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, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from .................. to .........................
Commission file number 0-19410
HemaSure Inc.
(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 of each exchange on which registered
None None
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Securities registered pursuant to Section 12(g) of the Act:
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Common Stock, par value $.01 per share
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(Title of class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (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. [X]
The aggregate market value of voting stock held by non-affiliates of the
registrant was $13,316,925 on January 31, 1999.
Number of shares outstanding of the registrant's class of common stock as of
January 31, 1999: 9,087,737.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement for 1999 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 and capital resources. 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 THIS 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 technologies to
develop products to increase the safety of donated blood and to improve certain
blood transfusion and collection procedures. The Company is developing the
following products for use by blood centers, hospital blood banks and hospitals:
Red Cell Leukoreduction Systems
o The "r\LS System"--A dockable red cell leukoreduction
system designed for use by blood centers and hospital blood
banks to remove harmful leukocytes (white blood cells) from
donated red blood cells.
o In-Line RBC Filtersets--The Company is in discussions with
manufacturers of blood bag systems to develop and
commercialize in-line leukocyte reduction systems for red
blood cells. In these systems, the filter and receiving
bags are integrated with the collection bag and therefore
require no sterile docking. Currently, the Company is
evaluating different product design options, and is
discussing potential agreements covering supply and
manufacturing arrangements.
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 units 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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The Company expects that the market for leukoreduced blood should
continue to expand over the next two to five years to near 100% of the total
blood supply from the current 20%. This is due to commitments of approximately 8
international countries to universal leukoreduction of blood components, and
committees to the FDA and the American Association of Blood Banks recommending
universal leukoreduction of the United States blood supply. In addition, the
Company believes that operational costs and patient medical benefits of
pre-storage leukoreduction at blood donor centers will prove to be more
beneficial than bedside filtration. This is the primary reason that the Company
has targeted blood donor centers rather than hospitals as its focus market.
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 and other agents, including
cytomegalovirus, new variant CJD 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.
Products and Products Under Development
Red Blood Cell Systems
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r\LS System
The Company's r\LS System has been designed for leukocyte filtration
by blood centers and hospital blood banks 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 a
significant amount of leukocyte filtration currently takes place at the patient
bedside, as the demand for filtered blood increases, leukocyte removal will all
be done through centralized filtration performed at blood centers.
The r\LS 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 high
volume, centralized processing in a blood center environment. The Company is
focusing its marketing efforts exclusively on blood centers and hospital blood
banks for pre-storage leukocyte reduction.
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The Company filed an application for 510(K) premarket notification
clearance with respect to its r\LS System with the United States Food and Drug
Administration (the "FDA") in May 1998. The Company commenced commercialization
of the r\LS System in foreign countries in the first quarter of 1999. While the
Company anticipates FDA approval of the application prior to the end of June,
1999, there can be no assurance that the r\LS System will receive the necessary
regulatory approval or achieve market acceptance.
While the Company believes that the performance and ease-of-use of
the r\LS System will compare favorably with other blood filtration devices,
there can be no assurance that the performance or price of the r\LS System will
be sufficient to achieve significant sales, particularly in view of the dominant
position in the market held by Pall Corporation. See "-- Competition."
In-Line RBC Filtersets
The Company is in discussions with manufacturers of blood bag systems
to develop and commercialize in-line leukocyte reduction systems for red blood
cells. In these systems, the filter and receiving bags are integrated with the
collection bag and therefore require no sterile docking. Currently, the Company
is evaluating different product design options, and is discussing potential
agreements covering supply and manufacturing arrangements.
LeukoNet System
In December 1994, the Company filed a 510(k) premarket notification
clearance with the FDA for the LeukoNet Pre-Storage Leukoreduction System (the
"LeukoNet System"), the Company's first generation leukoreduction 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. Sales of the Company's LeukoNet System to
the American Red Cross Biomedical Services accounted for 86% of the Company's
total revenues in 1997 and 83% of the Company's total revenues in 1996. In
February 1998, the Company determined to discontinue manufacturing the LeukoNet
System and focus on the completion of development and market introduction of the
r\LS System.
Regulatory Approval
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The Company believes that its r\LS system will be classified as a
Class II medical device and that it will be able to secure regulatory approval
in the United States through a 510(k) premarket notification clearance with the
FDA. The Company believes that the in-line red blood cell system will be
classified as a drug by the FDA and that the marketing of these products will
require preclinical and clinical testing and FDA approval of a New Drug
Application or Product License Application. The Company intends to file a
Investigational New Drug Application ("IND") with the United States Food and
Drug Administration (the "FDA") for this System in 2000. 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."
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Source and Availability of Raw Materials
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The Company acquires each of the main components of their product
from separate single suppliers. However, given that there are multiple sources
available to the Company for each such component, and based upon the Company's
ongoing relationship with each such supplier, the Company does not believe that
the loss of any of their current supply channels would result in a material
adverse affect on the Company's business or its results of operations.
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
were attributable to sales of these non- blood related membrane filter products.
Revenues from these products were $13,000 in 1996.
In 1996 sales to Sepracor with respect to membrane products accounted
for 2% of the Company's total revenues. Revenues from the United States
Department of the Army related to such products represented 7% of the Company's
revenues in 1996. The Company's agreement with the United States Department of
the Army concluded in 1996.
Technologies
The Company's planned products are based on its proprietary
technologies in the areas of affinity separations, membrane technology and
device design and fabrication.
Affinity Separations
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.
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 molecular weight substances, such as salts, nutrients and
anti-viral chemicals. See "-- Relationship with Sepracor."
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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 its
proprietary media in other applications such as the removal of tumor cells from
peripheral stem cell preparations and in whole blood leukoreduction.
Research and Development Expenses
Research and development expenses were $3,794,000 in 1998, $3,577,000
in 1997 and $6,128,000 in 1996. The decrease in 1997 from the amounts expended
in 1996 is primarily attributable to a decrease in expenses associated with the
Company's SteriPath Blood Pathogen Inactivation System, which program was
discontinued in 1997.
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
processed 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. 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 its determination to exit the plasma business.
Agreements
In September 1998, the Company completed a $5 million revolving line
of credit arrangement with a commercial bank. As of December 31, 1998, the
entire $5 million was outstanding under the line. The revolving line of credit,
which expires in August 2000, is being used to help finance the Company's
working capital requirements and for general corporate purposes. Amounts
borrowed under the line bear interest at the bank's prime lending rate plus 1/2%
payable quarterly in arrears. The weighted average borrowing rate for the period
ended December 31, 1998 was 8.25%. For the period ended December 31,
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1998, the Company recorded interest expense related to borrowings under the line
of $93,000. The credit agreement requires that the Company demonstrate Year 2000
compliance by March 31, 1999 and contains other customary covenants and
provisions. The bank has a first lien on all assets of the Company, including
its intellectual property.
Sepracor, the Company's largest shareholder has guaranteed to repay
amounts borrowed under the line of credit. In exchange for the guarantee, the
Company granted to Sepracor warrants to purchase up to 1,700,000 shares of the
Company's common stock at a price of $0.69 per share. The warrants will expire
in the year 2003 and have certain registration rights associated with them.
HemaSure has placed a value of $1,938,000 on the 1,700,000 warrants as of the
date of the final agreement and is amortizing this deferred financing charge on
a monthly basis over the term of the line of credit. For the period ended
December 31, 1998, the Company amortized $189,000 of this deferred finance
charge and recorded it as interest expense in the Statement of Operations.
In March 1999, Sepracor purchased an additional 1,333,334 shares of
common stock of the Company for $1.50 per share and in connection therewith
received warrants to purchase an additional 667,000 shares at a price of $1.50
per share and certain registration rights in respect of such acquired
securities.
In 1998, the Company completed a distribution and development
agreement with COBE BCT, a business unit of Gambro AB, to market and sell its
products worldwide, except for in the United States and China. COBE BCT markets
and sells blood component apheresis equipment to the blood center market. COBE's
initial focus for marketing and selling the Company's products will be Europe,
which is moving rapidly to universal leukoreduction of blood components. The
agreement with COBE BCT contemplates the development of an OEM filter for use
with COBE's Trima apheresis equipment.
In August 1998, the Company completed an amended and restated 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 enhancement of a number of filtration
practices based on the Company's core technology including red blood cell
leukoreduction, leukocyte recovery, platelet filtration, whole blood filtration
and tumor cell filtration. 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.
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: (i) $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; (ii) approximately $13,000,000 was to be payable from time to time upon
the 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; and (iii) 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 would 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
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promissory note in the principal amount of approximately $11,722,000, which was
due and payable on December 31, 2001 (the "Note"), with interest payable
quarterly (provided that up to approximately $3,000,000 would be forgiven in
certain circumstances). Approximately $8,500,000 of the reduction of such
indebtedness was forgiven. The remainder of the reduction represented a net
amount due from Novo Nordisk to the Company related to various service
arrangements between the two companies. On January 6, 1998, the Company elected
to convert all indebtedness under the Note, pursuant to the terms thereof, into
shares of Common Stock of the Company at a conversion price equal to $10.50 per
share, or 827,375 shares. Pursuant to a registration rights agreement, the
Company previously granted Novo Nordisk certain registration rights with respect
to any shares of Common Stock acquired by Novo Nordisk upon conversion of the
Note. Novo Nordisk has contested the conversion of the Note, including the
forgiveness of the $3,000,000 amount. The Company believes such claims are
without merit.
Competition
The Company expects to encounter significant competition in the sale
of its proposed products. The Company's proposed products, if commercialized,
will compete with other products currently on the market as well as with future
products developed by other medical device companies' biotechnology and
pharmaceutical companies, hospital supply companies, national 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 are significantly larger
than the Company, have greater experience in preclinical testing, human clinical
trials and other regulatory approval procedures. In addition, many of the
Company's competitors have access to greater capital and other resources, may
have management personnel with more experience than that of the Company and may
have other advantages over the Company in conducting certain businesses and
providing certain services. 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. There can be no assurance that the
Company will be able to compete effectively against such companies.
Presently there are approximately 7-9 competitors in the
leukoreduction filter market. The market leader is Pall Corporation ("Pall")
with approximately a 60% share. Pall offers products to all product/market
segments, with an emphasis in the bedside leukoreduction market. Baxter
International ("Baxter"), with approximately a 25% share, also plays a
significant role in all product/market segments. The remaining 15% of the market
is shared by the other 5-7 competitors. The Company believes that the
competitive landscape for the leukoreduction market will level off as the market
moves toward 100% leukoreduction and market participants with smaller market
shares realize greater market penetration. Some of these competitors have
long-standing and, in certain cases, exclusive, relationships, including
long-term supply contracts, with the blood centers that are the Company's target
customers. The Company expects that the principal competitive factors in the
area of leukocyte removal will be removal efficiency, cost and ease of use.
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The Company is pursuing areas of product development in a rapidly
growing field in which there is a potential for 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. 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 entered into a Technology Transfer and License Agreement
with Sepracor under which Sepracor 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.
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 18 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, 11 patents have been issued to the Company (which expire
at various dates from 2011 through 2015).
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. See Item 3, "Legal Proceedings." 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,
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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. See Item 3, "Legal
Proceedings."
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.
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 its r/LS System will be classified as a device and
that its In-Line RBC Filtersets will be classified as a drug 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 choosing qualified
suppliers, 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.
The Company believes that its r/LS System will be classified as a
medical device. All medical devices introduced to the market since 1976 are
required by the FDA, as a condition of marketing in the United States, 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 12 months
for blood filtration devices, 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
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has sought 510(k) premarket notification clearance for its r/LS System. There
can be no assurance that the FDA will conclude that the r\LS System will meet
the requirements for 510(k) premarket notification clearance.
The Company believes that its In-line RBC Filtersets will be
classified by the FDA as a drug for regulatory purposes. The Company must
satisfactorily complete or perform the following requirements and procedures
before the Company's products classified as a drug 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 IND for
human clinical testing, (3) adequate and well controlled human clinical trials
to prove the safety and effectiveness of the drug, (4) the submission of a New
Drug Application ("NDA"), and (5) the approval by the FDA of the NDA. This
approval process typically lasts at least several years.
Typically, clinical trials involve three phases of testing. In Phase
I, clinical trials are conducted with a small number of subjects to determine a
safety profile. In Phase II, clinical trials are conducted with a larger group
of patients to determine preliminary efficacy, optimal configuration and
expanded evidence of safety. In Phase III, large scale, multicenter, comparative
clinical trials are conducted to provide enough data for the statistical proof
of efficacy and safety required by the FDA.
Manufacturing and Facilities
The Company's facilities consist of approximately 30,000 square feet
of leased office, laboratory and manufacturing space in a modern facility in
Marlborough, Massachusetts. The Company believes that these facilities are
adequate and suitable for its needs through 1999. 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 1999. The facility is designed to conform to cGMP and
other applicable government standards. The Company is currently considering
several alternatives to accommodate anticipated growing production capacity
requirements. The Company's facility will be subject to inspections by the FDA
and foreign regulatory authorities on an ongoing basis and possibly in
connection with the review of new products.
In January 1998, the Company received ISO 9001 Registration and CE
mark EN46001 Certification, which was awarded by Bureau Veritas Quality
International. The ISO 9000 and EN46000 Series of international standards was
developed by the International Organization for Standardization to promote
homogeneous quality processes through the global trade community. ISO 9001
specifically addresses requirements for the manufacture, design, development,
installation and service of products and CE EN46001 addresses the requirements
to market medical devices in the European Union.
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.
816623.6
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<PAGE>
Employees
As of March 1, 1999, the Company employed a total of 44 persons of
whom 17 were in research and development, 13 were in manufacturing and
development support and 14 were in sales and administration. Three of the
Company's employees hold Ph.D. degrees.
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. As of March 31, 1999, Sepracor owned 42%
of the Company's Common Stock. As of the date hereof, two executive officers of
Sepracor serve as directors of the Company.
In September 1998, the Company completed a $5 million revolving line
of credit arrangement with a commercial bank. Sepracor has guaranteed to repay
amounts borrowed under the line of credit. In exchange for the guarantee, the
Company granted to Sepracor warrants to purchase up to 1,700,000 shares of the
Company's common stock at a price of $0.69 per share. The warrants will expire
in the year 2003 and have certain registration rights associated with them.
In March 1999, Sepracor purchased an additional 1,333,334 shares of
common stock of the Company for $1.50 per share and received warrants to
purchase an additional 667,000 shares at a price of $1.50 per share.
Sepracor is entitled to certain rights with respect to the
registration under the Securities Act of 1933, as amended, of a total of
6,700,334 shares of Common Stock, including shares of Common stock issuable upon
exercise of outstanding warrants. These rights provide that Sepracor may require
the Company to register shares subject to certain conditions and limitations.
Sepracor is engaged in the business of using chiral chemistry to
develop single-isomer forms of existing, widely sold pharmaceuticals.
Any 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 30,000 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). The Company believes that these
facilities are adequate and suitable for its needs through 1999. See Item 1.
"Business -- Manufacturing and Facilities."
816623.6
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<PAGE>
Item 3. LEGAL PROCEEDINGS
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
United States Patent No. 5,451,321 (the "'321 Patent"), the Company filed a
motion for summary judgment of noninfringement. Pall filed a cross motion for
summary judgment of infringement at the same time.
In October 1997, the Eastern District of New York granted in part
Pall's summary judgment motion and held that the LeukoNet product infringes a
single claim from the '321 Patent. The Company has terminated the manufacture,
use, sale and offer for sale of the filter that is the subject to the court's
order. The Company has appealed the October 1997 decision to the Court of
Appeals for the Federal Circuit. Oral arguments were heard in February 1999. The
Company now awaits a decision from the Federal Circuit. Remaining discovery
relating to the damages phase of the first action has been completed.
With respect to the second action concerning United States Patent No.
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. Pall has amended its
Complaint to add Lydall, Inc., whose subsidiary supplied filter media for the
LeukoNet product, as a co-defendant. The Company has filed for summary judgment
of non-infringement, and Pall has cross-filed for summary judgement of
infringement at the same time. Lydall supported the Company's motion for summary
judgment of non-infringement, and has served a motion for summary judgment that
the asserted claims of the `572 patent are invalid as a matter of law. Discovery
has been completed in the action.
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 LeukoNet product does not infringe any valid
enforceable claim of the two 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 financial condition and 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 P&U. In its complaint, the
Company sought 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. In September 1997, the Company reached an out-of-court
settlement with P&U. The terms of settlement included a cash payment to the
Company and the granting of an option to P&U to license, on a non-exclusive
basis, certain intellectual property held by the Company and its subsidiaries
relating to plasma fractionation. The cash payment was recognized as other
income in 1997.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders of the
Company, through solicitation of proxies or otherwise, during the last quarter
of the year ended December 31, 1998.
816623.6
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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> <C>
John F. McGuire..................................... 52 President, Chief Executive Officer and Director
James B. Murphy..................................... 42 Senior Vice President, Finance and Administration
Peter Sutcliffe ............................... 49 Vice President and Chief Operating Officer
</TABLE>
John F. McGuire has served as Chief Executive Officer and a director
of the Company since April 1997. Prior to that time, Mr. McGuire served as Vice
President and General Manager of Johnson & Johnson's ("J&J") Ortho Diagnostic
Systems Blood Bank Business Unit since January 1996. From March 1995 to January
1996, Mr. McGuire held the position of Vice President, Sales & Marketing, North
America for J&J. From August 1990 to March 1995, Mr. McGuire served as Managing
Director of Ortho Diagnostic Systems, U.K. and Belgium for J&J. From September
1988 to August 1990, Mr. McGuire held the position of Marketing Director for the
AIDS and Hepatitis Business Unit of J&J. From 1977 to 1988, Mr. McGuire held
various management positions at E.I. DuPont De Nemours & Company, the last of
which was National Sales Manager, AIDS & Hepatitis Business. Mr. McGuire is a
member of the Board of Trustees of the National Blood Foundation Trust Fund and
of the Bergen Community Blood Center.
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 BBN Inc. and
Senior Accountant at Arthur Andersen LLP.
Mr. Sutcliffe has served as Chief Operating Officer of the Company
since April 3, 1998. From May 1996 until that time, Mr. Sutcliffe served as Vice
President of Manufacturing Operations of the Company. From May 1982 until May
1996, Mr. Sutcliffe held the position of Vice President Manufacturing for Cornig
Costar Incorporated. From 1976 until 1982, he was a plant manufacturing manager
at Millipore Corporation.
816623.6
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<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 OTC bulletin board under the symbol HMSR since January 14, 1998. From
October 28, 1997 until January 13, 1998, the Common Stock was included for
quotation on The Nasdaq SmallCap Market under the symbol HMSRC. Prior to October
28, 1997 and since April 7, 1994, the Common Stock of the Company was included
for quotation on the Nasdaq National Market under the symbol HMSR. 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 included for quotation on the
Nasdaq National Market or The Nasdaq SmallCap Market, as the case may be.
1998 High Low
---- ---- ---
First Quarter 2 3/16 3/8
Second Quarter 2 1/16 7/16
Third Quarter 2 15/32 1 3/16
Fourth Quarter 2 15/16 7/8
1997 High Low
---- ---- ---
First Quarter 8 3 3/4
Second Quarter 4 1/16 1 9/16
Third Quarter 4 5/8 2 1/4
Fourth Quarter 4 1/4 11/16
(b) Holders.
On March 12, 1999, the Company's Common Stock was held by
approximately 140 stockholders of record. On March 12, 1999, the last reported
sale price of the Company's Common Stock on the OTC bulletin board was $1 9/16.
(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.
816623.6
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<PAGE>
(d) Sales of Securities.
In each case, the securities were issued to Sepracor pursuant to an
exemption from the registration requirements of the Securities Act under Section
4 (2).
Sepracor, the Company's largest shareholder has guaranteed to repay
amounts borrowed under the Company line of credit. In exchange for the
guarantee, the Company granted to Sepracor warrants to purchase up to 1,700,000
shares of the Company's common stock at a price of $0.69 per share. The warrants
will expire in the year 2003 and have certain registration rights associated
with them. HemaSure has placed a value of $1,938,000 on the 1,700,000 warrants
as of the date of the final agreement. In March 1999, Sepracor purchased an
additional 1,333,334 shares of common stock of the Company for $1.50 per share
and in connection therewith received warrants to purchase an additional 667,000
shares at a price of $1.50 per share and certain registration rights in respect
of such acquired securities.
Item 6. SELECTED FINANCIAL DATA
STATEMENT OF OPERATIONS DATA
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31, 1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Revenues:
<S> <C> <C> <C> <C> <C>
Product sales $ 25 $ 2,357 $ 725 $ 534 $ 339
Collaborative research and development - - 54 300 50
----------- ----------- -------- -------- --------
Total revenues 25 2,357 779 834 389
---------- -------- ------- -------- --------
Costs and expenses:
Cost of products sold 657 4,158 3,785 1,073 353
Cost of collaborative research and
development - - 41 283 32
Research and development 3,794 3,577 6,128 4,061 3,249
Legal expense related to patents 3,340 506 744 152 134
Selling, general and administrative 4,201 4,458 7,325 3,729 1,450
Restructuring charge - 1,215 - - -
----------- -------- --------- ----------- ------
Total costs and expenses 11,992 13,914 18,023 9,298 5,218
-------- -------- ------- -------- -------
Loss from operations (11,967) (11,557) (17,244) (8,464) (4,829)
Other (expense) income (203) 1,673 1,394 1,014 424
---------- -------- --------- --------- --------
Net loss from continuing operations (12,170) (9,884) (15,850) (7,450) (4,405)
--------- --------- --------- --------- --------
Discontinued operations:
Loss from operations of discontinued business - - (9,550) - -
Loss on disposal of discontinued business - - (15,198) - -
----------- ----------- -------- ---------- ------
Net loss $ (12,170) $ (9,884) $(40,598) $(7,450) $(4,405)
---------- ---------- --------- -------- --------
Net loss per common share - basic and diluted:
Net loss from continuing operations $ (1.35) $ (1.22) $ (1.96) $(1.20) $(0.92)
Loss from operations of discontinued business - - (1.18) - -
Loss on disposal of discontinued business - - (1.88) - -
------------ ------------ -------- ----------- -------
Net loss $ (1.35) $ (1.22) $ (5.03) $ (1.20) $ (0.92)
----------- ----------- -------- -------- --------
816623.6
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<PAGE>
Weighted average number of shares of common
stock outstanding - basic and diluted: 9,025 8,127 8,069 6,205 4,767
---------- ---------- -------- -------- --------
BALANCE SHEET DATA
(In thousands)
Cash and marketable securities $ 1,827 $ 8,156 $16,724 $47,841 $11,704
Working capital 37 6,071 14,844 46,905 11,261
Total assets 5,655 10,607 20,560 50,212 13,048
Capital lease obligations long term 68 289 525 286 52
Convertible subordinated note payable long term - 8,687 8,687 - -
Stockholders' equity (deficit) (2,832) (1,467) 7,929 48,002 11,949
</TABLE>
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 Inc. ("Sepracor"). Effective as of January 1, 1994, in
exchange for 3,000,000 shares of common stock, $.01 par value, of the Company
(the "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. As of March 31, 1999, Sepracor owned
approximately 42% 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 in 1996. In June 1995, the
Company received clearance from the United States Food and Drug Administration
(the "FDA") for the LeukoNet System, a medical device designed for the removal
of contaminating leukocytes from donated blood. Fiscal 1996 was the first full
year of commercial sale of its LeukoNet System. In February 1998, the Company
determined to discontinue manufacturing the LeukoNet System and focus on the
completion of development and market introduction of its next-generation red
cell filtration product. All 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 and its ability to
raise capital through strategic partnerships, public or private equity and/or
debt financing.
In May 1996, the Company acquired (the "Denmark Acquisition") the
plasma product unit of Novo Nordisk A/S, a Danish company ("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 February 1997, the Company determined to discontinue the
816623.6
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<PAGE>
development and operation of its Danish plasma business due in large part 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."
Results of Continuing Operations
Revenues were $25,000 in 1998, $2,357,000 in 1997 and $779,000 in
1996. All of the Company's revenues in 1998 and 1997 were from the sale of the
LeukoNet System. The decrease in fiscal 1998 revenues from those recorded in
fiscal 1997 is related to the Company's decision to discontinue the manufacture
and sale of its LeukoNet System. Revenues from product sales to Sepracor, a
related party, as a percentage of total revenues were 2% in 1996 and represent
the sale of membrane filter products. Product sales to Sepracor were recorded at
prices based on a pricing agreement between the Company and Sepracor. Revenues
in 1996 include $54,000 related to the Company's Phase II SBIR program with the
United States Department of the Army. In 1998, 1997 and 1996 one customer
represented 53%, 86% and 83% of total revenues, respectively. Also in 1998, one
other customer represented 10% of total revenues.
The cost of products sold was $657,000 in 1998, $4,158,000 in 1997
and $3,785,000 in 1996. Cost of products sold exceeded product sales in all
periods due to the high costs associated with low volume production and to the
start-up costs of new product introduction, particularly in 1996, the first full
year of production of its LeukoNet System. Cost of products sold in 1997
includes a charge of approximately $800,000 related to the Company's
determination to discontinue manufacturing the LeukoNet System and to focus
exclusively on its next-generation red cell filter.
The cost of collaborative research and development was $41,000 in
1996. The Company completed its obligations under Phase II of an SBIR program
with the Department of the Army in the first quarter of 1996.
Research and development expenses were $3,794,000 in 1998, $3,577,000
in 1997 and $6,128,000 in 1996. The increase in 1998 over amounts expended in
1997 is attributable to costs associated with development of the Company's next
generation red cell filter system, the r\LS system. The decrease in 1997 from
1996 is primarily attributable to a decrease in expenses associated with the
Company's SteriPath Blood Pathogen Inactivation System which program was
discontinued in May 1997.
Legal expense related to patents were $3,340,000 in 1998, $506,000 in
1997 and $744,000 in 1996. The increase in 1998 as compared to all previous
periods is due to costs associated with defending the Company's patent position
in its outstanding litigation with Pall. In 1998 the Company incurred
significant expenses in connection with expert witness and discovery related
activities associated with its outstanding litigation with Pall. The Company
does not expect to continue to incur such costs at the same rate during 1999,
however there can be no assurance that such costs will not continue at the same
rate as that experienced in 1998. See "--Litigation."
Selling, general and administrative expenses were $4,201,000 in 1998,
$4,458,000 in 1997 and $7,325,000 in 1996. The decrease in the amount expended
in 1998 from 1997 is primarily due to a lower level of sales and marketing
expense associated with the lower revenues in 1998 compared to 1997. The 1996
expense 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
816623.6
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<PAGE>
in connection with the Company's efforts to acquire P&U's plasma business. See
"--Discontinued Business." These costs did not recur in 1997 and are the primary
reason for the decrease in 1997 from 1996. Sales and marketing costs may
increase in future periods from current levels as the Company continues its
efforts to market and launch sales of its blood filtration products.
In April 1997, the Company determined to focus management resources
on its core business of blood filtration technologies. In connection therewith,
the Company incurred a one-time restructuring charge of $1,215,000 in 1997 for
severance and related charges in connection with executive management
departures. At December 31, 1998 all amounts related to this charge were paid.
Interest income in 1998, 1997 and 1996 primarily represents interest
earned on available cash and marketable securities balances during those
periods.
The decrease in interest expense in 1998 compared to 1997 is
primarily related to a convertible subordinated note payable which was converted
to common stock in 1998 and lower average capital lease obligation balances. The
increase in interest expense in 1997 compared to 1996 is primarily attributable
to the convertible subordinated note payable that was not in existence during
1996.
In September 1997, the Company reached an out-of-court settlement
with P&U 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
terms of settlement included a cash payment to the Company and the granting of
an option to P&U to license, on a non-exclusive basis, certain intellectual
property held by the Company and its subsidiaries relating to plasma
fractionation. The cash payment was recognized as other income in 1997 and
represents the majority of the amount in other income for that year.
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.
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 was due and payable on December 31, 2001, with
interest payable quarterly (provided that up to $3,000,000 would be forgiven in
certain circumstances). Approximately $8,500,000 of the reduction of such
indebtedness was forgiven. The remainder of the reduction represented a net
amount
816623.6
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<PAGE>
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 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 reflected
management's assessment of the most probable outcome from this decision, is net
of the $8,500,000 forgiveness of indebtedness and assumed the $3,000,000
forgiveness contingency. In December 1997, the Company's Danish subsidiary was
placed in bankruptcy and the Company notified the holder of the note of its
intent to convert, in January 1998, $8,687,000 of debt, which it believes was
the entire amount outstanding as of the date of conversion. On January 6, 1998,
the Company converted the note, pursuant to its terms, into shares of Common
Stock at a conversion price of $10.50 per share, or 827,375 shares. The holder
of the note has contested the conversion of the note, including the forgiveness
of the $3,000,000 amount. The Company believes that such claims are without
merit.
New Accounting Standards
In 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" (SFAS 130). SFAS 130
requires the reporting and display, in a full set of general purpose financial
statements, of all items that are required to be recognized under accounting
standards as components of comprehensive income. This statement establishes
rules for the reporting of comprehensive income and its components.
Comprehensive income consists of net income and changes in unrealized gains and
losses on marketable securities, net of reclassification adjustments for gains
and losses realized in income from the sale of securities. For all periods
presented, net income and comprehensive income are the same due to the
realization of all previously unrealized gains and losses in the statement of
operations.
In February 1998, the Financial Accounting Standards Board issued
Statement of Financial Account Standards No. 132 (SFAS 132), "Employees'
Disclosure about Pension and Other Post retirement Benefits." SFAS 132
standardizes the disclosure requirements for pension and post retirement
benefits, and is effective for the Company's fiscal year ending December 31,
1999. SFAS 132 relates to disclosure only and will not affect the Company's
financial position or results of operations.
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133 (SFAS 133), "Accounting for
Derivative Instruments and Hedging Activities." This statement establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. The statement requires companies to
recognize all derivatives as either assets or liabilities, with the instruments
measured at fair value. The accounting for changes in fair value, gains or
losses depends on the intended use of the derivative and its resulting
designation. The statement is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. The Company will adopt SFAS 133 on January 1,
2000, but does not expect such adoption to have a material impact on its
financial statements.
816623.6
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<PAGE>
In February 1998, The Accounting Standards Executive Committee
("AcSEC"), issued Statement of Position ("SoP") 98-1, "Accounting for Costs of
Computer Software Developed or Obtained for Internal Use." SoP 98-1 establishes
the accounting for costs of software products developed or purchased for
internal use, including when such costs should be capitalized. The Company does
not expect SoP 98-1, which is effective for the Company beginning January 1,
1999, to have a material effect on its financial position or results from
operations.
In April 1998, the AcSEC issued SoP 98-5, "Reporting on the Costs of
Start-Up Activities." Start-up activities are defined broadly as those one-time
activities related to opening a new facility, introducing a new product or
service, conducting business in a new territory, conducting business with a new
class of customer, commencing some new operation or organizing a new entity.
Under SoP 98-5, the cost of start-up activities should be expensed as incurred.
SoP 98-5 is effective for the Company beginning January 1, 1999 and the Company
does not expect its adoption to have a material effect on its financial position
or results of operations.
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
the '321 Patent, the Company filed a motion for summary judgment of
noninfringement. Pall filed a cross motion for summary judgment of infringement
at the same time.
In October 1997, the Eastern District of New York granted in part
Pall's summary judgment motion and held that the LeukoNet product infringes a
single claim from the '321 Patent. The Company has terminated the manufacture,
use, sale and offer for sale of the filter subject to the court's order. The
Company has appealed the October 1997 decision to the Court of Appeals for the
Federal Circuit. Oral arguments were heard in February 1999. The Company now
awaits a decision from the Federal Circuit. Remaining discovery relating to the
damages phase of the first action has been completed.
With respect to the second action concerning 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.
Pall has amended its Complaint to add Lydall, Inc. whose subsidiary supplied
filter media for the LeukoNet product, as a co-defendant. The Company has filed
for summary judgment of non-infringement, and Pall has cross-filed for summary
judgement of infringement at the same time. Lydall supported the Company's
motion for summary judgment of non-infringement, and has served a motion for
summary judgment that the asserted claims of the 1572 patent are invalid as a
matter of law. Discovery has been completed in the action.
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 LeukoNet product does not infringe any valid
enforceable claim of the two 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
816623.6
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<PAGE>
infringement action would have a material adverse effect on the Company's
financial condition and 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 P&U. In its complaint, the
Company sought 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. In September 1997, the Company reached an out-of-court
settlement with P&U. The terms of settlement included a cash payment to the
Company and the granting of an option to P&U to license, on a non-exclusive
basis, certain intellectual property held by the Company and its subsidiaries
relating to plasma fractionation. The cash payment was recognized as other
income in 1997.
Liquidity and Capital Resources
The net increase in cash and cash equivalents in 1998 was $553,000.
This net increase is attributable to net cash provided by investing activities
of $6,441,000 and cash provided by financing activities of $4,821,000 offset in
part by net cash used in operating activities of $10,709,000.
Net cash provided by investing activities relates to net
available-for-sale marketable securities investing activities of $6,862,000
offset in part by additions to property and equipment of $422,000. Net cash
provided by financing activities relates to borrowings from note payable
arrangements of $5,000,000 offset in part by repayments of capital lease
obligations of $260,000. Net cash used in operating activities is primarily
attributable to the net loss of $12,170,000, and a reduction in accrued expenses
of $297,000 offset in part by non-cash charges to operating activities of
$189,000 related to warrant financing costs and depreciation and amortization of
$479,000, a decrease in accounts receivable of $436,000 and an increase in
accounts payable of $726,000.
In March 1999, Sepracor purchased an additional 1,333,334 shares in a
private placement of Common Stock of the Company for $1.50 per share and
received warrants to purchase an additional 667,000 shares at a price of $1.50
per share. The financing agreement contains certain registration rights and
warrant exercise provisions.
The Company believes, based on its current operating plan, that the
financing provided by Sepracor in March 1999 will be sufficient to fund the
Company's operations for approximately two months from the date of funding. The
Company will need additional financing in order to fund the Company's operations
beyond this two month period and is currently seeking such financing. Possible
sources of capital include strategic partnerships, public or private equity
and/or debt financing, all of which the Company is pursuing. No assurance can be
given, however, that the Company will be able to obtain additional financing on
terms acceptable to the Company, if at all. Should the Company fail to obtain
any such financing, or to obtain such financing on terms favorable to the
Company, the Company may be unable to continue or complete the development of
its proposed products and/or market such products successfully, or to continue
its current operations as presently conducted, if at all. 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.
In September 1998, the Company completed a $5 million revolving line
of credit arrangement with a commercial bank. As of December 31, 1998, the
entire $5 million was outstanding under the line. The
816623.6
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<PAGE>
revolving line of credit, which expires in August 2000, is being used to help
finance the Company's working capital requirements and for general corporate
purposes. Amounts borrowed under the line bear interest at the bank's prime
lending rate plus 1/2% payable quarterly in arrears. The weighted average
borrowing rate for the period ended December 31, 1998 was 8.25%. For the period
ended December 31, 1998, the Company recorded interest expense related to
borrowings under the line of $93,000. The credit agreement requires that the
Company demonstrate Year 2000 compliance by March 31, 1999 and contains other
customary covenants and provisions. The bank has a first lien on all assets of
the Company including its intellectual property.
Sepracor, the Company's largest shareholder has guaranteed to repay
amounts borrowed under the line of credit. In exchange for the guarantee, the
Company granted to Sepracor warrants to purchase up to 1,700,000 shares of the
Company's common stock at a price of $0.69 per share. The warrants will expire
in the year 2003 and have certain registration rights associated with them.
HemaSure has placed a value of $1,938,000 on the 1,700,000 warrants as of the
date of the final agreement and is amortizing this deferred financing charge on
a monthly basis over the term of the line of credit. For the period ended
December 31, 1998 the Company amortized $189,000 of this deferred finance charge
and recorded it as interest expense in the Statement of Operations.
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 was
due and payable on December 31, 2001, with interest payable quarterly (provided
that up to approximately $3,000,000 would 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 represented 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, 1997 and 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 were convertible by either
party, commencing January 1998, into shares of Common Stock at a conversion
price equal to $10.50 per share. In December 1997, the Company's Danish
subsidiary was placed in bankruptcy and the Company notified the holder of the
note of its intent to convert in January 1998, $8,687,000 of debt, which it
believes was the entire amount outstanding as of the date of conversion. On
January 6, 1998, the Company converted the note, pursuant to its terms, into
shares of Common Stock at a conversion price of $10.50 per share, or 827,375
shares. The holder of the note has contested the conversion of the note,
including the forgiveness of the $3,000,000 amount. The Company believes that
such claims are without merit.
In March 1997, the Company exercised its right, under the lease
arrangement of its Marlborough, Massachusetts facility, to have a portion of its
leasehold improvements financed and received $140,000 in connection with this
arrangement. This amount will be repaid in 60 equal monthly installments at a
rate of 12% per annum. As of December 31, 1998, there was a balance of $100,000
remaining to be paid on this note.
816623.6
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<PAGE>
In April 1997, the Company determined to focus management resources
on its core business of blood filtration technologies. In connection therewith,
the Company incurred a one-time restructuring charge of $1,215,000 in 1997 for
severance and related charges in connection with executive management
departures. At December 31, 1998 all amounts related to this charge were paid.
In 1994, in collaboration with Sepracor and certain of its other
subsidiaries, the Company executed an equipment leasing arrangement that
provided for a total of $2,000,000 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 the Company only with the same leasing
company providing $1,100,000 of equipment lease financing. This arrangement
terminated in March 1997. All amounts outstanding under the 1994 leasing
facility are being repaid under the original terms of that leasing arrangement.
There was $296,000 outstanding under all leasing arrangements as of December 31,
1998.
Future Operating Results
Certain of the information contained in this Annual Report, including
information with respect to 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:
The Company believes that the performance of its blood-related
products will be competitive with products sold by other vendors of blood
filtration and transfusion products and may encounter significant competition in
the sale of such products from biotechnology, pharmaceutical and hospital supply
companies. 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 are significantly larger than the
Company, have greater experience in preclinical testing, human clinical trials
and other regulatory approval procedures. In addition, many of the Company's
competitors have access to greater capital and other resources, may have
management personnel with more experience than that of the Company and may have
other advantages over the Company in conducting certain businesses and providing
certain services. There can be no assurance that the Company will be able to
compete effectively against such companies. Pall, 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 certain
patents held by Pall.
The Company believes, based on its current operating plan, that the
financing provided by Sepracor in March 1999 will be sufficient to fund the
Company's operations for approximately two months from the date of funding. The
Company will need additional financing in order to fund the Company's operations
beyond this two month period and is currently seeking such financing. Possible
sources of capital include strategic partnerships, public or private equity
and/or debt financing, all of which the Company is pursuing. No assurance can be
given, however, that the Company will be able to obtain additional financing on
terms acceptable to the Company, if at all. Should the Company fail to obtain
any such financing, or to obtain such financing on terms favorable to the
Company, the Company may be unable to continue or complete the development of
its proposed products and/or market such products successfully, or to continue
its current operations as presently conducted, if at all. The Company's cash
requirements may vary materially from those now planned because of factors such
as successful development of products, results of product
816623.6
-23-
<PAGE>
testing, approval process at the FDA and similar foreign agencies, commercial
acceptance of its products, patent developments and the introduction of
competitive products.
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, America's Blood Centers 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.
In June 1995, the Company received clearance from the FDA for the
LeukoNet System. Fiscal 1996 was the first full year of production of the
LeukoNet System and all of the Company's revenues in 1998 and 1997 were from
such product. In February 1998, the Company determined to discontinue
manufacturing the LeukoNet System and focus on the completion of development and
market introduction of its next-generation red cell filtration product. There
can be no assurance however that the Company will successfully complete the
development and commercialization of this product, or that such product will be
accepted by potential customers in the marketplace.
All of the Company's planned blood filtration and transfusion
products 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
1999. 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 and transfusion
products may require preclinical and clinical testing prior to submission of any
regulatory application for commercial use. The Company expects to receive
regulatory approval for its next-generation red cell filter before the end of
1999. 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 1999.
Readiness for Year 2000
The "Year 2000" issue results from the use in computer hardware and
software of two digits rather than four digits to define the applicable year.
When computer systems must process dates both before and after January 1, 2000,
two-digit year "fields" may create processing ambiguities that can cause errors
and system failures. The results of these errors may range from minor undetected
errors to complete shutdown of an affected system. These errors or failures may
have limited effects, or the effects may be widespread, depending on the
computer chip, system or software, and its location and function. The effects of
the Year 2000 problem are exacerbated because of the interdependence of computer
and telecommunications systems in the United States and throughout the world.
Because of this interdependence, the failure of one system may lead to the
failure of many other systems even though the other systems are themselves "Year
816623.6
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<PAGE>
2000 compliant." The Company has reviewed the Year 2000 issue as it may affect
the Company's business activity.
The Company is a developer and supplier of medical devices for the
blood transfusion industry. Currently, the Company has only one product
available for sale outside of the United States and is awaiting approval for
sale in the United States The Company is reliant on a small number of vendors to
supply the critical components for making this product, but has identified
alternative suppliers as a contingency plan. Only final assembly of this product
is done at the Company's Marlborough, MA facility. The Company sells primarily
to blood centers and hospital blood banks and through an international
distributor, and therefore there are a limited number of customers. For internal
systems, the Company uses standardized software from large well-established
software providers on PCs for inventory management, financial systems and
general communications purposes.
The Company has implemented a Year 2000 plan (the "Plan") which is
designed to cover all of the Company's activities, which will be modified as
circumstances change. Under the Plan, the Company is using a five-phase
methodology for addressing the issue. The phases are Awareness, Assessment,
Correction, Validation and Implementation. A heightened emphasis on completion
will continue through the second quarter. Awareness consists of defining the
Year 2000 problem and gaining executive level support and sponsorship. A Year
2000 program team has been established and an overall strategy created. During
Assessment, all internal systems, products and supply chain partners have been
inventoried and prioritized for renovation. The Company believes it has
completed a majority of the Awareness and Assessment phases, however, ongoing
work will be required in these areas as the Company completes its assessment of
existing supply chain partners and enters into new supply chain relationships in
the ordinary course of business. Renovation consists of converting, replacing,
upgrading or eliminating systems that have Year 2000 problems. Validation
involves ensuring that hardware and software fixes will work properly in 1999
and beyond and can occur both before and after implementation. Validation will
continue through June 1999 to allow for thorough testing before the Year 2000.
Implementation is the installation of hardware and software components in a live
environment.
The Company has completed the installation of an upgraded
manufacturing system, which is Year 2000 compliant. Validation of this system is
ongoing. Installation of its Year 2000 compliant internal communications system
has also been completed. The Company's financial reporting system is already
Year 2000 compliant. The Company continues to assess all of its internal systems
for operational effectiveness and efficiency beyond Year 2000 concerns.
The impact of Year 2000 issues on the Company will depend not only on
corrective actions that the Company takes but also on the way in which Year 2000
issues are addressed by governmental agencies, business and other third parties
that provide services or data to, or receive services or data from the Company,
or whose financial condition or operational capability is important to the
Company. To reduce this exposure, the Company has an ongoing process of
identifying and contacting mission-critical third party vendors and other
significant third parties to determine their Year 2000 plans and target dates.
To date, the Company is not aware of any critical vendors or customers who
either are not addressing the Year 2000 issue or have indicated that there will
be a problem.
Risks associated with any such third parties located outside the
United States may be higher insofar as it is generally believed that non-United
States businesses may not be addressing their Year 2000 issues on as timely a
basis as United States businesses. Notwithstanding the Company's efforts, there
can
816623.6
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<PAGE>
be no assurance that the Company, mission-critical third party vendors or other
significant third parties will adequately address their Year 2000 issues.
The Company is developing contingency plans for implementation in
event that the Company, mission-critical third party vendors or other
significant third parties fail to adequately address Year 2000 issues, Such
plans principally involve identifying alternative vendors or internal
remediation. There can be no assurance that any such plans will fully mitigate
any such failures or problems. Further more, there may be certain
mission-critical third parties, such as utilities, telecommunication companies,
or material vendors where alternative arrangements or sources are limited or
unavailable.
Although it is difficult to estimate the total costs of implementing
the Plan, through June 1999 and beyond, the Company's preliminary estimate is
that such costs will total less than $100,000. However, although management
believes its estimates are reasonable, there can be no assurance, for the
reasons stated in the next paragraph, that the actual costs of implementing the
Plan would not differ materially from the estimated costs. The Company has
incurred approximately $30,000 through December 31, 1998 on this project, which
does not include the costs to re-deploy existing staff.
The Company does not believe that the redeployment of existing staff
will have a material adverse effect on its business, results of operations or
financial position. Incremental expenses related to the Year 2000 project are
not expected to materially impact operating results in any one period. The
extent and magnitude of the Year 2000 problem as it will affect the Company,
both before and for some period after January 1, 2000, are difficult to predict
or quantify for a number of reasons. Among the most important are lack of
control over systems that are used by third parties who are critical to the
Company's operation, dependence on third party software vendors to deliver Year
2000 upgrades in a timely manner, complexity of testing inter-connected networks
and applications that depend on third party networks and the uncertainty
surrounding how others will deal with liability issues raised by Year 2000
related failures. There can be no assurance, for example, that systems used by
third parties will be adequately remediated so that they are Year 2000 ready by
January 1, 2000, or by some earlier date, so as not to create a material
disruption to the company's business. Moreover, the estimated costs of
implementing the Plan do not take into account the costs, if any, that might be
incurred as a result of Year 2000 related failures that occur despite the
Company's implementation of the Plan.
Although the Company is not aware of any material operational issues
associated with preparing its internal systems for the Year 2000, or material
issues with respect to the adequacy of mission- critical third party systems,
there can be no assurance that the Company will not experience material
unanticipated negative consequences and/or material costs caused by undetected
errors or defects in such systems or by the Company's failure to adequately
prepare for the results of such errors or defects, including costs of related
litigation, if any. The impact of such consequences could have a material
adverse effect on the Company's business, financial condition or results of
operations. For a more complete discussion of risks and uncertainties involving
the Company's business, please see the risks factors described under the heading
"Factors That May Affect Future Results of Operations."
Because of the foregoing factors, past financial results should not
be relied upon as an indication of future performance. The Company believes that
period-to-period comparisons of its financial results to date are not
necessarily meaningful and expects that its results of operations may fluctuate
from period to period in the future. See "-- Overview."
816623.6
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<PAGE>
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
Not applicable.
PART III
Items 10-13.
The information required for Part III in this Annual Report on Form
10-K is incorporated by reference from the Company's definitive proxy statement
for the Company's 1999 Annual Meeting of Stockholders. Such information will be
contained in the sections of such proxy statement captioned "Stock Ownership of
Certain Beneficial Owners and Management," "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, 1998 and for each of the three
years in the period ended December 31, 1998. See
pages F-1 through F-7, which are included herein.
a (2) Financial Statement Schedules
All schedules are omitted because their 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
part of this Annual Report on Form 10-K.
(b) No Current Reports on Form 8-K were filed by the
Company during the last quarter of the period
covered by this report.
The following trademarks are mentioned in this Annual Report on Form 10-K:
HemaSure r/LS, LeukoNet and LeukoVir.
816623.6
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<PAGE>
<TABLE>
<S> <C>
Index to Financial Statements Page
----------------------------- ----
Report of Independent Accountants............................................................................................. F-1
Consolidated Balance Sheets at December 31, 1998 and 1997..................................................................... F-2
Consolidated Statements of Operations for the Years
Ended December 31, 1998, 1997 and 1996........................................................................................ F-3
Consolidated Statements of Stockholders' Equity (Deficit)
for the Years Ended December 31, 1998, 1997 and 1996.......................................................................... F-4
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1998, 1997 and 1996........................................................................................ F-5
Notes to Consolidated Financial Statements.................................................................................... F-7
</TABLE>
816623.6
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<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of HemaSure Inc.:
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, stockholders' equity (deficit)
and cash flows present fairly, in all material respects, the financial position
of HemaSure Inc. at December 31, 1997 and 1998, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note A to the
financial statements, the Company has suffered recurring losses from operations
and has a stockholders' deficit which raises substantial doubt about its ability
to continue as a going concern. Management's plans in regard to these matters
are described in Note A. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
January 29, 1999, except for Note P which is as of March 23, 1999
816623.6
F-1
<PAGE>
HemaSure Inc.
Consolidated Balance Sheets
December 31,
(In thousands, except par value amounts)
<TABLE>
<CAPTION>
ASSETS 1998 1997
---- ----
Current assets:
<S> <C> <C>
Cash and cash equivalents (Note C) $ 1,827 $ 1,274
Marketable securities (Note C) - 6,882
Accounts receivable (Note E) - 436
Inventories (Note F) 206 158
Deferred financing costs (Note I) 1,024 -
Prepaid expenses and other current assets 326 347
----------- -----------
Total current assets 3,383 9,097
Property and equipment, net (Note G) 1,505 1,478
Deferred financing costs long-term (Note I) 725 -
Other assets 42 32
----------- -----------
Total assets $ 5,655 $ 10,607
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 1,542 $ 876
Accrued expenses (Note H) 1,549 1,846
Current portion of notes payable (Note I ) 27 37
Current portion of capital lease obligations (Note H) 228 267
--------- ---------
Total current liabilities 3,346 3,026
Capital lease obligations (Note H) 68 289
Notes payable (Note I ) 5,073 72
Convertible subordinated note payable (Note J) - 8,687
------------ --------
Total liabilities 8,487 12,074
--------- -------
Commitments and contingencies (Notes H, I and J)
Stockholders' deficit (Note L):
Preferred stock, $0.01 par value, 1,000 shares authorized, none issued and
outstanding in 1998 and 1997
Common stock, $0.01 par value, authorized 20,000 91 82
shares in 1998 and 1997, issued and outstanding
9,088 in 1998 and 8,164 in 1997
Additional paid-in capital 71,584 60,878
Unearned compensation - (89)
Unrealized holding loss of available-for-sale - (1)
marketable securities
Accumulated deficit (74,507) (62,337)
--------- --------
Total stockholders' deficit (2,832) (1,467)
--------- --------
Total liabilities and stockholders' deficit $ 5,655 $10,607
========= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
816623.6
F-2
<PAGE>
HemaSure Inc.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year Ended December 31,
(In thousands, except per share amounts) 1998 1997 1996
---- ---- ----
Revenues:
<S> <C> <C> <C>
Product sales $ 25 $ 2,357 $ 712
Product sales to related - - 13
parties (Note C)
Collaborative research and - - 54
------------ ------------ --------
development (Note C)
Total revenues 25 2,357 779
----------- --------- -------
Costs and expenses:
Cost of products sold 657 4,158 3,772
Cost of products sold to related parties (Note C) - - 13
Cost of collaborative research and development - - 41
Research and development 3,794 3,577 6,128
Legal expense related to patents 3,340 506 744
Selling, general and administrative 4,201 4,458 7,325
Restructuring charge - 1,215 -
------------ --------- -------
Total costs and expenses 11,992 13,914 18,023
--------- -------- -------
Loss from operations (11,967) (11,557) (17,244)
Other income (expense):
Interest income 169 577 1,679
Interest expense (372) (1,401) (105)
Other income (expense) - 2,497 (180)
------------ -------- ----------
Net loss from continuing operations (12,170) (9,884) (15,850)
-------- ------ --------
Discontinued operations (Note B):
Loss from operations of discontinued business - - (9,550)
Loss on disposal of discontinued business - - (15,198)
------------- ----------- --------
Net Loss $(12,170) $ (9,884) $(40,598)
========= ========= =========
Net loss per share - basic and diluted:
Net loss from continuing operations $ (1.35) $ (1.22) $ (1.96)
Loss from operations of discontinued business - - (1.18)
Loss on disposal of discontinued business - - (1.88)
---------- ---------- ------
Net Loss $ (1.35) $ (1.22) $ (5.03)
========== ========== ===========
Weighted average number of shares of common stock 9,025 8,127 8,069
outstanding - basic and diluted
</TABLE>
The accompanying notes are an integral part of the financial statements.
816623.6
F-3
<PAGE>
HemaSure Inc.
Consolidated Statements of Stockholders' Equity (Deficit)
Year ended
December 31, 1998, 1997
and 1996 (In thousands)
<TABLE>
<CAPTION>
Common Additional Accumulate
Stock Paid-in Unearned d
Shares Amount Capital Compensation Other Deficit
-------- ------ --------- ------------ ----- ---------
BALANCE AT
<S> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1995 8,031 $ 80 $ 60,372 $ (595) $ (11,855)
Issuance of common stock to
employees under stock plans 67 1 330
Unearned compensation
amortization 197
Other $ (3)
Net loss (40,598)
-------- -------- -------- -------- -------- --------
BALANCE AT
DECEMBER 31, 1996 8,098 81 60,702 (398) (3) (52,453)
Issuance of common stock to
employees under stock plans 66 1 176
Unearned compensation
amortization 309
Other 2
Net loss (9,884)
-------- ----------- ----------- ------------ ----------- ------------
BALANCE AT
DECEMBER 31, 1997 8,164 82 60,878 (89) (1) (62,337)
Issuance of common stock to
employees under stock plans 97 1 89
Issuance of common stock for debt 827 8 8,679
Issuance of warrants 1,938
Unearned compensation
amortization 89
Other 1
Net loss (12,170)
-------- ----------- ----------- ------------ ----------- -------------
BALANCE AT 9,088 $ 91 $ 71,584 $ - $ - $ (74,507)
DECEMBER 31, 1998 ======== ========= ========== ============ =========== ============
</TABLE>
Total
Stockholders
Equity
(Deficit)
---------
BALANCE AT
DECEMBER 31, 1995 $ 48,002
Issuance of common stock to
employees under stock plans 331
Unearned compensation
amortization 197
Other (3)
Net loss (40,598)
--------
BALANCE AT
DECEMBER 31, 1996 7,929
Issuance of common stock to
employees under stock plans 177
Unearned compensation
amortization 309
Other 2
Net loss (9,884)
BALANCE AT
DECEMBER 31, 1997 (1,467)
Issuance of common stock to
employees under stock plans 90
Issuance of common stock for debt 8,687
Issuance of warrants 1,938
Unearned compensation
amortization 89
Other 1
Net loss (12,170)
BALANCE AT $ (2,832)
DECEMBER 31, 1998 ============
The accompanying notes are an integral part of the financial statements.
816623.6
F-4
<PAGE>
HemaSure Inc.
Consolidated Statements of Cash Flows
Year ended December 31,
(In thousands)
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
Cash flows from operating activities:
<S> <C> <C> <C>
Net loss $ (12,170) $ (9,884) $(40,598)
Adjustments to reconcile net loss to net
cash used in operating activities:
Discontinued business
Financing costs related to warrants - - 24,748
Impairment of assets 189 - -
Depreciation and amortization - 475 -
Accretion of marketable securities discount 479 859 819
Loss on disposal of equipment 20 4 (24)
Changes in operating assets and liabilities: 5 - 176
Net assets of discontinued business - 500 (500)
Accounts receivable 436 (153) (201)
Inventories (48) 218 380
Prepaid expenses 21 33 (174)
Accounts payable 666 (736) 317
Accrued expenses (297) 273 1,051
(Increase) decrease in other assets (10) 20 45
--------- ------- -------
Net cash used in continuing operations (10,709) (8,391) (13,961)
Net cash used in discontinued business - - (11,969)
------------ --------- --------
Net cash used in operating activities (10,709) (8,391) (25,930)
----------- ---------- --------
Cash flows from investing activities:
Purchases of marketable securities (20,255) (99,752) (219,933)
Maturities of marketable securities 27,117 104,235 233,401
Acquisition of business net of cash acquired - - (4,092)
Unrealized holding loss of available for sale 1 2 (3)
marketable securities
Additions to property and equipment (422) (220) (1,213)
--------- --------- ---------
Net cash provided by (used in) investing activities 6,441 4,265 8,160
--------- -------- --------
Cash flows from financing activities:
Net proceeds from issuance of common stock 90 177 331
Borrowing from notes payable arrangements 5,000 140 -
Repayment of notes payable (9) (31) -
Repayments of capital lease obligations (260) (241) (178)
--------- --------- -------
Net cash provided by financing activities 4,821 45 153
---------- ------------ ------
816623.6
F-5
<PAGE>
1998 1997 1996
---- ---- ----
Net (decrease) increase in cash and cash equivalents 553 (4,081) (17,617)
Cash and cash equivalents at beginning of period 1,274 5,355 22,972
--------- --------- -------
Cash and cash equivalents at end of period $ 1,827 $ 1,274 $ 5,355
======= ======= ========
Supplemental schedule of cash flow information: $ 503 $ 1,072 $ 87
Cash paid during the year for interest
Noncash investing and financing activities:
Acquisition of fixed assets financed by capital $ - $ 38 $ 544
leases
Common stock issued for convertible subordinated
note $ 8,687 $ - $ -
Warrants issued for guaranteed line of credit $ 1,938 $ - $ -
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.
816623.6
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
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 product is 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 Inc. ("Sepracor"), a related party, for use in chemical processing
applications. Subsequently and throughout 1997, the Company's revenue was
derived from the commercial sales of its LeukoNet System, a medical device
designed for the removal of contaminating leukocytes from donated blood. In
February 1998, the Company determined to discontinue manufacturing the LeukoNet
System and focus on the completion of development and market introduction of its
next-generation red cell filtration product. The Company's collaborative
research and development efforts in 1995 and 1996 were with the United States
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 regulations
of the United States Food and Drug Administration and similar foreign regulatory
authorities and agencies.
Since its inception, the Company has suffered recurring losses from
operations, accumulated deficits and at December 31, 1998 had a net capital
deficiency. These conditions raise substantial doubt about its ability to
continue as a going concern. The ultimate success of the Company is dependent
upon its ability to raise capital through strategic partnerships, public or
private equity and/or debt financing and the proposed introduction of a new
product into the market. However, the Company's capital requirements may change
depending upon numerous factors, including compliance with regulatory
requirements, the time necessary to commercialize the Company's proposed new
product and the demand for the Company's proposed product. No assurance can be
given that the Company will be able to obtain additional financing on terms
acceptable to the Company, if at all, or that the Company will successfully
develop or effect the new product introduction into the market. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
In view of the Company's current financial condition, the Company
plans to manage aggressively its working capital and expenses while pursuing
product sales opportunities, as well as strategic or other business
relationships.
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 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 the Company or a
subsidiary of the
816623.6
F-7
<PAGE>
Company) and additional consideration payable in 1998 in cash or stock, at the
option of the Company, which would not be paid in certain events. The
acquisition was accounted for under the purchase method of accounting. Results
of operations for the Denmark Acquisition for the period from the date of
acquisition to the date of discontinuation have not been presented because the
subsequent decision to discontinue the business (as described below) eliminates
any comparable continuing impact on the Company's financial statements.
The loss from operations of discontinued business of $9,550,000 in
1996 reflects the loss from the date of the acquisition. 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 approximately $11,700,000, which was due and payable on December 31,
2001, with interest payable quarterly (provided that up to approximately
$3,000,000 would be forgiven in certain circumstances). Approximately $8,500,000
of the reduction of such indebtedness was forgiven; such forgiveness was
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
represented a net amount due from Novo Nordisk to the Company related to various
service arrangements between the two companies. See Note I (Convertible
Subordinated Note Payable) below.
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 connection with its exit from the plasma business, the Company
recorded a one-time charge of $15,200,000 in 1996. The loss reflected
management's assessment of the most probable outcome from this decision and is
net of the $8,500,000 forgiveness of indebtedness and assumed the $3,000,000
forgiveness contingency (See Note J.).
In April 1997, the Company recorded a one-time charge of $1,215,000
for severance and related charges in connection with executive management
departures pursuant HemaSure's decision to focus on its core blood filtration
business. At December 31, 1998 all amounts related to this charge were paid.
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
$2,138,000 and $1,025,000 at December 31, 1998 and 1997, 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.
816623.6
F-8
<PAGE>
Marketable Securities
Management determines the appropriate classification of its
investments in debt and equity securities at the time of purchase. At December
31, 1997, all marketable securities were classified as available for sale and
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.
The fair value of available for sale marketable securities at
December 31, 1997 was $6,882,000 and represented United States Government Agency
Obligations. The unrealized holding loss of available for sale marketable
securities approximated $1,200 as of December 31, 1997.
The Company's policy when applicable is to diversify the investment
portfolio to reduce risk to principal from credit and investment sector risk. At
December 31, 1997, 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 is
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 10 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 the Company 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.
816623.6
F-9
<PAGE>
Net Loss Per Share
The Company follows Statement of Financial Accounting Standards No.
128, "Earnings Per Share" ("SFAS 128"), which established standards for
computing and presenting earnings per share ("EPS"). Net loss per common share
is based on the weighted average number of shares of common stock outstanding
during each period. Common share equivalents have not been included because the
effect would be antidilutive. The common share equivalents of the Company
consist of common stock warrants (See Note D, I and P), stock options (see Note
K) and a convertible subordinated note payable (see Note I). The Company had
4,214,000, 2,846,000 and 3,200,000 common share equivalents as of December 31,
1998, 1997 and 1996, respectively. The convertible subordinated note was
converted into 827,375 shares of common stock of the Company in January 1998.
Income Taxes
Deferred income taxes are accounted for under the asset and liability
method. 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. A valuation reserve is
established if it is more likely than not that all or a portion of the deferred
tax asset will not be realized.
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 tax returns of Sepracor.
Additionally, based upon the Internal Revenue Code and changes in company
ownership, utilization of the Company's net operating loss may be subject to an
annual limitation.
Comprehensive Income
In 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" (SFAS 130). SFAS 130
requires the reporting and display, in a full set of general purpose financial
statements, of all items that are required to be recognized under accounting
standards as components of comprehensive income. This statement establishes
rules for the reporting of comprehensive income and its components.
Comprehensive income consists of net income and changes in unrealized gains and
losses on marketable securities, net of reclassification adjustments for gains
and losses realized in income from the sale of securities. For all periods
presented, net income and comprehensive income are the same due to the
realization of all previously unrealized gains and losses in the statement of
operations.
New Accounting Standards
In February 1998, the Financial Accounting Standards Board issued
Statement of Financial Account Standards No. 132 (SFAS 132), "Employees'
Disclosure about Pension and Other Postretirement Benefits." SFAS 132
standardizes the disclosure requirements for pension and postretirement
benefits, and is effective for the Company's fiscal year ending December 31,
1999. SFAS 132 relates to disclosure only and will not affect the Company's
financial position or results of operations.
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133 (SFAS 133), "Accounting for
Derivative Instruments and Hedging Activities." This statement establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. The statement requires companies to
recognize all derivatives as either assets or liabilities, with the instruments
measured at fair value. The accounting for changes in fair
816623.6
F-10
<PAGE>
value, gains or losses depends on the intended use of the derivative and its
resulting designation. The statement is effective for all fiscal quarters of
fiscal years beginning after June 15, 1999. The Company will adopt SFAS 133 on
January 1, 2000, but does not expect such adoption to have a material impact on
its financial statements.
In February 1998, The Accounting Standards Executive Committee
("AcSEC"), issued Statement of Position ("SoP") 98-1, "Accounting for Costs of
Computer Software Developed or Obtained for Internal Use." SoP 98-1 establishes
the accounting for costs of software products developed or purchased for
internal use, including when such costs should be capitalized. The Company does
not expect SoP 98-1, which is effective for the Company beginning January 1,
1999, to have a material effect on its financial position or results from
operations.
In April 1998, the AcSEC issued SoP 98-5, "Reporting on the Costs of
Start-Up Activities." Start-up activities are defined broadly as those one-time
activities related to opening a new facility, introducing a new product or
service, conducting business in a new territory, conducting business with a new
class of customer, commencing some new operation or organizing a new entity.
Under SoP 98-5, the cost of start-up activities should be expensed as incurred.
SoP 98-5 is effective for the Company beginning January 1, 1999 and the Company
does not expect its adoption to have a material effect on its financial position
or results of operations.
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, 1998 and 1997
and the reported amounts of revenues and expenses during the years ended
December 31, 1998, 1997 and 1996. Actual results could differ from those
estimates.
D. AGREEMENTS WITH SEPRACOR:
The Company was formerly a wholly-owned subsidiary of Sepracor. As of
March 31, 1999, Sepracor owned 42% of the common stock, $.01 par value, of the
Company ("Common Stock").
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 had granted an exclusive license
to the Company for any improvements to the transferred technology, which were
developed, or otherwise acquired, by Sepracor during the period beginning on the
date of the Technology Transfer and License Agreement and terminating on the
earlier of January 1, 1998 or the acquisition of Sepracor or the Company (the
"Effective Period"). The Company had 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 were royalty-free. Sepracor had also granted the
Company a right of first refusal to any product, which Sepracor proposed 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 was entitled to
certain rights with respect to the registration under the Securities Act of
1933, as amended, of a total of 3,000,000 shares of Common Stock
816623.6
F-11
<PAGE>
related to the technology transfer and establishment of the Company in 1993.
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.
In September 1998, the Company completed a $5 million revolving line
of credit arrangement with a commercial bank. Sepracor has guaranteed to repay
amounts borrowed under the line of credit. In exchange for the guarantee, the
Company granted to Sepracor warrants to purchase up to 1,700,000 shares of the
Company's common stock at a price of $0.69 per share. The warrants will expire
in the year 2003 and have certain registration rights associated with them. (See
Notes I and P)
E. ACCOUNTS RECEIVABLE:
The Company's 1998 and 1997 trade receivables primarily represent
amounts due for product sales. The allowance for doubtful accounts was $7,000
and $25,000 at December 31, 1998 and 1997, respectively.
The Company performs ongoing credit evaluations of its customers and
generally does not require collateral.
F. INVENTORIES:
Inventories consist of the following at December 31:
(In thousands) 1998 1997
---- ----
Raw materials $ 206 $-
Finished goods - 158
------ -----
$206 $158
==== =====
G. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31:
(In thousands) 1998 1997
---- ----
Laboratory and
manufacturing
equipment $ 874 $ 894
Leased laboratory and
manufacturing
equipment 505 842
Office equipment 759 742
Leasehold improvements 766 698
--- ----
2,904 3,176
Accumulated depreciation
and amortization (1,849) (1,771)
------- -------
816623.6
F-12
<PAGE>
Construction in progress 1,055 1,405
450 73
------- -------
$ 1,505 $ 1,478
------- -------
Depreciation and amortization expense was $391,000, $548,000 and
$622,000, in 1998, 1997 and 1996, respectively. In conjunction with its
determination to discontinue manufacture of the LeukoNet System in February
1998, a provision for impairment of $475,000 for manufacturing and related
assets was recorded for the period ended December 31, 1997.
Accumulated amortization of assets under lease was $395,000 and
$481,000 as of December 31, 1998 and 1997, respectively.
H. ACCRUED EXPENSES AND COMMITMENTS AND CONTINGENCIES:
Accrued Expenses consist of the following at December 31:
1998 1997
---- ----
(In thousands)
Compensation $ 43 $ 440
Fees 104 185
Interest on notes payable 26 347
Customer refunds 175 170
Services 750 500
Miscellaneous 451 204
Total Accrued Expenses $1,549 $1,846
------ ------
Lease Obligations
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 commenced in February 1996 and extend through February 2004.
The lease provides for two five-year renewal options. Under the terms of the
lease, the Company is 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 $2,000,000 to these companies for purposes of financing capital
equipment. In October 1996, the Company executed a separate follow-on equipment
leasing arrangement that provided $1,100,000 of equipment financing through
March 31, 1997. The Company has leased various laboratory, manufacturing and
computer equipment under noncancelable capital leases. Terms of arrangements
with the leasing company contain bargain purchase provisions at the expiration
of the lease term, which range from 36 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%. As of December 31, 1998 the
Company had $177,000 on deposit at the leasing company under this leasing
arrangement. 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%.
816623.6
F-13
<PAGE>
Future minimum payments under all noncancelable leases in effect at
December 31, 1998 are as follows:
(In thousands) Operating Capital
Year Leases Leases
1999 234 253
2000 236 71
2001 236 -
2002 236 -
2003 236 -
Thereafter 43 -
-------- --------
Total minimum ------- ------
lease payments $ 1,221 324
------- ------
Less amount
representing interest 28
Present value of minimum
lease payments $ 296
------
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 $833,000, $803,000, and $903,000, in 1998, 1997 and 1996, respectively.
I. NOTES PAYABLE
Notes payable consist of the following at December 31:
(In thousands) 1998 1997
---- ----
Leasehold improvements financing $ 100 $ 109
Revolving line of credit 5,000 -
------ -------
5,100 109
Less current portion 27 37
--------- --------
$ 5,073 $ 72
========= ========
In March 1997, the Company exercised its right, under the lease, to
have a portion of its leasehold improvements financed and received $140,000 in
connection with this arrangement. This amount will be repaid in 60 equal monthly
installments with an interest rate of 12% per annum.
In September 1998, the Company completed a $5 million revolving line
of credit arrangement with a commercial bank. As of December 31, 1998, the
entire $5 million was outstanding under the line. The revolving line of credit,
which expires in August 2000, is being used to help finance the Company's
working capital requirements and for general corporate purposes. Amounts
borrowed under the line bear
816623.6
F-14
<PAGE>
interest at the bank's prime lending rate plus 1/2% payable quarterly in
arrears. The weighted average borrowing rate for the period ended December 31,
1998 was 8.25%. For the period ended December 31, 1998, the Company recorded
interest expense related to borrowings under the line of $93,000. The credit
agreement requires that the Company demonstrate Year 2000 compliance by March
31, 1999 and contains other customary covenants and provisions. The bank has a
first lien on all assets of the Company including its intellectual property.
Sepracor, the Company's largest shareholder has guaranteed to repay
amounts borrowed under the line of credit. In exchange for the guarantee, the
Company granted to Sepracor warrants to purchase up to 1,700,000 shares of the
Company's common stock at a price of $0.69 per share, The warrants will expire
in the year 2003 and have certain registration rights associated with them.
HemaSure has placed a value of $1,938,000 on the 1,700,000 warrants as of the
date of the final agreement and is amortizing this deferred financing charge on
a monthly basis over the term of the line of credit. For the period ended
December 31, 1998 the Company amortized $189,000 of this deferred finance charge
and recorded it as interest expense in the Statement of Operations.
J. 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 was due and payable on December 31, 2001, with
interest payable quarterly (provided that up to approximately $3,000,000 would
be forgiven in certain circumstances). Approximately $8,500,000 of the reduction
of such indebtedness was forgiven. The remainder of the reduction represented 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, 1997 and 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. In December 1997, the
Company notified the holder of the note of its intent to convert in January
1998, $8,687,000 of debt, which it believes was the entire amount outstanding as
of the date of conversion. On January 6, 1998, the Company converted the note,
pursuant to its terms, into shares of Common Stock at a conversion price of
$10.50 per share, or 827,375 shares. The holder of the note has contested the
conversion of the note, including the forgiveness of the $3,000,000 amount. The
Company believes that such claims are without merit.
K. Segment Information
In 1998, the Company adopted SFAS 131, "Disclosures about Segments of
an Enterprise and related information", which specifies new guidelines for
determining a company's operating segments and related requirements for
disclosure.
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: 1998 1997 1996
---- ---- ----
A. 10% - -
B. 53% 86% 83%
816623.6
F-15
<PAGE>
L. STOCKHOLDERS' DEFICIT
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, as amended, and
the 1994 Director Option Plan, as amended (collectively, the "Plans"). A total
of 2,750,000 shares have been authorized by the Company for grants of options or
shares, of which 144,000 are still available for grant. Stock Options granted
during 1998 and 1997 generally have a maximum term of ten years and vest ratably
over a period of two to five years.
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, 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
Granted 1,262 $ 3.02
Exercised (24) $ 2.25
Terminated (1,592) $12.06
---------- ------
Outstanding at
December 31, 1997 2,019 $ 3.25
Granted 2,029 $ 0.72
Exercised - -
Terminated (1,534) $ 3.06
------- ------
Outstanding at
December 31, 1998 2,514 $1.31
----- -----
At December 31, 1998, 1997 and 1996, respectively, there were
339,000, 521,000 and 277,000 options exercisable with a weighted average
exercise price of $3.85, $3.42 and $2.88. The following table summarizes the
status of the Company's stock options at December 31, 1998:
816623.6
F-16
<PAGE>
<TABLE>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- - ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Weighted Number
Number Average Weighted Exercisable
Outstanding As Remaining Average As of
Of 12/31/98 Contractual Exercise 12/31/98
Range of Exercise Prices (In thousands) Life Price (In thousands)
<S> <C> <C> <C> <C> <C>
$ .63 - $ .84 1,732 9.1 $ .63 1
$ 1.25 - $ 2.00 565 7.4 $ 1.62 210
$ 3.37 - $ 5.50 169 6.7 $ 3.46 91
$ 12.38 - $ 16.25 48 7.3 $14.74 37
------ --- ------ -----
2,514 8.5 $ 1.31 339
</TABLE>
OPTIONS EXERCISABLE
- - --------------------------------------------------------------------------------
Weighted
Average
Exercise
Price
$ .81
$ 1.99
$ 3.49
$15.46
-------
$ 3.85
The weighted average fair value at date of grant for options granted
during 1998, 1997 and 1996 was $.72, $2.04 and $8.77 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 1998,
1997 and 1996, respectively: risk-free interest rate of 5.5%, 5.5% and 6.2%;
dividend yields of 0% for all years; volatility factor of the expected market
price of the Company's common stock of 75% for all years; and a weighted average
expected life of the options of 5.5 years.
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
$89,000, $309,000 and $197,000 in 1998, 1997 and 1996, respectively, related to
these options.
In January 1998, the Company adopted a Stock Option Exchange Program.
Upon employee consent, the program provides for the grant to each employee of a
new stock option in exchange for the cancellation of the old stock option. The
new stock option, granted at fair market value at date of issuance, will become
exercisable for a number of shares of Common Stock equal to the number of shares
covered by the old stock option.
In 1995, the Company adopted the 1995 Employee Stock Purchase Plan
(the "Stock Purchase Plan"). Under the Stock Purchase Plan, an aggregate of
250,000 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 96,695 shares for a total of $88,000 during the year ended December
31, 1998 and 42,183 shares for a total of $47,000 during the year ended December
31, 1997. At December 31, 1998, 82,468 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 1998, 1997
and 1996 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.
1998 1997 1996
---- ---- ----
Net loss - as reported $ (12,170) $ (9,884) $(40,598
816623.6
F-17
<PAGE>
<TABLE>
<S> <C> <C> <C>
Net loss - pro forma $(12,610) $(10,415) $(43,280)
Net loss per share - as reported - basic and diluted $ (1.35) $ (1.22) $ (5.03)
Net loss per share - pro forma - basic and diluted $ (1.40) $ (1.28) $ (5.36)
</TABLE>
The pro forma effect on net income for 1998, 1997 and 1996 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 or anticipated future option activity.
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.
M. INCOME TAXES
The components of the Company's deferred tax assets and liabilities
are as follows at December 31:
<TABLE>
<CAPTION>
(In thousands) 1998 1997
---- ----
Deferred taxes:
Assets
<S> <C> <C>
Net operating loss carryforwards $21,463 $17,596
Research and development expense capitalization 3,892 3271
Tax credit carryforwards 999 762
Inventory reserves 43 252
Deferred compensation 284 36
Accrued charges not paid 466 410
Other 21 23
Liabilities
Property and equipment (16) (153)
------ ---------
27,152 22,197
Valuation allowance (27,152) (22,197)
-------- -------
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 1998, 1997 and 1996. For all three years the effective tax
rate was 0% due to a net operating loss and the non-recognition of any net
deferred tax asset. At December 31, 1998, the Company had federal and state tax
net operating loss carryforwards (NOLs) of approximately $54,000,000 and
$52,000,000, respectively, to offset future regular taxable earnings. The
federal and state NOLs expire at various dates through 2013 and 2003,
respectively. Federal and state tax credit carryforwards of approximately
$570,000 and $429,000, respectively, expire at various dates from 2010 through
2013. Based upon the Internal Revenue Code and changes in company ownership,
utilization of the Company's NOLs may be subject to an annual limitation.
816623.6
F-18
<PAGE>
N. EMPLOYEES' SAVINGS PLAN
The Company has a 401(k) plan for all employees. Under the provisions
of the plan, employees may voluntarily contribute up to 15% of their
compensation subject to statutory limitations. In addition, the Company can make
a matching contribution at its discretion. In 1997, the Company provided
approximately $34,000 of matching contributions. There were no employer
contributions to the plan in 1998.
O. 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
United States Patent No. 5,451,321 (the "'321 Patent"), the Company filed a
motion for summary judgment of noninfringement. Pall filed a cross motion for
summary judgment of infringement at the same time.
In October 1997, the Eastern District of New York granted in part
Pall's summary judgment motion and held that the LeukoNet product infringes a
single claim from the '321 Patent. The Company has terminated the manufacture,
use, sale and offer for sale of the filter subject to the court's order. The
Company appealed the October 1997 decision to the Court of Appeals for the
Federal Circuit. Oral arguments were heard in February 1999. The Company now
awaits a decision from the Federal Circuit. Remaining discovery relating to the
damages phase of the first action has been completed.
With respect to the second action concerning United States Patent No.
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. Pall has amended its
Complaint to add Lydall, Inc. whose subsidiary supplied filter media for the
LeukoNet product, as a co-defendant. The Company has filed for summary judgment
of non-infringement, and Pall has cross-filed for summary judgement of
infringement at the same time. Lydall supported the Company's motion for summary
judgment of non-infringement, and has served a motion for summary judgment that
the asserted claims of the '572 Patent are invalid as a matter of law. Discovery
has been completed in the action.
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 LeukoNet product does not infringe any valid
enforceable claim of the two 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 financial condition and 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 P&U. In its complaint, the
Company sought 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 sought compensatory, consequential and punitive
damages. In September 1997, the Company reached an out-of-court settlement with
P&U. The terms of settlement included a cash payment to the Company and the
granting of an option to P&U to license, on a non-exclusive basis, certain
intellectual property held by the Company and its subsidiaries relating to
plasma fractionation. The cash payment was recognized as other income in 1997.
816623.6
F-19
<PAGE>
P. SUBSEQUENT EVENT
In March 1999, Sepracor purchased an additional 1,333,334 shares of
common stock of the Company for $1.50 per share and received warrants to
purchase an additional 667,000 shares at a price of $1.50 per share. The
warrants will expire in the year 2004 and have certain registration rights
associated with them. In certain circumstances, HemaSure may require Sepracor to
exercise these warrants.
816623.6
F-20
<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, 1999.
HEMASURE INC.
Date: March 31, 1999 By: /s/ John F. McGuire
--------------------------------------
John F. McGuire, 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/ John F. McGuire President, Chief Executive March 31,1999
- - ----------------------- Officer and Director (Principal
John F. McGuire Executive Officer)
/s/ James B. Murphy Senior Vice President, Finance March 31,1999
- - ----------------------- and Administration (Principal
James B. Murphy Financial Officer)
Director March __,1999
- - ------------------------
Timothy J. Barberich
/s/ David S. Barlow Director March 31,1999
- - ------------------------
David S. Barlow
/s/ Justin E. Doheny Director March 31,1999
- - ------------------------
Justin E. Doheny
/s/ Rolf S. Stutz Director March 31,1999
- - ------------------------
Rolf S. Stutz
</TABLE>
816623.6
S-1
<PAGE>
Exhibit Index
The following exhibits are filed as part of this Annual Report on
Form 10-K.
<TABLE>
<CAPTION>
Exhibit No. Description
- - ----------- -----------
<S> <C> <C>
2.1(7) Heads of Agreement, dated as of January 31, 1996, between the Company
and Novo Nordisk A/S.
3.1(2) Certificate of Incorporation of the Company.
3.2(2) By-Laws of the Company.
4.1(2) Specimen Certificate for shares of Common Stock,
$.01 par value, of the Company.
4.2(10) Registration Rights Agreement, dated January 23, 1997, by and among the
Company and Novo Nordisk A/S
4.3(12) Registration Rights Agreement, dated as of September 15, 1998, between
the Company and Sepracor.
4.4(12) Warrant Agreement, dated as of September 15, 1998,
between the Company and Sepracor.
4.5(12) Warrant Certificate, dated as of September 15,
1998, between the Company and Sepracor.
4.6 Registration Rights Agreement, dated as of March 23, 1999, between the
Company and Sepracor.
4.7 Warrant Agreement, dated as of March 23, 1999, between the
Company and Sepracor.
4.8 Warrant Certificate, dated as of March 23, 1999, between the Company
and Sepracor.
10.1(10) 1994)Stock Option Plan, as amended.
10.2(10) 1994)Director Option Plan.
10.3(2) Form of Technology Transfer and License Agreement between the
Company and Sepracor Inc.
10.4(7) Lease Agreement for 140 Locke Drive, Marlborough,
MA, dated as of November 1995, between the Company
and First Marlboro Development Trust.
10.5(3) Purchase Agreement, dated as of September 14,
1994, between the Company and Lydall Central,
Inc./Westex Division.
10.6(3) Letter of Intent, dated as of February 2, 1995,
between the Company and DRK-Niederschsen.
10.7(4) Amendment of Solicitation/Modification of Contract
issued by the United States Army Medical Research
Acquisition Activity effective March 15, 1995.
816623.6
I-1
<PAGE>
10.8(5)+ Purchase Agreement, dated July 28, 1995, by and
between the Company and Blood Centers of America.
10.9(5) Employment Agreement between the Company and Dr. Hans Heiniger,
dated January 10, 1994.
10.10(7)+ Purchase Agreement between the Company and American Red Cross
Biomedical Services, dated March 11, 1996.
10.11(7) Employment Agreement between the Company and Steven H. Rouhandeh,
dated February 16, 1996.
10.12(7)+ Cooperation Agreement dated February 26, 1996
between the Company and the German Red Cross.
10.13(6)+ Purchase Agreement between the Company and Blood
Centers of America, dated September 11, 1995.
10.14(8) Asset Purchase Agreement dated as of May 2, 1996
between the Company, HemaPharm Inc., HemaSure A/S
and Novo Nordisk A/S.
10.15(10) Employment Agreement between the Company and Jeffrey B. Davis,
dated May 23, 1996.
10.16(9) Restructuring Agreement, dated January 23, 1997,
between the Company, HemaPharm Inc., HemaSure A/S
and Novo Nordisk A/S.
10.17(10) 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.
10.18(10) Master Strategic Alliance Agreement, dated June 5,
1996, by and between the Company and American Red
Cross BioMedical Services.
10.19(10) Amendment to the Company's 1994 Director Option
Plan, dated June 25, 1996.
10.20(10) Amendment to the Company's 1994 Director Option
Plan, effective as of May 16, 1996.
10.21(10) Amendment to the Company's 1994 Stock Option Plan,
dated June 25, 1996.
10.22(10) Amendment to the Company's 1994 Stock Option Plan, effective as of
May 16, 1996.
10.23(10) Sublease Agreement, between the Company and Novo
Nordisk A/S, dated May 2, 1996, for the Premises
(Denmark), as amended.
10.24(10) Sublease Agreement between the Company and Novo
Nordisk A/S, dated May 2, 1996, for the Warehouse
(Denmark), as amended.
10.25(1) Employment Agreement between the Company and John F. McGuire,
dated April 1, 1997.
816623.6
I-2
<PAGE>
10.26(1) Settlement Agreement, dated September 1997, by and
among the Company, HemaSure AB, HemaPharm Inc.,
Pharmacia & Upjohn Inc.
and Pharmacia & Upjohn AB.
10.27(11) 1995 Employee Stock Purchase Plan, as amended.
10.28(12) Revolving Credit and Security Agreement, dated as
of September 15, 1998, between the Company and
Fleet National Bank.
10.29(12) Intellectual Property Security Agreement, dated as
of September 15, 1998, between the Company and
Fleet National Bank.
10.30(12) Promissory Note, dated as of September 15, 1998, made by the Company
in favor of Fleet National Bank.
10.31(12) Exclusive Distribution Agreement, dated as of August 14, 1998, between
the Company and COBE BCT, Inc.
10.32(12) Amended and Restated Master Strategic Alliance Agreement between the
Company and the American Red Cross.
10.33 Securities Purchase Agreement, dated as of March 23, 1999, between the
Company and Sepracor.
21.1(13) Subsidiaries of the Company.
23.1 Consent of PricewaterhouseCoopers LLP
27.1 Financial Data Schedule.
</TABLE>
<TABLE>
- - -----------------------
<S> <C>
(1) Management contract or other contract or arrangement filed as an exhibit to this
Form pursuant to Items 14(a) and 14(c) of Form 10-K.
(2) Incorporated herein by reference to the Company's Registration Statement on Form
S-1, as amended (File No. 33-75930).
(3) Incorporated herein by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1994.
(4) Incorporated herein by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1995.
(5) Incorporated herein by reference to the Company's Registration Statement on Form
S-1, as amended (File No. 33-95540).
(6) Incorporated herein by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1994.
(7) Incorporated herein by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995.
(8) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1996.
816623.6
I-3
<PAGE>
(9) Incorporated by reference to the Company's Current Report on Form 8-K filed with
the Securities and Exchange Commission on February 27, 1997.
(10) Incorporated by reference to the Company's Annual Report on Form 10-K for the
year ended December 31, 1996.
(11) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998.
(12) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1998.
(13) Incorporated by reference to the Company's Annual Report on Form 10-K for the
year ended December 31, 1997.
+ Confidential treatment requested as to certain portions.
</TABLE>
816623.6
I-4
<PAGE>
EXHIBIT 4.6
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of
March 23, 1999, is by and between Sepracor Inc., a Delaware corporation
("Sepracor"), and HemaSure Inc., a Delaware corporation (the "Company").
PRELIMINARY STATEMENT
WHEREAS, pursuant to a Securities Purchase Agreement of even date
herewith (the "Securities Purchase Agreement") by and between the parties
hereto, the Company issued and granted to Sepracor (i) 1,333,334 shares of
common stock, par value $.01 per share ("Common Stock"), of the Company, and
(ii) warrants to purchase 667,000 shares of Common Stock; and
WHEREAS, the Company and Sepracor desire to provide for certain
arrangements with respect to the registration of such shares of Common Stock
(the "Shares") under the Securities Act of 1933, as amended.
NOW THEREFORE, in consideration of these premises, and the respective
promises and covenants contained herein, the parties hereto agree as follows:
ARTICLE 1.
DEFINITIONS
Section 1.1 Certain Definitions. For purposes of this Agreement,
capitalized terms used herein and not defined elsewhere herein shall have the
following meanings:
"Act" means the United States Securities Act of 1933, as amended, or
any similar Federal statute, and the rules and regulations of the Commission
issued under the Act, as they each may, from time to time, be in effect.
"Commission" means the United States Securities and Exchange
Commission, or any other Federal agency at the time administering the Act.
"Common Stock" means the shares of common stock, par value $0.01 per
share, of the Company.
"Exchange Act" means the United States Securities Exchange Act of
1934, as amended, or any similar Federal statute, and the rules and regulations
of the Commission issued under the Exchange Act, as they each may, from time to
time, be in effect.
810765.2
<PAGE>
"Indemnified Party" has the meaning described in Section 2.4(c)
below.
"Indemnifying Party" has the meaning described in Section 2.4(c)
below.
"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 limited purpose, or any registration
statement covering only securities proposed to be issued in exchange for
securities or assets of another corporation).
"Registration Expenses" means all expenses incurred by the Company in
complying with Section 2.1 and Section 2.2, including, without limitation, all
registration and filing fees, exchange listing fees, printing expenses, fees and
disbursements of counsel for the Company, state Blue Sky fees and expenses, and
the expense of any special audits incident to or required by any such
registration, but excluding underwriting discounts on the Registrable Shares,
selling commissions on the Registrable Shares, transfer taxes and the fees and
expenses of any selling Stockholders', including such selling Stockholders' own
counsel, which shall be borne by the participating Stockholders in proportion to
the number of Registrable Shares offered by each.
"Registrable Shares" means (i) the Shares, and (ii) any other shares
of Common Stock issued in respect thereof (because of stock splits, stock
dividends, reclassifications, recapitalizations, or similar events); provided,
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 Act,
(ii) when such shares are eligible for resale pursuant to Rule 144 (k) (or its
successor) or in single transaction pursuant to Rule 144(e) (or its successor)
under the Act, or (iii) upon any sale, transfer or other disposition in any
manner to any person or entity which, by virtue of Section 2.9 of this
Agreement, is not entitled to the rights provided by this Agreement.
"Stockholders" means Sepracor and any person or entities to whom the
rights granted under this Agreement are validly transferred by Sepracor, and
their permitted successors or assigns pursuant to Section 2.9 hereof.
ARTICLE 2.
REGISTRATION RIGHTS
Section 2.1 Required Registrations.
(a) Commencing on the date hereof, a Stockholder or
Stockholders 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
810765.2
2
<PAGE>
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 $1,000,000 (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 OTC Bulletin Board 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
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 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 (2) 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 registering shares to be sold
by the Company.
(c) If at any 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 2.2, 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 request 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 60th 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.
Section 2.2 Incidental Registration.
(a) Whenever the Company proposes to file a Registration Statement at
any time and from time to time (including, to the extent the Company is so
permitted, a registration effected by the Company for stockholders other than
the Stockholder (a "Registration"), it will, prior to such filing, give written
notice to all Stockholders of its intention to do so and, upon the written
request
810765.2
3
<PAGE>
of a Stockholder or Stockholders given within 10 days after the Company provides
such notice (which request shall state the number of Registrable Shares to be
registered and the intended method of distribution of such Registrable Shares),
the Company shall, subject to Section 2.2(b) below, cause all Registrable Shares
which the Company has been requested by such Stockholder or Stockholders to be
included in the Registration; provided that the Company shall have the right to
postpone or withdraw any registration effected pursuant to this Section 2.2
without obligation or liability to any Stockholder.
(b) In connection with any Registration under this Section 2.2
involving an underwritten offering, the Company shall not be required to include
any Registrable Shares in such Registration unless the holders thereof accept
the terms of the underwriting as agreed upon between the Company and the
underwriters selected by it. If in the opinion of the managing underwriter
employed by the Company for the distribution of equity securities it shall
determine, in its sole discretion, that the registration of all, or part of, the
Registrable Shares which the holders have requested to be included would
interfere with the successful marketing of the proposed public 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 may be sold
without interfering with the successful marketing of the proposed public
offering. If the number of Registrable Shares to be included in Registration 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 underwritten offering pro rata based upon their total ownership of shares of
Common Stock of the Company. If any holder would thus be entitled to include
more shares than such holder requested to be registered, the excess shall be
allocated among other requesting holders pro rata based upon their total
ownership of shares of Common Stock of the Company.
Section 2.3 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
Act, the Company shall:
(i) file with the Commission a Registration Statement with
respect to such Registrable Shares and use its best efforts to cause
that Registration Statement to become and remain effective for such
period of time (not exceeding three 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 2.3(a)(i) above;
810765.2
4
<PAGE>
(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 each
selling Stockholder may reasonably request in order to facilitate the
public sale or other disposition of the Registrable Shares owned by
such 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 Stockholder
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 the 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 Securities in such additional
jurisdiction as any Stockholder may request subject to the limitation
of clause (x) and at such Stockholder's expense);
(v) if the distribution is to be made by means of an
underwritten public offering and subject to receiving reasonable
assurances of confidentiality, make available for inspection by the
underwriters and its counsel or other advisors, such financial and
other information and books and records of the Company, and cause the
officers, directors, employees, counsel and independent certified
public accountants of the Company to respond to such inquiries as
shall be reasonably necessary, in the judgment of such underwriters'
counsel, to conduct a reasonable investigation within the meaning of
Section 11 of the Act; and
(vi) use best efforts to make available to its security
holders, as soon as reasonably practicable, an earnings statement
covering a period of at least twelve months which shall satisfy the
provisions of Section 11(a) of the Act and Rule 158 thereunder.
(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 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
810765.2
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<PAGE>
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 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 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 in such
Stockholder's possession, of the prospectus covering such Registrable Shares
current at the time of receipt of such notice.
Section 2.4 Allocation of Expenses. The Company will pay all
Registration Expenses of all Registrations under this Agreement.
Section 2.5 Indemnification.
(a) In the event of any Registration of any of the Registrable Shares
under the Act pursuant to this Agreement, the Company will indemnify and hold
harmless the seller of such Registrable Shares, and each other person, if any,
who controls such seller within the meaning of the Act or the Exchange Act
against any losses, claims, damages or liabilities, joint or several, to which
such seller or controlling person may become subject under the 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 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 Section 2.5(c) below, the Company will reimburse
such seller and each such controlling person for any legal or any other expenses
reasonably incurred by such seller or controlling person in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the Company will not be liable in any such case to the
extent that any such loss, claim, damage or liability arises
810765.2
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<PAGE>
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 or controlling person for
use in the preparation thereof or inclusion therein.
The indemnity provisions in this Section 2.5(a) are subject to the
condition that, insofar as they relate 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 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
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 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 Act pursuant to this Agreement, each seller of Registrable Shares,
severally and not jointly, will indemnify and hold harmless the Company, each of
its directors and officers and each underwriter (if any), and each person, if
any, who controls the Company or any such underwriter within the meaning of the
Act or the Exchange Act, against any losses, claims, damages or liabilities,
joint or several, to which the Company, such directors and officers, underwriter
or controlling person may become subject under the Act, Exchange Act, state
securities or Blue Sky laws or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement of a material fact contained in any Registration
Statement under which such Registrable Shares were registered under the 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 statement therein not misleading, if
the statement or omission was made in conformity with information furnished in
writing to the Company by or on behalf of such seller, specifically for use in
connection with the preparation of or inclusion in 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 of them in connection with investigation or
defending any such loss, claim, damage, liability or action, provided, however,
in no event shall any Stockholder's indemnification obligations hereunder exceed
the gross proceeds (less any underwriting discounts and commissions) from the
sale of Registrable Shares by such Stockholder. This indemnity shall remain in
full force and effect for the applicable statute of limitation period
810765.2
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<PAGE>
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 2.5
(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 Indemnified Party to assume the
defense of any such claim or any litigation resulting therefrom; provided, that
counsel for the Indemnifying Party, who shall conduct the defense of such claim
or litigation, shall be approved by the Indemnified Party (whose approval shall
not be unreasonably withheld); and, provided, further, that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnified Party of its obligations under this Section 2.5, except to the
extent that such failure to give notice prejudices the Indemnifying Party or
such 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 any other party represented by such counsel in such
proceeding. No Indemnifying Party, in the defense of any such claim or
litigation shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect of such claim or
litigation, and no Indemnified Party shall consent to entry of any judgment or
settle such claim or litigation without the prior written consent of the
Indemnifying Party.
(d) If the indemnification provided for in this Section 2.5 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 Act in circumstances
for which indemnification is provided under this Section 2, 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 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
810765.2
8
<PAGE>
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 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 2.5 shall survive the
completion of any offering of Registrable Shares in a registration statement.
Section 2.6 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 2.2, the Company
agrees to enter into an underwriting agreement containing customary
representations and warranties with respect to the business and operations of
the Company and customary covenants and agreements to be performed by the
Company, 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 2 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.
Section 2.7 Information by Holder. Each holder of Registrable Shares
included in any Registration shall furnish to the Company such information
regarding such holder and the distribution proposed by such holder as the
Company may request in writing and as shall be required in connection with any
registration, qualification or compliance referred to in this Article 2.
Section 2.8 "Stand-Off" Agreement. Each Stockholder, if requested by
the Company and an underwriter of Common Stock or other securities of the
Company, shall agree not to sell 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 a Registration Statement; provided, that all officers and directors of
the Company enter into similar agreements. Such agreement shall be in writing in
a form satisfactory to the Company and such underwriter. The Company may impose
stop-transfer instructions with respect to the Registrable Shares or other
securities subject to the foregoing restriction until the end of the standoff
period.
810765.2
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Section 2.9 Transfer of Rights.
(a) The rights and obligations of Sepracor under this Agreement may
be transferred by Sepracor to another person or entity that is then a
stockholder of the Company, to any affiliate of the Company or Sepracor or to
any person or entity acquiring at least 10,000 Registrable Shares (as adjusted
for stock splits, stock dividends, recapitalization or similar events).
(b) Any transferee (other than a stockholder who is already a party
to an agreement in form and substance similar to this Agreement) to whom rights
under this Agreement are transferred shall, as a condition to such transfer,
deliver to the Company a written instrument by which such transferee identifies
itself, gives the Company notice of the transfer of such rights, indicates the
Registrable Shares owned by it and agrees to be bound by the obligations imposed
upon Sepracor under this Agreement.
(c) A transferee to whom rights are transferred pursuant to this
Section 2.9 may not again transfer such rights to any other person or entity,
other than as provided in this Section 2.9.
Section 2.10 Exchange Act Registration; Rule 144 Reporting. The
Company covenants and agrees that until such time as Sepracor no longer holds
any Registrable Shares (or such Registrable Shares otherwise cease to be
Registrable Shares) it will:
(a) use its best efforts to make and keep public information
available, as those terms are understood and defined in Rule 144 under the Act,
even if the Company subsequently ceases to be subject to such reporting
requirements; and
(b) file with the Commission in a timely manner all reports and
documents required of the Company under the Act and the Exchange Act.
ARTICLE 3.
MISCELLANEOUS
Section 3.1 Notices. All notices, requests, demands, claims, and
other communications hereunder shall be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly delivered two (2)
business days after it is sent by registered or certified mail, return receipt
requested, postage prepaid, or one (1) business day after it is sent via a
reputable nationwide overnight courier service, in each case to the intended
recipient as set forth below:
810765.2
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If to Sepracor:
Sepracor Inc.
111 Locke Drive
Marlborough, MA 01752
Facsimile: (508) 357-7495
Attention: Senior Vice President, Finance and Administration
with a copy to:
Hale and Dorr LLP
60 State Street
Boston, MA 02109
Facsimile: (617) 526-5000
Attn: John Chory, Esq.
If to the Company:
HemaSure Inc.
140 Locke Drive
Marlborough, MA 01752
Facsimile: (508) 485-6045
Attention: President and Chief Executive Officer
with a copy to:
Battle Fowler LLP
Park Avenue Tower
75 East 55th Street
New York, NY 10022
Facsimile: (212) 856-7816
Attention: Luke P. Iovine, III, Esq.
Either party hereto may hereto give any notice, request, demand, claim or other
communication hereunder using any other means (including personal delivery,
expedited courier, messenger service, telecopy, telex, ordinary mail or
electronic mail), but no such notice, request, demand, claim, or other
communication shall be deemed to have been duly given unless and until it
actually is received by the individual for whom it is intended. Either party
hereto may change the address to which notices, requests, demands, claims and
other communications hereunder are to be delivered by giving the other party
hereto notice in the manner herein set forth.
Section 3.2 Binding Effect. This Agreement shall be binding upon and
inure to the benefit of and be enforceable by the respective successors and
permitted assigns of the parties hereto.
810765.2
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Section 3.3 Headings. Article and Section headings used in this
Agreement are for convenience of reference only and shall not constitute a part
of this Agreement for any purpose or affect the construction of this Agreement.
Section 3.4 Survival of Agreements, Representations and Warranties.
All agreements, representations and warranties made herein shall survive the
execution and delivery of this Agreement.
Section 3.5 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.
Section 3.6 Governing Law. This Agreement shall be deemed to have
been made in the State of New York and the validity of this Agreement, the
construction, interpretation and enforcement thereof, and the rights of the
parties thereto shall be determined under, governed by, and construed in
accordance with the internal laws of the State of New York, without regard to
principles of conflicts of law.
Section 3.7 Arbitration. Any dispute or controversy arising under,
out of, in connection with, or in relation to this Agreement shall be determined
and settled by arbitration in New York by a panel of three (3) members in
accordance with the commercial rules of the American Arbitration Association.
Any award rendered therein shall be final and binding upon the parties and their
legal representatives, successors and assigns and judgment may be entered in any
court having jurisdiction thereof.
Section 3.8 Execution in Counterparts. This Agreement may be executed
in any number of counterparts and by different parties on separate counterparts,
each of which counterparts, when so executed and delivered, shall be deemed to
be an original and all of which counterparts, taken together, shall constitute
one and the same Agreement. This Agreement shall become effective upon the
execution of a counterpart hereof by each of the parties hereto.
(Signatures on Following Page)
810765.2
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date first above written.
HEMASURE INC.
By: /s/ James B. Murphy
------------------------------------
Name: James B. Murphy
Title: Senior Vice President of Finance
and Administration
SEPRACOR INC.
By: /s/ Robert Scumaci
------------------------------------
Name: Robert Scumaci
Title: Senior Vice President of Finance
and Administration
810765.2
<PAGE>
EXHIBIT 4.7
WARRANT AGREEMENT
THIS WARRANT AGREEMENT (this "Agreement"), dated as of
March 23, 1999 is by and between HEMASURE INC., a Delaware corporation
("HemaSure"), and SEPRACOR INC., a Delaware corporation (the "Holder").
W I T N E S S E T H:
WHEREAS, pursuant to a Securities Purchase Agreement of
even date herewith (the "Securities Purchase Agreement") by and between the
parties hereto, the Company (i) issued to the Holder 1,333,334 shares of common
stock, par value $.01 per share ("Common Stock"), of the Company, and (ii)
agreed to grant warrants (individually a "Warrant," and collectively, the
"Warrants") to purchase 667,000 shares of Common Stock, upon the terms and
conditions as set forth below.
NOW, THEREFORE, in consideration of these premises, and for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:
1. Grant. The Holder is hereby granted the right to
purchase 667,000 shares of Common Stock, at an exercise price of $1.50 per share
(the "Exercise Price") of Common Stock, at any time prior to 5:00 p.m., New York
City time on March 22, 2004, subject to the terms and conditions of this
Agreement.
2. Warrant Certificate. The warrant certificate (the
"Warrant Certificate") to be delivered pursuant to this Agreement shall be in
the form set forth in Annex I attached hereto, and made a part hereof, with such
appropriate insertions, omissions, substitutions, and other variations as
required or permitted by this Agreement.
3. Exercise of Warrants. The Warrants are exercisable at
the aggregate Exercise Price for the number of Warrants so exercised at any time
prior to 5:00 p.m. New York City time on March 22, 2004, subject to adjustment
as provided in Section 8 hereof. Payment of such Exercise Price shall be made,
at the option of the Holder specified in its notice of exercise, (i) by wire
transfer or by certified or official bank check payable to the order of the
Company in immediately available funds in lawful money of the United States of
America; or (ii) by reducing the number of shares of Common Stock issuable to
the Holder by a number of shares of Common Stock that have a value equal to the
Exercise Price which otherwise would have been paid. For purposes hereof, the
value of a share of Common Stock (the "Share Value") shall be the last reported
sale price of the Common Stock on the OTC Bulletin Board, or any other
interdealer quotation system on which the Common Stock is included for
quotation, or, if none, the fair
810920.2
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market value of such shares as reasonably determined by the Board of Directors
of the Company. Upon surrender of a Warrant Certificate with the annexed Form of
Election to Purchase duly executed, together with payment of the Exercise Price
for the shares of Common Stock purchased, if applicable, at HemaSure's principal
offices located at 140 Locke Drive, Marlborough, MA 01752, the Holder shall be
entitled to receive a certificate or certificates for the shares of Common Stock
so purchased. The purchase rights represented by the Warrant Certificate are
exercisable at the option of the Holder thereof, in whole or in part (but not as
to fractional shares of the Common Stock underlying the Warrants), but in no
event for less than 25,000 shares at any one time. In the case of the purchase
of less than all the shares of Common Stock purchasable under any Warrant
Certificate, HemaSure shall cancel said Warrant Certificate upon the surrender
thereof and shall execute and deliver a new Warrant Certificate of like tenor
for the balance of the shares of Common Stock purchasable thereunder.
4. Mandatory Exercise of Warrants. The Company may require
the Investor to exercise the purchase rights represented by the Warrant
Certificate, in whole, at any time from and after the date on which the Company
consummates a transaction whereby a third party provides equity financing to the
Company in the principal amount of Five Million Dollars ($5,000,000) or more and
the closing price of the Company's Common Stock as reported on the OTC Bulletin
Board, or any other interdealer quotation system or stock market or exchange on
which the Common Stock is quoted or listed, is greater than $3.00 per share for
15 consecutive trading days.
5. Issuance of Certificates. Upon the exercise of the
Warrants, the issuance of certificates for shares of Common Stock or other
securities, properties or rights underlying such Warrants shall be made
forthwith (and in any event within ten (10) business days thereafter) without
charge to the Holder including, without limitation, any tax which may be payable
in respect of the issuance thereof, and such certificates shall be issued in the
name of, or in such names as may be directed by, the Holder thereof; provided,
however, that HemaSure shall not be required to pay any tax which may be payable
in respect of any transfer involved in the issuance and delivery of any such
certificates in a name other than that of the Holder, and HemaSure shall not be
required to issue or deliver such certificates unless or until the person or
persons requesting the issuance thereof shall have paid to HemaSure the amount
of such tax or shall have established to the satisfaction of HemaSure that such
tax has been paid.
The Warrant Certificate and the certificates representing
the Shares shall be executed on behalf of HemaSure by the manual or facsimile
signature of the then present Chairman or Vice Chairman of the Board of
Directors or President or Chief Executive Officer or Vice President of HemaSure
under its corporate seal reproduced thereon, attested to by the manual or
facsimile signature of the then present Secretary or Assistant Secretary of
HemaSure. The Warrant Certificate shall be dated the date of execution by
HemaSure upon initial issuance, division, exchange, substitution or transfer.
-2-
810920.2
<PAGE>
6. Restriction on Transfer of Warrants. The Holder of the
Warrant Certificate, by its acceptance thereof, covenants and agrees:
(i) that the Warrants and the shares of Common Stock
issuable on exercise of the Warrants (the "Shares") are being
acquired as an investment and not with a view to the distribution
thereof;
(ii) that it understands that neither the Warrants nor the
Shares have been registered under the Securities Act of 1933, as
amended (the "Securities Act"), in reliance on an exemption therefrom
for transactions not involving any public offering, and that neither
the Warrants nor the Shares have been approved or disapproved by the
United States Securities and Exchange Commission or by any other
Federal or state agency;
(iii) it understands that neither the Warrants nor the
Shares can be sold, transferred or assigned unless registered by
HemaSure pursuant to the Securities Act and any applicable state
securities laws, or unless an exemption therefrom is available, and,
accordingly, it may not be possible for the undersigned to liquidate
its investment in the Warrants and the Shares, and it agrees not to
sell, assign or otherwise transfer or dispose of the Warrants or the
Shares unless such Warrants or Shares, as applicable, have been so
registered or an exemption from registration is available;
(iv) the Holder hereby acknowledges that all documents,
records and books pertaining to HemaSure's business have been made
available to the Holder and the Holder's attorney and/or accountant
and/or representative. The Holder has had an opportunity to ask
questions and receive answers from HemaSure concerning the business
and assets of HemaSure and all such questions have been answered to
the full satisfaction of the Holder; and
(v) it is an accredited investor, as that term is defined
in Regulation D under the Securities Act.
7. Securities Act of 1933; Legends. Upon exercise, in part
or in whole, of the Warrants, certificates representing the Shares underlying
the Warrant and any of the other securities issuable upon exercise of the
Warrant (the "Warrant Shares") shall bear the following legend only if such
Warrant Shares are not then registered pursuant to an effective registration
statement under the Act:
The securities represented by this certificate have not
been registered under the Securities Act of 1933, as
amended (the "Act"), and may not be offered or sold except
pursuant to (i) an effective registration statement under
the Act, (ii) to the extent applicable, Rule 144 under the
Act (or any similar rule under such Act relating to the
disposition of securities), or (iii) an opinion of counsel,
if such opinion shall be reasonably satisfactory to counsel
to the
-3-
810920.2
<PAGE>
issuer, that an exemption from registration under such Act
is available.
8. Subdivision and Combination. In case HemaSure shall at
any time subdivide or combine the outstanding shares of Common Stock, the
Exercise Price shall forthwith be proportionately decreased in the case of
subdivision or increased in the case of combination, and the number of shares
subject to the Warrant shall be proportionally increased or decreased, as the
case may be.
9. Merger or Consolidation. In case of any consolidation of
HemaSure with, or merger of HemaSure with, or merger of HemaSure into, another
corporation (other than a consolidation or merger which does not result in any
reclassification or change of the outstanding Common Stock), the corporation
formed by such consolidation or merger shall execute and deliver to the Holder a
supplemental warrant agreement having terms as nearly substantively equivalent
as practical to the terms hereof, providing that the Holder of each Warrant then
outstanding or to be outstanding shall have the right thereafter (until the
expiration of such Warrant) to receive, upon exercise of such warrant, the kind
and amount of shares of stock and other securities and property receivable upon
such consolidation or merger, by the Holder of the number of shares of Common
Stock of HemaSure for which such warrant might have been exercised immediately
prior to such consolidation, merger, sale or transfer. The above provision of
this subsection shall similarly apply to successive consolidations or mergers.
10. Exchange and Replacement of Warrant Certificates. Each
Warrant Certificate is exchangeable without expense, upon the surrender thereof
by the Holder at the principal executive office of HemaSure, for a new Warrant
Certificate of like tenor and date representing in the aggregate the right to
purchase the same number of Warrant Shares in such denominations as shall be
designated by the Holder thereof at the time of such surrender.
Upon receipt by HemaSure of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of any Warrant
Certificate, and, in case of loss, theft or destruction, of an indemnity
agreement reasonably satisfactory to it, and upon surrender and cancellation of
the Warrants, if mutilated, HemaSure will make and deliver a new Warrant
Certificate of like tenor, in lieu thereof.
11. Elimination of Fractional Interests. HemaSure shall not
be required to issue certificates representing fractions of shares of Common
Stock upon the exercise of the Warrants, nor shall it be required to issue scrip
or pay cash in lieu of fractional interests, it being the intent of the parties
that all fractional interests shall be eliminated by rounding any fraction up to
the nearest whole number of shares of Common Stock or other securities,
properties or rights.
12. Reservation of Securities. HemaSure shall at all times
reserve and keep available out of its authorized shares of Common Stock, solely
for the purpose of issuance upon the exercise of the Warrants, such number of
shares of Common Stock or other securities, properties or rights as shall be
issuable upon the exercise thereof.
-4-
810920.2
<PAGE>
13. Notices to the Holder. Nothing contained in this
Agreement shall be construed as conferring upon the Holder the right to vote or
to consent or to receive notice as a stockholder in respect of any meetings of
stockholders for the election of directors or any other matter, or as having any
rights whatsoever as a stockholder of HemaSure. If, however, at any time prior
to the expiration of the Warrants and their exercise, any of the following
events shall occur:
(a) HemaSure shall take a record of the holders
of its shares of Common Stock for the purpose of entitling
them to receive a dividend or distribution payable
otherwise than in cash, or a cash dividend or distribution
payable otherwise than out of current or retained earnings,
as indicated by the accounting treatment of such dividend
or distribution on the books of HemaSure;
(b) HemaSure shall offer to all of the holders of
its Common Stock any additional shares of capital stock of
HemaSure or securities convertible into or exchangeable for
shares of capital stock of HemaSure, or any option, right
or warrant to subscribe therefor; or
(c) a dissolution, liquidation or winding up of
HemaSure (other than in connection with a consolidation or
merger) or a sale of all or substantially all of its
property, assets and business as an entirety shall be
proposed;
then, in any one or more of said events, HemaSure shall give written notice of
such event at least fifteen (15) days prior to the date fixed as a record date
or the date of closing the transfer books for the determination of the
stockholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, or entitled to vote on such
proposed dissolution, liquidation, winding up or sale. Such notice shall specify
such record date or the date of closing the transfer books, as the case may be.
Failure to give such notice or any defect therein shall not affect the validity
of any action taken in connection with the declaration or payment of any such
dividend, or the issuance of any convertible or exchangeable securities, or
subscription rights, options or warrants, or any proposed dissolution,
liquidation, winding up or sale.
14. Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to have been
duly made and sent when delivered, or mailed by registered or certified mail,
return receipt requested:
(a) If to the Holder, to the address of the Holder as
shown on the books of HemaSure; or
(b) If to HemaSure, to the address set forth in
Section 3 hereof or to such other address as HemaSure may
designate by notice to the Holder.
-5-
810920.2
<PAGE>
15. Successors. All the covenants and provisions of this
Agreement shall be binding upon and inure to the benefit of HemaSure, the Holder
and their respective successors and assigns hereunder.
16. Termination. This Agreement shall terminate in its
entirety at 5:00 p.m., New York City time, on March 22, 2004.
17. Entire Agreement; Modification. This Agreement contains
the entire understanding between the parties hereto with respect to the subject
matter hereof and may not be modified or amended except by a writing duly signed
by the party against whom enforcement of the modification or amendment is
sought.
18. Severability. If any provision of this Agreement shall
be held to be invalid or unenforceable, such invalidity or unenforceability
shall not affect any other provision of this Agreement.
19. Captions. The caption headings of the Sections of this
Agreement are for convenience of reference only and are not intended, nor should
they be construed as, a part of this Agreement and shall be given no substantive
effect.
20. Benefits of this Agreement. Nothing in this Agreement
shall be construed to give to any person or corporation other than HemaSure or
the Holder any legal or equitable right, remedy or claim under this Agreement.
21. Governing Law. This Agreement shall be deemed to have
been made in the State of New York and the validity of this Agreement, the
construction, interpretation and enforcement thereof, and the rights of the
parties thereto shall be determined under, governed by, and construed in
accordance with the internal laws of the State of New York, without regard to
principles of conflicts of law.
22. Arbitration. Any dispute or controversy arising under,
out of, in connection with, or in relation to this Agreement shall be determined
and settled by arbitration in New York by a panel of three (3) members in
accordance with the commercial rules of the American Arbitration Association.
Any award rendered therein shall be final and binding upon the parties and their
legal representatives, successors and assigns and judgment may be entered in any
court having jurisdiction thereof.
23. Counterparts. This Agreement may be executed in any
number of counterparts and each of such counterparts shall for all purposes be
deemed to be an original, and such counterparts shall together constitute but
one and the same instrument. Photocopies or facsimiles of executed copies of
this Agreement may be treated as originals.
(Signatures on Following Page)
-6-
810920.2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, as of the day and year first above written.
HEMASURE INC.
By: /s/ James B. Murphy
------------------------------------
Name: James B. Murphy
Title: Senior Vice President of Finance
and Administration
SEPRACOR INC.
By: /s/ Robert Scumaci
-------------------------------
Name: Robert Scumaci
Title: Senior Vice President of Finance
and Adminstration
-7-
810920.2
<PAGE>
EXHIBIT 4.8
THE SECURITIES EVIDENCED HEREBY AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("ACT"),
OR UNDER THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE OFFERED OR SOLD EXCEPT
PURSUANT TO (I) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, (II) TO THE
EXTENT APPLICABLE, RULE 144 UNDER THE ACT (OR ANY SIMILAR RULE UNDER SUCH ACT
RELATING TO THE DISPOSITION OF SECURITIES), OR (III) AN OPINION OF COUNSEL, IF
SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL TO THE ISSUER, THAT AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
VOID AFTER 5:00 P.M., NEW YORK CITY TIME, ON MARCH 22, 2004
HEMASURE INC.
COMMON STOCK PURCHASE WARRANT CERTIFICATE
667,000 WARRANTS
THIS WARRANT CERTIFIES that SEPRACOR INC., a Delaware corporation
("Holder"), or registered assigns, is the owner of 667,000 Common Stock Purchase
Warrants (the "Warrants"), each of which entitles the registered holder thereof
(the "Warrant Holder") to purchase one fully paid and non-assessable share of
common stock, par value $.01 per share ("Common Stock"), of HemaSure Inc., a
Delaware corporation (the "Company"), at any time before 5:00 P.M., New York
City time on March 22, 2004, at a price of $1.50 per share of Common Stock
(subject to the adjustments hereinafter referred to), by surrendering this
Warrant Certificate, with the form of election to purchase attached hereto duly
executed, at the corporate office of the Company, and by paying in full for each
share of Common Stock as to which Warrants represented hereby are exercised, and
upon compliance with and subject to the conditions set forth in the Warrant
Agreement, dated as of March 23, 1999, between the Company and Holder (the
"Warrant Agreement").
Upon any exercise of Warrants evidenced hereby, the form of election
to purchase attached hereto must be properly completed and executed. In the
event that upon any exercise of Warrants evidenced hereby the number of Warrants
exercised shall be less than the total number of Warrants evidenced hereby,
there shall be issued to the holder hereof a new Warrant Certificate, in all
respects similar to this Warrant Certificate, evidencing the number of Warrants
not exercised. The purchase price per share of Common Stock, as adjusted from
time to time, is herein called the "Warrant Price" and the Warrant Price
multiplied by the number of shares of Common Stock purchased simultaneously is
herein called the "Purchase Price." The Purchase Price payable upon exercise of
Warrants shall be paid, at the option of the Holder specified in its notice of
exercise, (1) by wire transfer or by certified or official bank check payable to
the order of the Company in immediately available funds in lawful money of the
United States of America; or (ii) by reducing the number of shares of Common
Stock issuable to the Holder by a number of shares of Common Stock that have a
value equal to the Exercise Price which otherwise would have been paid. For the
purpose of any exercise pursuant to the previous sentence, the value of a share
of Common Stock shall be the last reported sale price of the Common Stock on the
OTC Bulletin Board, or any other interdealer quotation system on which the
Common Stock is included for quotation, or, if none, the fair market value of
such shares as reasonably determined by the Board of Directors of the Company.
810954.2
<PAGE>
No fraction of a share of Common Stock will be issued upon the
exercise of any Warrant. In any transaction in which Warrants are exercised, the
registered holder shall be entitled to purchase as many full shares as are
included in the product of the number of Warrants being exercised in the
transaction times the number of shares (including fractions of a share)
purchasable upon exercise of one Warrant.
This Warrant Certificate is issued under and the Warrants evidenced
hereby are subject to, the terms and provisions contained in the Warrant
Agreement, to all the terms and provisions of which the holder of this Warrant
Certificate, by acceptance hereof, assents. Reference is hereby made to the
Warrant Agreement for a more complete statement of the rights and limitations of
rights of the registered holder hereof and the rights and obligations of the
Company thereunder. Copies of the Warrant Agreement are on file at the office of
the Company.
This Warrant Certificate and similar Warrant Certificates when
surrendered at the corporate office of the Company by the registered holder
hereof in person or by attorney duly authorized in writing may be exchanged, in
the manner and subject to the limitations provided in the Warrant Agreement, but
without payment of any service charge, for another Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate the number of
Warrants evidenced by the Warrant Certificates so surrendered.
Upon due presentation for registration of transfer of this Warrant
Certificate at the corporate office of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate the number of
Warrants evidenced by this Warrant Certificate shall be issued to a transferee
in exchange for this Warrant Certificate, subject to the limitations provided in
the Warrant Agreement, without charge except for any tax or other governmental
charge imposed in connection therewith.
Prior to due presentment for registration of transfer of this Warrant
Certificate, the Company may deem and treat the registered holder hereof as the
absolute owner of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone other than the Company) for the
purpose of any exercise hereof and for notices and for all other purposes, and
the Company shall not be affected by any notice to the contrary.
No Warrant may be exercised after 5:00 P.M., New York City time, on
March 22, 2004, and to the extent not exercised by such time, all Warrants
evidenced hereby shall become void.
WITNESS the signature of the Company's duly authorized officer.
HEMASURE INC.
By: /s/ James B. Murphy
------------------------------------
Senior VP Finance and Administration
810954.2
-2-
<PAGE>
PURCHASE FORM
(To be completed and executed upon exercise of Warrant)
To HEMASURE INC.
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the within Warrant Certificate for, and to purchase
thereunder, _______ shares of Common Stock, as provided for therein, and
[tenders herewith payment of the purchase price in full in the form of [cash or
a certified or official bank check in the amount of $ ] or [an election to
purchase such shares of Common Stock pursuant to the net issuance provisions of
Section 3, clause (ii), of the Warrant Agreement.]
Please issue a certificate or certificates for such shares of Common
Stock in the name of, and pay any cash for any fractional share to:
Name:
------------------------------------------------------------------------
Address:
------------------------------------------------------------------------
Social Security or Tax I.D. Number:
---------------------------------------------
(Please Print)
Signature
-----------------------
NOTE: The above signature
should correspond
exactly with the name on
the face of this Warrant
Certificate or with the
name of assignee
appearing in the
assignment form below.
And, if said number of shares shall not be all the shares purchasable under the
within Warrant Certificate, a new Warrant Certificate is to be issued in the
name of said undersigned for the balance remaining of the shares purchasable
thereunder less any fraction of a share paid in cash.
Dated: , .
810954.2
<PAGE>
EXHIBIT 10.33
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (this "Agreement") is made this
23 day of March, 1999 by and between Hemasure Inc., a Delaware corporation (the
"Company"), and Sepracor Inc., a Delaware corporation (the "Investor").
WHEREAS, the Investor has agreed to purchase from the Company, and
the Company has agreed to sell to the Investor, shares of common stock, par
value $0.01 per share ("Common Stock"), of the Company, on such terms and
conditions as are set forth herein;
WHEREAS, the Investor has also agreed to purchase from the Company,
and the Company has agreed to sell to the Investor, warrants to purchase 667,000
shares of Common Stock, on such terms and conditions as are set forth herein;
NOW, THEREFORE, in consideration of these premises and the
representations, warranties and covenants set forth herein, and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto hereby agree as follows:
1. PURCHASE AND SALE OF SECURITIES
a. Issuance of Common Stock; Grant of Warrants.
i. Subject to the terms and conditions set forth in
this Agreement and in reliance upon the Company's
and the Investor's respective representations set
forth below, the Company hereby sells to the
Investor, and the Investor hereby purchases and
acquires from the Company, at the aggregate
purchase price of Two Million One Dollars
($2,000,001) (the "Purchase Price"), (i)
1,333,334 shares (the "Shares") of Common Stock
and (ii) warrants (the "Warrants") to purchase
667,000 additional shares of Common Stock (the
"Warrant Shares") at an exercise price of $1.50
per share, which Warrants shall be subject to the
terms and conditions of the Warrant Agreement
(the "Warrant Agreement") executed and delivered
by the Company and the Investor simultaneously
herewith.
ii. To evidence the purchase and sale described in
Section 1.1(a) above, simultaneously herewith,
the Company has executed and delivered to the
Investor, and the Investor hereby acknowledges
receipt of, a duly executed stock certificate
evidencing the Shares and a duly executed warrant
certificate evidencing the Warrants, each duly
registered in the Investor's name, against
delivery by the Investor to the Company of the
full Purchase
810712.2
<PAGE>
Price by wire transfer of immediately available
funds to such account as the Company has
designated.
iii. Simultaneously herewith, the Company and the
Investor have executed and delivered to the other
the Registration Rights Agreement in the form
attached hereto as Exhibit A.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Investor that:
a. Corporate Organization.
The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. The
Company has filed all necessary documents to qualify to do business as a foreign
corporation in, and the Company is in good standing under the laws of each
jurisdiction in which the conduct of the Company's business or the nature of the
property owned requires such qualification, except where the failure to so
qualify would not have a material adverse effect on the business, properties,
prospects, profits or condition (financial or otherwise) of the Company and its
subsidiaries taken as a whole (a "Material Adverse Effect"). The Company has all
requisite corporate power and authority and has all necessary approvals,
licenses, permits and authorization to own its properties and to carry on its
business as now conducted, except where the failure to have such power,
authority, approvals, licenses, permits and authorization would not have a
Material Adverse Effect. The Company has all requisite corporate power and
authority to execute and deliver this Agreement, the Warrant Agreement and the
Registration Rights Agreement (collectively, the "Transaction Documents") and to
perform its obligations hereunder and thereunder.
b. Capitalization.
On the date hereof, the authorized capital stock of the
Company consists of 20,000,000 shares of Common Stock and 1,000,000 shares of
preferred stock, par value $ 0.01 per share ("Preferred Stock"), of the Company,
of which 9,087,737 shares of Common Stock and no shares of Preferred Stock are
issued and outstanding. Except as set forth on Schedule 2(b) attached hereto,
there are no options, warrants, equity securities, calls, rights, commitments or
agreements of any character to which the Company is a party or by which it is
bound obligating the Company to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of capital stock of the Company or
obligating the Company to grant, extend, accelerate the vesting of or enter into
any such option, warrant, equity security, call, right, commitment or agreement.
All the outstanding shares of capital stock of the Company have been duly and
validly issued and are fully paid and non-assessable. Upon issuance, sale and
delivery as contemplated by this
810712.2
<PAGE>
Agreement, the Shares and the Warrant Shares will be duly authorized, validly
issued, fully paid and non-assessable shares of the Company, free of all
preemptive rights.
c. Corporate Proceedings, Etc.
The Board of Directors of the Company has authorized the
execution, delivery and performance by the Company of each of the Transaction
Documents to which it is a party and each of the transactions contemplated
hereby and thereby. No other corporate action is necessary to authorize such
execution, delivery and performance by the Company of such Transaction
Documents, and, upon such execution and delivery (assuming the due
authorization, execution and delivery by each party thereto other than the
Company), each of such Transaction Documents shall constitute the valid and
binding obligation of the Company, enforceable against the Company in accordance
with its terms, except that such enforcement may be subject to bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter in
effect relating to creditors' rights and general principles of equity. The
Company has authorized the issuance and delivery of the Shares in accordance
with this Agreement and has reserved for issuance shares of Common Stock
initially issuable upon exercise of the Warrants.
d. Absence of Defaults, Conflicts, Etc.
The execution and delivery of the Transaction Documents do
not, and the fulfillment of the terms hereof and thereof by the Company, and the
issuance of the Shares and the Warrant Shares will not, result in a breach of
any of the terms, conditions or provisions of, or constitute a default under, or
permit the acceleration of rights under or termination of, any material
indenture, mortgage, deed of trust, credit agreement, note or other evidence of
indebtedness, or other material agreement of the Company or any of its
subsidiaries, or the certificate of incorporation or the bylaws of the Company
(as amended through the date hereof), or, to the Company's knowledge, any rule
or regulation of any court or federal, state or foreign regulatory board or body
or administrative agency having jurisdiction over the Company or any of its
subsidiaries or over their respective properties or businesses. No consent,
approval, order or authorization of, or registration, declaration or filing
with, any court, administrative agency or commission or other governmental
authority or instrumentality is required by or with respect to the Company in
connection with the execution and delivery of this Agreement or the consummation
of the transactions contemplated hereby.
e. SEC Filings; Financial Statements.
i. The Company has filed and made available to the
Investor all forms, reports and documents
required to be filed by the Company with the
Securities and Exchange Commission ("SEC") since
January 1, 1998 other than registration
statements on Form S-8 (collectively, the
"Company SEC Reports"). The Company SEC Reports
(i) at the time filed, complied in all material
respects with the applicable requirements of the
Securities Act of
810712.2
<PAGE>
1933, as amended (the "Securities Act"), and the
Exchange Act, as the case may be, and (ii) did
not at the time they were filed (or if amended or
superseded by a filing prior to the date of this
Agreement, then on the date of such filing)
contain any untrue statement of a material fact
or omit to state a material fact required to be
stated in such Company SEC Reports or necessary
in order to make the statements in such Company
SEC Reports, in the light of the circumstances
under which they were made, not misleading.
ii. Each of the financial statements (including, in
each case, any related notes) contained in the
Company SEC Reports complied as to form in all
material respects with the applicable published
rules and regulations of the SEC with respect
thereto, was prepared in accordance with
generally accepted accounting principles applied
on a consistent basis throughout the periods
involved (except as may be indicated in the notes
to such financial statements or, in the case of
unaudited statements, as permitted by Form 10- Q
of the SEC) and fairly presented the financial
position of the Company as of the dates and the
results of its operations and cash flows for the
periods indicated, except that the unaudited
interim financial statements were or are subject
to normal and recurring year-end adjustments
which were not or are not expected to be material
in amount.
f. No Undisclosed Liabilities.
Except as disclosed in the Company SEC Reports filed prior
to the date hereof, and except for normal or recurring liabilities incurred
since September 30, 1998 in the ordinary course of business consistent with past
practices, the Company does not have any liabilities, either accrued, contingent
or otherwise (whether or not required to be reflected in financial statements in
accordance with generally accepted accounting principles), and whether due or to
become due, which individually or in the aggregate are reasonably likely to have
a Material Adverse Effect.
g. Agreements, Contracts and Commitments.
The Company has not breached, or received in writing any
claim or notice that it has breached, any of the terms or conditions of any
material agreement, contract or commitment filed as an exhibit to the Company
SEC Reports ("Material Contracts") in such a manner as, individually or in the
aggregate, are reasonably likely to have a Material Adverse Effect. Each
Material Contract that has not expired by its terms is in full force and effect.
h. Litigation.
Except as described in the Company SEC Reports filed prior
to the date hereof, there is no action, suit or proceeding, claim, arbitration
or investigation against the Company
810712.2
<PAGE>
pending or as to which the Company has received any written notice of assertion,
which, individually or in the aggregate, is reasonably likely to have a Material
Adverse Effect or a material adverse effect on the ability of the Company to
consummate the transactions contemplated by this Agreement.
i. Rights Agreement.
The entering into of this Agreement and the consummation of
the transactions contemplated hereby do not and will not result in the grant of
any rights to any person under any shareholder rights plan to which the Company
is a party.
j. No Other Representations or Warranties.
Except for the representations and warranties expressly
contained in this Agreement and the other Transaction Documents, neither the
Company nor any other person or entity makes any representation or warranty to
the Investor, express or implied, and the Company hereby disclaims any such
representation or warranty, whether by the Company or any of its agents, brokers
or representatives or any other person or entity, notwithstanding the delivery
or disclosure to the Investor or any of its officers, directors, employees,
agents or representatives or any other person or entity of any document or other
information by the Company or any of its agents, brokers or representatives or
any other person or entity.
3. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR
The Investor represents and warrants to the Company as
follows:
a. Investment Intent, Etc.
i. The Investor is acquiring the Shares, the Warrants and
the Warrant Shares (collectively, the "Purchased
Securities") for its own account, as an investment and
not with a view to the distribution thereof.
ii. The Investor understands that none of the Purchased
Securities have been registered under the Securities
Act of 1933, as amended (the "Securities Act") in
reliance on an exemption therefrom for transactions
not involving a public offering, and that none of the
Purchased Securities have been approved or disapproved
by the United States Securities and Exchange Commission
or by any other federal or state agency.
iii. The Investor understands that none of the Purchased
Securities may be sold, transferred or assigned unless
registered by the Company pursuant to the Securities
Act and any applicable state securities laws, or unless
810712.2
<PAGE>
an exemption therefrom is available, and, accordingly,
it may not be possible for the Investor to liquidate
its investment in the Purchased Securities, and it
agrees not to sell, assign or otherwise transfer or
dispose of any Purchased Securities unless such
Purchased Securities have been so registered or
an exemption from registration is available.
iv. The Investor is an accredited investor, as that term
is defined in Regulation D under the Securities Act.
b. Knowledge and Experience; Access to Information.
The Investor has such knowledge and experience in financial
and business matters that it is capable of evaluating the merits and risks of
its investment in the Company as contemplated by this Agreement and is able to
bear the economic risk of such investment for an indefinite period of time. The
Investor has been furnished access to such information and documents as it has
requested and has been afforded an opportunity to ask questions of and receive
answers from representatives of the Company concerning the terms and conditions
of this Agreement and the purchase of the Purchased Securities contemplated
hereby.
3.3 Corporate Organization.
The Investor is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. On the
date hereof, the Investor has provided or made available to the Company true and
complete copies of the charter and the bylaws of the Investor, as amended
through the date hereof.
3.4 Corporate Proceedings, Etc.
The Investor has authorized the execution, delivery, and
performance of the Transaction Documents and each of the transactions and
agreements contemplated hereby and thereby. No other action is necessary to
authorize such execution, delivery and performance by the Investor of the
Transaction Documents, and, upon such execution and delivery, each of the
Transaction Documents shall constitute the valid and binding obligation of the
Investor, enforceable against the Investor in accordance with its terms, except
that such enforcement may be subject to bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditors' rights and general principles of equity.
4. SECURITIES ACT; LEGENDS
Stock certificates representing the Shares shall bear the
following legend only if such Shares are not then registered pursuant to an
effective registration statement under the Securities Act:
810712.2
<PAGE>
The securities represented by this certificate have not
been registered under the Securities Act of 1933, as
amended (the "Act"), and may not be offered or sold except
pursuant to (i) an effective registration statement under
the Act, (ii) to the extent applicable, Rule 144 under the
Act (or any similar rule under such Act relating to the
disposition of securities), or (iii) an opinion of
counsel, if such opinion shall be reasonably satisfactory
to counsel to the issuer, that an exemption from
registration under such Act is available.
5. CONFIDENTIALITY
As to so much of the information and other material
furnished under or in connection with this Agreement (whether furnished before,
on or after the date hereof) as constitutes or contains confidential business,
financial or other information of the Company or any subsidiary, the Investor
covenants for itself and its directors and officers that it will use due care to
prevent its officers, directors, employees, counsel, accountants and other
representatives from disclosing such information to any other person or entity;
provided, however, the Investor may disclose or deliver any information or other
material disclosed to or received by it should the Investor be advised by its
counsel that such disclosure or delivery is required by law, regulation or
judicial or administrative order. For purposes of this Section 5, "due care"
means at least the same level of care that the Investor would use to protect the
confidentiality of its own sensitive or proprietary information, and this
obligation shall survive termination of this Agreement.
6. MISCELLANEOUS
a. Notices.
All notices, requests, demands, claims, and other
communications hereunder shall be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly delivered two (2)
business days after it is sent by registered or certified mail, return receipt
requested, postage prepaid, or one (1) business day after it is sent via a
reputable nationwide overnight courier service, in each case to the intended
recipient as set forth below:
810712.2
<PAGE>
If to the Company: Copy to:
HemaSure Inc. Battle Fowler LLP
140 Locke Drive Park Avenue Tower
Marlborough, MA 01752 75 East 55th Street
Attn: President and Chief New York, NY 10022
Executive Officer Attn: Luke P. Iovine, III, Esq.
Fax: 212-856-7816
If to the Investor: Copy to:
Sepracor Inc. Hale and Dorr LLP
111 Locke Drive 60 State Street
Marlborough, MA 01752 Boston, MA 02109
Attn: Senior Vice President, Attn: John Chory, Esq.
Finance and Administration Fax: 617-526-5000
Either party hereto may hereto give any notice, request, demand, claim or other
communication hereunder using any other means (including personal delivery,
expedited courier, messenger service, telecopy, telex, ordinary mail or
electronic mail), but no such notice, request, demand, claim, or other
communication shall be deemed to have been duly given unless and until it
actually is received by the individual for whom it is intended. Either party
hereto may change the address to which notices, requests, demands, claims and
other communications hereunder are to be delivered by giving the other party
hereto notice in the manner herein set forth.
b. Survival.
All warranties, representations and covenants made by the
Investor and the Company herein or in any certificate or other instrument
delivered by the Investor or the Company under this Agreement shall be
considered to have been relied upon by the Company or the Investor, as the case
may be, and shall survive all deliveries to the Investor of the Purchased
Securities or payment to the Company for the Purchased Securities, regardless of
any investigation made by the Company or the Investor, as the case may be, or on
the Company's or the Investor's behalf.
c. Successors and Assigns; No Third-Party Beneficiaries.
This Agreement shall inure to the benefit of and be binding
upon the successors and assigns of each of the parties; provided, however,
neither party hereto shall assign or delegate any of the obligations created
under this Agreement without the prior written consent of the other party.
Nothing in this Agreement shall confer upon any person or entity not a party to
this
810712.2
<PAGE>
Agreement, or the legal representatives of such person or entity, any rights or
remedies of any nature or kind whatsoever under or by reason of this Agreement.
d. Entire Agreement; Amendment and Waiver.
This Agreement, and the agreements attached hereto as
Exhibits, constitute the entire understandings of the parties hereto and
supersede all prior agreements or understandings with respect to the subject
matter hereof among such parties. This Agreement may be amended, and the
observance of any term of this Agreement may be waived, with (and only with) the
written consent of the Company and the Investor.
e. Severability.
In the event that any part or parts of this Agreement shall
be held illegal or unenforceable by any court or administrative body of
competent jurisdiction, such determination shall not effect the remaining
provisions of this Agreement which shall remain in full force and effect.
f. Paragraph and Section Headings.
The headings of the sections and subsections of this
Agreement are inserted for convenience only and shall not be deemed to
constitute a part thereof.
g. Governing Law.
This Agreement shall be deemed to have been made in the
State of New York and the validity of this Agreement, the construction,
interpretation and enforcement thereof, and the rights of the parties thereto
shall be determined under, governed by, and construed in accordance with the
internal laws of the State of New York, without regard to principles of
conflicts of law.
h. Arbitration.
Any dispute or controversy arising under, out of, in
connection with, or in relation to this Agreement or any other Transaction
Document shall be determined and settled by arbitration in New York by a panel
of three (3) members in accordance with the commercial rules of the American
Arbitration Association. Any award rendered therein shall be final and binding
upon the parties and their legal representatives, successors and assigns and
judgment may be entered in any court having jurisdiction thereof.
810712.2
<PAGE>
i. Counterparts.
This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original and all of which together shall be
considered one and the same agreement.
(Signatures on Following Page)
810712.2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused their
duly authorized officers to execute this Agreement as of the date first above
written.
HEMASURE INC.
By:/s/ James B. Murphy
---------------------------------------
Name: James B. Murphy
Title: Senior Vice President of Finance
and Administration
SEPRACOR INC.
By:/s/ Robert Scumaci
---------------------------------------
Name: Robert Scumaci
Title: Senior Vice President of Finance
and Administration
810712.2
<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, 1998 AND IS QUALIFED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 1,827
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 206
<CURRENT-ASSETS> 3,383
<PP&E> 3,354
<DEPRECIATION> 1,849
<TOTAL-ASSETS> 5,655
<CURRENT-LIABILITIES> 3,346
<BONDS> 0
<COMMON> 91
0
0
<OTHER-SE> (2,923)
<TOTAL-LIABILITY-AND-EQUITY> 5,655
<SALES> 25
<TOTAL-REVENUES> 25
<CGS> 657
<TOTAL-COSTS> 657
<OTHER-EXPENSES> 11,335
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (372)
<INCOME-PRETAX> (12,170)
<INCOME-TAX> 0
<INCOME-CONTINUING> (12,170)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,170)
<EPS-PRIMARY> (1.35)
<EPS-DILUTED> 0
</TABLE>
