailed by first class
-6-
<PAGE>
certified or registered mail, return receipt requested, postage prepaid:
(i) if to HEMA, at HemaSure Inc., 33 Locke Drive,
Marlborough, Massachusetts 01752 ((508) 485-6045), Attention: President, or at
such other address or addresses as may have been furnished in writing by HEMA to
ARCBS, with a copy to Susan W. Murley, Esq., Hale and Dorr, 60 State Street,
Boston, Massachusetts 02109 (telecopier no. (617) 526-5000); and
(ii) if to ARCBS, at 1616 North Fort Meyer Drive, Rosslyn,
Virginia 22209 (telecopier no. (703) 312-5734), Attention: Niall M. Conway, Vice
President of Manufacturing, or at such other address or addresses as may have
been furnished in writing by ARCBS to HEMA.
13.2 Notices provided in accordance with this Section 12 shall be
deemed delivered upon personal delivery or two business days after deposit in
the mail.
14. Invalidity. If any provision of this Agreement is held to be
invalid, such invalidity shall not affect the validity of the remaining
provisions.
15. Expenses. Each Party shall be solely responsible for its own
expenses under this Agreement.
16. Captions. All captions herein are for convenience only and shall
not be interpreted as having any substantive meaning.
17. Governing Law. This Agreement shall be governed by the laws of the
State of Delaware.
IN WITNESS WHEREOF, the Parties have executed this Agreement effective
the date first written above.
HEMASURE INC. AMERICAN RED CROSS BIOMEDICAL
SERVICES
By:/s/ Steven H. Rouhandeh By:/s/ Niall M. Conway
----------------------- -------------------
Name: Steven H. Rouhandeh Name: Niall M. Conway
--------------------- -----------------
Title: President Title: Vice President of Manufacturing
-------------------- ---------------------------------
-7-
<PAGE>
Exhibit A
---------
Number of Shares Exercisable
Under Warrant Upon
Project Execution of Final Agreement
------- ----------------------------
Pathogen inactivation collaboration
(subsection 1.1(a))* 40,000
Plasma contract, plasma fractionation
agreement or plasma supply agreement,
co-marketing arrangement for
recombinant factor VIII and factor
VIIa (to extent HemaSure acquires
access to such products) and
development of alternatives to
current methods of plasmapheresis
(subsection 1.1(c)) 120,000
Co-development agreement to accelerate
commercialization of leukoreduction
filters (subsection 1.1(d))* 120,000
Collaboration to develop and produce
factors for hemoglobin intermediate
solution (subsection 1.1(e))* 40,000
Platelet supply agreement for infusible
platelet membrane product (subsection
1.1(f))* 40,000
- --------
* Upon mutual agreement of the Parties, these projects may be substituted for
other projects not currently contemplated by the Agreement.
-8-
<PAGE>
Exhibit 10.26
HemaSure Inc.
Amendment to 1994 Director Option Plan
--------------------------------------
Adopted by the Board of Directors on
June 25, 1996
RESOLVED: That Section 5(e) of the Company's 1994 Director Option Plan be
amended by adding a new subsection (iii) to read in its entirety as
follows:
(iii) Acceleration Upon Change in Control. Notwithstanding the
foregoing, each outstanding option granted under the Plan shall
immediately become exercisable in full in the event a Change in
Control (as defined in Section 9) of the Company occurs.
RESOLVED: That Section 9 be amended by adding a new subsection (c) to read in
its entirety as follows:
(c) Change in Control. For purposes of the Plan, a "Change in
Control" shall be deemed to have occurred only if any of the
following events occurs: (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,
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 50% or more of the
combined voting power of the Company's then outstanding
securities; (ii) the stockholders of the Company approve a merger
or consolidation of the Company with any other corporation, other
than 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
<PAGE>
consolidation; (iii) the stockholders of the Company approve a
plan of complete liquidation of the Company or an agreement for
the sale or disposition by the Company of all or substantially
all of the Company's assets; or (iv) individuals who, on the date
on which the Plan was adopted by the Board of Directors,
constituted the Board of Directors of the Company, together with
any new director whose election by the Board of Directors or
nomination for election by the Company's stockholders was
approved by a vote of at least a majority of the directors then
still in office who were directors on the date on which the Plan
was adopted by the Board of Directors or whose election or
nomination was previously so approved, cease for any reason to
constitute at least a majority of the Board of Directors.
-2-
<PAGE>
Exhibit 10.27
AMENDMENT TO
1994 DIRECTOR OPTION PLAN
OF
HEMASURE INC.
The 1994 Director Option Plan (the "Plan") be and hereby is amended as
follows:
1. The number 100,000 in the second line of Section 4(a) of the Plan
shall be deleted and the number 250,000 shall be inserted in lieu
thereof.
2. The last sentence of Section 5(b) of the Plan shall be deleted in its
entirety and a new sentence inserted in lieu thereof which shall read
as follows:
"Each Reelection Option granted under the Plan shall be exercisable
for 3,000 shares of Common Stock, provided, however, that the
Reelection Options granted under the Plan for directors re-elected at
the 1996 Annual Meeting of Stockholders shall be for 9,750 shares of
Common Stock."
Adopted by the Board of Directors on March 31, 1996 Approved by the
Stockholders on May 16, 1996
<PAGE>
Exhibit 10.28
HemaSure Inc.
Amendment to 1994 Stock Option Plan
-----------------------------------
Adopted by the Board of Directors on June 25, 1996
RESOLVED: That Section 16 of the Company's 1994 Stock Option Plan be and hereby
is amended to read in its entirety as follows:
16. Merger, Consolidation, Asset Sale, Liquidation, etc.
(a) General. Subject to Section 16(c), in the event of a
consolidation or merger or sale of all or substantially all of the
assets of the Company in which outstanding shares of Common Stock are
exchanged for securities, cash or other property of any other
corporation or business entity or in the event of a liquidation of the
Company, the Board of Directors of the Company, or the board of
directors of any corporation assuming the obligations of the Company,
may in its discretion, take any one or more of the following actions,
as to outstanding options: (i) provide that such options shall be
assumed, or equivalent options shall be substituted, by the acquiring
or succeeding corporation (or an affiliate thereof), provided that any
such options substituted for Incentive Stock Options shall meet the
requirements of Section 424(a) of the Code, (ii) upon written notice
to the optionees, provide that all unexercised options will terminate
immediately prior to the consummation of such transaction unless
exercised by the optionee (to the extent then exercisable) within a
specified period following the date of such notice, and (iii) in the
event of a merger under the terms of which holders of the Common Stock
of the Company will receive upon consummation thereof a cash payment
for each share surrendered in the merger (the "Merger Price"), make or
provide for a cash payment to the optionees equal to the difference
between (A) the Merger Price times the number of shares of Common
Stock subject to such outstanding options (to the extent then
exercisable at prices not in excess of the Merger Price) and (B) the
aggregate exercise price of all such outstanding options in exchange
for the termination of such options.
(b) Substitute Options. The Company may grant options under the
Plan in substitution for options held by employees of another
corporation who become employees of the Company, or a subsidiary of
the Company, as a result of a merger or consolidation of the employing
corporation with the Company or a subsidiary of the Company, or as a
result of the acquisition by the Company, or one of its
<PAGE>
subsidiaries, of property or stock of the employing corporation. The
Company may direct that substitute options be granted on such terms
and conditions as the Board of Directors considers appropriate in the
circumstances.
(c) Change in Control. Notwithstanding any other provision\
contained herein, in the event of a "Change in Control" of the Company
(as defined below) each outstanding option under the Plan held by a
person who is then an employee of the Company shall immediately become
exercisable in full. For purposes of the Plan, a "Change in Control"
shall be deemed to have occurred only if any of the following events
occurs: (i) any "person", as such term is used in Sections 13(d) and
14(d) of the Exchange Act (other than the Company, 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 50%
or more of the combined voting power of the Company's then outstanding
securities; (ii) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than 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; (iii) the stockholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the
Company's assets; or (iv) individuals who, on the date on which the
Plan was adopted by the Board of Directors, constituted the Board of
Directors of the Company, together with any new director whose
election by the Board of Directors or nomination for election by the
Company's stockholders was approved by a vote of at least a majority
of the directors then still in office who were directors on the date
on which the Plan was adopted by the Board of Directors or whose
election or nomination was previously so approved, cease for any
reason to constitute at least a majority of the Board of Directors.
-2-
<PAGE>
Exhibit 10.29
AMENDMENT TO
1994 STOCK OPTION PLAN
OF
HEMASURE INC.
The 1994 Stock Option Plan, as amended (the "Plan") be and hereby is
amended as follows:
1. The third sentence of Section 3(a) shall be deleted in its entirety
and a new sentence inserted in lieu thereof which shall read as
follows:
"No employee shall be granted options to purchase more than an
aggregate of 600,000 shares of Common Stock under the Plan in any one
Calendar year."
2. The number 1,000,000 in the third line of Section 4 of the Plan shall
be deleted and the number 2,500,000 shall be inserted in lieu thereof.
Adopted by the Board of Directors on March 31, 1996 Approved by
the Stockholders on May 16, 1996
<PAGE>
Exhibit 10.30
SUBLEASE AGREEMENT
for
The Premises
This Agreement is made and entered into by and between:
Novo Nordisk A/S, a corporation duly organized and existing under the laws of
Denmark and having its address at Novo Alle, DK-2800 Bagsvaerd, Denmark
(hereinafter referred to as "Novo Nordisk")
and
HemaPharm Inc., a corporation duly organized and existing under the laws of
Denmark and having its address at 140 Locke Drive, Marlborough, MA 01752, USA
(hereinafter referred to as "HemaPharm").
Novo Nordisk and HemaPharm shall hereafter collectively sometimes be referred to
as the Parties.
WITNESSETH:
WHEREAS Novo Nordisk is the lessee of the Premises (as defined in the
Asset Purchase Agreement entered into on May 2, 1996 and
hereafter referred to as the "Asset Purchase Agreement")
pursuant to the Lease Agreement (attached hereto as Exhibit A)
between it and I/S Sauntesvej 11-13 (hereinafter referred to
as "Lessor"); and
WHEREAS Novo Nordisk has a right to sublease the Premises under
said Lease Agreement; and
WHEREAS HemaPharm desires to sublease the Premises on the terms and
conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the promises and mutual covenants set forth
herein, both Parties agree as follows:
1 ASSUMPTION OF OBLIGATIONS
HemaPharm shall assume all of Novo Nordisk's rights, obligations and
responsibilities under the Lease Agreement, except that Novo Nordisk shall
remain responsible for making monthly rent payments to the Lessor in the amount
agreed with the Lessor.
<PAGE>
2
2 SUBLEASE PAYMENTS
HemaPharm shall, on the first day of each calendar month, pay to Novo Nordisk
Danish Kroner 154.167,00, plus applicable VAT, as rent payment under this
Agreement.
Rent payments under this Agreement shall be increased on the first day of each
calendar year in proportion to the relative increase of the "Nettoprisindex" for
the preceding calendar year, except that such increase shall be no less than
three percent (3%) and no more than four percent (4%).
3 SECURITY DEPOSIT
HemaPharm shall as a security deposit, upon execution of this Agreement, pay to
Novo Nordisk an amount of DKK 770.835,00 equivalent to four (4) months' rent.
4 TERM AND TERMINATION
This Agreement shall become effective on March 1, 1996, and shall remain in full
force and effect until July 1, 2009, the expiration date of the Lease Agreement.
HemaPharm shall, however, have the right in the event of a Business Shut Down as
defined in the Asset Purchase Agreement, as defined in Section 1.3 (b) of said
agreement to terminate this Agreement until March 31, 1998, without notice.
5 DUTY TO RESTORE
Except in the event of Business Shut Down as described in Section 4 HemaPharm
shall pay the costs of restoring the Premises provided that such duty to restore
the Premises exists.
6 INDEMNIFICATION
HemaPharm Inc. shall indemnify Novo Nordisk against any and all Damages (as
defined in the Asset Purchase Agreement) arising from either HemaPharm's actions
under this Agreement and/or its use (including but not limited to new
installations of fixtures and other leasehold improvements) of the Premises,
unless such Damages are the result of Novo Nordisk's negligence or wilful
misconduct.
<PAGE>
3
7 NEGOTIATION OF A NEW LEASE AGREEMENT
Novo Nordisk and HemaPharm shall at HemaPharm's request use commercially
reasonable efforts to assist HemaPharm in the negotiation of a new lease
agreement between the Lessor and HemaPharm, said new lease agreement to take
effect as soon as practicable following March 31, 1998.
8 ASSIGNMENT
This Agreement may not be transferred or assigned to a third party without the
other Party's written consent. Notwithstanding the above this Agreement shall be
assignable to each Party's Affiliates as defined in the Asset Purchase
Agreement.
9 COUNTERPARTS
This Agreement shall be executed in two (2) counterparts, each one of which
shall be deemed to be the original.
10 CHOICE OF LAW
This Agreement shall be construed and interpreted pursuant to the laws of
Denmark.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on the date
written below.
Date: 1996-05-02 Date: 1996-5-2
Novo Nordisk A/S HemaPharm A/S
/s/ Karsten Liljegren
/s/ Ulrik Spork
- ------------------------ -----------------------------
By: Ulrik Spork By: Power of Attorney
Karsten Liljegren
Advokat
Bredgade 38
1260 Kobenhavn K
Tlf. 33 47 88 00
<PAGE>
4
Date: 1996-5-2
HemaSure, Inc.
/s/ Karsten Liljegren
-----------------------------
By: Power of Attorney
Karsten Liljegren
Advokat
Bredgade 38
1260 Kobenhavn K
Tlf. 33 47 88 00
Date: 1996-5-2
HemaPharm, Inc.
/s/ Karsten Liljegren
-----------------------------
By: Power of Attorney
Karsten Liljegren
Advokat
Bredgade 38
1260 Kobenhavn K
Tlf. 33 47 88 00
<PAGE>
5
JONAS BRUUN
LAW FIRM
HENNING AASMULOLSEN
ATTORNEY-AT-LAW
BREDGADE 35
DK-1260 COPENHAGEN K
ANNEX TO
SUBLEASE AGREEMENT
for
The Premises
of May 2, 1996 by and between Novo Nordisk A/S, Novo Alle, 2880 Bagsvaerd,
Denmark and HemaPharm Inc., 140 Locke Drive, Marlborough, MA 01752, U.S.A.
All rights and obligations of HemaPharm according to this Sublease Agreement is
hereby transferred to HemaSure A/S, Sauntesvej 13, 2820 Gentofte with effect as
of March 1, 1996, cf. Section 6, second sentence of this Sublease Agreement.
Date: Date:
Novo Nordisk A/S HemaPharm Inc.
/s/ Kurt A. Nielsen /s/ Jesper Oveson /s/ Steven H. Rouhandeh
- ------------------- ----------------- -----------------------
Deputy CEO Vice President of President
Corporate Finance
Date:
HemaSure A/S
/s/ Steven H. Rouhandeh Svenn Poulsen
----------------------- ---------------
Director Managing Director
<PAGE>
Exhibit 10.31
SUBLEASE AGREEMENT
for
The Warehouse
This Agreement is made and entered into by and between:
Novo Nordisk A/S, a corporation duly organized and existing under the laws of
Denmark and having its address at Novo Alle, DK-2800 Bagsvaerd, Denmark
(hereinafter referred to as "Novo Nordisk")
and
HemaPharm Inc., a corporation duly organized and existing under the laws of
Denmark and having its address at 140 Locke Drive, Marlborough, MA 01752, USA
(hereinafter referred to as "HemaPharm").
Novo Nordisk and HemaPharm shall hereafter collectively sometimes be referred to
as the Parties.
WITNESSETH:
WHEREAS Novo Nordisk is the lessee of the Warehouse (as defined in the
Asset Purchase Agreement entered into on May 2, 1996, and
hereafter referred to as "Asset Purchase Agreement") pursuant
to the Lease Agreement (attached hereto as Exhibit A) between
it and Frigoscandia A/S (hereinafter referred to as "Lessor");
WHEREAS Frigoscandia A/S has in a letter dated March 11, 1996
(attached hereto as Exhibit B) consented to Novo Nordisk
subleasing the Warehouse to HemaPharm under this Agreement,
and;
WHEREAS HemaPharm desires to sublease the Warehouse on the terms set
forth in this Agreement.
NOW, THEREFORE, in consideration of the promises and mutual covenants set forth
herein, both Parties agree as follows:
1 ASSUMPTION OF OBLIGATIONS
HemaPharm shall assume all of Novo Nordisk's rights, obligations and
responsibilities under the Lease Agreement, except that Novo Nordisk shall
remain responsible for making monthly rent payments to the Lessor in the amount
agreed with the Lessor.
<PAGE>
2
2 SUBLEASE PAYMENTS
HemaPharm shall, on the first day of each calendar month, pay to Novo Nordisk a
rent equivalent to the average of the appraisals of two independent appraisers,
of which the Parties shall appoint one each. In addition to the rent determined
above HemaPharm shall pay VAT, if applicable.
Rent payments under this Agreement shall be increased on the first day of each
calendar year in proportion to the relative increase in the "Nettoprisindeks"
for the preceding calendar year, except that such increase shall be no less than
three percent (3%) and no more than four percent (4%).
3 SECURITY DEPOSIT
HemaPharm shall, upon determination of the rent, pay to Novo Nordisk an amount
equivalent to three (3) months' rent as security deposit.
4 TERM AND TERMINATION
This Agreement shall become effective on March 1, 1996, and shall remain in full
force and effect until October 1, 2003, the expiration date of the Lease
Agreement.
HemaPharm shall have the right in the event of a Business Shut Down as defined
in the Asset Purchase Agreement, as defined in Section 1.3 (b) of said agreement
to terminate this Agreement until March 31, 1998, without notice.
5 INDEMNIFICATION
HemaPharm Inc. shall indemnify Novo Nordisk against any and all Damages (as
defined in the Asset Purchase Agreement) arising from either HemaPharm's actions
under this Agreement and/or its use (including but not limited to new
installations of fixtures and other leasehold improvements) of the Warehouse,
unless such Damages are the result of Novo Nordisk's negligence or willful
misconduct.
6 ASSIGNMENT OF LEASE AGREEMENT
After March 31, 1998, Novo Nordisk shall be entitled to assign the Lease
Agreement, with the consent of Frigoscandia A/S, and HemaPharm shall accept such
assignment of all rights and
<PAGE>
3
obligations under the Lease Agreement. In addition this Agreement shall be
assignable to each Party's Affiliates as defined in the Asset Purchase
Agreement.
7 CHOICE OF LAW
This Agreement shall be construed and interpreted pursuant to the laws of
Denmark.
8 COUNTERPARTS
This Agreement shall be executed in two (2) counterparts, each one of which
shall be deemed to be the original.
IN WITNESS WHEREOF, the Parties hereto have executed this Sublease Agreement on
the date written below.
Date: 1996-05-02 Date: 1996-5-2
Novo Nordisk A/S HemaPharm A/S
/s/ Ulrik Spork /s/ Karsten Liljegren
- --------------------- -----------------------------
By: Ulrik Spork By: Power of Attorney
Karsten Liljegren
Advokat
Bredgade 38
1260 Kobenhavn K
Tlf. 33 47 88 00
Date: 1996-5-2
HemaPharm, Inc.
/s/ Karsten Liljegren
-----------------------------
By: Power of Attorney
Karsten Liljegren
Advokat
Bredgade 38
1260 Kobenhavn K
Tlf. 33 47 88 00
<PAGE>
4
Date: 1996-5-2
HemaSure, Inc.
/s/ Karsten Liljegren
-----------------------------
By: Power of Attorney
Karsten Liljegren
Advokat
Bredgade 38
1260 Kobenhavn K
Tlf. 33 47 88 00
<PAGE>
5
JONAS BRUUN
LAW FIRM
HENNING AASMULOLSEN
ATTORNEY-AT-LAW
BREDGADE 35
DK-1260 COPENHAGEN K
ANNEX TO
SUBLEASE AGREEMENT
for
The Premises
of May 2, 1996 by and between Novo Nordisk A/S, Novo Alle, 2880 Bagsvaerd,
Denmark and HemaPharm Inc., 140 Locke Drive, Marlborough, MA 01752, U.S.A.
1.
With reference to Section 2(2) of this Sublease Agreement the Parties hereby
agree that the annual rent with effect as of March 1, 1996, shall be DKK
456,200, plus applicable VAT.
2.
All rights and obligations of HemaPharm according to this Sublease Agreement is
hereby transferred to HemaSure A/S, Sauntesvej 13, 2820 Gentofte with effect as
of March 1, 1996, cf. Section 6, second sentence of this Sublease Agreement.
Date: Date:
Novo Nordisk A/S HemaPharm Inc.
/s/ Kurt A. Nielsen /s/ Jesper Oveson /s/ Steven H. Rouhandeh
- ------------------- ----------------- ------------------------
Deputy CEO Vice President of President
Corporate Finance
6
Date:
HemaSure A/S
/s/ Steven H. Rouhandeh /s/ Svenn Poulsen
----------------------- -----------------
Director Managing Director
<PAGE>
Exhibit 11.1
HemaSure Inc.
Statement Re Computation of Earnings Per Share
Year ended December 31,
(In thousands) 1996 1995 1994
---- ---- ----
Weighted average number of
common shares outstanding 8,069 6,205 4,767
Issuance of cheap stock and cheap
stock equivalents (1) - - 91
------ ------ ------
Total weighted average number
of common shares outstanding 8,069 6,205 4,858
====== ====== ======
- --------------------
(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 from January 1, 1994 to the Company's initial public offering
in April 1994, which impact is anti-dilutive to the net loss in 1994.
<PAGE>
Exhibit 21.1
HemaSure Inc.
List of Subsidiaries
--------------------
Jurisdiction of
Name Incorporation/Organization
- ---- --------------------------
HemaPharm Inc. Delaware
HemaSure A/S Denmark
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements of
HemaSure Inc. on Form S-8 (File Nos. 33-79720, 33-79722, 33-94772, 33-94768,
333-05613, and 333-05615) of our report dated February 20, 1997 on our audits of
the financial statements of HemaSure Inc. as of December 31, 1996 and 1995, and
for each of the three years in the period ended December 31, 1996 which report
is incorporated by reference in this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
March 28, 1997
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS OF HEMASURE INC. FOR THE TWELVE MONTHS
ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 5,527
<SECURITIES> 11,369
<RECEIVABLES> 283
<ALLOWANCES> 0
<INVENTORY> 376
<CURRENT-ASSETS> 0
<PP&E> 3,666
<DEPRECIATION> 1,421
<TOTAL-ASSETS> 20,560
<CURRENT-LIABILITIES> 3,419
<BONDS> 0
0
0
<COMMON> 81
<OTHER-SE> 7,848
<TOTAL-LIABILITY-AND-EQUITY> 20,560
<SALES> 779
<TOTAL-REVENUES> 779
<CGS> 3,785
<TOTAL-COSTS> 3,785
<OTHER-EXPENSES> 14,238
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (15,850)
<INCOME-TAX> 0
<INCOME-CONTINUING> (15,850)
<DISCONTINUED> (24,748)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (40,598)
<EPS-PRIMARY> (5.03)
<EPS-DILUTED> 0
</TABLE>
