FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
......................................
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 0-23776
..............................................
HemaSure Inc.
....................................................................
(Exact name of registrant as specified in its charter)
Delaware 04-3216862
.................................................... ....................
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization ) Identification No.)
140 Locke Drive, Marlborough, Massachusetts 01752
................................................................
(Address of principal executive offices)
(Zip Code)
(508) 490-9500
................................................................
(Registrant's telephone number, including area code)
Not Applicable
................................................................................
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock, par value $.01 per share 14,921,071
- -------------------------------------- ----------
Class Outstanding at May 7, 1999
835307.2
<PAGE>
<TABLE>
<CAPTION>
HemaSure Inc.
INDEX
- -----
Page
----
<S> <C> <C>
PART I Financial Information.
Item 1. Financial Statements. 1
Consolidated Balance Sheets as of March 31, 1999 and December 31, 1998 1
Consolidated Statements of Operations for the Three Month Periods Ended
March 31, 1999 and 1998 2
Consolidated Statements of Cash Flows for the Periods Ended March 31, 1999
and 1998 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations. 7
PART II Other Information. 11
Item 1. Legal Proceedings. 11
Item 2. Changes in Securities and Use of Proceeds. 12
Item 3. Defaults Upon Senior Securities. 12
Item 4. Submission of Matters to a Vote of Security Holders. 12
Item 5. Other Information. 12
Item 6. Exhibits and Reports on Form 8-K. 12
Signatures 14
</TABLE>
835307.2
<PAGE>
<TABLE>
<CAPTION>
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements.
HemaSure Inc.
Consolidated Balance Sheets
(In thousands) March 31, December 31,
1999 1998
--------------------- -----------------------------
<S> <C> <C>
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 955 $ 1,827
Accounts receivable 6 -
Inventories 197 206
Deferred financing costs 1,024 1,024
Prepaid expenses 264 326
--------------------- -----------------------------
Total current assets 2,446 3,383
Property and equipment, net 1,448 1,505
Deferred financing costs long-term 469 725
Other assets 50 42
--------------------- -----------------------------
Total assets $ 4,413 $ 5,655
===================== =============================
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
Current liabilities:
Accounts payable $ 1,136 $ 1,542
Accrued expenses 1,688 1,549
Notes payable - current portion 27 27
Capital lease obligations-current portion 201 228
--------------------- -----------------------------
Total current liabilities 3,052 3,346
Capital lease obligations 45 68
Notes payable 5,066 5,073
--------------------- -----------------------------
Total liabilities 8,163 8,487
--------------------- -----------------------------
Stockholders' (deficit):
Common stock 104 91
Additional paid-in capital 73,571 71,584
Accumulated deficit (77,425) (74,507)
--------------------- -----------------------------
Total stockholders' (deficit) (3,750) (2,832)
Total liabilities and stockholders' (deficit) $ 4,413 $ 5,655
===================== =============================
The accompanying notes are an integral part of the financial statements.
</TABLE>
835307.2
1
<PAGE>
<TABLE>
<CAPTION>
HemaSure Inc.
Consolidated Statements of Operations
For The Three Month Periods Ended
March 31, 1999 and 1998
(Unaudited)
Three-month periods
ended March 31,
---------------------------------------------------
(In thousands, except per share amounts)
1999 1998
----------------------- ---------------------
<S> <C> <C>
Revenues $ 4 $ 25
Costs and expenses:
Cost of products sold 335 657
Research & development 524 762
Legal expense related to patents 840 1,062
Selling, general and administrative 849 1,011
----------------------- ---------------------
Total costs and expenses 2,548 3,492
======================= =====================
Loss from operations (2,544) (3,467)
Interest income 11 74
Interest expense (385) (36)
----------------------- ---------------------
Net (loss) $(2,918) $(3,429)
======================= =====================
Net (loss) per share - basic and diluted $ (0.32) $ (0.38)
======================= =====================
Weighted average number of shares of common 9,221 8,991
stock outstanding - basic and diluted
The accompanying notes are an integral part of the financial statements.
</TABLE>
835307.2
2
<PAGE>
<TABLE>
<CAPTION>
HemaSure Inc.
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands) Three-month periods
ended March 31,
-----------------------------------------------------------------
1999 1998
------------------------------- ---------------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(2,918) $(3,429)
Adjustments to reconcile net loss to net cash
used in operating activities
Financing costs related to warrants 256 -
Depreciation and amortization 97 187
Accretion of marketable securities discount - 15
Loss on disposal of equipment - 5
Changes in operating assets and liabilities:
Accounts receivable (6) 436
Inventories 9 13
Prepaid expenses 62 118
Accounts payable and accrued expenses (267) (591)
------------------------------- ---------------------------
Net cash used in operating activities (2,767) (3,246)
Cash flows from investing activities:
Purchase of available-for-sale marketable securities - (15,265)
Maturities of available-for-sale marketable securities - 17,639
Additions to property and equipment (40) (136)
Decrease in other assets (8) -
------------------------------- ---------------------------
Net cash (used in) provided from investing activities (48) 2,238
Cash flows from financing activities:
Proceeds from issuance of common stock 2,000 1
Repayments of notes payable (7) (9)
Repayments of capital lease obligations (50) (60)
------------------------------- ---------------------------
Net cash provided from (used in) financing activities 1,943 (68)
------------------------------- ---------------------------
Net (decrease) in cash and cash equivalents (872) (1,076)
Cash and cash equivalents at beginning of period 1,827 1,274
------------------------------- ---------------------------
Cash and cash equivalents at end of period $ 955 $ 198
=============================== ===========================
The accompanying notes are an integral part of the financial statements.
</TABLE>
835307.2
3
<PAGE>
HemaSure Inc.
Notes To Consolidated Financial Statements
1. Basis of Presentation
The accompanying financial statements are unaudited and have been
prepared on a basis substantially consistent with the audited
financial statements.
Certain information and footnote disclosures normally included in the
Company's annual statements have been condensed or omitted. The
condensed interim financial statements, in the opinion of management,
reflect all adjustments (including normal recurring accruals)
necessary for a fair statement of the results for the interim periods
ended March 31, 1999 and 1998.
The results of operations for the interim periods are not necessarily
indicative of the results of operations to be expected for the fiscal
year. These interim financial statements should be read in
conjunction with the audited financial statements for the year ended
December 31, 1998, which are contained in the Company's Form 10K
(File No. 0-23776), filed with the Securities and Exchange Commission
on March 31, 1999.
<TABLE>
<CAPTION>
2. Inventories
Inventories consist of the following:
March 31, 1999 December 31, 1998
-------------- -----------------
<S> <C> <C>
Raw Materials $ 197 $ 206
Work in progress - -
Finished goods - -
----------------------- -------------------------
$ 197 $ 206
======================= =========================
3. Property and Equipment
Property and equipment consists of the following:
March 31, 1999 December 31, 1998
-------------- -----------------
Property and equipment $ 2,904 $ 2,904
Less accumulated depreciation and amortization $ (1,946) $ (1,849)
--------------------------- ---------------------
$ 958 $ 1,055
Construction in progress $ 490 $ 450
--------------------------- ---------------------
$ 1,448 $ 1,505
=========================== =====================
</TABLE>
4. Convertible subordinated note payable
In January 1997, the Company entered into a Restructuring Agreement
of the debt related to its acquisition of Novo Nordisk's plasma
products unit. The amount included in the balance sheet at December
31, 1997
835307.2
4
<PAGE>
includes the effect of the Restructuring Agreement net of a
$3,000,000 contingency amount to reflect the most probable result of
the Company's decision to exit the plasma business. On January 6,
1998, $8,687,000 of debt, which the Company believes was the entire
amount outstanding as of the date of conversion, was converted into
Common Stock at a conversion price of $10.50 per share, or 827,375
shares, pursuant to the terms of the note. The holder of the note has
contested the conversion of the note, including the forgiveness of
the $3,000,000 amount.
5 In March 1999, the Company completed a private placement financing
with Sepracor in which the Company received $2,000,000 in exchange
for 1,333,334 shares of common stock of the Company and warrants to
purchase and additional 667,000 shares of common stock at $1.50 per
share. The warrants expire in the year 2004 and have certain
registration rights associated with them. In certain circumstances,
HemaSure may require Sepracor to exercise these warrants.
6. Net loss per share
The net loss per share is based on the weighted average number of
common stock outstanding during the period. Common Share equivalents
are not included in the per share calculation where the effect of
their inclusion would be antidilutive. Common Share equivalents of
the Company consists of common stock warrants and stock options. The
Company had 5,519,028 and 2,889,420 Common Share equivalents at March
31, 1999 and 1998, respectively.
7. Litigation
The Company is a defendant in two lawsuits brought by Pall
Corporation ("Pall") on its LeukoNet Prestorage Leukoreduction
Filter, which is no longer made or sold by the Company. In complaints
filed in February 1996 and November 1996, Pall alleged that the
Company's manufacture, use and/or sale of the LeukoNet product
infringes upon three patents held by Pall.
On October 14, 1996, in connection with the first action concerning
U.S. Patent No. 5,451,321 (the "'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
waits for a decision from the Federal Circuit. Remaining discovery
relating to the damages phase of the first action has been completed.
With respect to the second action concerning U.S. Patent Nos.
4,952,572 (the "'572 patent") and 4,340,479 (the "'479 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 and '479 patents.
Pall has amended its Complaint to add Lydall, Inc. whose subsidiary
supplied filter media for the LeukoNet product, as a co-defendant and
has dropped its claims that the LeukoNet product infringes the '479
patent. The Company has filed for summary judgment of
non-infringement, and Pall has cross-filed for summary judgment of
infringement at the same time. Lydall supported the Company's motion
for summary judgment of non-infringement, and has filed 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.
On April 5, 1999, the Company and COBE BCT, Inc. filed a complaint
for declaratory relief against Pall in the U.S. District Court of
Colorado. The Company and COBE BCT, Inc. seek declaratory relief that
Pall's U.S. patent No's. 4925,572, 5,229,012, 5,344,561, 5,451,321,
5,501,795 and 5,863,436 are invalid
835307.2
5
<PAGE>
and not infringed by the Company's r\LS filter and methods of using
the r\LS filter. No response has been filed.
On April 23, 1999 Pall filed a complaint against the Company and COBE
BCT, Inc. in the Eastern District of New York alleging that
HemaSure's r\LS filter infringes Pall's '572 patent, tortuously
interfered and unfairly competed with Pall's business. HemaSure was
served with the complaint on April 30, 1999.
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
and the r\LS filter did not infringe any valid enforceable claims of
the Pall patents. The Company also 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 r\LS filter do not infringe any valid enforceable claims of the
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.
8. Subsequent Event
On May 3, 1999, the Company completed a private placement financing
with COBE Laboratories, Inc. ("COBE"). The financing agreement
provides for an initial investment of $9,000,000 in exchange for
4,500,000 shares of the Company's common stock. The agreement also
provides COBE with an option to purchase an additional $3,000,000 of
common stock of the Company at any time between August 3, 1999 and
May 3, 2000. Should COBE exercise its option, the number of shares to
be issued will be based on the average closing price of the Company's
common stock for the thirty-day period prior to the exercise. The
financing agreement provides that COBE will have representation on
the Company's Board of Directors and its representative committees
and contains among other things various registration rights and
anti-dilution and standstill provisions customary in such agreements.
In connection with the financing, the Company completed an Amended
and Restated Exclusive Distribution Agreement with COBE. The amended
distribution agreement expands the territory in which COBE will
distribute the Company's products to make it worldwide, excluding
sales to the American Red Cross. In addition, the agreement provides
for joint efforts related to the defense of HemaSure's products
against intellectual property claims made by third parties. As in the
original agreement, there is a provision for the development of
additional products to be incorporated by COBE into its automated
blood component equipment.
835307.2
6
<PAGE>
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations.
Results of Operations
Overview
HemaSure was established in December 1993 as a wholly owned subsidiary of
Sepracor Inc. ("Sepracor"). 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 products are
designed for use in blood centers and hospital blood banks worldwide.
In June 1995 the Company received 510(K) premarket notification clearance from
the United States Food and Drug Administration for its first generation
leukoreduction system, the LeukoNet Pre-Storage Leukoreduction System ("LeukoNet
System") and began commercialization of this product in the second half of 1995.
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 r\LS
System. In May 1998, the Company filed a 510(K) premarket notification
application for the r\LS System. The Company began accepting orders for the r\LS
outside of the U.S. in the first quarter 1999. All of the Company's other
planned blood-related products are in the research and development state, 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.
The Company is subject to risks common to small 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, access to sources of capital, protection of proprietary technology
and compliance with FDA regulations.
Three months ended and 1998 Revenues were $4,000 for the quarter ended compared
to $25,000 in the same period in 1997. Revenues for the first quarter 1998
represent the sale of the Company's 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. Revenues for the first quarter 1999 represent the sale
of the Company's r\LS System outside of the U.S.
Total cost of products sold exceeded total product sales in all periods due to
the high costs associated with low volume production.
Research and development expenses were $524,000 in the first quarter of 1999
compared to $762,000 in the first quarter of 1998. The decrease in the three
month period is primarily attributable to a lower level of development costs
associated with the development of the r\LS System as the Company awaits
clearance of this product by the FDA.
Legal expenses related to patents were $840,000 in the first quarter of 1999
compared to $1,062,000 in the first quarter of 1998. The costs in both
three-month periods are primarily associated with defending the Company's patent
position in its outstanding litigation with Pall Corp.
Selling, general and administrative expenses were $849,000 in the three months
ended compared to $1,011,000 in the three months ended March 31, 1998. The
decrease in the three-month period is primarily attributable to lower sales and
marketing costs associated with the Company's decision to focus on the
development of the r\LS filter. The Company expects that such sales and
marketing costs will increase upon anticipated increases in sales of its
products.
Interest income for the quarter ended of $11,000 decreased compared to the
quarter ended March 31, 1998 of $74,000 due to lower average cash and marketable
securities balances available for investment. Interest expense
835307.2
7
<PAGE>
for the quarter ended of $385,000 increased compared to the quarter ended March
31, 1998 of $36,000 related to a note payable which was not in existence during
the first quarter 1998 offset by a lower average capital lease obligation
balance.
Liquidity and Capital Resources
The net decrease in cash and cash equivalents for the three months ended was
$872,000. This decrease is attributable primarily to net cash used in operating
activities of $2,767,000 and net cash used in investing activities of $48,000
offset in part by net cash provided from financing activities of $1,943,000.
Net cash used in operating activities is primarily attributable to the net loss
of $2,918,000 and a decrease in accounts payable and accrued expense balances of
$267,000, offset in part by financing costs related to warrants of $256,000,
depreciation and amortization of $97,000 and lower prepaid expense balances of
$62,000. Net cash provided from financing activities relates primarily to
proceeds from the issuance of common stock of $2,000,000 in March 1999.
In January 1997, the Company entered into a Restructuring Agreement of the debt
related to its acquisition of Novo Nordisk's plasma products unit. The amount
included in the balance sheet at December 31, 1997 includes the effect of the
Restructuring Agreement net of a $3,000,000 contingency amount to reflect the
most probable result of the Company's decision to exit the plasma business. On
January 6, 1998, $8,687,000 of debt, which the Company believes was the entire
amount outstanding as of the date of conversion, was converted into Common Stock
at a conversion price of $10.50 per share, or 827,375 shares, pursuant to the
terms of the note. The holder of the note has contested the conversion of the
note, including the forgiveness of the $3,000,000 amount.
In March 1999, the Company completed a private placement financing with Sepracor
in which the Company received $2,000,000 in exchange for 1,333,334 shares of
common stock of the Company and warrants to purchase an additional 667,000
shares of common stock at $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.
On May 3, 1999, the Company completed a private placement financing with COBE.
The financing agreement provides for an initial investment of $9,000,000 in
exchange for 4,500,000 shares of the Company's common stock. The agreement also
provides COBE with an option to purchase an additional $3,000,000 of common
stock of the Company at any time between August 3, 1999 and May 3, 2000. Should
COBE exercise its option, the number of shares to be issued will be based on the
average closing price of the Company's common stock for the thirty-day period
prior to the exercise. The financing agreement provides that COBE will have
representation on the Company's Board of Directors and its representative
committees and contains, among other things, various registration rights and
anti-dilution and standstill provisions customary in such agreements.
The Company believes, based on its current operating plan, that its current
available cash balances together with the private placement financing completed
in May 1999 with COBE will be sufficient to fund its operations into the year
2000. 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.
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
835307.2
8
<PAGE>
the other systems are themselves "Year 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 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. Furthermore, 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.
835307.2
9
<PAGE>
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 March 31, 1999 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."
835307.2
10
<PAGE>
PART II - OTHER INFORMATION
Items 1. Legal Proceedings.
The Company is a defendant in two lawsuits brought by Pall
on its LeukoNet Prestorage Leukoreduction Filter, which is
no longer made or sold by the Company. 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
waits for 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 and the '479 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 and '479
patents. Pall has amended its Complaint to add Lydall, Inc.
whose subsidiary supplied filter media for the LeukoNet
product, as a co-defendant and has dropped its claims that
the LeukoNet product infringes the '479 patent. The Company
has filed for summary judgment of non-infringement, and
Pall has cross-filed for summary judgment of infringement
at the same time. Lydall supported the Company's motion for
summary judgment of non-infringement, and has filed 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.
On April 5, 1999, the Company and COBE BCT, Inc. filed a
complaint for declaratory relief against Pall in the U.S.
District Court of Colorado. The Company and COBE BCT, Inc.
seek declaratory relief that Pall's U.S. patent No's.
4,925,572, 5,229,012, 5,344,561, 5,451,321, 5,501,795 and
5,863,436 are invalid and not infringed by the Company's
r\LS filter and methods of using the r\LS filter. No
response has been filed.
On April 23, 1999 Pall filed a complaint against the
Company and COBE BCT, Inc. in the Eastern District of New
York alleging that HemaSure's r\LS filter infringes Pall's
'572 patent, tortuously interfered and unfairly competed
with Pall's business. The Company was served with the
complaint on April 30, 1999.
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 and the r\LS filter do
not infringe any valid enforceable claims of the Pall
patents. The Company also 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 r\LS filter do not infringe
any valid enforceable claims of the 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.
835307.2
11
<PAGE>
Items 2. Changes in Securities and Use of Proceeds.
On March 23, 1999, the Company completed a private
placement financing with Sepracor in which the Company
received $2,000,000 in exchange for 1,333,334 shares of
common stock of the Company and warrants to purchase an
additional 667,000 shares of common stock at $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.
On May 3, 1999, the Company completed a private placement
financing with COBE, who is an accredied investor. The
financing agreement provides for an initial investment of
$9,000,000 in exchange for 4,500,000 shares of the
Company's common stock. The agreement also provided COBE
with an option to purchase, subject to certain conditions,
an additional $3,000,000 of common stock of the Company at
any time between August 3, 1999 and May 3, 2000. The number
of shares to be issued will be based on the average closing
price of the Company's common stock for the thirty-day
period prior to the exercise.
In each case set forth in this Item 2, the securities were
issued pursuant to exemptions from the registration
requirements of the Securities Act of 1933, as amended,
under Section 4(2).
Items 3 - 5. None.
Item 6. Exhibits and Reports on Form 8-K.
Exhibit Index
-------------
(a) The following exhibits are filed as part of this Quarterly Report on
Form 10-Q.
Exhibit No. Description
----------- -----------
2.1(2) Heads of Agreement, dated as of January 31, 1996, between the
Company and Novo Nordisk A/S.
3.1(1) Certificate of Incorporation of the Company.
3.2(1) By-Laws of the Company.
4.1(1) Specimen Certificate for shares of Common Stock, $.01 par value,
of the Company.
4.2(3) Registration Rights Agreement, dated January 23, 1997, by and
among the Company and Novo Nordisk A/S.
4.3(4) Registration Rights Agreement, dated as of September 15, 1998,
between the Company and Sepracor.
4.4(4) Warrant Agreement, dated as of September 15, 1998, between the
Company and Sepracor.
4.5(4) Warrant Certificate, dated as of September 15, 1998, between the
Company and Sepracor.
4.6(5) Registration Rights Agreement, dated as of March 23, 1999,
between the Company and Sepracor.
835307.2
12
<PAGE>
Exhibit No. Description
----------- -----------
4.7(5) Warrant Agreement, dated as of March 23, 1999, between the
Company and Sepracor.
4.8(5) Warrant Certificate, dated as of March 23, 1999, between the
Company and Sepracor.
4.9 Stock Subscription Agreement, dated as of May 3, 1999, between
the Company and COBE
4.10 Stockholder's Agreement, dated as of May 3, 1999, between the
Company and COBE
10.1 (5) Securities Purchase Agreement, dated as of March 23, 1999,
between the Company and Sepracor.
10.2 Amended and Restated Exclusive Distribution Agreement, dated as
of May 3, 1999, between the Company and COBE
10.3 Senior Management Retention Agreement, dated as of December 7,
1998, between the Company and John F. McGuire.
10.4 Senior Management Retention Agreement, dated as of December 15,
1998, between the Company and James B. Murphy.
10.5 Senior Management Retention Agreement, dated as of December 22,
1998, between the Company and Peter C. Sutcliffe.
27.1 Financial Data Schedule.
- --------------------------------
1) Incorporated herein by reference to the Company's
Registration Statement on Form S-1, as amended (File No.
33-75930).
2) Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995.
3) Incorporated by reference to the Company's Annual Report
on Form 10-K for the year ended December 31, 1996.
4) Incorporated by reference to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1998.
5) Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1998.
b) Reports on Form 8-K - None
835307.2
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HemaSure Inc.
Date: May 17, 1999 /s/ John F. McGuire
-------------------------------------
John F. McGuire
President and Chief Executive Officer
(Principal Executive Officer)
Date: May 17, 1999 /s/ James B. Murphy
-------------------------------------
James B. Murphy
Senior Vice President Finance
and Administration
(Principal Financial Officer)
835307.2
14
<PAGE>
Exhibit 4.09
================================================================================
--------------------------------------
STOCK SUBSCRIPTION AGREEMENT
--------------------------------------
By and Between
HEMASURE INC.
and
COBE LABORATORIES, INC.
Dated May 3, 1999
================================================================================
837579.1
<PAGE>
TABLE OF CONTENTS
Section Page
ARTICLE I
DEFINITIONS
SECTION 1.01. Certain Defined Terms........................................1
SECTION 1.02. Other Definitions............................................4
SECTION 1.03. Terms Generally..............................................5
ARTICLE II
SUBSCRIPTION AND SALE
SECTION 2.01. Subscription and Sale of the Shares..........................6
SECTION 2.02. Firm Share Purchase Price....................................6
SECTION 2.03. First Closing................................................6
SECTION 2.04. The Option; Option Purchase Price............................6
SECTION 2.05. The Option Closing...........................................7
SECTION 2.06. Closing Deliveries by the Company............................7
SECTION 2.07. Closing Deliveries by the Purchaser..........................8
SECTION 2.08. Other First Closing Deliveries...............................9
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 3.01. Organization, Authority and Qualification of the Company;
Subsidiaries.................................................9
SECTION 3.02. Capital Stock of the Company; Ownership of the Shares.......10
SECTION 3.03. No Conflict.................................................10
SECTION 3.04. Governmental Consents and Approvals.........................11
SECTION 3.05. SEC Filings; Financial Statements...........................11
SECTION 3.06. No Undisclosed Liabilities..................................12
SECTION 3.07. Conduct of the Business.....................................12
SECTION 3.08. Litigation..................................................12
SECTION 3.09. Compliance with Laws........................................12
SECTION 3.10. Material Contracts..........................................12
SECTION 3.11. Intellectual Property.......................................13
SECTION 3.12. Year 2000 Compliance........................................14
SECTION 3.13. Title to Properties; Absence of Encumbrances................14
SECTION 3.14. Employee Benefit Matters; Labor Matters.....................14
SECTION 3.15. Brokers.....................................................15
837579.1
-i-
<PAGE>
SECTION 3.16. Limitations on Representations and Warranties...............15
SECTION 3.17. Disclosure Schedule.........................................16
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
SECTION 4.01. Organization and Authority of the Purchaser..................16
SECTION 4.02. No Conflict..................................................16
SECTION 4.03. Governmental Consents and Approvals..........................17
SECTION 4.04. Investment Purpose...........................................17
SECTION 4.05. Status of Shares; Limitations on Transfer
and Other Restrictions.......................................17
SECTION 4.06. Sophistication and Financial Condition of Purchaser..........17
SECTION 4.07. Year 2000 Compliance.........................................17
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.01. Actions Regarding Market.....................................18
SECTION 5.02. Confidentiality..............................................18
SECTION 5.03. Public Announcements.........................................18
SECTION 5.04. Capital Increase.............................................18
SECTION 5.05. Further Action...............................................19
ARTICLE VI
INDEMNIFICATION
SECTION 6.01. Survival of Representations and Warranties....................19
SECTION 6.02. Indemnification...............................................19
SECTION 6.03. Limits on Indemnification.....................................21
ARTICLE VII
GENERAL PROVISIONS
SECTION 7.01. Waiver.......................................................21
SECTION 7.02. Expenses.....................................................22
SECTION 7.03. Notices......................................................22
SECTION 7.04. Headings.....................................................23
SECTION 7.05. Severability.................................................23
SECTION 7.06. Entire Agreement.............................................23
837579.1
-ii-
<PAGE>
SECTION 7.07. Assignment...................................................24
SECTION 7.08. No Third Party Beneficiaries.................................24
SECTION 7.09. Amendment....................................................24
SECTION 7.10. Governing Law................................................24
SECTION 7.11. Arbitration..................................................24
SECTION 7.12. Counterparts................................................ 25
SECTION 7.13. Specific Performance........................................ 25
EXHIBITS
2.06(d) Form of Opinion of the Company's Counsel
2.07(c)(i) Form of Opinion of Internal Counsel of the Purchaser
2.07(c)(ii) Form of Opinion of the Purchaser's Outside Counsel
837579.1
-iii-
<PAGE>
STOCK SUBSCRIPTION AGREEMENT, dated May 3, 1999, by and between
HEMASURE INC., a Delaware corporation (the "Company"), and COBE LABORATORIES,
INC., a Colorado corporation (the "Purchaser").
W I T N E S S E T H:
WHEREAS, the Company wishes to issue and sell to the Purchaser, and the
Purchaser wishes to purchase from the Company, up to $12,000,000 of common
stock, par value $.01 per share, of the Company ("Common Stock"), upon the terms
and subject to the conditions set forth herein. All shares of Common Stock which
may be purchased pursuant to this Agreement are collectively referred to as the
"Shares"; and
WHEREAS, simultaneously with the execution of this Agreement, the
parties hereto are executing the Stockholder's Agreement (as defined below) and
the Distribution Agreement (as defined below);
NOW, THEREFORE, in consideration of the premises and the mutual
agreements and covenants hereinafter set forth, the Purchaser and the Company
hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Certain Defined Terms. As used in this Agreement, the
following terms shall have the following meanings:
"Action" means any claim, action, suit, arbitration, inquiry,
proceeding or investigation by or before any Governmental Authority.
"Affiliate" means, with respect to any specified Person, any other
Person that directly, or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with, such specified
Person.
"Agreement" or "this Agreement" means this Stock Subscription
Agreement, dated May 3, 1999, by and between the Company and the Purchaser
(including the Exhibits hereto and the Disclosure Schedule) and all amendments
hereto made in accordance with the provisions of Section 7.09.
"Alliance Agreements" means this Agreement, the Stockholder's Agreement
and the Distribution Agreement.
"Business" means the business of the development and manufacture of
leukoreduction products.
837579.1
<PAGE>
2
"Business Day" means any day that is not a Saturday, a Sunday or other
day on which banks are required or authorized by law to be closed in The City of
New York.
"Code" means the Internal Revenue Code of 1986, as amended through the
date hereof.
"Company Systems" shall mean all computer, hardware, software, systems
and equipment (including embedded microcontrollers in noncomputer equipment)
embedded within or required to operate the current products of the Company
(i.e., currently distributed, currently supported or subject to valid agreements
requiring the Company to provide support, maintenance, enhancement or bug
fixes), and/or material to or necessary for the Company to carry on the Business
as currently conducted.
"Control" (including the terms "controlled by" and "under common
control with"), with respect to the relationship between or among two or more
Persons, means the possession, directly or indirectly or as trustee or executor,
of the power to direct or cause the direction of the affairs or management of a
Person, whether through the ownership of voting securities, as trustee or
executor, by contract or otherwise, including, without limitation, the
ownership, directly or indirectly, of securities having the power to elect a
majority of the board of directors or similar body governing the affairs of such
Person.
"Disclosure Schedule" means the Disclosure Schedule delivered in
connection with this Agreement, dated as of the date hereof, and incorporated
herein by reference.
"Distribution Agreement" means the Amended and Restated Distribution
Agreement, dated the date hereof, between the Company and the Purchaser.
"Encumbrance" means any security interest, pledge, mortgage, lien
(including, without limitation, environmental and tax liens), charge,
encumbrance, adverse claim, preferential arrangement or restriction of any kind,
including, without limitation, any restriction on the use, voting, transfer,
receipt of income or other exercise of any attributes of ownership, but
excluding Permitted Encumbrances.
"Governmental Authority" means any United States federal, state, local,
supranational or any foreign government, governmental, regulatory or
administrative authority, agency or commission or any court, tribunal, or
judicial or arbitral body.
"Governmental Order" means any order, writ, judgment, injunction,
decree, stipulation, determination or award entered by or with any Governmental
Authority.
"Intellectual Property" means (i) United States, international and
foreign patents, patent applications and statutory invention registrations, (ii)
trademarks, service marks, trade dress, logos, and other source identifiers,
including registrations and applications for registration
837579.1
<PAGE>
3
thereof, (iii) copyrights, including registrations and applications for
registration thereof, (iv) confidential and proprietary information, including
trade secrets and know-how and (v) material computer software developed by or on
behalf of the Company, or manufactured, distributed, sold, licensed or marketed
by the Company.
"Law" means any federal, state, local or foreign statute, law,
ordinance, regulation, rule, code, order, other requirement or rule of law.
"Leased Real Property" means the real property leased by the Company,
as tenant, together with, to the extent leased by the Company, all buildings and
other structures, facilities or improvements currently or hereafter located
thereon, all fixtures, systems, equipment and items of personal property of the
Company attached or appurtenant thereto, and all easements, licenses, rights and
appurtenances relating to the foregoing.
"Liabilities" means any and all debts, liabilities and obligations,
whether accrued or fixed, absolute or contingent, matured or unmatured or
determined or determinable, including, without limitation, those arising under
any Law (including, without limitation, any Environmental Law), Action or
Governmental Order and those arising under any contract, agreement, arrangement,
commitment or undertaking.
"Material Adverse Effect" means any circumstance, change in, or effect
on the Business, the Company or any Subsidiary that, individually or in the
aggregate with any other circumstances, changes in, or effects on, the Business,
the Company or any Subsidiary is, or would be reasonably expected to be,
materially adverse to the Business, financial condition or results of operations
of the Company and the Subsidiaries, taken as a whole.
"Permitted Encumbrances" means such of the following as to which no
enforcement, collection, execution, levy or foreclosure proceeding shall have
been commenced: (a) liens for taxes, assessments and governmental charges or
levies not yet due and payable which are not in excess of the amount accrued
therefor on the Company Balance Sheet; (b) Encumbrances imposed by law, such as
materialmen's, mechanics', carriers', workmen's and repairmen's liens and other
similar liens arising in the ordinary course of business securing obligations
that (i) are not overdue for a period of more than 30 days and (ii) are not in
excess of $25,000 in the case of a single property or $100,000 in the aggregate
at any time; (c) pledges or deposits to secure obligations under workers'
compensation laws or similar legislation or to secure public or statutory
obligations; and (d) minor survey exceptions, reciprocal easement agreements and
other customary encumbrances on title to real property that (i) were not
incurred in connection with any indebtedness, (ii) do not render title to the
property encumbered thereby unmarketable and (iii) do not, individually or in
the aggregate, materially adversely affect the value or use of such property for
its current and anticipated purposes.
837579.1
<PAGE>
4
"Person" means any individual, partnership, firm, corporation,
association, trust, unincorporated organization or other entity, as well as any
syndicate or group that would be deemed to be a person under Section 13(d)(3) of
the Exchange Act.
"Purchase Price Bank Account" means a bank account in the United
States to be designated by the Company in a written notice to the Purchaser at
least five Business Days before each Closing.
"Purchaser Systems" shall mean all computer, hardware, software,
systems and equipment (including embedded microcontrollers in noncomputer
equipment) embedded within or required to operate the current products of the
Purchaser (i.e., currently distributed, currently supported or subject to valid
agreements requiring the Purchaser to provide support, maintenance, enhancement
or bug fixes), and/or material to or necessary for the Purchaser to carry on its
business as currently conducted.
"SEC" means the United States Securities and Exchange Commission.
"Stockholder's Agreement" means the Stockholder's Agreement, dated the
date hereof, by and between the Company and the Purchaser.
"Subsidiaries" means HemaPharm Inc., a Delaware corporation, HemaSure
A/S, a company organized under the laws of the Kingdom of Denmark, and HemaSure
A/B, a company organized under the laws of the Kingdom of Sweden.
"Vendors" means any and all vendors who are unaffiliated with the
Company or the Purchaser, as the case may be, who supply raw materials,
components, spare parts, supplies, goods, merchandise or services to the Company
or the Purchaser, as the case may be.
"Year 2000 Compliant" means that the Company Systems or Purchaser
Systems, as the case may be, provide uninterrupted millennium functionality in
that the Company Systems or Purchaser Systems, as the case may be, will record,
store, process and present calendar dates falling on or after January 1, 2000,
in the same manner and with the same functionality as the Company Systems or
Purchaser Systems, as the case may be, record, store, process and present
calendar dates falling on or before December 31, 1999.
SECTION 1.02. Other Definitions. The meanings of the following terms
can be found in the Sections of this Agreement indicated below:
Term Section
---- -------
Capital Increase......................Section 2.04(b)
Closing...............................Section 2.05
Closing Date..........................Section 2.05
837579.1
<PAGE>
5
COBE..................................Section 3.01(a)
Common Stock..........................Recitals
Company...............................Preamble
Company Balance Sheet.................Section 3.05(b)
Company Benefit Plans.................Section 3.14
Company Loss..........................Section 6.02(b)
Company SEC Reports...................Section 3.05(a)
Confidentiality Agreement.............Section 5.02
ERISA.................................Section 3.14(a)
Exchange Act..........................Section 3.04
Exercise Date.........................Section 2.04(a)
FDA...................................Section 3.09(a)
Firm Shares...........................Section 2.01
First Closing.........................Section 2.03
First Closing Date....................Section 2.03
First Purchase Price..................Section 2.02
Indemnified Party.....................Section 6.02(c)
Indemnifying Party....................Section 6.02(c)
IRS...................................Section 3.14(d)
Licensed Intellectual Property........Section 3.11(a)
Loss..................................Section 6.02(b)
Material Contracts....................Section 3.10(a)
Multiemployer Plan....................Section 3.14(b)
Multiple Employer Plan................Section 3.14(b)
Option................................Section 2.04(a)
Option Closing........................Section 2.05
Option Closing Date...................Section 2.05
Option Purchase Price.................Section 2.04(a)
Option Shares.........................Section 2.04(a)
Owned Intellectual Property...........Section 3.11 (a)
Per Share Option Purchase Price.......Section 2.04(a)
Preferred Stock.......................Section 3.02
Purchase Price........................Section 2.04(a)
837579.1
<PAGE>
6
Purchaser.............................Preamble
Purchaser Loss........................Section 6.02(a)
Regulated Products....................Section 3.09(a)
Securities Act........................Section 3.05(a)
Sepracor..............................Section 2.08
Shares................................Recitals
Third Party Claims....................Section 6.02(c)
SECTION 1.03. Terms Generally. References in this Agreement to
articles, sections, paragraphs, clauses, schedules and exhibits are to articles,
sections, paragraphs, clauses,
schedules and exhibits in or to this Agreement unless otherwise indicated.
Whenever the context may require, any pronoun includes the corresponding
masculine, feminine and neuter forms. Any term defined by reference to any
agreement, instrument or document has the meaning assigned to it whether or not
such agreement, instrument or document is in effect. The words "include",
"includes" and "including" are deemed to be followed by the phrase "without
limitation". Unless the context otherwise requires, any agreement, instrument or
other document defined or referred to herein refers to such agreement,
instrument or other document as from time to time amended, supplemented or
otherwise modified from time to time. Unless the context otherwise requires,
references herein to any Person include its successors and assigns. The words
"shall" and "will" have the same meaning and effect.
ARTICLE II
SUBSCRIPTION AND SALE
SECTION 2.01. Subscription and Sale of the Shares. On the date hereof,
the Company shall sell to the Purchaser, and the Purchaser shall purchase from
the Company, 4,500,000 shares of Common Stock (the "Firm Shares").
SECTION 2.02. Firm Share Purchase Price. The aggregate purchase price
to be paid by the Purchaser to the Company for the Firm Shares is $9,000,000,
payable at the First Closing (as defined below) by wire transfer in immediately
available funds (the "First Purchase Price").
SECTION 2.03. First Closing. The subscription and purchase of the Firm
Shares contemplated by this Agreement is taking place at a closing (the "First
Closing") being held at the offices of Shearman & Sterling, 599 Lexington
Avenue, New York, New York on the date hereof ("First Closing Date").
SECTION 2.04. The Option; Option Purchase Price. (a) Subject to Section
2.04(b) below, the Company hereby grants to the Purchaser the right and option
(the "Option") to purchase, at the election of the Purchaser, $3,000,000 (the
"Option Purchase Price") in aggregate value of Common Stock ("Option Shares")
for a price per share equal to the Per Share Option Purchase Price. The Option
may be exercised by the Purchaser on one occasion at any time during the period
commencing 90 days after the First Closing and expiring on the first year
anniversary date of the First Closing, and the Option must be exercised in its
entirety, if at all. The "Per Share Option Purchase Price" shall be equal to the
average closing price of each share of the Common Stock as quoted on the OTC
bulletin board during the 30 trading days immediately prior to the date (the
"Exercise Date") the Purchaser shall provide irrevocable written notice to the
Company of its intent and agreement to exercise the Option, which notice shall
include the Purchaser's calculation of the number of Option Shares the Purchaser
elects to purchase and the Purchaser's calculation of the Per Share Option
Purchase Price. The Option Purchase Price shall
837579.1
<PAGE>
7
be payable at the Option Closing (as defined below), if any, by wire transfer in
immediately available funds. Each of the First Purchase Price and the Option
Purchase Price is individually referred to as a "Purchase Price." For so long as
the Option shall remain unexercised without the exercise period of the Option
having expired, the Company shall reserve from time to time, as is reasonably
practicable, such number of shares of its authorized but unissued Common Stock
as shall enable the Company to issue Option Shares to the Purchaser.
(b) Notwithstanding anything herein to the contrary, the Option shall
not be deemed granted, nor may it be exercised, until such time as the
stockholders of the Company duly approve an amendment to the certificate of
incorporation of the Company increasing the number of authorized shares of
Common Stock from 20,000,000 shares to 35,000,000 shares (the "Capital
Increase"), and such amended certificate of incorporation is filed with the
Secretary of State of Delaware.
SECTION 2.05. The Option Closing. The purchase of the Option Shares
pursuant to the Option shall take place at a closing (the "Option Closing" and
each of the First Closing and the Option Closing is referred to individually as
a "Closing") to be held at the offices of Shearman & Sterling, 599 Lexington
Avenue, New York, New York at 10:00 A.M. New York time on the tenth Business Day
after the Exercise Date or at such other place or at such other time or on such
other date as the Company and the Purchaser may mutually agree upon in writing
(the day on which the Option Closing takes place being the "Option Closing Date"
and each of the First Closing Date and the Option Closing Date being referred to
individually as a "Closing Date").
SECTION 2.06. Closing Deliveries by the Company. At each Closing, the
Company shall deliver or cause to be delivered to the Purchaser:
(a) a newly issued stock certificate, issued to the Purchaser and
evidencing the Shares being purchased at such Closing;
(b) a receipt for the applicable Purchase Price;
(c) for the First Closing only, a true and complete copy, certified by
the Secretary or an Assistant Secretary of the Company, of the resolutions
duly and validly adopted by the board of directors of the Company evidencing
(i) its authorization of the execution and delivery of the Alliance
Agreements and the consummation of the transactions contemplated hereby and
thereby, including the issuance of the Firm Shares and the Option Shares
(upon exercise of the Option), (ii) the expansion of the board of directors
of the Company from five to seven directors and the election of the
individuals designated by the Purchaser in writing to the board of directors
(which designees shall be to the reasonable satisfaction of the Company),
each to serve until the next annual meeting of the Company's stockholders
and (iii) the appointment of at least one of the Purchaser's designees to
each committee of the board of directors;
837579.1
<PAGE>
8
(d) from Battle Fowler LLP, a legal opinion, addressed to the Purchaser
and dated such Closing Date, substantially in the form of Exhibit 2.06(d)
(except that with respect to the Option Closing Battle Fowler LLP will only
be required to deliver the opinion in Paragraph 6 of Exhibit 2.06(b));
(e) for the First Closing only, a copy of (i) the certificate of
incorporation, as amended, of the Company, certified by the Secretary of
State of Delaware, as of a date not earlier than five Business Days prior to
the applicable Closing Date and accompanied by a certificate of the
Secretary or Assistant Secretary of the Company, dated as of the applicable
Closing Date, stating that no amendments have been made to such certificate
of incorporation since such date, and (ii) the by-laws of the Company,
certified by the Secretary or Assistant Secretary of the Company;
(f) for the First Closing only, good standing certificates for the
Company from the Secretary of State of Delaware dated as of a date not
earlier than five Business Days prior to such Closing Date; and
(g) for the First Closing only, a certificate of the registrar and
transfer agent of the Company, certifying the number of outstanding shares
of Common Stock of the Company as of a date not more than two Business Days
prior to such Closing Date.
SECTION 2.07. Closing Deliveries by the Purchaser. At each Closing, the
Purchaser shall deliver to the Company:
(a) the applicable Purchase Price to the Purchase Price Bank Account;
(b) a receipt acknowledging delivery of the stock certificate specified
in Section 2.06(a);
(c) for the First Closing only, a legal opinion addressed to the
Company and dated such Closing Date from (i) internal counsel for the
Purchaser, substantially in the form of Exhibit 2.07(c)(i) hereto, and (ii)
Shearman & Sterling, as outside counsel to the Purchaser, substantially in
the form of Exhibit 2.07(c)(ii) hereto;
(d) for the First Closing only, a true and complete copy, certified by
the Secretary or Assistant Secretary of the Purchaser, of the resolutions
duly and validly adopted by the board of directors of the Purchaser
evidencing its authorization of the execution and delivery of the Alliance
Agreements and the consummation of the transactions contemplated hereby and
thereby;
(e) for the First Closing only, a copy of (i) the certificate of
incorporation, as amended, of the Purchaser, certified by the Secretary of
State of Colorado, as of a date not earlier than five Business Days prior to
the applicable Closing Date and accompanied
837579.1
<PAGE>
9
by a certificate of the Secretary or Assistant Secretary of the Purchaser,
dated as of the applicable Closing Date, stating that no amendments have
been made to such certificate of incorporation since such date, and (ii) the
by-laws of the Purchaser, certified by the Secretary or Assistant Secretary
of the Purchaser; and
(f) for the First Closing only, a good standing certificate for the
Purchaser from the Secretary of State of Colorado as of a date not earlier
than five Business Days prior to such Closing Date.
SECTION 2.08. Other First Closing Deliveries. At the First Closing, the
Company shall cause to be delivered to the Purchaser a side letter agreement
from Sepracor, Inc., a Delaware company ("Sepracor"), addressed to the Company
to the effect that Sepracor will vote its shares of Common Stock beneficially
owned by it in favor of the Capital Increase.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
As an inducement to the Purchaser to enter into this Agreement, the
Company hereby represents and warrants to the Purchaser as follows:
SECTION 3.01. Organization, Authority and Qualification of the Company;
Subsidiaries. (a) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware and the Company has
all necessary corporate power and authority to enter into each of this Agreement
and the other Alliance Agreements, to carry out its obligations hereunder and
thereunder and to consummate the transactions contemplated hereby and thereby.
The Company is duly qualified to do business and is in good standing in each
jurisdiction in which the properties owned or leased by it or the operation of
its Business makes such qualification necessary, except to the extent that the
failure to be so qualified would not, individually or in the aggregate, have a
Material Adverse Effect. The execution and delivery of this Agreement and the
other Alliance Agreements by the Company, the performance by the Company of its
obligations hereunder and thereunder and the consummation by the Company of the
transactions contemplated hereby and thereby have been duly authorized by all
requisite action on the part of the Company other than, with respect to the
Capital Increase, the approval of the Capital Increase by the stockholders of
the Company and the filing with the Secretary of State of Delaware of an amended
certificate of incorporation of the Company relating to the Capital Increase.
Each of the Alliance Agreements has been duly executed and delivered by the
Company, and (assuming due authorization, execution and delivery by the
Purchaser and COBE BCT, Inc. ("COBE"), as the case may be) each of the Alliance
Agreements constitutes a legal, valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, except as may be
limited by bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights and general
837579.1
<PAGE>
10
principles of equity. The Company is not in violation of any of the provisions
of its certificate of incorporation or by-laws.
(b) The Subsidiaries are the only Persons in which the Company
beneficially owns a 10% or greater equity interest (directly or indirectly),
except as disclosed in Section 3.01(b) of the Disclosure Schedule, no Subsidiary
has any material assets, Liabilities or business activities, and no Subsidiary,
currently or at any time in the past, has owned or leased any real property.
SECTION 3.02. Capital Stock of the Company; Ownership of the Shares. As
of the date hereof and without giving effect to the consummation of the
transactions contemplated hereby, the authorized capital stock of the Company
consists of 20,000,000 shares of Common Stock and 1,000 shares of preferred
stock, par value $.0l per share, of the Company ("Preferred Stock"). As of the
date hereof, (a) (i) 10,421,071 shares of Common Stock are issued and
outstanding, all of which are validly issued, fully paid and nonassessable, (ii)
no shares of Common Stock are held in the treasury of the Company, and (iii)
6,788,028 shares of Common Stock are reserved for issuance pursuant to the
exercise of any rights to purchase, or options, warrants or other securities
convertible into or exchangeable for, Common Stock, including the Option
(assuming a $2.00 Per Share Option Purchase Price), (b) no shares of Preferred
Stock have been issued and are outstanding and (c) 219,860 shares of Common
Stock are authorized for issuance pursuant to the Company Benefit Plans. None of
the issued and outstanding shares of Common Stock was issued in violation of any
preemptive rights. Except for the Company Benefit Plans and the warrants
described above, there are no options, warrants, convertible securities or other
rights, agreements, arrangements or commitments relating to the capital stock of
the Company or obligating the Company to issue or sell any shares of capital
stock of, or any other equity interest in, the Company. There are no outstanding
contractual obligations of the Company to repurchase, redeem or otherwise
acquire any shares of Common Stock or to provide funds to, or make any
investment (in the form of a loan, capital contribution or otherwise) in, any
other Person. Upon consummation of the First Closing as contemplated hereby,
including receipt by the Company of the First Purchase Price, the Firm Shares
owned by Purchaser will be fully paid and nonassessable. Upon consummation of
the Option Closing as contemplated hereby, including receipt by the Company of
the Option Purchase Price, the Option Shares owned by the Purchaser will be
fully paid and nonassessable.
SECTION 3.03. No Conflict. The execution, delivery and performance of
the Alliance Agreements by the Company do not and will not (a) violate, conflict
with or result in the breach of any provision of the charter or by-laws of the
Company, (b) conflict with or violate any Law or Governmental Order applicable
to the Company or any of its assets, properties or businesses, including,
without limitation, the Business, or (c) except as disclosed in Section 3.03 of
the Disclosure Schedule, conflict with, result in any breach of, constitute a
default (or event which with the giving of notice or lapse of time, or both,
would become a default) under, require any consent under, or give to others any
rights of termination, amendment, acceleration, suspension, revocation or
cancellation of, or result in the creation of any Encumbrance on any of
837579.1
<PAGE>
11
the assets or properties of the Company pursuant to, any note, bond, mortgage or
indenture, contract, agreement, lease, sublease, license, permit, franchise or
other instrument, obligation or arrangement to which the Company is a party or
by which any of its assets or properties is bound or affected, except, with
respect to clauses (b) and (c), as would not, individually or in the aggregate,
have a Material Adverse Effect.
SECTION 3.04. Governmental Consents and Approvals. The execution,
delivery and performance of the Alliance Agreements by the Company do not and
will not require any consent, approval, authorization or other order of, action
by, filing with or notification to any Governmental Authority, except for the
applicable requirements, if any, of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and except as disclosed in Section 3.04 of the
Disclosure Schedule.
SECTION 3.05. SEC Filings; Financial Statements. (a) Except as set
forth in Section 3.10(a) of the Disclosure Schedule, the Company has filed all
forms, reports and documents required to be filed by it with the SEC since
January 1, 1998 (collectively, the "Company SEC Reports"). As of the respective
dates on which they were filed, (i) the Company SEC Reports complied in all
material respects with the requirements of the Securities Act of 1933, as
amended (together with the rules and regulations promulgated thereunder, the
"Securities Act"), and the Exchange Act, as the case may be, and (ii) none of
the Company SEC Reports contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements made therein, in the light of the circumstances
under which they were made, not misleading.
(b) Each of the consolidated financial statements (including, in each
case, any notes thereto) contained in the Company SEC Reports was prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods indicated (except as may be indicated in the notes
thereto or, in the case of unaudited statements, as permitted by Form 10-Q and
Regulation S-X of the SEC), and each presented fairly, in all material respects,
the consolidated financial position, results of operations and cash flows of the
Company as at the respective dates thereof and for the respective periods
indicated therein, except as otherwise noted therein (subject, in the case of
unaudited statements, to normal and recurring year-end adjustments that could
not be reasonably expected to, individually or in the aggregate, have a Material
Adverse Effect). The balance sheet of the Company contained in the Company SEC
Reports as of December 31, 1998 is hereinafter referred to as the "Company
Balance Sheet."
(c) The Company has no current intention of filing with the SEC any
amendments or modifications on Exchange Act Form 10K-A and is not currently
obligated to file any report on Exchange Act Form 8-K (except as may be required
with respect to the transactions contemplated hereby), pursuant to the
Securities Act or the Exchange Act.
SECTION 3.06. No Undisclosed Liabilities. There are no Liabilities of
the Company which would be required to be reflected on a balance sheet, or the
notes thereto,
837579.1
<PAGE>
12
prepared in accordance with generally accepted accounting principles, other than
Liabilities (i) reflected or reserved against on the Company Balance Sheet, (ii)
disclosed in Section 3.06 of the Disclosure Schedule or (iii) incurred since the
date of the Company Balance Sheet in the ordinary course of the business,
consistent with the past practices, of the Company and which are not reasonably
likely, individually or in the aggregate, to have a Material Adverse Effect.
SECTION 3.07. Conduct of the Business. Since December 31, 1998, except
as contemplated by, or disclosed pursuant to, this Agreement or disclosed in any
SEC Report filed after December 31, 1998, the Company has conducted the Business
only in the ordinary course and in a manner consistent with past practices.
SECTION 3.08. Litigation. Except as disclosed in Section 3.08 of the
Disclosure Schedule or as disclosed in the SEC Reports filed prior to the date
of this Agreement, there are no Actions by or against the Company or any
Affiliate thereof (and relating to the Business or the Company), or affecting
any of the assets of the Company, pending before any Governmental Authority or,
to the knowledge of the Company threatened to be brought by or before any
Governmental Authority. Except as disclosed in Section 3.08 of the Disclosure
Schedule, neither the Company nor any of the assets of the Company is subject to
any Governmental Order (nor, to the knowledge of the Company, are there any such
Governmental Orders threatened to be imposed by any Governmental Authority)
which has or has had, individually or in the aggregate, a Material Adverse
Effect.
SECTION 3.09. Compliance with Laws. Except as disclosed in Section 3.09
of the Disclosure Schedule, the Company is not in default or violation of any
Law or Governmental Order (including, but not limited to, those of the Food and
Drug Administration (the "FDA") or any nongovernmental self-regulatory agency
and including environmental laws or regulations), except for such defaults or
violations that would not, individually or in the aggregate, have a Material
Adverse Effect. The Company has timely filed or otherwise provided all
registrations, reports, data, and other information and applications with
respect to its medical device, pharmaceutical, consumer, health care and other
governmentally regulated products (the "Regulated Products") required to be
filed with or otherwise provided to the FDA or any Governmental Authority with
jurisdiction over the manufacture, use or sale of the Regulated Products, and
all regulatory licenses or approvals in respect thereof are in full force and
effect, except where the failure to file timely such registrations, reports,
data, information and applications or the failure to have such licenses and
approvals in full force and effect would not, individually or in the aggregate,
have a Material Adverse Effect.
SECTION 3.10. Material Contracts. (a) Except as set forth in Section
3.10(a) of the Disclosure Schedule, other than as filed as Exhibits to the SEC
Reports, there are no contracts, agreements, leases, licenses or commitments to
which the Company is a party that are material to the Company ("Material
Contracts").
837579.1
<PAGE>
13
(b) Except as disclosed in Section 3.10(b) of the Disclosure Schedule,
each Material Contract is valid and binding on the Company and is in full force
and effect. The Company is not in material breach of, or default under, any
Material Contract.
(c) Except as disclosed in Section 3.10(c) of the Disclosure Schedule,
to the knowledge of the Company, no other party to any Material Contract is in
breach thereof or default thereunder.
SECTION 3.11. Intellectual Property. (a) Section 3.11(a) of the
Disclosure Schedule sets forth a true and complete list of all (i) material
patents and patent applications and other material Intellectual Property, in
each case owned by the Company ("Owned Intellectual Property"), and (ii)
licenses of Intellectual Property to the Company or by the Company to a third
party, in each case that are material to the Business ("Licensed Intellectual
Property"), other than (A) any end-user operating system obtained with the
purchase or license of equipment and (B) any end-user application software, in
each case, that is commonly available.
(b) The Company is the exclusive owner of the entire and unencumbered
right, title and interest in and to each item of Owned Intellectual Property.
(c) The Owned Intellectual Property of the Company is subsisting and
has not been adjudged invalid or unenforceable in whole or part.
(d) Except as disclosed in Section 3.11(d) of the Disclosure Schedule,
no claims have been asserted, or are pending or, to the knowledge of the
Company, threatened against the Company (i) based upon or challenging or seeking
to deny or restrict the use by the Company of any of the Owned Intellectual
Property or Licensed Intellectual Property, (ii) alleging that any services
provided by, processes used by or products manufactured or sold by the Company
or that the use of Owned Intellectual Property or Licensed Intellectual Property
in the ordinary course of business of the Company infringes upon or
misappropriates any Intellectual Property right of any third party or (iii)
alleging that any Intellectual Property licensed pursuant to the Licensed
Intellectual Property infringes upon any Intellectual Property right of any
third party or is being licensed or sublicensed in conflict with the terms of
any license or other agreement.
(e) Except as disclosed in Section 3.11(e) of the Disclosure Schedule,
the Company has not granted any license or other right to any third party with
respect to the Owned Intellectual Property or Licensed Intellectual Property,
except to the customers of the Company pursuant to written license agreements
entered into in the ordinary course of business.
(f) To the knowledge of the Company (i) there has been no
misappropriation of any material trade secrets or other material confidential
Intellectual Property of the Company by any person, (ii) neither the Company nor
any employee, independent contractor or agent of the Company has misappropriated
any trade secrets or software of any other person in the course of such
performance as an employee, independent contractor or agent, and (iii) no
employee,
837579.1
<PAGE>
14
independent contractor or agent of the Company is in default or breach of any
term of any employment agreement, nondisclosure agreement,
assignment-of-invention agreement or similar agreement or contract relating in
any way to the protection, ownership, development, use or transfer of
Intellectual Property.
SECTION 3.12. Year 2000 Compliance. The Company has (i) undertaken an
assessment of those Company Systems that could be adversely affected by a
failure to be Year 2000 Compliant and (ii) developed a plan and time line for
rendering such Company Systems Year 2000 Compliant. The Company has made
available for review to the Purchaser copies of all material documents related
to such assessment and plan implementation efforts, including communications to
and from customers and material Vendors and suppliers and all plans, time lines
and cost estimates for rendering the Company Systems Year 2000 Compliant. Based
on such review and assessment, all Company Systems are Year 2000 Compliant or
will be Year 2000 Compliant as required to avoid having a Material Adverse
Effect.
SECTION 3.13. Title to Properties; Absence of Encumbrances. (a) Other
than the leaseholds created under the Leased Real Property identified in Section
3.13(a) of the Disclosure Schedule, the Company has no ownership or leasehold
interest in any real property.
(b) The Company has good and valid title to, or, in the case of leased
properties and assets, valid leasehold interests in, all of the tangible
properties and assets, real, personal and mixed, used or held for use in, or
which are necessary to conduct, the Business as currently conducted, free and
clear of any Encumbrances except for Permitted Encumbrances.
SECTION 3.14. Employee Benefit Matters; Labor Matters. (a) For purposes
of this Agreement, "Company Benefit Plans" means (i) all employee benefit plans
(as defined in Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA")) and all bonus, stock option, stock purchase,
restricted stock, incentive, deferred compensation, retiree medical or life
insurance, supplemental retirement, severance or other benefit plans, programs
or arrangements, and all employment, termination, severance or other contracts
or agreements, whether legally enforceable or not, to which the Company is a
party, with respect to which the Company has any obligation or which are
maintained, contributed to or sponsored by the Company for the benefit of any
current or former employee, officer or director of the Company, (ii) each
employee benefit plan for which the Company could incur liability under Section
4069 of ERISA in the event such plan has been or was to be terminated, (iii) any
plan in respect of which the Company could incur liability under Section 4212(c)
of ERISA and (iv) any contracts or arrangements between the Company or any of
its Affiliates and any employee of the Company including, without limitation,
any contracts or arrangements relating to a sale of the Company.
(b) Except for the Company Benefit Plans listed in the Disclosure
Schedule, none of the Company Benefit Plans provides for the payment of
separation, severance, termination or similar-type benefits to any person or
obligates the Company to pay separation,
837579.1
<PAGE>
15
severance, termination or similar-type benefits solely or partially as a result
of any transaction contemplated by this Agreement and the other Alliance
Agreements.
(c) Each Company Benefit Plan is now and always has been operated in
accordance with its terms and the requirements of all applicable Laws,
including, without limitation, ERISA and the Code, except where such failure
would not, individually or in the aggregate, have a Material Adverse Effect. The
Company has performed all obligations required to be performed by it under, is
not in any respect in default under or in violation of, and has no knowledge of
any default or violation by any party to, any Company Benefit Plan, except where
such failure to perform obligations, default or violation would not,
individually or in the aggregate, have a Material Adverse Effect. No action,
claim or proceeding is pending or, to the knowledge of the Company, threatened
with respect to any Company Benefit Plan (other than claims for benefits in the
ordinary course) and, to the knowledge of the Company, no fact or event exists
that could give rise to any material action, claim or proceeding.
(d) Each Company Benefit Plan that is intended to be qualified under
Section 401(a) of the Code has received a favorable determination letter from
the Internal Revenue Service ("IRS") and each trust established in connection
with any Company Benefit Plan which is intended to be exempt from federal income
taxation under Section 501(a) of the Code has received a determination letter
from the IRS that it is so exempt.
(e) The Company has not incurred any Liability under, arising out of or
by operation of Title IV of ERISA (other than liability for premiums to the
Pension Benefit Guaranty Corporation arising in the ordinary course), including,
without limitation, any Liability in connection with (i) the termination or
reorganization of any employee benefit plan subject to Title IV of ERISA or (ii)
the withdrawal from any Multiemployer Plan or Multiple Employer Plan, and no
fact or event exists which could give rise to any such Liability.
SECTION 3.15. Brokers. No broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of the Company.
SECTION 3.16. Limitations on Representations and Warranties. Except for
the representations and warranties expressly contained in this Agreement and the
other Alliance Agreements, neither the Company nor any other person or entity
makes any representation or warranty to the Purchaser, 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 Purchaser 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. In
addition, if, to the Purchaser's actual knowledge, any of the representations
and warranties set forth in this Agreement are not true as
837579.1
<PAGE>
16
of any Closing, and the Purchaser elects nonetheless to close, the Purchaser
shall be deemed to have waived any claim for breach of such representation and
warranty.
SECTION 3.17. Disclosure Schedule. Any event, fact or circumstance
described in any section of the Disclosure Schedule shall be deemed a disclosure
for purposes of all other portions of the Disclosure Schedule, provided the
relevance of the disclosure to such other portions can be reasonably discerned
from the applicable section of the Disclosure Schedule.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
As an inducement to the Company to enter into this Agreement, the
Purchaser hereby represents and warrants to the Company as follows:
SECTION 4.01. Organization and Authority of the Purchaser. The
Purchaser is a corporation duly organized, validly existing and in good standing
under the laws of the State of Colorado. The Purchaser has all necessary
corporate power and authority to enter into this Agreement and the other
Alliance Agreements to which it is a party, to carry out its obligations
hereunder and thereunder and to consummate the transactions contemplated hereby
and thereby. The execution and delivery of this Agreement and the other Alliance
Agreements by the Purchaser, the performance by the Purchaser of its obligations
hereunder and thereunder and the consummation by the Purchaser of the
transactions contemplated hereby and thereby have been duly authorized by all
requisite action on the part of the Purchaser. This Agreement and the other
Alliance Agreements have been duly executed and delivered by the Purchaser, and
(assuming due authorization, execution and delivery by the Company) constitute
legal, valid and binding obligations of the Purchaser enforceable against the
Purchaser in accordance with their terms, except as may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights and general principles of
equity.
SECTION 4.02. No Conflict. Assuming the making and obtaining of all
filings, notifications, consents, approvals, authorizations and other actions
referred to in Section 4.03, except as may result from any facts or
circumstances relating solely to the Company, the execution, delivery and
performance of the Alliance Agreements by the Purchaser does not and will not
(a) violate, conflict with or result in the breach of any provision of the
certificate of incorporation or by-laws of the Purchaser, (b) conflict with or
violate any Law or Governmental Order applicable to the Purchaser or (c)
conflict with, or result in any breach of, constitute a default (or event which
with the giving of notice or lapse or time, or both, would become a default)
under, require any consent under, or give to others any rights of termination,
amendment, acceleration, suspension, revocation, or cancellation of, or result
in the creation of any Encumbrance on any of the assets or properties of the
Purchaser pursuant to, any note, bond, mortgage or indenture, contract,
agreement, lease, sublease, license, permit, franchise or other
837579.1
<PAGE>
17
instrument or arrangement to which the Purchaser is a party or by which any of
such assets or properties are bound or affected which, with respect to clauses
(b) and (c) above would have a material adverse effect on the ability of the
Purchaser to consummate the transactions contemplated by the Alliance
Agreements.
SECTION 4.03. Governmental Consents and Approvals. The execution,
delivery and performance of the Alliance Agreements by the Purchaser do not and
will not require any consent, approval, authorization or other order of, action
by, filing with, or notification to, any Governmental Authority.
SECTION 4.04. Investment Purpose. The Purchaser is acquiring the Shares
for its own account solely for the purpose of investment and not with a view to,
or for offer or sale in connection with, any distribution thereof.
SECTION 4.05. Status of Shares; Limitations on Transfer and Other
Restrictions. The Purchaser understands that the Shares have not been and will
not be registered under the Securities Act or under any state securities laws
(other than in accordance with the Stockholder's Agreement) and are being
offered and sold in reliance upon federal and state exemptions for transactions
not involving any public offering and that the Shares have not been approved or
disapproved by the SEC or by any other federal or state agency. The Purchaser
further understands that such exemption depends in part upon, and such Shares
are being sold in reliance on, the representations and warranties set forth in
this Article IV. The Purchaser understands that (i) none of the Shares may be
sold, transferred or assigned unless registered by the Company 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
Purchaser to liquidate its investment in the Shares, and it agrees not to sell,
assign or otherwise transfer or dispose of any Shares unless such Shares have
been so registered or an exemption from registration is available, and (ii) the
Shares are subject to certain restrictions on transfer and voting, as set forth
in the Stockholder's Agreement.
SECTION 4.06. Sophistication and Financial Condition of Purchaser. The
Purchaser represents and warrants to the Company that it is an "Accredited
Investor" as defined in Regulation D under the Securities Act and that it
considers itself to be an experienced and sophisticated investor and to have
such knowledge and experience in financial and business matters as are necessary
to evaluate the merits and risks of an investment in the Shares. The Purchaser
also represents it has not been organized for the sole purpose of acquiring the
Shares. The Purchaser 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 Shares
contemplated hereby.
SECTION 4.07. Year 2000 Compliance. The Purchaser has (i) undertaken an
assessment of those Purchaser Systems that could be adversely affected by a
failure to be Year
837579.1
<PAGE>
18
2000 Compliant and (ii) developed a plan and time line for rendering such
Purchaser Systems Year 2000 Compliant. The Purchaser has made available for
review to the Company copies of all material documents related to such
assessment and plan implementation efforts, including communications to and from
customers and material Vendors and suppliers and all plans, time lines and cost
estimates for rendering the Purchaser Systems Year 2000 Compliant. Based on such
review and assessment, all Purchaser Systems are Year 2000 Compliant or will be
Year 2000 Compliant as required to avoid having a material adverse effect on the
Purchaser's ability to perform any of its obligations under the Alliance
Agreements.
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.01. Actions Regarding Market. Prior to the exercise of the
Option, the Company shall not take any action outside the ordinary course of
business which would reasonably be expected to cause or result in stabilization
or to influence the price of any security of the Company in connection with the
sale of the Shares, except as may be approved by the board of directors of the
Company.
SECTION 5.02. Confidentiality. Notwithstanding anything herein to the
contrary, the Confidentiality Agreement dated November 12, 1997, as amended (the
"Confidentiality Agreement"), between the Company and COBE shall remain in full
force and effect in accordance with its terms.
SECTION 5.03. Public Announcements. The initial press release relating
to this Agreement shall be a joint press release the text of which has been
agreed to by each of the Purchaser and the Company. Thereafter, unless otherwise
required by applicable Law, each of the Purchaser and the Company shall use
commercially reasonable efforts to consult with the other before issuing any
press release or otherwise making any organized, pre-arranged or pre-scheduled
public statements with respect to any of the Alliance Agreements or any of the
other transactions hereby or thereby.
SECTION 5.04. Capital Increase. The Company shall use its best efforts
and take all actions permitted by Law to (a) call and hold an annual meeting of
the stockholders of the Company as expeditiously as possible for the purpose of
voting upon the Capital Increase; (b) cause the board of directors of the
Company to recommend, and not withdraw its recommendation, to the stockholders
to vote in favor of the Capital Increase; and (c) upon any approval by the
stockholders of the Company of the Capital Increase, expeditiously file an
amended certificate of incorporation of the Company relating to the Capital
Increase with the Secretary of State of Delaware.
837579.1
<PAGE>
19
SECTION 5.05. Further Action. Each of the parties hereto shall use all
reasonable efforts to take, or cause to be taken, all appropriate action, do or
cause to be done all things necessary, proper or advisable under applicable Law,
and execute and deliver such documents and other papers, as may be required to
carry out the provisions of the Alliance Agreements and consummate and make
effective the transactions contemplated by the Alliance Agreements.
ARTICLE VI
INDEMNIFICATION
SECTION 6.01. Survival of Representations and Warranties. The
representations and warranties of the respective parties contained in this
Agreement and all statements contained in this Agreement and the Disclosure
Schedule shall survive until May 15, 2000. If written notice of a claim has been
given prior to the expiration of the applicable representations and warranties
by either party, then the relevant representations and warranties of the other
party shall survive as to such claim, until such claim has been finally
resolved.
SECTION 6.02. Indemnification. (a) The Purchaser, its Affiliates and
its successors and assigns and the officers, directors, employees and agents of
the Purchaser, its Affiliates and its successors and assigns shall be
indemnified and held harmless by the Company for any and all Liabilities,
losses, damages, claims, costs and expenses, interest, awards, judgments and
penalties (including, without limitation, reasonable attorneys' fees and
expenses) actually suffered or incurred by them (including, without limitation,
any Action brought or otherwise initiated by any of them) (hereinafter a
"Purchaser Loss"), arising out of or resulting from:
(i) the breach of any representation or warranty made by the Company
contained in this Agreement; or
(ii) the breach of any covenant or agreement by the Company contained
in this Agreement.
To the extent that the Company's undertakings set forth in this Section 6.02(a)
may be unenforceable, the Company shall contribute the maximum amount that it is
permitted to contribute under applicable Law to the payment and satisfaction of
all Purchaser Losses incurred by the Purchaser.
(b) The Company, its Affiliates and its successors and assigns and the
officers, directors, employees and agents of the Company, its Affiliates and its
successors and assigns shall be indemnified and held harmless by the Purchaser
for any and all Liabilities, losses, damages, claims, costs and expenses,
interest, awards, judgments and penalties (including, without limitation,
reasonable attorneys' fees and expenses) actually suffered or incurred by them
837579.1
<PAGE>
20
(including, without limitation, any Action brought or otherwise initiated by any
of them) (hereinafter a "Company Loss"; and each of a Company Loss and Purchaser
Loss is hereinafter referred to as a "Loss" with respect to such party), arising
out of or resulting from:
(i) the breach of any representation or warranty made by the Purchaser
contained in this Agreement; or
(ii) the breach of any covenant or agreement by the Purchaser contained
in this Agreement.
To the extent that the Purchaser's undertakings set forth in this Section
6.02(b) may be unenforceable, the Purchaser shall contribute the maximum amount
that it is permitted to contribute under applicable Law to the payment and
satisfaction of all Company Losses incurred by the Company.
(c) Whenever a claim shall arise for indemnification under this Article
VI, the party entitled to indemnification (the "Indemnified Party") shall give
notice to the other party (the "Indemnifying Party") of any matter that the
Indemnified Party has determined has given or could give rise to a right of
indemnification under this Agreement promptly, but in no event later than 30
days, except with respect to any claim exceeding, or potential Loss reasonably
likely to exceed, $250,000, in which cases such notice shall not be later than
10 days, stating the amount of the Loss, if known, and method of computation
thereof, and containing a reference to the provisions of this Agreement in
respect of which such right of indemnification is claimed or arises. The
obligations and Liabilities of the Indemnifying Party under this Article VI with
respect to Losses arising from claims of any third party which are subject to
the indemnification provided for in this Article VI ("Third Party Claims") shall
be governed by and contingent upon the following additional terms and
conditions: if an Indemnified Party shall receive notice of any Third Party
Claim, the Indemnified Party shall give the Indemnifying Party notice of such
Third Party Claim following receipt by the Indemnified Party of such notice in
the time frame provided above; provided, however, that the failure to provide
such notice shall not release the Indemnifying Party from any of its obligations
under this Article VI except to the extent the Indemnifying Party is materially
prejudiced by such failure and shall not relieve the Indemnifying Party from any
other obligation or Liability that it may have to any Indemnified Party
otherwise than under this Article VI. If the Indemnifying Party acknowledges in
writing its obligation to indemnify the Indemnified Party hereunder against any
Losses that may result from such Third Party Claim, then the Indemnifying Party
shall be entitled to assume and control the defense of such Third Party Claim at
its expense and through counsel of its choice if it gives notice of its
intention to do so to the Indemnified Party within ten days of the receipt of
such notice from the Indemnified Party; provided, however, that if there exists
or is reasonably likely to exist a conflict of interest that would make it
inappropriate in the judgment of the Indemnified Party, in its reasonable
discretion, for the same counsel to represent both the Indemnified Party and the
Indemnifying Party, then the Indemnified Party shall be entitled to retain its
own counsel at the expense of the Indemnifying Party. In the event the
Indemnifying Party exercises the right to undertake any such defense
837579.1
<PAGE>
21
against any such Third Party Claim as provided above, the Indemnified Party
shall cooperate with the Indemnifying Party in such defense and make available
to the Indemnifying Party, at the Indemnifying Party's expense, all witnesses,
pertinent records, materials and information in the Indemnified Party's
possession or under the Indemnified Party's control relating thereto as is
reasonably required by the Indemnifying Party. Similarly, in the event the
Indemnified Party is, directly or indirectly, conducting the defense against any
such Third Party Claim, the Indemnifying Party shall cooperate with the
Indemnified Party in such defense and make available to the Indemnified Party,
at the Indemnifying Party's expense, all such witnesses, records, materials and
information in the Indemnifying Party's possession or under the Indemnifying
Party's control relating thereto as is reasonably required by the Indemnified
Party. No such Third Party Claim may be settled by the Indemnifying Party
without the prior written consent of the Indemnified Party, which consent shall
not be unreasonably withheld or delayed.
SECTION 6.03. Limits on Indemnification. (a) Notwithstanding anything
to the contrary contained in this Agreement, the maximum amount of indemnifiable
Losses which may be recovered from the Company arising out of or resulting from
the causes enumerated in Section 6.02(a) shall be (x) prior to the Option
Closing, if any, $4,500,000 and (y) following the Option Closing, if any
$6,000,000. Notwithstanding any provision of this Agreement, for the avoidance
of doubt, the parties expressly acknowledge and agree that the indemnification
provisions set forth in the Distribution Agreement are not affected in any way
by this Agreement, including, without limitation, by any provision of this
Article VI, and remain in full force and effect in accordance with the terms of
the Distribution Agreement.
(b) Notwithstanding anything herein to the contrary, in no event shall
the Company or the Purchaser indemnify hereunder the other from and against any
facts or circumstances relating to their respective performance of any of their
respective obligations under the Distribution Agreement or otherwise in respect
of matters, directly or indirectly, relating to the Distribution Agreement.
(c) Notwithstanding anything to the contrary elsewhere in this
Agreement, Losses shall not include, and no Indemnifying Party shall, in any
event, be liable to any other party for, any consequential, punitive or special
damages (including, but not limited to, damages for lost profits).
ARTICLE VII
GENERAL PROVISIONS
SECTION 7.01. Waiver. The Company and the Purchaser may (a) extend the
time for the performance of any of the obligations or other acts of the other
party, (b) waive any inaccuracies in the representations and warranties of the
other party contained herein or in any document delivered by the other party
pursuant hereto or (c) waive compliance with any of the
837579.1
<PAGE>
22
agreements or conditions of the other party contained herein. Any such extension
or waiver shall be valid only if set forth in an instrument in writing signed by
the party to be bound thereby. Any waiver of any term or condition shall not be
construed as a waiver of any subsequent breach or a subsequent waiver of the
same term or condition, or a waiver of any other term or condition, of this
Agreement. The failure of any party to assert any of its rights hereunder shall
not constitute a waiver of any of such rights.
SECTION 7.02. Expenses. Except as otherwise specified in this
Agreement, all costs and expenses, including, without limitation, fees and
disbursements of counsel, financial advisors and accountants, incurred in
connection with this Agreement and the transactions contemplated hereby shall be
paid by the party incurring such costs and expenses.
SECTION 7.03. Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given or made (and
shall be deemed to have been duly given or made upon receipt) by delivery in
person, by courier service, by cable, by telecopy, by telegram, by telex or by
registered or certified mail (postage prepaid, return receipt requested) to the
respective parties at the following addresses (or at such other address for a
party as shall be specified in a notice given in accordance with this Section
7.03):
(a) if to the Company:
HemaSure Inc.
140 Locke Drive
Marlborough, MA 01752
Fax: 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 10022-3205
Fax: 212-339-9150
Attention: Luke P. Iovine, III, Esq.
837579.1
<PAGE>
23
(b) if to the Purchaser:
COBE Laboratories, Inc.
1201 Oak Street
Lakewood, CO 80215-4498
Fax: 303-231-4151
Attention: Edward C. Wood
with a copy to:
Legal Department
COBE Laboratories, Inc.
120l Oak Street
Lakewood, CO 80215
Telecopier: (303) 205-2519
and
Shearman & Sterling
599 Lexington Avenue
New York, NY 10022
Telecopy: 212-848-7179
Attention: Peter D. Lyons, Esq. and Kenneth A, Gerasimovich, Esq.
SECTION 7.04. Headings. The descriptive headings contained in this
Agreement are for convenience of reference only and shall not affect in any way
the meaning or interpretation of this Agreement.
SECTION 7.05. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any Law or
public policy, all other terms and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any
manner materially adverse to any party. Upon such determination that any term or
other provision is invalid, illegal or incapable of being enforced, the parties
hereto shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the parties as closely as possible in an acceptable
manner in order that the transactions contemplated hereby are consummated as
originally contemplated to the greatest extent possible.
SECTION 7.06. Entire Agreement. This Agreement and the other Alliance
Agreements constitute the entire agreement of the parties hereto with respect to
the subject matter hereof and thereof and supersedes all prior agreements and
undertakings, both written and
837579.1
<PAGE>
24
oral, between the Company and the Purchaser with respect to the subject matter
hereof and thereof.
SECTION 7.07. Assignment. 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 rights or
obligations created under this Agreement without the prior written consent of
the other party.
SECTION 7.08. No Third Party Beneficiaries. Except for the provisions
of Article VI relating to Indemnified Parties, this Agreement shall be binding
upon and inure solely to the benefit of the parties hereto and their permitted
assigns and nothing herein, express or implied, is intended to or shall confer
upon any other Person any legal or equitable right, benefit or remedy of any
nature whatsoever under or by reason of this Agreement.
SECTION 7.09. Amendment. This Agreement may not be amended or modified
except (a) by an instrument in writing signed by, or on behalf of, the Company
and the Purchaser or (b) by a waiver in accordance with Section 7.01.
SECTION 7.10. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, excluding (to
the greatest extent permissible by law) any rule of law that would cause the
application of the laws of any jurisdiction other than the State of New York,
without regard to principles of conflict of law.
SECTION 7.11. Arbitration. (a) If a dispute arises from or relates to
this Agreement or the breach thereof, whether of law or fact, of any nature
whatsoever, and such dispute cannot be settled through direct discussions
between the parties, the parties agree to endeavor first to settle the dispute
in an amicable manner by mediation administered by the American Arbitration
Association under its Commercial Mediation Rules before resorting to litigation.
Mediation shall take place in New York, New York. If the dispute cannot be
resolved within 60 days of the initiation thereof by such party, any party may
initiate arbitration in accordance with the provisions of Section 7.11(b) below.
(b) All disputes arising under this Agreement that cannot be amicably
resolved under Section 7.11(a) above, shall be settled by binding arbitration.
Judgment upon the award rendered may be entered in any court in the New York,
New York metropolitan area. Each party agrees to the following arbitration
procedures:
(i) Any party requesting arbitration shall serve a written demand for
arbitration on another party. The demand shall set forth in reasonable
detail a statement of the nature of the dispute, the amount involved and the
remedies sought. No later than 20 calendar days after a demand for
arbitration is served, the parties shall jointly select and appoint a
retired judge of the Courts of the State of New York to act as the
arbitrator. In the event that the parties do not agree on the selection of
an arbitrator, the party seeking
837579.1
<PAGE>
25
arbitration shall apply to the United States District Court for the Southern
District of New York for appointment of a retired judge to serve as
arbitrator.
(ii) No later than ten calendar days after appointment of an
arbitrator, the parties shall jointly prepare and submit to the arbitrator a
set of rules for the arbitration. In the event that the parties cannot agree
on the rules for the arbitration, the arbitrator shall establish the rules.
No later than ten calendar days after the arbitrator is appointed, such
arbitrator shall arrange for a hearing to commence on a mutually convenient
date. The hearing shall commence no later than 120 calendar days after the
arbitrator is appointed and shall continue from day to day until completed.
(iii) The arbitrator shall issue his or her award in writing no later
than 20 calendar days after the conclusion of the hearing. The arbitration
award shall be final and binding regardless of whether any party fails or
refuses to participate in the arbitration. The arbitrator is empowered to
hear and determine all disputes between the parties hereto concerning the
subject matter of this Agreement, and the arbitrator may award money damages
(but specifically not punitive damages), injunctive relief, rescission,
restitution, costs, and attorneys' fees. The arbitrator shall not have the
power to amend this Agreement in any, respect.
(iv) In the event that any party serves a proper demand for arbitration
under this Agreement, all parties may pursue discovery in accordance with
the Rules of Civil Procedure of the State of New York the provisions of
which are incorporated herein by reference, with the following exceptions:
(A) the parties hereto may conduct all discovery, including depositions for
discovery purposes, without leave of the arbitrator; and (B) all discovery
shall be completed no later than the commencement of the arbitration hearing
or 120 calendar days after the date that a proper demand for arbitration is
served, whichever occurs earlier, unless upon a showing of good cause the
arbitrator extends or shortens that period.
SECTION 7.12. Counterparts. This Agreement may be executed in one or
more counterparts, and by the different parties hereto in separate counterparts,
each of which when executed shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement.
SECTION 7.13. Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or equity.
837579.1
<PAGE>
IN WITNESS WHEREOF, the Company and the Purchaser have caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
HEMASURE INC.
By: /s/ John F. McGuire
----------------------------------
Name: John F. McGuire
Title: President and Chief
Executive Officer
COBE LABORATORIES, INC,
By: /s/ Edward C. Wood, Jr.
----------------------------------
Name: Edward C. Wood, Jr.
Title: Vice President
837579.1
Exhibit 4.10
STOCKHOLDERS' AGREEMENT
By and Between
HEMASURE INC.
and
COBE LABORATORIES, INC.
Dated May 3, 1999
837578.1
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS
SECTION 1.01 Definitions.............................................1
ARTICLE II
GOVERNANCE
SECTION 2.01 Board Representation....................................3
SECTION 2.02 Resignations and Replacements...........................4
SECTION 2.03 Committees..............................................4
ARTICLE III
VOTING OBLIGATIONS
SECTION 3.01 Voting Obligations......................................4
ARTICLE IV
STANDSTILL AND TRANSFER PROVISIONS
SECTION 4.01 Standstill Period.......................................5
SECTION 4.02 Transfer Restrictions...................................5
SECTION 4.03 Acquisition of Additional Shares; Other Restrictions....6
SECTION 4.04 Company Rights of First Negotiation; Permitted Sales....7
SECTION 4.05 Stockholder Rights of First Notice......................8
SECTION 4.06 Anti-Dilutive Rights....................................8
ARTICLE V
REGISTRATION RIGHTS
SECTION 5.01 Restrictive Legend.....................................10
SECTION 5.02 Notice of Proposed Transfer............................10
SECTION 5.03 Required Registrations.................................11
SECTION 5.04 Incidental Registration................................13
SECTION 5.05 Shelf Registration.....................................13
837578.1
<PAGE>
SECTION 5.06 Obligations of the Company.............................14
SECTION 5.07 Furnish Information....................................17
SECTION 5.08 Expenses of Registration...............................17
SECTION 5.09 Underwriting Requirements..............................17
SECTION 5.10 Indemnification........................................17
SECTION 5.11 Transfer of Registration Rights........................20
SECTION 5.12 Rule 144 Information...................................20
SECTION 5.13 Limitations on Registration Rights.....................21
ARTICLE VI
GENERAL PROVISIONS
SECTION 6.01 Waiver.................................................21
SECTION 6.02 Expenses...............................................21
SECTION 6.03 Notices................................................22
SECTION 6.04 Headings...............................................23
SECTION 6.05 Severability...........................................23
SECTION 6.06 Entire Agreement.......................................23
SECTION 6.07 Assignment.............................................23
SECTION 6.08 No Third Party Beneficiaries...........................23
SECTION 6.09 Amendment..............................................23
SECTION 6.10 Governing Law..........................................23
SECTION 6.11 Arbitration............................................23
SECTION 6.12 Counterparts...........................................25
SECTION 6.13 Specific Performance...................................25
ANNEX A - GENERAL FORM OF STANDSTILL AND VOTING AGREEMENT FOR
PERMITTED TRANSFEREES
837578.1
ii
<PAGE>
STOCKHOLDER'S AGREEMENT
STOCKHOLDER'S AGREEMENT, dated May 3, 1999 (this "Agreement"), by
and between HEMASURE INC., a Delaware corporation (the "Company"), and COBE
LABORATORIES, INC., a Colorado corporation ("COBE" or the "Stockholder").
WHEREAS, the Company and COBE have entered into the Stock
Subscription Agreement, dated the date hereof (the "Stock Subscription
Agreement"), pursuant to which the Company is issuing to the Stockholder, and
the Stockholder is purchasing from the Company, common stock, par value $ .01
per share, of the Company ("Common Stock"), upon the terms set forth in the
Stock Subscription Agreement and
WHEREAS, the Company and the Stockholder wish to enter into this
Agreement to set forth their agreement as to the matters set forth herein with
respect to, among other things, representation on the Company's Board of
Directors (the "Board"), the sale of securities by the Company and the holding,
acquisition and Transfer (as defined below) of the Common Stock by the
Stockholder;
NOW, THEREFORE, in consideration of these premises, the mutual
agreements and covenants hereinafter set forth, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
Company and the Stockholder hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions. (a) Unless otherwise defined in this
Agreement, capitalized terms are used herein as defined in the Stock
Subscription Agreement.
(b) As used in this Agreement, the following terms shall have the
following meanings:
"Beneficially Own" has the meaning set forth in Rule 13d-3, as in
effect on the date hereof, under the Exchange Act.
"Director" means a member of the Board.
"Fully Diluted Basis" means, in respect of the Common Stock, the
method of calculating the number of shares of Common Stock issued and
outstanding on an applicable measurement date, pursuant to which the number of
shares of Common Stock issued and outstanding on any such date are aggregated
with the number of shares of
837578.1
<PAGE>
Common Stock issuable on such date upon exercise or conversion of any other
security of the Company outstanding on such date (including employee stock
options issued pursuant to Company Benefit Plans).
"Register", "registered" and "registration" shall refer to a
registration effected by preparing and filing a registration statement or
similar document with the SEC in compliance with the Securities Act and the
declaration or ordering of effectiveness by the SEC of such registration
statement or document.
"Registrable Stock" shall mean any Shares purchased by the
Stockholder pursuant to the Stock Subscription Agreement or Section 4.06(a) of
this Agreement. For purposes of this Agreement, any Registrable Stock shall
cease to be Registrable Stock when (w) a registration statement covering such
Registrable Stock has been declared effective and such Registrable Stock has
been disposed of pursuant to such effective registration statement, (x) such
Registrable Stock is sold by a Person in a transaction in which the rights under
the provisions of Article V are not assigned, (y) such Registrable Stock may be
sold pursuant to Rule 144(k) (or any similar provision then in force, but not
Rule 144(A)) or in a single transaction pursuant to Rule 144(e) (or its
successor) under the Securities Act without registration under the Securities
Act or (z) such Registrable Stock is sold, transferred or otherwise disposed of
in any manner to any Person or entity which, by virtue of this Agreement, is not
entitled to the registration rights provided by this Agreement.
"Stockholder Director" means a Director designated by the
Stockholder pursuant to this Agreement.
(c) The following terms have the meanings set forth in the
Sections set forth below:
Term Location
____ ________
Agreement...............................................Preamble
Anti-Dilutive Rights....................................ss. 4.06(a)
Board...................................................Recitals
COBE....................................................Preamble
Common Stock............................................Recitals
Company.................................................Preamble
Departing Stockholder Director..........................ss. 2.02(a)
Maintenance Shares......................................ss. 4.06(a)
Permitted Transferee....................................ss. 4.02(a)
Proposed Transferee.....................................ss. 4.04(a)(ii)
Shelf Registration......................................ss. 5.05(a)
837578.1
2
<PAGE>
Term Location
---- --------
Standstill Period.......................................ss. 4.01
Stock Subscription Agreement............................Recitals
Stockholder.............................................Preamble
Transfer................................................ss. 4.02(a)
(d) References in this Agreement to articles, sections,
paragraphs, clauses, schedules and exhibits are to articles, sections,
paragraphs, clauses, schedules and exhibits in or to this Agreement unless
otherwise indicated. Whenever the context may require, any pronoun includes the
corresponding masculine, feminine and neuter forms. Any term defined by
reference to any agreement, instrument or document has the meaning assigned to
it whether or not such agreement, instrument or document is in effect. The words
"include", "includes" and "including" are deemed to be followed by the phrase
"without limitation". Unless the context otherwise requires, any agreement,
instrument or other document defined or referred to herein refers to such
agreement, instrument or other document as from time to time amended,
supplemented or otherwise modified from time to time. Unless the context
otherwise requires, references herein to any Person include its successors and
assigns. The words "shall" and "will" have the same meaning and effect.
ARTICLE II
GOVERNANCE
SECTION 2.01. Board Representation. From and after the date
hereof,
(a) for as long as the Stockholder and any Permitted Transferees,
in the aggregate, Beneficially Own any combination of Company securities
consisting of, or convertible into, in the aggregate, at least 20% of the issued
and outstanding shares of Common Stock, the parties hereto shall use best
efforts and exercise all authority under applicable law to (i) cause the Board
to consist of seven Directors and (ii) cause any slate of Directors presented to
the stockholders of the Company for election to the Board to consist of such
nominees that, if elected, would result in a Board that included two Stockholder
Directors as designated by the Stockholder (which designees shall be subject to
the reasonable satisfaction of the Company).
(b) for as long as the Stockholder and any Permitted Transferees,
in the aggregate, Beneficially Own any combination of Company securities
consisting of, or convertible into, in the aggregate, at least 15% but less than
20% of the issued and outstanding shares of Common Stock, the parties hereto
shall use best efforts and exercise all authority under applicable law to cause
any slate of Directors presented to the
837578.1
3
<PAGE>
stockholders of the Company for election to the Board to consist of such nominee
that, if elected, would result in a Board that included one Stockholder Director
as designated by the Stockholder (which designee shall be subject to the
reasonable satisfaction of the Company).
(c) If the Stockholder and any Permitted Transferees, in the
aggregate, Beneficially Own any combination of Company securities consisting of,
or convertible into, in the aggregate, less than 15% of the issued and
outstanding shares of Common Stock, the Company shall have no obligation
pursuant to this Agreement to cause any slate of Directors presented to the
stockholders of the Company for election to the Board to include any designee of
the Stockholder.
SECTION 2.02. Resignations and Replacements. (a) If a Stockholder
Director ceases to serve as a Director for any reason (a "Departing Stockholder
Director"), the Company shall take all action necessary to ensure that the
vacancy created by such Departing Stockholder Director shall be filled by an
individual designated by the Stockholder (which designee shall be to the
reasonable satisfaction of the Company), which individual shall serve out the
remaining term of the Departing Stockholder Director as a Stockholder Director.
(b) In the event that at any time the Stockholder shall no longer
be entitled to designate Directors pursuant to Section 2.01, then the
Stockholder Directors shall be deemed to have resigned immediately upon the
occurrence of such event and the Company and the Stockholder shall take all
action promptly to effect the resignation or removal of such Directors.
SECTION 2.03. Committees. For so long as there are two Stockholder
Directors, the Company will take all actions necessary to cause the appointment
of at least one Stockholder Director to serve on each committee of the Board. If
there is only one Stockholder Director, the Company will not be obligated to
take any such actions; provided that, if the Company forms an executive
committee or a committee by any such other name that performs functions similar
to those typically performed by an executive committee, the Company will take
all actions necessary to cause the appointment of such Stockholder Director to
serve on such committee.
ARTICLE III
VOTING OBLIGATIONS
SECTION 3.01. Voting Obligations. The Stockholder and any
Permitted Transferees agree to vote, and shall vote, at all times all of the
Shares Beneficially Owned by them for the election of the entire slate of Board
nominees established by the Board and submitted to the stockholders of the
Company for approval if, and to the extent that, all of the Stockholder's
837578.1
4
<PAGE>
designated Stockholder Directors are included with such nominees; provided that
if the Company is in breach of any of its material obligations under the
Alliance Agreements as finally determined pursuant to the arbitration procedures
set forth in the relevant Alliance Agreement, the Stockholder and any Permitted
Transferees may refrain from voting any shares of Common Stock Beneficially
Owned by them in favor of, but may not vote against, the election of the entire
slate of Board nominees established by the Board; provided further that if such
abstention would have the same effect as a vote against the matter or would act
to make it impossible to obtain a quorum, the Stockholder and any Permitted
Transferees shall vote (and shall be deemed to have voted) all shares of Common
Stock Beneficially Owned by them in the same proportion of the votes cast by the
other stockholders of the Company of the applicable class of Company securities.
ARTICLE IV
STANDSTILL AND TRANSFER PROVISIONS
SECTION 4.01. Standstill Period. The "Standstill Period" shall
mean any period beginning on or after the date hereof during which the
Stockholder and any Permitted Transferees, in the aggregate, Beneficially Own
any combination of Company securities consisting of, or convertible into, in the
aggregate, 5% or more of the issued and outstanding shares of Common Stock. The
Stockholder represents and warrants to the Company that the Stockholder,
together with its "Affiliates" and "associates" (as such term is defined under
Rule 12b-2 of the Exchange Act, or any successor thereto), Beneficially Own an
aggregate, as of the date hereof, of 4,500,000 shares of Common Stock, and no
other securities of the Company whatsoever other than the Option.
SECTION 4.02. Transfer Restrictions. (a) For as long as both (i)
the Standstill Period is in effect and (ii) the Distribution Agreement shall not
have expired and shall not have been terminated in its entirety or with respect
to the United States of America portion of the Territory (as defined in the
Distribution Agreement), the Stockholder shall not, and shall cause any
Permitted Transferees not to, directly or indirectly, sell, transfer, assign,
pledge, hypothecate or otherwise dispose of ("Transfer") any shares of Common
Stock except to any wholly owned subsidiary of the Stockholder that expressly
assumes the Stockholder's obligations under this Agreement relating to such
shares of Common Stock (a "Permitted Transferee").
(b) During any period when either of the conditions described in
clause 4.02(a)(i) or (ii) are absent, the Stockholder or its Permitted
Transferees shall be permitted to Transfer shares of Common Stock only in
accordance with the provisions of Section 4.04.
837578.1
5
<PAGE>
(c) The Stockholder agrees that it will not, directly or
indirectly, Transfer its interests in any Permitted Transferee unless prior
thereto the shares of Common Stock held by such entity are transferred to the
Stockholder or to one or more other Permitted Transferees.
(d) Any attempted Transfer in violation of this Section 4.02 shall
be null, void and of no force and effect.
SECTION 4.03. Acquisition of Additional Shares; Other
Restrictions. Subject to the provisions of Sections 4.05 and 4.06 and subject to
the Stockholder's right to exercise the Option under the Stock Subscription
Agreement, during a Standstill Period, except with the prior approval of the
Board, the Stockholder shall not, directly or indirectly, and shall cause its
Permitted Transferees not to, directly or indirectly:
(a) acquire, offer to acquire, or agree to acquire beneficial ownership of
any additional equity or debt securities of the Company;
(b) make, or in any way participate in, directly or indirectly, any
"solicitation" of "proxies" or become a "participant" in any "election contest"
with respect to the Company, or execute any written consent in lieu of a meeting
of stockholders of the Company;
(c) initiate, propose or otherwise solicit stockholders for the approval of
one or more stockholder proposals with respect to the Company or induce or
attempt to induce any other Person to initiate any stockholder proposal;
(d) seek nomination or election to the Board, serve on the Board if
elected, seek to place a representative on the Board or seek the removal of any
member of the Board (except with respect to the Stockholder's rights to
designate Stockholder Directors);
(e) subject to the Stockholder's rights to consult with the Stockholder
Directors, call or seek to have called any meeting of the stockholders of the
Company;
(f) otherwise act, directly or indirectly, alone or in concert with others,
to (i) subject to the Stockholder's rights to consult with the Stockholder
Directors, seek to control the management of the Company or the Board or the
policies or affairs of the Company, (ii) subject to the Stockholder's rights to
consult with the Stockholder Directors, solicit, propose, seek to effect or
negotiate with any other Person with respect to any form of business combination
transaction with the Company or any Subsidiary thereof, or any restructuring,
recapitalization or similar transaction with respect to the Company or any
Subsidiary thereof, (iii) solicit, make or propose or encourage, or negotiate
with any other Person with respect to, or announce an intention to make, any
837578.1
6
<PAGE>
tender offer or exchange offer for any debt or equity securities of the Company,
(iv) disclose an intention, purpose, plan or proposal with respect to the
Company or any debt or equity securities of the Company, or (v) subject to the
Stockholder's rights to consult with the Stockholder Directors, assist,
participate in, facilitate, encourage or solicit any effort or attempt by any
Person to do or seek to do any of the foregoing; provided, however, that nothing
in this Section 4.03(f) shall apply to discussions between or among officers,
employees or agents of the Stockholder, the Permitted Transferees and the
Stockholder Directors;
(g) request the Company (or its Directors, officers, employees or agents),
directly or indirectly, to amend or waive any material provisions set forth
herein; or
(h) encourage or render advice to or make any recommendation or proposal to
any Person to engage in any of the actions covered hereby.
Nothing contained in this Section 4.03 shall be deemed or construed to
limit any Stockholder Director from casting any vote in his or her capacity as a
member of the Board (or otherwise acting at the direction of the Board, in such
capacity) or the exercise by the Stockholder or any Permitted Transferee of its
voting rights with respect to any shares of Common Stock it Beneficially Owns.
SECTION 4.04. Company Rights of First Negotiation; Permitted Sales.
a) During any period that the condition described in clause (ii) of Section
4.02(a) shall no longer exist but there shall be a Standstill Period, if the
Stockholder or any Permitted Transferee shall desire to Transfer any shares of
Common Stock owned by it other than to a Permitted Transferee, then the Company
and the Stockholder shall negotiate in good faith in order to reach a mutually
agreeable disposition of all shares of Common Stock owned by the Stockholder and
any Permitted Transferees to one or more third parties or for the repurchase by
the Company of all of such shares of Common Stock; provided that neither the
Company nor the Stockholder (nor any Permitted Transferee) shall be obligated to
effect any such disposition or repurchase, and neither party shall be obligated
to so negotiate for a period in excess of six months. If after such six-month
period the parties are unable to reach a definitive agreement with respect to a
mutually agreeable disposition or repurchase of the Shares, then the Stockholder
and any such Permitted Transferee may sell its shares of Common Stock as
follows:
(i) in unsolicited broker transactions as contemplated by Rule
144 under the Securities Act;
(ii) in one or more private transactions to any third party
("Proposed Transferee"), but only if such Proposed Transferee
executes and delivers to the Company the standstill, voting and
transfer limitation agreement in the form of Annex A hereto; and
837578.1
7
<PAGE>
(iii) in a widely disbursed underwritten public offering of
such shares of Common Stock pursuant to which no Person or entity
acquires more than 5% of the number of shares of Common Stock issued
and outstanding at the time of such offering.
To the extent the Stockholder and any Permitted Transferees are permitted to
Transfer any shares of Common Stock pursuant to this Section 4.04(a), the
Company shall cause to be issued to the Stockholder and such Permitted
Transferees, at their written request, new stock certificates representing such
shares without a restrictive legend regarding this Agreement (and the old stock
certificates shall be surrendered in order to receive the new stock
certificates). Notwithstanding anything herein to the contrary, no shares of
Common Stock may be sold, transferred, assigned or otherwise disposed of unless
registered by the Company pursuant to the Securities Act and any applicable
state laws, or unless an exemption therefrom is available.
(b) During any period in which the conditions described in both clauses (i)
and (ii) of Section 4.02(a) shall no longer exist, the Stockholder and any
Permitted Transferees shall be permitted to freely Transfer any and all shares
of Common Stock without restriction and the Company shall cause to be issued to
the Stockholder and any Permitted Transferees, at their written request, new
stock certificates representing shares of Common Stock without a restrictive
legend regarding this Agreement (and the old stock certificates shall be
surrendered in order to receive the new stock certificates). Notwithstanding
anything herein to the contrary, no shares of Common Stock may be sold,
transferred, assigned or otherwise disposed of unless registered by the Company
pursuant to the Securities Act and any applicable state laws, or unless an
exemption therefrom is available.
SECTION 4.05. Stockholder Rights of First Notice. Following the
Option Closing, if any, in the event the Company determines to issue and sell to
a third party any Company securities (other than Company securities issued and
sold by the Company in a widely disbursed public offering, Company securities
issued pursuant to a registration statement on Securities Act Form S-4 or S-8,
or its successors, or options issued pursuant to the Company Benefit Plans or
similar plans), the Company shall deliver to the Stockholder not less than 30
days' prior written notice of its intention to do so. Following the delivery of
such notice to the Stockholder, the Company shall negotiate with the Stockholder
for such thirty-day period for the purpose of permitting the Stockholder to
make, in its sole discretion, one or more proposals to the Company regarding the
Stockholder's desire to acquire the Company securities. Following the expiration
of such thirty-day period, the Company may effect the issuance and sale of the
Company securities to any such third party, without limitation or further
obligation to the Stockholder. Notwithstanding anything herein to the contrary,
in no event shall the Company be obligated, for any reason, to issue and sell to
the Stockholder any Company securities.
SECTION 4.06. Anti-Dilutive Rights. (a) Except as provided in
Section 4.06(c) below, the Company shall not issue, sell or Transfer, whether in
private issuances or sales or in a registered public offering, any Common Stock
or securities convertible into Common Stock to
837578.1
8
<PAGE>
any Person unless the Stockholder and any Permitted Transferees are offered in
writing the right to purchase, at the same price and on the same terms proposed
to be issued and sold, an amount of such Common Stock or other securities (the
"Maintenance Shares") as is necessary for the Stockholder and any Permitted
Transferees to maintain, individually, the level of their respective percentage
Beneficial Ownership of Common Stock (on a Fully Diluted Basis) as it owned
immediately prior to such issuance ("Anti-Dilutive Rights"). In the case of a
public offering, the Company shall, as part of its offer, provide a copy of any
preliminary prospectus and other information concerning the offering reasonably
requested by the Stockholder or any Permitted Transferees. The Stockholder and
any Permitted Transferee shall have the right, during the period specified in
Section 4.06(b), to accept the offer for any or all of the Maintenance Shares
offered to each of them.
(b) If the Stockholder or any Permitted Transferee does not deliver to the
Company written notice of acceptance of any offer made pursuant to Section
4.06(a) within 10 Business Days after the Stockholder's or any such Permitted
Transferee's receipt of such offer, the Stockholder or such Permitted
Transferee, as the case may be, shall be deemed to have waived its right to
purchase all or any part of its Maintenance Shares as set forth in such offer,
but the Stockholder or any such Permitted Transferee shall retain its rights
under this Section 4.06 with respect to future offers; provided, however, that
the applicable number of Maintenance Shares shall be reduced and recalculated
immediately prior to any such future issuance.
(c) The Anti-Dilutive Rights set forth in this Section 4.06 shall not apply
to the grant or exercise of options to purchase Common Stock to employees or
Directors of the Company or any of its Subsidiaries or otherwise pursuant to a
Company Benefit Plan or similar plan in existence on the date hereof or
otherwise adopted by the Board hereafter (whether or not such options were
issued prior to the date hereof, or are hereafter issued), (ii) the issuance of
shares of Common Stock issuable upon exercise of any option, warrant,
convertible security or other rights to purchase or subscribe for Common Stock
which, in each case, had been issued by the Company prior to the date of this
Agreement or (iii) securities issued pursuant to any stock split, stock dividend
or other similar stock recapitalization.
(d) A closing for the purchase of shares of Common Stock pursuant to this
Section 4.06 shall occur on the later of (i) the date on which such public or
private issuance occurs and (ii) such date as may be mutually agreed to by the
Company and the Stockholder or the Permitted Transferee, as the case may be, and
shall take place at the offices of the Company or at such other reasonable
location as the Company may otherwise notify the Stockholder and/or a Permitted
Transferee, as the case may be, at the time specified by the Company in such
notice provided to the Stockholder or the Permitted Transferee, as the case may
be, at least five days prior to such closing date. In connection with such
closing, the Company and the Stockholder or Permitted Transferee, as the case
may be, shall provide such closing certificates and other closing deliveries
provided in the transaction giving rise to the rights specified in Section 4.06.
837578.1
9
<PAGE>
(e) Solely to the extent that the Stockholder suffers dilution as a result
of the exercise of employee stock options, then, notwithstanding the provisions
of Section 4.03, the Stockholder at any time thereafter may purchase shares of
Common Stock from a third party or through one or more open market purchases for
the purposes of maintaining its percentage level of Beneficial Ownership of
Common Stock. The Company and the Stockholder shall use all commercially
reasonable efforts to cooperate with each other so as to permit the
Stockholder to exercise its rights under this Section 4.06(e) in an accurate,
orderly and nondisruptive manner (provided that in no event shall any purchase
be affected more than once in any fiscal quarter).
ARTICLE V
REGISTRATION RIGHTS
SECTION 5.01. Restrictive Legend. Each certificate representing
shares of Common Stock held by Stockholder shall, except as otherwise provided
in this Article V, be stamped or otherwise imprinted with a legend substantially
in the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), AND MAY NOT BE TRANSFERRED OR OTHERWISE
DISPOSED OF UNLESS IT HAS BEEN REGISTERED UNDER THE ACT OR AN
EXEMPTION FROM REGISTRATION IS AVAILABLE.
THE SECURITY REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER AND CERTAIN RESTRICTIONS ON VOTING CONTAINED
IN THE STOCKHOLDER'S AGREEMENT, DATED AS OF MAY 3 ,1999, BY AND
BETWEEN THE COMPANY AND COBE LABORATORIES, INC.
A certificate shall not bear the Securities Act legend or the legend regarding
this Agreement, as the case may be, if in the opinion of counsel satisfactory to
the Company (it being agreed that Shearman & Sterling shall be satisfactory),
the shares being sold thereby may be publicly sold without registration under
the Securities Act or may be sold without being subject to the restrictions on
sale specified in Article IV.
SECTION 5.02. Notice of Proposed Transfer. Prior to any proposed
Transfer of any shares of Registrable Stock (other than under the circumstances
described in Section 5.03, 5.04 or 5.05), the Stockholder shall give written
notice to the Company of its intention to effect such Transfer. Each such notice
shall describe the manner of the proposed Transfer whereupon the Stockholder
shall be entitled to Transfer such stock in accordance with the terms of its
notice, except as may be precluded hereunder and subject in any event to the
restrictions set forth in this
837578.1
10
<PAGE>
Agreement. Each certificate representing shares of Common Stock transferred as
above provided shall bear the legends set forth in Section 5.01, except that
such certificate (a) shall not bear the Securities Act legend if (i) such
Transfer is in accordance with the provisions of Rule 144 of the Securities Act
(or any other rule permitting public sale without registration under the
Securities Act, but not Rule 144A of the Securities Act) or (ii) the opinion of
counsel referred to above is to the further effect that the transferee and any
subsequent transferee (other than an Affiliate of the Company) would be entitled
to Transfer such securities in a public sale without registration under the
Securities Act and (b) shall not bear the legend related to this Agreement if
such Transfer is to a third party in accordance with the provisions of Article
IV and such transferee is not subject to the restrictions on Transfer set forth
in this Agreement. The restrictions provided for in this Section 5.02 shall not
apply to securities that are not required to bear the legends prescribed by
Section 5.01 in accordance with the provisions of Section 5.01.
SECTION 5.03. Required Registrations. (a) Commencing at any time
after September 15, 1999, for as long as the Stockholder holds five percent or
more of the outstanding shares of Common Stock of the Company, the Stockholder
may request in a written notice (which request shall state the number of
Registrable Shares to be so registered, the intended method of distribution and
a certification as to the market value of such shares, as described below), that
the Company file a registration statement under the Securities Act (or a similar
document pursuant to any other statute then in effect corresponding to the
Securities Act) covering the registration of any or all Registrable Stock owned
by the Stockholder and any Permitted Transferee, provided that either (i) such
Registrable Stock has an aggregate offering price of at least $3,000,000 (based
on the last reported sale price for the Common Stock on the Business Day
preceding the date of such written request, as reported by the OTC Bulletin
Board or any other exchange or market on which the Common Stock is then listed
or included for quotation) or (ii) such Registrable Stock represents 100% of any
combination of Company securities consisting of, or convertible into, shares of
Common Stock Beneficially Owned by the Stockholder and its Permitted
Transferees. Following receipt of any notice under this Section 5.03, the
Company shall use its best efforts to cause to be registered under the
Securities Act all Registrable Stock that the Stockholder requested be
registered in accordance with the manner of disposition specified in such
notice.
(b) If the Stockholder intends to have the Registrable Stock distributed by
means of an underwritten offering, the Stockholder and the Company shall enter
into an underwriting agreement in customary form with the underwriter or
underwriters which shall contain any customary provisions (including customary
provisions with respect to indemnification by the Company of the underwriters)
as the underwriters may reasonably request. Such underwriter or underwriters
shall be selected by the Stockholder and shall be approved by the Company, which
approval shall not be unreasonably withheld.
837578.1
11
<PAGE>
(c) Notwithstanding any provision of this Agreement to the contrary:
(i) The Company shall not be required to effect a registration
pursuant to this Section 5.03 during this period starting with the date
which is 30 days prior to the date of the initial public filing by the
Company of, and ending on a date 120 days following the effective date of,
a registration statement pertaining to a public offering of securities for
the account of the Company or on behalf of the selling stockholders under
any other registration rights agreement which the Stockholder has been
entitled to join pursuant to Section 5.04; provided that the Company shall
actively employ in good faith all reasonable efforts to cause such
registration statement to become effective as soon as possible;
(ii) if (A) (i) the Company is in possession of material
nonpublic information relating to the Company or any Subsidiary and (ii)
the Company determines in good faith that public disclosure of such
material nonpublic information would not be in the best interests of the
Company and its stockholders, (B) (i) the Company has made a public
announcement relating to an acquisition or business combination transaction
that includes the Company and/or one or more of its Subsidiaries that is
material to the Company and its Subsidiaries, taken as a whole and (ii) the
Company determines in good faith that (x) offers and sales of Registrable
Stock pursuant to any registration statement prior to the consummation of
such transaction (or such earlier date as the Company shall determine) is
not in the best interests of the Company and its stockholders or (y) it
would be impracticable at the time to obtain any financial statements
relating to such acquisition or business combination transaction that would
be required to be set forth in a registration statement or (C) the Company
shall furnish to the Stockholder a certificate signed by the president of
the Company stating that in the good faith opinion of the Board such
registration would interfere with any material transaction or financing,
confidential negotiations or business activities then being pursued by the
Company or any of its Subsidiaries, then, in any such case, the Company's
obligation to use all reasonable efforts to file a registration statement
shall be deferred, or the effectiveness of any registration statement may
be suspended, in each case for a period not to exceed 120 days; provided
that the Company may not delay the filing or suspend the effectiveness of
any registration statement under this Section 5.03(ii) on more than one
occasion in any consecutive 12-month period;
(iii) the Company shall not be required to effect a registration
pursuant to this Section 5.03 if the Registrable Stock requested by the
Stockholder to be registered pursuant to such registration is included in,
and eligible for sale under, a Shelf Registration (as defined below); and
(iv) the Company shall not be required to effect a registration
pursuant to this Section 5.03 within six months after the effective date of
any other registration statement registering shares to be sold by the
Company.
837578.1
12
<PAGE>
(d) The Company shall not be obligated to effect and pay for more than two
registrations pursuant to this Section 5.03 (both of which may be Shelf
Registrations requested pursuant to Section 5.05); provided that a registration
requested pursuant to this Section 5.03 shall not be deemed to have been
effected for purposes of this Section 5.03(d) unless (i) it has been declared
effective by the SEC, (ii) it has remained effective for the period set forth in
Section 5.06(a) and (iii) the offering of Registrable Stock pursuant to such
registration is not subject to any stop order, injunction or other order or
requirement of the SEC (other than any such stop order, injunction, or other
requirement of the SEC prompted by any act or omission of the Stockholder).
SECTION 5.04. Incidental Registration. (a) Subject to Section
5.09, if at any time the Company determines that it shall file a registration
statement under the Exchange Act for the registration of Common Stock (other
than a registration statement on a Form S-4 or S-8 or an offering of securities
solely to the Company's existing stockholders) on any form that would also
permit the registration of the Registrable Stock and such filing is to be on its
behalf or on behalf of selling holders of its securities for the general
registration of Common Stock to be sold for cash, the Company shall each such
time promptly give the Stockholder written notice of such determination setting
forth the date on which the Company proposes to file such registration
statement, which date shall be no earlier than 15 days from the date of such
notice, and advising the Stockholder of its right to have Registrable Stock
included in such registration. Upon the written request of the Stockholder
received by the Company no later than 10 days after the date of the Company's
notice (which request shall state the number of Registrable Shares to be so
registered and the intended method of distribution), the Company shall, subject
to Section 5.04(b) below, use all reasonable efforts to cause to be registered
under the Securities Act all of the Registrable Stock that the Stockholder has
so requested to be registered; provided that the Company shall have the right to
postpone or withdraw any registration effected pursuant to this Section 5.04
without obligation or liability to the Stockholder.
(b) If, in the opinion of the managing underwriter (or, in the case of a
non-underwritten offering, in the good faith reasonable opinion of the
Company), the total amount of such securities to be so registered, including
such Registrable Stock, will exceed the maximum amount of the Company's
securities which can be marketed (i) at a price reasonably related to the then
current market value of such securities or (ii) without otherwise materially and
adversely affecting the entire offering, then the Company shall be entitled to
reduce the number of shares of Registrable Stock to be sold in such offering by
the Stockholder and any other stockholder of the Company requesting to be
included in the registration in proportion (as nearly as practicable) to the
amount of shares of Common Stock requested to be included by the Stockholder and
each other stockholder at the time of filing the registration statement.
SECTION 5.05. Shelf Registration. (a) The Stockholder may use its
two request registration rights granted pursuant to Section 5.03, subject to the
limitations of Section 5.03(d), to request that the Company file a "shelf'
registration statement pursuant to Rule 415 under the
837578.1
13
<PAGE>
Securities Act or any successor rule (the "Shelf Registration" with respect to
the Registrable Stock. The Company shall (i) use all reasonable efforts to have
the Shelf Registration filed within 30 days of such request and declared
effective as soon as reasonably practicable following such request and (ii)
subject to Section 5.03(c)(iii), use all reasonable efforts to keep the Shelf
Registration continuously effective from the date such Shelf Registration is
declared effective until at least the earlier of such time as (A) all such
Registrable Stock has been sold thereunder or (B) the first anniversary of such
effective date in order to permit the prospectus forming a part thereof to be
usable by the Stockholder during such period.
(b) Subject to Section 5.03(c)(iii), the Company shall supplement or amend
the Shelf Registration (i) as required by the registration form utilized by the
Company or by the instructions applicable to such registration form or by the
Securities Act, (ii) to include in such Shelf Registration any additional
securities that become Registrable Stock by operation of the definition thereof
and (iii) following the written request of the Stockholder pursuant to Section
5.05(c), to cover offers and sales of all or a part of the Registrable Stock by
means of an underwriting. The Company shall furnish to the Stockholder copies of
any such supplement or amendment sufficiently in advance (but in no event less
than five Business Days in advance) of its use or filing with the SEC to allow
the Stockholder a meaningful opportunity to comment thereon.
(c) The Stockholder may, at its election and upon written notice by the
Stockholder to the Company, subject to the limitations set forth in Section
5.03(c)(iii), effect offers and sales under the Shelf Registration by means of
one or more underwritten offerings, in which case the provisions of Section
5.03(b) shall apply to any such underwritten distribution of securities under
the Shelf Registration and such underwriting shall, if sales of Registrable
Stock pursuant thereto shall have closed, be regarded as the exercise of one of
the registration rights contemplated by Section 5.03.
SECTION 5.06. Obligations of the Company. Whenever required under
Sections 5.03 and 5.05 to effect the registration of any Registrable Stock under
the Securities Act, the Company shall:
(a) in a reasonably timely manner, file with the SEC a registration
statement with respect to such Registrable Stock, and use best efforts to cause
such registration statement to become and remain effective for the period of the
distribution contemplated thereby determined as provided hereafter; provided
that the Company shall not be required to keep any Registration Statement (other
than the Shelf Registration) effective more than 90 days;
(b) as expeditiously as possible, prepare and file with the SEC such
amendments and supplements to such registration statement and the prospectus
used in connection therewith as may be necessary to comply with the provisions
of the Securities
837578.1
14
<PAGE>
Act with respect to the disposition of all Registrable Stock
covered by such registration statement;
(c) as expeditiously as possible, furnish to the Stockholder such
reasonable numbers of copies of the registration statement and the prospectus
included therein (including each preliminary prospectus and any amendments or
supplements thereto) in conformity with the requirements of the Securities Act,
any exhibits filed therewith and such other documents and information as they
may reasonably request;
(d) as expeditiously as possible, use best efforts to register or qualify
the Registrable Stock covered by such registration statement under such other
securities or "blue sky" laws of such states as shall be reasonably requested by
the Stockholder for the distribution of the Registrable Stock covered by the
registration statement; provided, however, that the Company shall not be
required in connection therewith or as a condition thereto to qualify to do
business in or to file a general consent to service of process in any
jurisdiction wherein it would not but for the requirements of this paragraph
(except that the Company will use its best efforts to register or qualify
Registrable Stock in such additional jurisdiction as the Stockholder may request
subject to the foregoing proviso and at the Stockholder's own expense) be
obligated to do so; and provided further that the Company shall not for any
purpose be required to qualify such Registrable Stock in any jurisdiction in
which the securities regulatory authority requires that the Stockholder submit
any shares of Registrable Stock to the terms, provisions and restrictions of any
escrow, lockup or similar agreement(s) for consent to sell Registrable Stock in
such jurisdiction unless the Stockholder agrees to do so;
(e) promptly notify the Stockholder, at any time when a prospectus relating
thereto is required to be delivered under the Securities Act, of the happening
of any event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact or
omits to state any material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the circumstances under
which they were made, and at the request of the Stockholder promptly prepare and
furnish to the Stockholder a reasonable number of copies of a supplement to or
an amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such securities, such prospectus shall not
include an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances under which they were made. In the
event the Company shall give such notice, the Company shall extend the period
during which such Registration Statement shall be maintained effective as
provided in Section 5.06(a) (or, in the case of the Shelf Registration, Section
5.05(a)) by the number of days during the period from and including the date of
the giving of such notice to the date when the Company shall make available to
the Stockholder such supplemented or amended prospectus;
837578.1
15
<PAGE>
(f) furnish, at the request of the Stockholder, if the method of
distribution is by means of an underwriting, on the date that the shares of
Registrable Stock are delivered to the underwriters for sale pursuant to such
registration or, if such Registrable Stock is not being sold through
underwriters, on the date that the registration statement with respect to such
shares of Registrable Stock becomes effective, (1) a signed opinion, dated on or
about such date, of the independent legal counsel representing the Company for
the purpose of such registration, addressed to the underwriters, if any, and if
such Registrable Stock is not being sold through underwriters, then to the
Stockholder, as to such matters as such underwriters or the Stockholder, as the
case may be, may reasonably request and as would be customary in such a
transaction, and (2) letters dated on or about such date and the date the
offering is priced from the independent certified public accountants of the
Company, addressed to the underwriters, if any, and if such Registrable Stock is
not being sold through underwriters, then to the Stockholder, if such
accountants refuse to deliver such letters to the Stockholder, then to the
Company (i) stating that they are independent certified public accountants
within the meaning of the Securities Act and that, in the opinion of such
accountants, the financial statements and other financial data of the Company
included in the registration statement or the prospectus, or any amendment or
supplement thereto, comply as to form in all material respects with the
applicable accounting requirements of the Securities Act and (ii) covering such
other financial matters (including information as to the period ending not more
than five Business Days prior to the date of such letters) with respect to the
registration in respect of which such letter is being given as such underwriters
or the Stockholder, as the case may be, may reasonably request and as would be
customary in such a transaction;
(g) enter into customary agreements (including, if the method of
distribution is by means of an underwriting, an underwriting agreement in
customary form) and take such other actions as are reasonably required in order
to expedite or facilitate the disposition of the Registrable Stock to be so
included in the registration statement;
(h) otherwise use best efforts to comply with all applicable rules and
regulations of the SEC, and make available to its securityholders, as soon as
reasonably practicable, but not later than 18 months after the effective date of
the registration statement, an earnings statement covering the period of at
least 12 months beginning with the first full month after the effective date of
such registration statement, which earnings statements shall satisfy the
provisions of Section 11(a) of the Securities Act and Rule 158 thereunder; and
(i) use all reasonable efforts to list the Registrable Stock covered by
such registration statement with any U.S. nationally recognized securities
exchange on which the Company Common Stock is then listed.
837578.1
16
<PAGE>
For purposes of Sections 5.06(a) and 5.06(b), the period of distribution of
Registrable Stock in a firm commitment underwritten public offering shall be
deemed to extend until each underwriter has completed the distribution of all
securities purchased by it, and the period of distribution of Registrable Stock
in any other registration shall be deemed to extend until the earlier of the
sale of all Registrable Stock covered thereby and six months after the effective
date thereof.
SECTION 5.07. Furnish Information. It shall be a condition
precedent to the obligations of the Company to take any action pursuant to
Article V of this Agreement that the Stockholder shall furnish to the Company
such information regarding the Stockholder, the Registrable Stock held by it,
and the intended method of disposition of such securities as the Company shall
reasonably request and as shall be required in connection with the action to be
taken by the Company.
SECTION 5.08. Expenses of Registration. All expenses incurred in
connection with each registration pursuant to Sections 5.03, 5.04 and 5.05 of
this Agreement, excluding underwriters' discounts and commissions, but
including, without limitation, all registration, filing and qualification fees,
word processing, duplicating, printers' and accounting fees (including the
expenses of any special audits or "cold comfort" letters required by or incident
to such performance and compliance), fees of the National Association of
Securities Dealers, Inc. or listing fees, messenger and delivery expenses, all
fees and expenses of complying with state securities or "blue sky" laws, and the
fees and disbursements of counsel for the Company, and the reasonable fees and
disbursements of counsel for the Stockholder (which counsel shall be selected by
the Stockholder), shall be paid by the Company; provided, however, that if a
registration request pursuant to Section 5.03 or 5.05 is subsequently withdrawn
by the Stockholder, the Company shall not be required to pay any expenses of
such registration proceeding and the Stockholder shall bear such expenses. The
Stockholder shall bear and pay the underwriting commissions and discounts
applicable to securities offered for its account and the fees and disbursements
of its counsel in connection with any registrations, filings and qualifications
made pursuant to this Agreement.
SECTION 5.09. Underwriting Requirements. In connection with any
underwritten offering, the Company shall not be required under Section 5.04 to
include shares of Registrable Stock in such underwritten offering unless the
Stockholder accepts the terms of the underwriting of such offering that have
been reasonably agreed upon between the Company and the underwriters selected by
the Stockholder.
SECTION 5.10. Indemnification. In the event any Registrable Stock
is included in a registration statement under this Agreement:
(a) The Company shall indemnify and hold harmless the Stockholder, the
Stockholder's directors and officers, each Person who participates in the
offering of such Registrable Stock, and each Person, if any, who controls the
Stockholder or participating
837578.1
17
<PAGE>
Person within the meaning of the Securities Act, against any losses, claims,
damages or liabilities, joint or several, to which they may become subject under
the Securities Act, the Exchange Act, state securities or "blue sky" laws or
otherwise, insofar as such losses, claims, damages or liabilities (or
proceedings in respect thereof) arise out of or are based on any untrue or
alleged untrue statement of any material fact contained in such registration
statement on the effective date thereof (including any preliminary prospectus or
prospectus filed under Rule 424 under the Securities Act or any amendments or
supplements thereto) or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and shall reimburse the
Stockholder, the Stockholder's directors and officers, such participating Person
or controlling Person for any legal or other expenses reasonably incurred by
them (but not in excess of expenses incurred in respect of one counsel for all
of them unless there is an actual conflict of interest between any indemnified
parties, which indemnified parties may be represented by separate counsel) in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the indemnity agreement contained
in this Section 5.10(a) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is effected
without the consent of the Company; provided further that the Company shall not
be liable to the Stockholder, the Stockholder's directors and officers,
participating Person or controlling Person in any such case for any such loss,
claim, damage, liability or action to the extent that it arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in connection with such registration statement,
preliminary prospectus, final prospectus or amendments or supplements thereto,
in reliance upon and in conformity with written information furnished expressly
for use in connection with such registration by the Stockholder, the
Stockholder's directors and officers, participating Person or controlling
Person. Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of the Stockholder, the Stockholder's
directors and officers, participating Person or controlling Person, and shall
survive the Transfer of such securities by the Stockholder.
(b) The Stockholder shall indemnify and hold harmless the Company, each of
its directors and officers, each Person, if any, who controls the Company within
the meaning of the Securities Act, and each agent and any underwriter for the
Company (within the meaning of the Securities Act) against any losses, claims,
damages or liabilities, joint or several, to which the Company or any such
director, officer, controlling Person, agent or underwriter may become subject,
under the Securities Act, the Exchange Act, state securities or "blue sky" laws
or otherwise, insofar as such losses, claims, damages or liabilities (or
proceedings in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in such
registration statement on the effective date thereof (including any preliminary
prospectus or prospectus filed under Rule 424 under the Securities Act or any
amendments or
837578.1
18
<PAGE>
supplements thereto) or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in such registration
statement, preliminary or final prospectus, or amendments or supplements
thereto, in reliance upon and in conformity with written information furnished
by or on behalf of the Stockholder expressly for use in connection with such
registration; and the Stockholder shall reimburse any legal or other expenses
reasonably incurred by the Company or any such director, officer, controlling
Person, agent or underwriter (but not in excess of expenses incurred in respect
of one counsel for all of them unless there is an actual conflict of interest
between any indemnified parties which indemnified parties may be represented by
separate counsel) in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the indemnity
agreement contained in this Section 5.10(b) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Stockholder, which consent
shall not be unreasonably withheld or delayed, and provided further that the
liability of the Stockholder hereunder shall be limited to the proportion of any
such loss, claim, damage,liability or expense which is equal to the proportion
that the net proceeds from the sale of the shares of Common Stock sold by the
Stockholder under such registration statement bears to the total net proceeds
from the sale of all securities sold thereunder, but not in any event to exceed
the net proceeds received by the Stockholder from the sale of Registrable Stock
covered by such registration statement.
(c) Promptly after receipt by an indemnified party under this Section 5.10
of notice of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against any indemnifying party under this
Section 5.10, notify the indemnifying party in writing of the commencement
thereof and the indemnifying party shall have the right to participate in and
assume the defense thereof with counsel selected by the indemnifying party and
reasonably satisfactory to the indemnified party; provided, however, that an
indemnified party shall have the right to retain its own counsel, with all fees
and expenses thereof to be paid by such indemnified party, and to be apprised of
all progress in any proceeding the defense of which has been assumed by the
indemnifying party. The failure to notify an indemnifying party promptly of the
commencement of any such action shall not relieve the indemnifying party from
any liability in respect of such action which it may have to such indemnified
party on account of the indemnity contained in this Section 5.10, unless (and
only to the extent) the indemnifying party was prejudiced by such failure, and
in no event shall such failure relieve the indemnifying party from any other
liability which it may have to such indemnified party. No indemnifying party
shall, without the prior written consent of the indemnified party, effect any
settlement of any claim or pending or threatened proceeding in respect of which
the indemnified party is or could have been a party and indemnity could have
been
837578.1
19
<PAGE>
sought hereunder by such indemnified party, unless such settlement includes
an unconditional release of such indemnified party from all liability arising
out of such claim or proceeding.
(d) To the extent any indemnification by an indemnifying party is
prohibited or limited by applicable law, the indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims, damages or
liabilities in such proportion as is appropriate to reflect the relative fault
of the indemnifying party and the indemnified party in connection with the
actions which resulted in such losses, claims, damages or liabilities as well as
any other relevant equitable considerations. The relative fault of such
indemnifying party and indemnified party shall be determined by reference to,
among other things, whether any action in question, including any untrue or
alleged untrue statement of material fact or omission or alleged omission to
state a material fact, has been made by, or relates to information supplied by,
such indemnifying party or indemnified party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
action. The amount paid or payable by a party as a result of the losses, claims,
damages or liabilities referred to above shall be deemed to include any legal or
other fees or expenses reasonably incurred by such party in connection with any
investigation or proceeding.
The parties hereto agree that it would not be just and equitable
if contribution pursuant to this Section 5.10(d) were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
No Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.
SECTION 5.11. Transfer of Registration Rights. Subject to Article
IV, the registration rights of the Stockholder under this Agreement with respect
to any Registrable Stock may be transferred to any Permitted Transferee of such
Registrable Stock; provided, however, that (i) the Stockholder shall give the
Company written notice at or prior to the time of such Transfer stating the name
and address of the Permitted Transferee and identifying the securities with
respect to which the rights under this Agreement are being transferred; (ii)
such Permitted Transferee shall agree in writing, in form and substance
reasonably satisfactory to the Company, to be bound by the provisions of this
Agreement as if it were a stockholder of the Company; and (iii) immediately
following such Transfer, the further disposition of such securities by such
transferee is restricted under the Securities Act.
SECTION 5.12. Rule 144 Information. Subject to Article IV, and
with a view to making available the benefits of certain rules and regulations of
the SEC which may at any time
837578.1
20
<PAGE>
permit the sale of the Registrable Stock to the public without registration, at
all times after ninety (90) days after any Shelf Registration Statement covering
a public offering of securities of the Company under the Securities Act shall
have become effective, the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act;
(b) use its best efforts to file with the SEC in a timely manner all
reports and other documents required of the Company under the Securities Act and
the Exchange Act; and
(c) furnish to the Stockholder forthwith upon request a written statement
by the Company as to its compliance with the reporting requirements of such Rule
144 and of the Securities Act and the Exchange Act, a copy of the most recent
annual or quarterly report of the Company, and such other reports and documents
so filed by the Company as the Stockholder may reasonably request in availing
itself of any rule or regulation of the SEC allowing the Stockholder to sell any
Registrable Stock without registration.
SECTION 5.13. Limitations on Registration Rights. Notwithstanding
anything herein to the contrary, neither the Stockholder nor any Permitted
Transferee shall be entitled to exercise any registration rights specified in
this Article V for so long as the Stockholder is in material breach of any of
its covenants, agreements or other obligations under the Distribution Agreement.
ARTICLE VI
GENERAL PROVISIONS
SECTION 6.01. Waiver. The Company and the Stockholder may (a)
extend the time for the performance of any of the obligations or other acts of
the other party or (b) waive compliance with any of the agreements or conditions
of the other party contained herein. Any such extension or waiver shall be valid
only if set forth in an instrument in writing signed by the party to be bound
thereby. Any waiver of any term or condition shall not be construed as a waiver
of any subsequent breach or a subsequent waiver of the same term or condition,
or a waiver of any other term or condition, of this Agreement. The failure of
any party to assert any of its rights hereunder shall not constitute a waiver of
any of such rights.
SECTION 6.02. Expenses. Except as otherwise specified in this
Agreement, all costs and expenses, including, without limitation, fees and
disbursements of counsel and financial advisors, incurred in connection with
this Agreement shall be paid by the party incurring such costs and expenses.
837578.1
21
<PAGE>
SECTION 6.03. Notices. All notices, requests, claims, demands and
other communications hereunder shall be in writing and shall be given or made
(and shall be deemed to have been duly given or made upon receipt) by delivery
in person, by courier service, by cable, by telecopy, by telegram, by telex or
by registered or certified mail (postage prepaid, return receipt requested) to
the respective parties at the following addresses (or at such other address for
a party as shall be specified in a notice given in accordance with this Section
6.03):
(a) if to the Company:
HemaSure Inc.
140 Locke Drive
Marlborough, MA 01752
Fax: 508-485-6045
Attention: President and Chief Executive Officer
with a copy to:
Battle Fowler LLP
Park Avenue Tower
75 East 55h Street
New York, NY 10022-3205
Fax: 212-339-9150
Attention: Luke P. Iovine, III, Esq.
(b) if to COBE:
COBE Laboratories, Inc.
1201 Oak Street
Lakewood, CO 80215-4498
Fax: 303-231-4151
Attention: Edward C. Wood
837578.1
22
<PAGE>
With a copy to:
Legal Department
COBE Laboratories, Inc.
1201 Oak Street
Lakewood, CO 80215
Telecopy: 303-231-2519
and
Shearman & Sterling
599 Lexington Avenue
New York, NY 10022
Telecopy: 212-848-7179
Attention: Peter D. Lyons, Esq. and
Kenneth A. Gerasimovich, Esq.
SECTION 6.04. Headings. The descriptive headings contained in this
Agreement are for convenience of reference only and shall not affect in any way
the meaning or interpretation of this Agreement.
SECTION 6.05. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any Law or
public policy, all other terms and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner in
order that the transactions contemplated hereby are consummated as originally
contemplated to the greatest extent possible.
SECTION 6.06. Entire Agreement. This Agreement and the other
Alliance Agreements constitute the entire agreement of the parties hereto with
respect to the subject matter hereof and thereof and supersedes all prior
agreements and undertakings, both written and oral, between the Company and COBE
with respect to the subject matter hereof and thereof.
SECTION 6.07. Assignment. This Agreement may not be assigned
without the express written consent of the Company and the Stockholder (which
consent shall not be unreasonably withheld or delayed by the Company or the
Stockholder, as the case may be); provided, however, that all covenants and
agreements contained in this Agreement by or on behalf of any parties hereto
will bind and inure to the benefit of their respective successors and assigns.
837578.1
23
<PAGE>
SECTION 6.08. No Third Party Beneficiaries. Except for the
provisions of Section 5.10 relating to indemnified parties, this Agreement shall
be binding upon and inure solely to the benefit of the parties hereto and their
permitted assigns and nothing herein, express or implied, is intended to or
shall confer upon any other Person any legal or equitable right, benefit or
remedy of any nature whatsoever under or by reason of this Agreement.
SECTION 6.09. Amendment. This Agreement may not be amended or
modified except (a) by an instrument in writing signed by, or on behalf of, the
Company and COBE or (b) by a waiver in accordance with Section 6.01.
SECTION 6.10. Governing Law. This Agreement shall be governed by
the laws of the State of New York, excluding (to the greatest extent permissible
by law) any rule of law that would cause the application of the laws of any
jurisdiction other than the State of New York.
SECTION 6.11. Arbitration. (a) If a dispute arises from or relates
to this Agreement or the breach thereof, whether of law or fact, of any nature
whatsoever, and such dispute cannot be settled through direct discussions
between the parties, the parties agree to endeavor first to settle the dispute
in an amicable manner by mediation administered by the American Arbitration
Association under its Commercial Mediation Rules before resorting to litigation.
Mediation shall take place in New York, New York. If the dispute cannot be
resolved within 60 days of the initiation thereof by such party, any party may
initiate arbitration in accordance with the provisions of Section 6.11(b) below.
(b) All disputes arising under this Agreement that cannot be
amicably resolved under Section 6.11(a) above shall be settled by binding
arbitration. Judgment upon the award rendered may be entered in any court in the
New York, New York metropolitan area. Each party agrees to the following
arbitration procedures:
(i) Any party requesting arbitration shall serve a written demand
for arbitration on the other party. The demand shall set forth in
reasonable detail a statement of the nature of the dispute, the amount
involved and the remedies sought. No later than 20 calendar days after
a demand for arbitration is served, the parties shall jointly select
and appoint a retired judge of the Courts of the State of New York to
act as the arbitrator. In the event that the parties do not agree on
the selection of an arbitrator, the party seeking arbitration shall
apply to the United States District Court for the Southern District of
New York, as applicable, for appointment of a retired judge to serve as
arbitrator.
(ii) No later than 10 calendar days after appointment of an
arbitrator, the parties shall jointly prepare and submit to the
arbitrator a set of rules for the arbitration. In the event that the
parties cannot agree on the rules for the arbitration, the arbitrator
shall establish the rules. No later than 10 calendar days after the
arbitrator is appointed, such arbitrator shall arrange for a hearing to
commence on a mutually convenient date.
837578.1
24
<PAGE>
The hearing shall commence no later than 120 calendar days after the
arbitrator is appointed and shall continue from day to day until
completed.
(iii) The arbitrator shall issue his or her award in writing no
later than 20 calendar days after the conclusion of the hearing. The
arbitration award shall be final and binding regardless of whether any
party fails or refuses to participate in the arbitration. The
arbitrator is empowered to hear and determine all disputes between the
parties hereto concerning the subject matter of this Agreement, and the
arbitrator may award money damages (but specifically not punitive
damages), injunctive relief, rescission, restitution, costs, and
attorneys' fees. The arbitrator shall not have the power to amend this
Agreement in any respect.
(iv) In the event that any party serves a proper demand for
arbitration under this Agreement, all parties may pursue discovery in
accordance with the Rules of Civil Procedure of the State of New York,
the provisions of which are incorporated herein by reference, with the
following exceptions: (A) the parties hereto may conduct all discovery,
including depositions for discovery purposes, without leave of the
arbitrator; and (B) all discovery shall be completed no later than the
commencement of the arbitration hearing or 120 calendar days after the
date that a proper demand for arbitration is served, whichever occurs
earlier, unless upon a showing of good cause the arbitrator extends or
shortens that period.
SECTION 6.12. Counterparts. This Agreement may be executed in one
or more counterparts, and by the different parties hereto in separate
counterparts, each of which when executed shall be deemed to be an original but
all of which taken together shall constitute one and the same agreement.
SECTION 6.13. Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or equity.
837578.1
25
IN WITNESS WHEREOF, the Company and the Stockholder have caused this
Agreement to be executed as of the date first above written by their respective
officers thereunto duly authorized.
HEMASURE INC.
By: /s/John F. McGuire
--------------------------------------------
Name: John F. McGuire
Title: President and Chief Executive Officer
COBE LABORATORIES, INC.
By: /s/ Edward C. Wood, Jr.
-------------------------------------------
Name: Edward C. Wood, Jr.
Title: Vice President
837578.1
Exhibit 10.2
AMENDED AND RESTATED EXCLUSIVE DISTRIBUTION AGREEMENT
BETWEEN
HEMASURE INC.
AND
COBE LABORATORIES, INC.
Amended and Restated Exclusive Distribution Agreement (this
"Distribution Agreement") dated as of May 3, 1999, between HEMASURE INC., a
corporation organized under the laws of Delaware ("HemaSure"), and COBE
LABORATORIES, INC., a corporation organized under the laws of the State of
Colorado ("COBE").
RECITALS
A. HemaSure manufactures and distributes certain medical
products and supplies, together with parts necessary for repair and replacement
and including all devices now or hereafter manufactured or designed by HemaSure
that filter blood and its components. HemaSure's current Products are identified
in the list attached as Exhibit 1 (collectively, the "Products"), and such list
may be updated with mutual agreement from time to time to reflect additional
Products as described above (the "Product List").
B. HemaSure and COBE BCT, Inc. ("COBE BCT") entered into an
Exclusive Distribution Agreement on August 14, 1998 (the "Former Distribution
Agreement") whereby (1) COBE BCT became the exclusive distributor, and HemaSure
became the exclusive supplier to COBE BCT, in each case, during the term of the
Former Distribution Agreement, for the Products throughout the world except for
China and the United States, for a term commencing on August 14, 1998, and (2)
HemaSure would supply to COBE BCT certain Products to be incorporated into
medical devices manufactured by COBE BCT for sale to Affiliates of COBE BCT and
to third parties (the "COBE Products").
C. The parties hereto desire to amend and restate the
Former Distribution Agreement in its entirety, as provided herein.
D. The parties hereto desire that (1) COBE be the exclusive
distributor, and that HemaSure be the exclusive supplier to COBE, pursuant to
this Distribution Agreement for the Products throughout the Territory (as
defined below) for a term commencing on the date hereof (the "Commencement
Date") and continuing throughout the term of this Distribution Agreement set
forth in Article X hereof and (2) HemaSure supply to COBE and its Affiliates
certain Products to be incorporated into the COBE Products.
837580.1
<PAGE>
2
In consideration of these premises and the mutual promises made
herein by the parties to each other, they agree as follows:
ARTICLE 1 - APPOINTMENT
1.1 Except as otherwise specifically provided herein,
HemaSure hereby appoints COBE as its exclusive distributor for the Products with
the right to appoint sub-distributors, in the Territory and for the term of this
Distribution Agreement, and COBE hereby accepts this appointment. In return,
COBE appoints HemaSure as its sole and exclusive supplier of the Products, for
the term of this Distribution Agreement, and HemaSure accepts this appointment.
For purposes of this Distribution Agreement, the "Territory" shall be, subject
to the provisions of Sections 10.7 and 10.8, the entire world. Notwithstanding
any provision of this Distribution Agreement to the contrary, HemaSure shall
maintain the exclusive right to distribute products (including, but not limited
to, the Products) made by HemaSure or its Subsidiaries to the American Red Cross
and its Affiliates solely as end-users (subject to COBE's right to sell OEM (as
defined in Section 3.2) products to the American Red Cross and its Affiliates).
1.2 All Products shall meet specifications set forth in
Exhibit 1; provided, however, that HemaSure, upon thirty (30) days' prior
written notice specifying the nature of and reasons for such changes, shall have
the right to make any changes in the specifications of the Products to the
extent necessary to satisfy regulatory requirements or to avoid a material
adverse affect on the quality or performance of the Products.
1.3 If COBE requests additional Products from HemaSure, or
additional development with respect to a Product, the parties agree to negotiate
in good faith the terms of a development agreement (a "Development Agreement")
for the additional Products or development services. Product development shall
be conducted in accordance with mutually agreed upon plans setting forth the
estimated cost and expense, the proposed specifications for and uses of the
Products and the requirements for and timing of the design, performance, quality
and manufacturability validation, regulatory approval and manufacturing
requirements.
1.4 In connection with any development pursuant to a
Development Agreement, if COBE pays for the complete development of any
additional Products or portions thereof, any improvements to HemaSure's Owned
Intellectual Property resulting therefrom (the "Improvements") shall be COBE's
Owned Intellectual Property, but HemaSure shall have a perpetual, non-exclusive,
world-wide, royalty-free license under such Improvements and Intellectual
Property outside the field of devices that filter blood and its components. If
HemaSure's Owned Intellectual Property existing on the date of any such
Development Agreement is required to practice any such COBE's
837580.1
<PAGE>
3
Owned Intellectual Property, COBE shall have a perpetual non-exclusive,
world-wide, royalty-free license under such HemaSure Owned Intellectual Property
for the term of this Distribution Agreement (as such term may be extended),
limited to the field of devices that filter blood and its components.
Additionally, after the term of this Distribution Agreement, the provisions of
Section 10.10 shall apply to any product sales by COBE utilizing such HemaSure
Owned Intellectual Property, and HemaSure shall be entitled to the 12% royalty
contemplated in Section 10.10. Notwithstanding the above, any final Development
Agreement may set forth terms and conditions which are different than those set
forth in this Section 1.4.
1.5 COBE's sole compensation under this Distribution
Agreement shall be the profit it may realize from the resale of the Products.
1.6 If Sections 10.7 and 10.8 become applicable, COBE shall
not, without the written consent of HemaSure: (i) seek customers or establish
any branch or maintain any distribution depot for the Products outside the
Territory or (ii) knowingly sell the Products to any customer for use outside
the Territory.
1.7 COBE shall be fully responsible for the acts and
conduct of its employees, agents, sub-agents and sub-distributors and shall
indemnify and hold HemaSure harmless from all claims, liabilities and damages
arising out of any negligence or misconduct of COBE or its employees, agents,
sub-agents or sub- distributors.
1.8 Neither COBE nor HemaSure shall disclose to any third
party any trade secrets of the other party or any Confidential Information (as
such term is defined in the Confidentiality Agreement) concerning the other
party, its Products or its business. The terms of the Confidentiality Agreement
are incorporated herein by reference thereto in Exhibit 2, as amended in such
Exhibit 2. When this Distribution Agreement terminates, except as otherwise
agreed, each party shall promptly return to the other party all trade secret and
Confidential Information of said other party and shall not disclose or otherwise
use such information for a period of three years after the date of termination.
1.9 The following definitions shall apply to this
Distribution Agreement:
(a) "Affiliate" means, with respect to any specified Person, any
other Person that directly, or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with, such specified
Person.
(b) "Change in Control" means the occurrence of any of the following
events: (i) any Person, other than a trustee or other fiduciary holding
securities under an employee benefit plan of HemaSure or any subsidiary of
HemaSure or any stockholder
837580.1
<PAGE>
4
(and such stockholder's affiliates) as of the date hereof and direct transferees
thereof, becomes, after the date hereof, the "beneficial owner" (as defined in
Rule 13d-3 of the Securities Exchange Act of 1934, as amended), directly or
indirectly, of securities of HemaSure representing 50.1% or more of the total
voting power represented by HemaSure's then outstanding securities on a fully
diluted basis that vote generally in the election of directors ("Voting
Securities"), or (ii) the merger or consolidation of HemaSure with any other
corporation, other than a merger or consolidation in which the Voting Securities
of HemaSure outstanding immediately prior thereto continue to represent (either
by remaining outstanding or by being converted into Voting Securities of the
surviving entity) at least a majority of the total voting power of the surviving
entity; or (iii) the sale or transfer (in one transaction or a series of
transactions) of all or substantially all of the assets of HemaSure, other than
to a subsidiary of HemaSure.
(c) "Intellectual Property" of COBE or HemaSure, as the case may be,
means (i) inventions, whether or not patentable, whether or not reduced to
practice, and whether or not yet made the subject of a pending patent
application or applications, (ii) ideas and conceptions of potentially
patentable subject matter, including, without limitation, any patent
disclosures, whether or not reduced to practice and whether or not yet made the
subject of a pending patent application or applications, (iii) national
(including the United States) and multinational statutory invention
registrations, patents, patent registrations and patent applications (including
all reissues, divisions, continuations, continuations-in-part, extensions and
reexaminations) and all rights therein provided by international treaties or
conventions and all improvements to the inventions disclosed in each such
registration, patent or application, (iv) trademarks, service marks, trade
dress, logos, trade names and corporate names, whether or not registered, and
all rights therein provided by international treaties or conventions, (v)
copyrights (registered or otherwise) and registrations and applications for
registration thereof, and all rights therein provided by international treaties
or conventions, (vi) computer software, including, without limitation, source
code, operating systems and specifications, data, data bases, files,
documentation and other materials related thereto, data and documentation, (vii)
trade secrets and confidential, technical and business information (including
ideas, formulas, compositions, inventions, and conceptions of inventions whether
patentable or unpatentable and whether or not reduced to practice), (viii)
whether or not confidential, technology (including know-how and show-how),
manufacturing and production processes and techniques, research and development
information, drawings, specifications, designs, plans, proposals, technical
data, copyrightable works, financial, marketing and business data, pricing and
cost information, business and marketing plans and customer and supplier lists
and information, (ix) copies and tangible embodiments of all the foregoing, in
whatever form or medium, (x) all rights to obtain and rights to apply for
patents, and to register trademarks and copyrights, and (xi) all rights to sue
or recover and retain damages and costs and attorneys' fees for present and past
infringement of any of the foregoing.
837580.1
<PAGE>
5
(d) "Licensed Intellectual Property" means all Intellectual Property
licensed or sublicensed to COBE or HemaSure, as the case may be, from a third
party.
(e) "Owned Intellectual Property" means all Intellectual Property,
other than the Licensed Intellectual Property, in and to which COBE or HemaSure,
as the case may be, holds, or has a right to hold, any right, title or interest.
(f) "Person" means an individual, corporation, partnership,
association, trust, joint venture, unincorporated organization, other entity or
group (as defined in Sections 13(d) and 14(d) of the Securities Exchange Act of
1934, as amended).
ARTICLE 2 - DUTIES OF COBE
During the term of this Distribution Agreement, COBE shall:
----------------------------------------------------------
2.1 Use commercially reasonable efforts to market and sell
the Products and develop a profitable market for them in the Territory.
2.2 Maintain and utilize such personnel, organization and
facilities as will be competent and adequate to enable COBE to satisfy its
obligations under this Distribution Agreement.
2.3 At least thirty days before the end of each calendar
quarter, prepare and furnish to HemaSure a proposed annual purchase forecast by
month for the following four calendar quarters, specifying the quantities of the
Products which COBE forecasts will be purchased for delivery during each month
of that year; provided, however, that in no event may HemaSure be required to
deliver quantities of any Product during a month which exceed 110% of the
maximum deliveries of such Product to COBE during any earlier calendar month.
All orders for shipment of Products within 30 days from the order shall be
deemed to be firm and non-cancelable.
2.4 Purchase from HemaSure and at all times maintain the
minimum inventories of Products to provide adequate service and delivery to
customers in the Territory. COBE shall meet the minimum purchase requirement set
forth in Exhibit 3, attached hereto, unless Exhibit 4 shall be applicable
pursuant to the provisions of Sections 10.7 and 10.8 in which case COBE shall
meet the minimum purchase requirements set forth therein, as the same shall be
amended from time to time. In the event that Exhibit 4 is applicable, the
parties shall meet at least three months before the end of each calendar year
with respect to the matters set forth in Exhibit 4 and negotiate in good faith
the minimum purchase requirements for the following calendar year, provided,
that if they fail to agree by the beginning of the year the aggregate
837580.1
<PAGE>
6
minimum purchase requirements for all Products during that year shall equal 110%
of such aggregate minimum requirements for the preceding year.
2.5 Advise HemaSure of inquiries which COBE or any
Affiliates receive from potential customers for the Products outside the
Territory, if applicable, and shall use its commercially reasonable efforts to
transfer to HemaSure all customers who are reasonably likely to use the Products
outside the Territory, if applicable.
2.6 Except as otherwise agreed by the parties in writing,
obtain all regulatory approvals, registrations, and listing of Products required
(Food and Drug Administration (the "F.D.A."), C.E., C.S.A., etc.) in the
Territory to make and sell Products incorporated into COBE Products, or certify
that such approvals and registrations have been obtained or are not required,
and comply with all applicable laws, standards, rules and regulations.
2.7 Not modify or alter the Products in any way without the
prior written approval of HemaSure.
2.8 Indemnify and hold harmless HemaSure and its Affiliates
and customers, and their officers, directors, agents and employees, from and
against losses, claims and damages (including reasonable fees and expenses of
counsel) ("Losses") as they are incurred, but solely to the extent such Losses
arise out of or are related to any claim by a third party that any Product
modifications or specifications requested by COBE on Products sold by COBE
conflict with or infringe upon Intellectual Property owned or licensed by the
third party. An exception to the above is that COBE will not indemnify and hold
harmless HemaSure and its Affiliates for any additional Losses arising from a
determination of willful infringement.
2.9 Indemnify and hold harmless HemaSure and its Affiliates
and customers, and their officers, directors, agents and employees, from and
against Losses as they are incurred, solely to the extent such Losses arise out
of or are related to any claim by a third party that any Product has caused
personal injury or other loss to the third party, and only to the extent such
actual or alleged personal injury or loss arises from willful misconduct, gross
negligence, failure to follow HemaSure's written instructions, or alterations of
a Product or Products without HemaSure's written approval. COBE shall maintain
product liability insurance with reputable insurers in such amounts and covering
such risks and on such terms and conditions as are in accordance with normal
industry practice.
2.10 In connection with the promotion and marketing of the
Products, (i) make clear in all dealing with customers that it is acting as a
distributor of the Products and not as an agent of HemaSure, (ii) comply with
all material legal requirements with respect to the storage and sale of the
Products, (iii) provide, at the reasonable request
837580.1
<PAGE>
7
of HemaSure, copies of its price lists and copies of promotional aids and
literature, (iv) permit HemaSure's representatives to visit during normal
business hours, upon reasonable advance notice, any premises of COBE used in
connection with the sale of the Products, and (v) use only those advertising,
promotional and other selling materials approved by HemaSure (which approval
shall not be unreasonably withheld).
2.11 Provide full traceability of the Products to its
customers. COBE agrees that at all times it will be able to know its customer
for each individual Product lot for all Products delivered by HemaSure to COBE.
2.12 Be responsible (when applicable) for obtaining any
necessary import licenses, or other requisite documents, with respect to the
importation of the Products into the Territory and their resale in the
Territory.
2.13 Provide information to HemaSure on Product complaints
received. A complaint is considered to be any oral or written expression of
dissatisfaction with the identity, quality, durability, reliability, safety,
effectiveness, or performance of a product. Any complaint involving injury or
death will be reported immediately to HemaSure. COBE will be responsible for
follow-up communication with the customer.
2.14 Cause its warehouses and distribution networks to be
maintained and operated (i) in a manner that will protect the integrity and
quality of the Products, maintaining safety and efficacy at all times; (ii) to
ISO 9000 standards with respect to traceability and complaints; and (iii) to
conform to all national regulatory and other requirements.
2.15 Purchase from HemaSure all of its requirements for
Products from HemaSure and any and all devices and products substantially
identical to the Products for sale in the Territory, or that have uses or
intended uses substantially identical to the Products.
ARTICLE 3 - DUTIES OF HEMASURE
During the term of this Distribution Agreement, HemaSure shall:
--------------------------------------------------------------
3.1 Manufacture each Product in sufficient quantities to
permit timely delivery of the quantities of the Product provided for in COBE's
forecast.
3.2 Package and mark the Products under COBE's name, in
such manner as COBE may reasonably direct, provided that Products sold to an
original equipment manufacturer ("OEM") unaffiliated with COBE for incorporation
into devices
837580.1
<PAGE>
8
manufactured by the OEM may be labeled with HemaSure's trademarks upon
HemaSure's receipt from COBE of its written consent regarding the same.
3.3 Advise COBE of inquiries which HemaSure or its other
distributors, if any, receive from potential customers for the Products within
the Territory and shall use its commercially reasonable efforts to transfer to
COBE all customers for the Products who are located within the Territory.
3.4 Except as otherwise agreed by the parties, obtain all
regulatory approvals, registrations, and listing of Products required (F.D.A.,
C.E., C.S.A., etc.) to sell the Products in the Territory (other than for
Products incorporated into COBE Products), or certify that such approvals and
registrations have been obtained or are not required, and comply with all
applicable laws, standards, rules and regulations.
3.5 Perform any investigations required with respect to
Product complaints and similar events and take necessary corrective action,
keeping COBE informed of such investigations and corrective action. HemaSure
will conduct any field actions which may be necessary, including Product
recalls, modifications and upgrades, as determined by HemaSure in its reasonable
discretion. Any extraordinary costs of conducting a field action, such as
replacement of Product and return of Product, shall be borne by HemaSure.
3.6 Notify COBE at least 90 days in advance of any changes
in the Products.
3.7 Comply with the Good Manufacturing Practices (GMP)
regulations of the F.D.A. and similar requirements of other jurisdictions within
the Territory, making HemaSure's records and documents available and cooperating
with COBE should COBE audit HemaSure for compliance with regulatory
requirements.
3.8 Replace all defective Products at HemaSure's expense,
including all reasonable delivery, handling and related costs of the
replacement.
3.9 Subject to Article 5, take such commercially reasonable
actions as may be needed in order to protect its rights in HemaSure's Owned
Intellectual Property against infringement, ,and to maintain its proprietary
interest in its Owned Intellectual Property in full force and effect.
3.10 Indemnify and hold harmless COBE and its Affiliates
and customers, and their officers, directors, agents and employees, from and
against Losses as they are incurred, arising out of or related to any claim by a
third party that any Product conflicts with or infringes upon Intellectual
Property owned or licensed by
837580.1
<PAGE>
9
the third party. An exception to the above is that HemaSure will not indemnify
and hold harmless COBE and its Affiliates for any additional Losses arising from
a determination of willful infringement.
3.11 Indemnify and hold harmless COBE and its Affiliates
and customers, and their officers, directors, agents and employees, from and
against Losses as they are incurred, arising out of or related to any claim by a
third party that any Product has caused personal injury or other loss to the
third party. HemaSure shall maintain product liability insurance with reputable
insurers in such amounts and covering such risks and on such terms and
conditions as are in accordance with normal industry practice.
3.12 Warrant the Products to COBE and its customers under
its standard product warranty as set forth in Exhibit 5 hereto; provided,
however, that the representations, warranties and indemnification given by
HemaSure herein are subject to the conditions that HemaSure shall not be under
liability in respect of any defect in the Products:
(i) to the extent such defect arises solely from any
modifications made by COBE or its customers and
not approved by HemaSure in writing, or
(ii) to the extent such defect arises solely from
willful misconduct, gross negligence, failure to
follow HemaSure's written instruction, or
alteration of the Products without HemaSure's
approval.
3.13 Have the right to sell Products to other manufacturers
(other than COBE or its Affiliates) to be included in said manufacturer's
products to be sold to end-users.
ARTICLE 4 - TRADEMARKS
4.1 COBE may use HemaSure's names and marks (the
"Trademarks") in advertising, or marketing and information materials, on COBE's
letterheads or at its place of business, to indicate that the Product is
manufactured for COBE by HemaSure (but not that COBE is otherwise associated
with HemaSure). COBE may not otherwise use HemaSure's Trademarks, trade names,
or company name in connection with the promotion or sale of any goods or
services, except with HemaSure's prior written approval. Upon termination of
this Distribution Agreement for any reason, COBE will immediately stop using
HemaSure's Trademarks and trade or company names and will
837580.1
<PAGE>
10
stop advertising or otherwise indicating that COBE is a distributor of the
Products. COBE hereby acknowledges that HemaSure has the sole rights to such
trade names, company names and Trademarks.
4.2 COBE shall not:
(i) make any modifications to the Products or their
packaging, except on specific instructions from
local, state or federal authorities (any
modifications for purposes of enhancing the
product sales is to be Submitted to HemaSure for
approval and said approval shall not be
unreasonably withheld);
(ii) alter, remove or tamper with any Trademarks,
number, or other means of identification used on
or in relation to the Products;
(iii) use any of the Trademarks in any way which might
prejudice their distinctiveness or validity or
the goodwill of HemaSure;
(iv) use in relation to the Products any trademarks
other than the Trademarks without obtaining the
prior written consent of HemaSure; or
(v) use in the Territory any trademarks or trade
names in any way similar to any Trademark or
trade names of HemaSure or which would be likely
to cause confusion to customers or potential
Customers;
provided that Section 4.2(i), (ii) and (iv) shall not apply to COBE Products.
4.3 COBE shall, at the expense of HemaSure, take all such
reasonable steps as HemaSure may reasonably require to assist HemaSure in
maintaining the validity and enforceability of the Trademarks of HemaSure during
the term of this Distribution Agreement. COBE shall at the request of HemaSure
execute such registered user agreements or licenses in respect of the use of the
Trademarks in the Territory as HemaSure may reasonably require, provided that
the provisions of any such agreement or license are not more onerous or
restrictive than the provisions of this Distribution Agreement.
4.4 COBE shall promptly notify HemaSure in writing of any
actual or threatened (in writing) infringement in the Territory of any
Trademarks of HemaSure which comes to COBE's actual notice and of any claim by
any third party so coming to its notice that the importation of the Products
into the Territory, or their sale therein, infringes any rights with respect to
trademarks of any other person, and COBE shall at
837580.1
<PAGE>
11
the request and expense of HemaSure do all such reasonable things as may be
reasonably required to assist HemaSure in taking or resisting any proceedings in
relation to any such infringement or claim.
4.5 HemaSure may seek to register its Trademarks, trade
names and company names in the Territory, and do whatever it deems desirable to
prevent their unauthorized use by others.
4.6 To the extent necessary to fulfill HemaSure's
obligations under Section 3.2, HemaSure is hereby licensed by COBE to apply
COBE's trademarks and trade names to Products to be sold by COBE. COBE shall at
all times have control of the quality of goods bearing COBE's trademarks and
trade names and may reject any products not meeting COBE's quality requirements.
Such quality requirements shall be comparable to the quality requirements
established by COBE for goods manufactured by COBE. HemaSure may not otherwise
use COBE's trademarks, trade names, or company names in connection with the
promotion of sale of any goods or services, except with COBE's prior written
approval. Upon termination of this Distribution Agreement for any reason,
HemaSure will immediately stop using COBE's trademarks and trade or company
names. HemaSure hereby acknowledges that COBE has the sole rights to such
trademarks and trade and company names.
4.7 COBE may seek to register its trademarks and trade and
company names for use in connection with its sale of the Products in the
Territory, and do whatever COBE deems desirable to prevent their use by others.
ARTICLE 5 - EXPENSES FOR NEW PATENT LITIGATION
5.1 The parties hereby agree to jointly appoint counsel in
connection with any new patent infringement litigation proceeding (including,
without limitation, any declaratory judgment action and specifically the action
commenced on April 5, 1999 against Pall Corporation in the United States
District Court for the District of Colorado and any other related action) and,
to the extent the parties agree on the appointment of counsel, COBE shall pay
all of the expenses incident thereto, including the fees and expenses of such
counsel (even in the event of an unsuccessful action). COBE's obligation to pay
expenses incident to the new patent infringement litigation proceeding does not
include an obligation to pay any damages that may be assessed against HemaSure
and/or COBE or any of their Affiliates in such new proceeding. HemaSure may, at
its own sole expense, appoint its own counsel at any time to advise and
represent HemaSure.
837580.1
<PAGE>
12
5.2 Such appointed counsel will represent both COBE and
HemaSure. Both parties will consult and use best efforts to mutually agree on
the litigation strategy and related decisions.
5.3 Either party shall have the right to settle any such
patent infringement litigation on its own behalf. If COBE settles such patent
infringement litigation without the prior written consent of HemaSure, then
HemaSure shall not be obligated to indemnify COBE pursuant to this Distribution
Agreement or to pay any damages or other award that COBE agrees to pay as part
of such a settlement. Either party who settles any !such patent infringement
litigation without the prior written consent of the other party shall indemnify
the other non-settling party for any damages, prejudice or adverse effect caused
by such settlement on the non-settling party. With respect to any such
Settlement, neither party shall, without the consent of the other party (which
consent shall not be unreasonably withheld), admit that the Product infringes
the intellectual property rights of another or expressly admit that a third
party's patent is valid or enforceable.
5.4 Subject to Section 6.5 below, all rights and
obligations of the parties with respect to the matters described under this
Article 5 (other than with respect to the payment of fees and expenses) shall
terminate upon termination of any portion of this Distribution Agreement.
ARTICLE 6 - CONFIDENTIAL LITIGATION INFORMATION
In addition to each of the parties' rights and obligations
pursuant to the Confidentiality Agreements listed, and incorporated by
reference, on Exhibit 2 to this Distribution Agreement, COBE and HemaSure shall
each have the following rights and obligations in connection with the
confidential information:
6.1 It may be necessary during the course of any new patent
infringement litigation for COBE and HemaSure to share litigation confidential
information. For purposes of this Article 6, litigation confidential information
refers to information that a producing party claims in writing to be its trade
secret or other confidential research, development, or commercial information
within the meaning of Rule 26(c)(7) of the Federal Rules of Civil Procedure, as
may be amended from time to time.
6.2 Other than pursuant to a court order or similar order
from a governmental or regulatory authority, the party receiving litigation
confidential information agrees to maintain all such information in confidence,
the receiving party will limit access to the litigation confidential information
on a need-to-know basis, and
837580.1
<PAGE>
13
the receiving party agrees not to release the litigation confidential
information outside the company without the prior written approval of the
disclosing party.
6.3 All documents and litigation confidential information
remain the sole property of the disclosing party. The receiving party agrees to
return all documents and any copies to the disclosing party at the disclosing
party's request.
6.4 The obligations of the parties under this Article 6 are
in addition to any other obligations of the parties under this Distribution
Agreement and the Confidentiality Agreements listed, and incorporated by
reference, in Exhibit 2 hereto, with respect to Confidential Information.
6.5 Notwithstanding Section 5.4 above, the provisions
contained in this Article 6 shall govern the relationship of the parties with
respect to the exchange of litigation confidential information in the context of
any new patent infringement litigation and shall remain in full force and effect
notwithstanding termination of this Distribution Agreement.
ARTICLE 7 - PRIVILEGED INFORMATION
In addition to each of the parties' rights and obligations
pursuant to the Confidentiality Agreement listed, and incorporated by reference,
on Exhibit 2 to this Distribution Agreement, COBE and HemaSure shall each have
the following rights and obligations in connection with the privileged
information:
7.1 It may be necessary during the course of any new patent
infringement litigation for COBE and HemaSure to share privileged information.
Privileged information is information that is subject to a claim of
attorney-client privilege or work-product immunity as defined under applicable
law.
7.2 Subject to Section 4 of the Confidentiality Agreement,
(a) the party receiving privileged information agrees to maintain such
privilege; (b) the receiving party will limit access to the privileged
information on a need-to-know basis, and the receiving party agrees not to
release the privileged information beyond its own officers, directors, employees
and counsel without the prior written approval of the disclosing party; and (c)
the receiving party agrees that privileged information will not be used in
testimony at trial, at any motion hearing, and at depositions and will not be
offered into evidence at trial or at any motion hearing without the prior
written approval of the disclosing party.
7.3 The receiving party will not assert waiver or estoppel
based upon its receipt of the privileged information.
837580.1
<PAGE>
14
7.4 Notwithstanding Section 5.4 above, the provisions
contained in this Article 7 shall remain in full force and effect
notwithstanding termination of this Distribution Agreement.
ARTICLE 8 - TERMS OF SALES
8.1 Subject to the terms of Exhibit 3 hereto, if
applicable, COBE shall pay the prices determined as specified in Exhibit 1 for
the Products. The prices set forth in Exhibit 1 will remain in effect until
December 31, 1999. Thereafter, HemaSure and COBE shall negotiate annually in
good faith to establish annual price changes to remain in effect for each annual
period following 1999. Unless otherwise agreed, prices for each Product shall
increase or decrease each year by a percentage equal to any percentage increase
or decrease in the standard manufacturing cost for the Product (as determined by
HemaSure in accordance with generally accepted accounting principles and
HemaSure's historical accounting practices) during HemaSure's preceding fiscal
year, provided that in no event shall such percentage change exceed the
percentage change in COBE's average selling price for the Product during the
preceding fiscal year.
8.2 Unless otherwise agreed in writing, all prices for the
Products shall be F.O.B. HemaSure's; factory, freight collect, and shall be
inclusive of all taxes, duties and other governmental charges assessed or
assessable prior to passage of title to COBE. Title to the Products and risk of
loss shall pass to COBE on delivery of the Products to the destination specified
by COBE in its purchase orders. Products shall be shipped against COBE purchase
orders specifying shipment dates, transportation requirements and quantities of
Products.
8.3 Unless otherwise agreed in writing, all payments for
the Products shall be made in U.S. dollars, payable within 30 days after
delivery, by check drawn on a U.S. bank.
8.4 The Products will be packaged for shipping in packaging
labeled as provided in Section 3.2, substantially comparable in all other
respects to HemaSure's standard packaging, which shall be appropriate for
shipment by the means/carrier specified by COBE in its purchase orders.
8.5 Other terms of sale shall be as agreed to by the
parties.
ARTICLE 9 - TRAINING; MARKETING
9.1 To the extent deemed reasonably necessary by COBE and
HemaSure, HemaSure will provide COBE's service personnel with reasonable
technical
837580.1
<PAGE>
15
training for the proper maintenance of the Products, at a mutually agreed upon
location and date. For this purpose, HemaSure will pay for the expenses of its
personnel and, unless the parties have agreed otherwise in advance, COBE shall
bear all expenses of its personnel associated with this training.
9.2 To the extent deemed reasonably necessary by COBE and
HemaSure, HemaSure will provide marketing and sales training and product
information to COBE's sales personnel at a mutually agreed upon location and
date. For this purpose, HemaSure will pay the expenses of its personnel and,
unless the parties have agreed otherwise in advance, COBE shall bear all
expenses of its personnel associated with the training.
9.3 At COBE's reasonable request HemaSure will make
technical visits and presentations to COBE customers, at such times and places
as COBE may reasonably request and subject to the availability of appropriate
HemaSure personnel. COBE will reimburse HemaSure for its reasonable
out-of-pocket costs for such visits and presentations, including per them
charges based on HemaSure's actual costs for the employees involved. HemaSure
may also initiate such visits and presentations with COBE's prior approval and
at the expense of HemaSure.
9.4 HemaSure shall supply COBE with standard product
information in the English language and such other English language advertising
material, sales literature and instructions as HemaSure and COBE deem
appropriate to assist COBE in the promotion, sale land service of the Products
in the Territory. Additional quantities of such materials may be purchased by
COBE at prices quoted by HemaSure from time to time. Unless otherwise agreed,
any other advertising and promotional expenses shall be paid by COBE. COBE may
modify, adapt or reproduce any such information provided by HemaSure to the
extent COBE deems appropriate to fulfill its obligations under this Distribution
Agreement, subject to the approval of HemaSure, which will not be withheld
unreasonably.
ARTICLE 10 - TERM OF AGREEMENT
10.1 This Distribution Agreement shall become effective as
of the Commencement Date and, unless earlier terminated in accordance with its
provisions, shall remain in effect for a period of five (5) years from the date
of receipt of 510(k) approval from the F.D.A. for the r/LS Leukoreduction Filter
(the "Approval Date"). At any time in the next to last year of a term either
party may give written notice to the other party of its intent to terminate this
Distribution Agreement at the end of the then current term. If neither party
gives such notice to the other party, this Distribution Agreement shall be
extended automatically for an additional term of three (3) years.
837580.1
<PAGE>
16
10.2 Either party may terminate this Distribution Agreement
for a material breach of this Distribution Agreement by the other party, by
notifying the other party in writing of such breach and, except as otherwise
provided in Sections 10.3, 10.4 and 10.5, allowing sixty (60) days within which
to cure the breach. If the breach is not cured within the sixty (60) day period,
the complaining party may terminate this Distribution Agreement at any time
thereafter by giving written notice of termination to the defaulting party.
Failure to exercise this right of termination in any instance of breach shall
not be a waiver of this right as to any subsequent breach.
10.3 This Distribution Agreement shall terminate
automatically, upon written notice by one party to the other party, without any
further notice, summons or process whatever, if one of the following
circumstances occurs:
(a) An event of bankruptcy occurs with respect to the other party; or
(b) Either party ceases to engage in the business or activities which
are the subject of this Distribution Agreement.
10.4 COBE may, at its discretion, terminate this
Distribution Agreement for cause immediately upon written notice if:
(a) HemaSure has failed to supply any Products in quantities greater
than 85% of the minimum amounts forecasted for two of any six consecutive
calendar quarters.
(b) HemaSure violates the provisions of Section 1. 1.
10.5 Notwithstanding the foregoing, HemaSure's sole remedy
in the event COBE fails to meet the minimum purchase requirements of (a) Exhibit
3, if applicable, shall be as set forth under the heading "Consequences of
Exceeding or Failure to Meet Minimum Volume Targets" in Exhibit 3, or (b)
Exhibit 4, if applicable, shall be the remedies set forth in such Exhibit 4;
provided, that with respect to Exhibit 4 COBE may cure any such breach within
the sixty (60) day notice period by ordering sufficient Products to fulfill the
minimum for the quarter during which the sixty (60) day period ends.
10.6 Neither HemaSure nor COBE owns or shall be deemed to
own any right of property in this Distribution Agreement.
10.7 HemaSure shall have the right to terminate this
Distribution Agreement with respect to the United States of America in the event
of a Change in Control of HemaSure, and, in the event of such termination, the
definition of the "Territory" and the minimum volume purchase requirements of
COBE shall be revised
837580.1
<PAGE>
17
as provided in Section 10.8 below. In the event that HemaSure desires to
terminate this Distribution Agreement in the United States of America pursuant
to the preceding sentence, HemaSure shall deliver written notice to COBE setting
forth (i) a description of the Change in Control and (ii) the date the
termination process (as contemplated below) shall commence; provided that in no
event shall the date of the commencement of such termination process be less
than 18 months after the Approval Date. The termination process shall be
completed by, and the date of termination of this Distribution Agreement with
respect to the United States of America pursuant to this Section 10.7 shall be,
the first-year anniversary of the date of commencement of the termination
process (as specified in HemaSure's termination notice to COBE). During the
period of the termination process and prior to the termination date with respect
to the United States of America, (i) HemaSure may, by itself or through other
distributors, distribute or co-distribute Products under its own brand name or
any other brand name (other than COBE's brand names) or no brand name to any
Person, (ii) COBE shall not solicit any new customers for Products, other than
such customers as COBE shall have identified to HemaSure in a written schedule
(which schedule shall consist of customers that COBE is then currently in
negotiations with for the sale of Products) delivered to HemaSure not later than
10 business days after COBE's receipt of such notice of termination, (iii) each
of COBE and HemaSure will use their respective best efforts to facilitate an
orderly transition of COBE's business for the sale of Products in the United
States of America on the date of delivery of such termination notice by HemaSure
and (iv) COBE shall not be bound by the second sentence of Section 1.1 and
Section 2.15 with respect to the United States of America.
10.8 In the event HemaSure exercises its rights under
Section 10.7, upon the effective date of the termination contemplated thereby,
(i) the Territory shall be the entire world other than the United States of
America and (ii) the minimum purchase requirement shall be as set forth on
Exhibit 4, not Exhibit 3.
10.9 In the event of termination of this Distribution
Agreement for any reason, the provisions of Articles 6 and 7 and Sections 1.4,
1.7, 1.8, 2.8, 2.9, 3.8 through 3.12, 10.7 through 10.13 and 13.5 through 13.8
shall nevertheless remain in effect.
10.10 If this Distribution Agreement expires by its terms,
or is terminated for any reason, including pursuant to Section 10.7, other than
willful default by COBE, COBE shall have and is hereby granted a non-exclusive,
world-wide perpetual license of HemaSure's Owned Intellectual Property (but only
to the extent such Owned Intellectual Property exists and is in effect as of the
date of the termination) to make, have made, use and sell devices for filtration
of blood and its components, for a royalty, as to any Product (but only in the
Territory) and/or COBE Product (on a world-wide basis) incorporating such
HemaSure Owned Intellectual Property, equal to 12% of the most recent net
purchase price paid by COBE to HemaSure for that Product. The
837580.1
<PAGE>
18
indemnification by HemaSure set forth in Section 3.10 of this Distribution
Agreement shall not apply to the activities of COBE done pursuant to a license
granted under this Section 10.10.
10.11 Notwithstanding Section 10.10, above, if termination
or expiration happens solely as a result of COBE's providing HemaSure notice of
termination at the end of the then-current term under Section 10.1 above, then
the COBE license provided for in Section 10.10 will be a limited time period
license for all Products (except those Products used as a component of COBE's
own products, which shall remain a perpetual license), so as to allow a
commercially reasonable market transition by COBE to other suppliers or
distributors.
10.12 Notwithstanding any other provision contained in this
Distribution Agreement, including, without limitation, Section 10.7 of this
Distribution Agreement, upon Termination of this Distribution Agreement for any
reason, in whole or in part, HemaSure shall continue to supply all Products
required by COBE (i) in order to permit COBE to fulfill its obligations under
COBE's then existing third party contracts and (ii) with respect to all of
COBE's existing and future OEM arrangements and products. In the event that
HemaSure should deliver its notice of termination with respect to the United
States of America portion of the Territory pursuant to Section 10.7, COBE shall
not, after receipt of such notification and except as permitted by Section 10.7,
enter into any new contracts for the supply of Products in the United States of
America which would extend beyond the date of the expiration of the termination
process contemplated by Section 10.7.
10.13 Within sixty days following the expiration or
termination of this Distribution Agreement, HemaSure shall repurchase from COBE
at the original purchase price any Products delivered to COBE in the sixty days
prior to the expiration or termination of this Distribution Agreement, which
remain in COBE's inventory and which have remaining shelf life and are in good
re-sellable condition.
ARTICLE 11 - ASSIGNMENT
11.1 HemaSure shall not take any action that would result
in the assignment of this Distribution Agreement, in whole or in part, without
the express written consent of COBE, which consent shall not be unreasonably
withheld or delayed. In addition, subject to the terms of this Distribution
Agreement, including, without limitation, Sections 10.7 and 10.8, HemaSure shall
not sell or transfer, in one transaction or a series of transactions, all or
substantially all of the assets of HemaSure unless the acquiror of such assets
agrees to be bound by the provisions of this Distribution Agreement. This
Distribution Agreement shall not be
837580.1
<PAGE>
19
assignable by COBE without the prior written consent of HemaSure, which consent
shall not be unreasonably withheld or delayed, except that COBE may assign this
Distribution Agreement to an Affiliate and, subject to HemaSure's rights of
termination in Article 10, COBE may assign this Distribution Agreement as a part
of the sale of substantially all of its assets related to its blood filtration
products business.
ARTICLE 12 - LIMIT OF LIABILITY
12.1 The parties shall not be liable for any breach of this
Distribution Agreement resulting from any cause beyond their control including,
without limitation, acts of God, fire, flood, strike, lockout, factory shutdown,
act of civil or military authority, priority request, order of any government or
any department or agency thereof, insurrection, riot, war, embargo, or a party's
inability to obtain labor or materials from its usual sources. Any Suspension of
a party's performance by reason of this Section shall be limited to the period
during which the cause of such suspension exists, but shall not affect or extend
the running of the term of this Distribution Agreement.
12.2 HemaSure shall maintain its current comprehensive
general and product liability insurance in effect for the term of this
Distribution Agreement. The insurance shall name COBE on the list of
distributors subject to vendor's coverage. Upon receiving COBE's prior written
instruction, HemaSure shall provide COBE proof of the continued maintenance of
the insurance annually.
12.3 COBE assumes all risk and liability for loss, damage
or injury to any person or property arising from repair, alteration, misuse,
mishandling, or negligence in storing or handling, of any Products by COBE,
including its agents and employees. COBE's product liability insurance shall
cover Products incorporated into COBE Products.
ARTICLE 13 - MISCELLANEOUS
13.1 The parties shall comply with all governmental rules
and regulations in force within the Territory relating to this Distribution
Agreement, including without limitation any registration or approval required
for the import and sale of the Products, except where non-compliance would not
have a material adverse effect on either party. HemaSure shall comply with all
governmental rules and regulations to the extent necessary for the performance
of HemaSure's obligations under this Distribution Agreement.
13.2 All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by telecopy
or by registered or certified
837580.1
<PAGE>
20
mail (postage prepaid, return receipt requested) to the respective parties at
the following addresses (or at such other address for a Party as shall be
specified by like notice):
(a) if to COBE:
COBE Laboratories, Inc.
1185 Oak Street
Lakewood, Colorado 80215
Attention: Edward C. Wood
Telecopier: (303) 988-5782
with copies to:
Legal Department
COBE Laboratories, Inc.
1201 Oak Street
Lakewood, Colorado 80215
Telecopier: (303) 231-4198
and to:
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Telecopy: (212) 848-7179
Attention: Peter D. Lyons, Esq. and
Kenneth A. Gerasimovich, Esq.
(b) if to HemaSure:
HemaSure Inc.
140 Locke Drive
Marlborough, Massachusetts 01752
Attention: James B. Murphy
Telecopier: (508) 485-6045
837580.1
<PAGE>
21
with a copy to:
Battle Fowler LLP
75 East 55th Street
New York, New York 10022
Attention: Luke P. lovine, III, Esq.
Telecopier: (212) 339-9150
13.3 The failure of either party to exercise any rights
hereunder shall not be deemed to be a waiver of such right.
13.4 No modification or amendment to this Distribution
Agreement shall be binding unless in writing, duly executed by both parties. In
the event of any inconsistent term or condition of a purchase order, invoice or
other document utilized by the parties in connection with matters contemplated
under this Distribution Agreement, the terms and conditions of this Distribution
Agreement shall be deemed to govern.
13.5 In the event that either party initiates any action
under either Section 13.6 or Section 13.7 of this Distribution Agreement, this
Distribution Agreement shall be governed by and construed under the laws of the
State of New York, without reference to its conflicts of laws provisions.
13.6 If a dispute arises from or relates to this
Distribution Agreement or the breach thereof, whether of law or fact, of any
nature whatsoever, and such dispute cannot be settled through direct discussions
between the parties, the parties agree to endeavor first to settle the dispute
in an amicable manner by mediation administered by the American Arbitration
Association under its Commercial Mediation Rules before resorting to litigation.
The parties agree that the mediator shall be a person who is, or has served as,
a senior vice president of a medical products company for at least five (5)
years. Mediation shall take place in New York, New York. If the dispute cannot
be resolved within 60 days of the initiation thereof by either party, either
party may initiate arbitration in accordance with the provisions of Section 13.7
of this Distribution Agreement.
13.7 All disputes arising under this Distribution Agreement
that cannot be amicably resolved under Section 13.6, shall be settled by binding
arbitration. Judgment upon the award rendered may be entered in any court in the
New York, New York metropolitan area.
(a) Any party requesting arbitration shall serve a written demand for
arbitration on the other party. The demand shall set forth in reasonable detail
a statement of the nature of the dispute, the amount involved and the remedies
sought.
837580.1
<PAGE>
22
No later than twenty (20) calendar days after a demand for arbitration is
served, the parties shall jointly select and appoint a retired judge of the
Courts of the State of New York to act as the arbitrator. In the event that the
parties do not agree on the selection of an arbitrator, the party seeking
arbitration shall apply to the United States District Court for the Southern
District of New York for appointment of a retired judge to serve as arbitrator.
(b) No later than ten (10) calendar days after appointment of an
arbitrator, the parties shall jointly prepare and submit to the arbitrator a set
of rules for the arbitration. In the event that the parties cannot agree on the
rules for the arbitration, the arbitrator shall establish the rules. No later
than ten (10) calendar days after the arbitrator is appointed he shall arrange
for a hearing to commence on a mutually convenient date. The hearing shall
commence no later than one hundred twenty (120) calendar days after the
arbitrator is appointed and shall continue from day to day until completed.
(c) The arbitrator shall issue his or her award in writing no later
than twenty (20) calendar days after the conclusion of the hearing. The
arbitration award shall be final and binding regardless of whether any party
fails or refuses to participate in the arbitration. The arbitrator is empowered
to hear and determine all disputes between the parties hereto concerning the
subject matter of this Distribution Agreement, and the arbitrator may award
money damages (but specifically not punitive damages), injunctive relief,
rescission, restitution, costs, and attorneys' fees. The arbitrator shall not
have the power to amend this Distribution Agreement in any respect.
(d) In the event that any party serves a proper demand for
arbitration under this Distribution Agreement, all parties may pursue discovery
in accordance with the Rules of Civil Procedure of the State of New York, the
provisions of which are incorporated herein by, reference, with the following
exceptions: (x) the parties hereto may conduct all discovery, including
depositions for discovery purposes, without leave of the arbitrator; and (y) all
discovery shall be completed no later than the commencement of the arbitration
hearing or one hundred twenty (120) calendar days after the date that a proper
demand for arbitration is served, whichever occurs earlier, unless upon a
showing of good cause the arbitrator extends or shortens that period.
13.8 If any provision of this Distribution Agreement is
held by any Court, or other authority having jurisdiction, to be invalid or
unenforceable under the law applicable thereto, the provision shall be deemed
modified or deleted to the extent necessary to result in compliance with such
applicable legal provision and this Distribution Agreement, as so modified or
amended, shall continue in full force and effect in all other respects.
837580.1
<PAGE>
23
13.9 Any waiver by either party of a breach of any
provision of this Distribution Agreement shall not be considered as a waiver of
any subsequent breach of the same or any other provision.
13.10 As of the date hereof, the Former Distribution
Agreement is amended and restated hereby in its entirety and is no longer in
effect, and by its execution of this Distribution Agreement, each of HemaSure
and COBE BCT agrees that the Former Distribution Agreement is so amended and
restated in its entirety and is no longer in effect.
837580.1
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this
Distribution Agreement as of the date first written above.
COBE LABORATORIES, INC.
By: /s/Edward C. Wood
------------------------------------
Edward C. Wood, Vice President
COBE BCT, INC.
By: /s/Edward C. Wood
------------------------------------
Edward C. Wood, Vice President
HEMASURE INC.
By: /s/John F. McGuire III
------------------------------------
John F. McGuire III, President
837580.1
26
<PAGE>
Exhibit 10.3
HEMASURE INC.
Senior Management Retention Agreement
-------------------------------------
Mr. John F. McGuire
c/o HemaSure Inc.
140 Locke Drive
Marlborough, Massachusetts 01752
Dear Mr. McGuire:
HemaSure Inc. (the "Company") recognizes that, as is the case with many
publicly-held corporations, the possibility of a change in control may exist and
that such possibility, and the uncertainty and questions which it may raise
among key personnel, may result in the departure or distraction of key personnel
to the detriment of the Company, its stockholders and its customers.
The Board of Directors of the Company (the "Board") has determined that
appropriate steps should be taken to reinforce and encourage the continued
attention and dedication of the Company's key personnel, including yourself, to
their assigned duties without distraction in the face of potentially disturbing
circumstances arising from the possibility of a change in control of the
Company.
In order to induce you to remain in its employ, the Company agrees that you
shall receive the severance benefits set forth in this letter agreement (the
"Agreement") in the event your employment with the Company is terminated under
the circumstances described below subsequent to a "Change in Control" of the
Company (as defined below).
1. Certain Definitions.
--------------------
As used herein, the following terms shall have the following respective
meanings:
(a) A "Change in Control" shall occur or be deemed to have occurred
only if any of the following events occur: (i) any "person," as such term is
used in Sections 13(d) and
837899.1
-1-
<PAGE>
14(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), (other than the Company, Sepracor Inc.
("Sepracor"), any trustee or other fiduciary holding securities under an
employee benefit plan of the Company, or any corporation owned directly or
indirectly by the stockholders of the Company in substantially the same
proportion as their ownership of stock of the Company) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Company representing more than 50% of the
combined voting power of the Company's then outstanding securities; (ii)
individuals who, as of the date hereof, constitute the Board (as of the date
hereof, the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board, provided that any person becoming a director subsequent
to the date hereof whose election, or nomination for election by the Company's
stockholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board (other than an election or nomination of an
individual whose initial assumption of office is in connection with an actual or
threatened election contest relating to the election of the directors of the
Company, as such terms are used in Rule 14a-11 of Regulation 14A under the
Exchange Act) shall be, for purposes of this Agreement, considered as though
such person were a member of the Incumbent Board; or (iii) the stockholders of
the Company approve a merger or consolidation of the Company with any other
corporation, other than (A) a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) more than 50% of the combined
voting power of the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation or (B) a merger or
consolidation effected to implement a recapitalization of the Company (or
similar transaction) in which no person (as hereinabove defined), other than a
person holding more than 50% of the combined voting power of the Company's then
outstanding securities immediately prior to such
837899.1
-2-
<PAGE>
recapitalization, acquires more than 50% of
the combined voting power of the Company's then outstanding securities; or (iv)
the stockholders of the Company approve an agreement for the sale of all or
substantially all of the business of the Company through the disposition by the
Company of all or substantially all of the Company's assets.
(b) A "Potential Change in Control" shall be deemed to have occurred
if:
(A) the Company enters in an agreement, the consummation of which
would result in the occurrence of a Change in Control of the Company,
(B) any person (including the Company and Sepracor) publicly
announces an intention to take or to consider taking actions which if
consummated would constitute a Change in Control of the Company; or
(C) the Board of Directors of the Company adopts a resolution to
the effect that, for purposes of this Agreement, a Potential Change in
Control of the Company has occurred.
2. Term of the Agreement.
----------------------
The term of this Agreement (the "Term") shall commence on as of the
date hereof and shall continue in effect through December 31, 1998; provided,
however, that commencing on
January 1, 1999 and each January 1 thereafter, the Term shall be
automatically extended for one additional year unless, not later than October 30
of the preceding calendar year, the Company shall have given you written notice
that the Term will not be extended; and provided further that, if a Change in
Control of the Company shall have occurred during the original or extended Term,
this Agreement shall continue in effect for as long as you remain an employee of
HemaSure or any acquirer or successor of HemaSure hereunder.
3. Change in Control; Potential Change in Control.
-----------------------------------------------
(a) No benefits shall be payable under this Agreement unless there
has been a
837899.1
-3-
<PAGE>
Change in Control of the Company during the Term.
(b) You agree that, notwithstanding any provision to the contrary in
this Agreement, in the event of a Potential Change in Control of the Company,
you will not voluntarily resign as an employee of the Company until the earliest
of (A) a date which is twelve (12) months after the occurrence of such Potential
Change in Control of the Company or (B) the termination by you of your
employment by reason of Disability as defined in Section 4(b)(i) or for Good
Reason as defined in Section 4(b)(iii).
4. Employment Status: Termination Following Change in Control.
-----------------------------------------------------------
(a) You acknowledge that this Agreement does not constitute a
contract of employment or impose on the Company any obligation to retain you as
an employee and, except as set forth in Section 3(b), this Agreement does not
prevent you from terminating your employment at any time. If your employment
with the Company terminates for any reason and subsequently a Change in Control
shall have occurred, you shall not be entitled to any benefits hereunder. Any
termination of your employment by the Company or by you following a
Change in Control of the Company during the Term shall be communicated by
written notice of termination ("Notice of Termination") to the other party
hereto in accordance with Section 7. The "Date of Termination" shall mean the
effective date of such termination as specified in the Notice of Termination
(provided that no such Notice of Termination shall specify an effective date
less than 10 days or more than 120 days after the date of such Notice of
Termination).
(b) Notwithstanding anything to the contrary herein, you shall be
entitled to the benefits provided in Section 5 only if a Change in Control shall
have occurred during the Term and your employment with the Company is
subsequently terminated or terminates after such Change in Control, unless such
termination is (A) because of your death, (B) by the
837899.1
-4-
<PAGE>
Company for Disability (as defined in Section 4(b)(i)) or Cause (as defined in
Section 4(b)(ii)), or (C) by you within 12 months after a Change in Control
other than for Good Reason (as defined in Section 4(b)(iii)).
(i) Disability. If, as a result of incapacity due to physical or
mental illness, you shall have been absent from the full-time performance of
your duties with the Company for six (6) consecutive months and, within thirty
(30) days after written notice of termination is given to you, you shall not
have returned to the full-time performance of your duties, your employment may
be terminated for "Disability."
(ii) Cause. Termination by the Company of your employment for
"Cause" shall mean termination (A) upon your willful and continued failure to
substantially perform your duties with the Company (other than any such failure
resulting from your incapacity due to physical or mental illness or any such
actual or anticipated failure after the issuance of a Notice of Termination by
you for Good Reason as defined in Section 4(b)(iii)), provided that a written
demand for substantial performance has been delivered to you by the Company
specifically identifying the manner in which the Company believes that you have
not substantially performed your duties and you have not cured such failure
within 30 days after such demand, or (B) by reason of your willful engaging in
conduct which is demonstrably and materially injurious to the Company.
(iii) Good Reason. For purposes of this Agreement, "Good Reason"
shall mean, without your written consent, the occurrence after a Change in
Control of the Company of any of the following circumstances unless, in the case
of paragraphs (A), (C), (D), (F) or (G), such circumstances are fully corrected
prior to the Date of Termination (as defined in Section 4(a)) specified in the
Notice of Termination (as defined in Section 4(a)) given in respect thereof:
837899.1
-5-
<PAGE>
(A) any significant diminution in your position, duties,
responsibilities, power, title or office as in effect immediately prior to
a Change in Control;
(B) any reduction in your annual base salary as in effect on the
date hereof or as the same may be increased from time to time;
(C) the failure by the Company to (i) continue in effect any
material compensation or benefit plan in which you participate immediately
prior to the Change in Control, unless an equitable arrangement (embodied
in an ongoing substitute or alternative plan) has been made with respect to
such plan, (ii) continue your participation therein (or in such substitute
or alternative plan) on a basis not materially
less favorable, both in terms of the amount of benefits provided and the
level of your participation relative to other participants, as existed at
the time of the Change in Control or (iii) award cash bonuses to you in
amounts and in a manner substantially consistent with past practice in
light of the Company's financial performance;
(D) the failure by the Company to continue to provide you with
benefits substantially similar to those enjoyed by you under any of the
Company's life insurance, medical, health and accident, or disability plans
in which you were participating at the time of the Change in Control, the
taking of any action by the Company which would directly or indirectly
materially reduce any of such benefits, or the failure by the Company to
provide you with the number of paid vacation days to which you are entitled
on the basis of years of service with the Company in accordance with the
Company's normal vacation policy in effect at the time of the Change in
Control;
(E) any requirement by the Company or of any person in control of
the Company that the location at which you perform your principal duties
for the Company be changed to a new location that is not at the United
States headquarters of the Company or the United States headquarters of the
division of the Company in which you
837899.1
-6-
<PAGE>
perform your assigned duties;
(F) the failure of the Company to obtain a reasonably satisfactory
agreement from any successor to assume and agree to perform this Agreement,
as contemplated in Section 6; or
(G) any purported termination of your employment which is not
effected pursuant to a Notice of Termination satisfying the requirements of
Section 7, which purported termination shall not be effective for purposes
of this Agreement.
5. Compensation Upon Termination. Following a Change in Control of the
Company, you shall be entitled to the following benefits during a period of
disability, or upon termination of your employment, as the case may be, provided
that such period or termination occurs during the Term:
(a) During any period that you fail to perform your full-time duties
with the Company as a result of incapacity due to physical or mental illness,
you shall continue to receive base salary and all other earned compensation at
the rate in effect at the commencement of any such period (offset by all
compensation payable to you under the Company's disability plan or program or
other similar plan during such period) until your employment is terminated
pursuant to Section 4(b)(i) hereof. Thereafter, or in the event your employment
is terminated by reason of death, your benefits shall be determined under the
Company's long-term disability, retirement, insurance and other compensation
programs then in effect in accordance with the terms of such programs.
(b) If your employment shall be terminated by the Company for Cause
or by you other than for Good Reason within 12 months after a Change in Control,
the Company shall pay you your full base salary and all other compensation
through the Date of Termination at the rate in effect at the time the Notice of
Termination is given, plus all other amounts to which you
837899.1
-7-
<PAGE>
are entitled under any compensation plan of the Company at the time such
payments are due, and the Company shall have no further obligations to you under
this Agreement.
(c) You shall be entitled to the benefits listed below in
Subsections (c)(i) through (c)(iii) below if your employment with the Company is
terminated (x) by the Company (other than for Cause, Disability or your death)
after a Change in Control, (y) by you for Good Reason within 12 months after a
Change in Control or (z) by you for any reason or no reason more than 12 months
after a Change in Control. Notwithstanding any provision to the contrary herein,
in the event a Change in Control occurs as a result of a sale of all or
substantially all of the business of the Company pursuant to a merger, sale of
assets or otherwise and you are entitled to the Severance Payments (as defined
below), the Severance Payments payable to you shall be reduced to the extent
that the net present value of the Severance Payments (as then reasonably
determined by the Board of Directors of the Company) are greater than 5% of the
Gross Proceeds. For purposes of this Agreement "Gross Proceeds" shall equal the
gross consideration paid by an acquirer or acquirers of the Company in
connection with the sale of all or substantially all of the business of the
Company pursuant to a merger, sales of assets or otherwise.
(i) the Company shall pay to you (A) your full base salary and
all other compensation through the Date of Termination at the rate in effect at
the time the Notice of Termination is given, no later than the full fifth day
following the Date of Termination, plus all other amounts to which you are
entitled under any compensation plan of the Company at the time such payments
are due and (B) if you so elect, in lieu of your right to continue to receive
deferred compensation under any deferred compensation plan of the Company then
in effect, no later than the fifth full day following the Date of Termination, a
lump-sum amount, in cash, equal to the deferred amounts together with any
earnings credited on such amounts under such plan;
837899.1
-8-
<PAGE>
(ii) the Company will pay as severance pay to you, in
twenty-four (24) equal monthly installments, beginning at the end of the first
full month subsequent to the Date of Termination, an aggregate amount equal to
the sum of (A) 300% of the higher of (x) your annual base salary in effect on
the Date of Termination or (y) your annual base salary in effect immediately
prior to the Change in Control, plus (B) 300% of the aggregate cash bonuses paid
or awarded to you in respect of the four fiscal quarters preceding the Date of
Termination (together with the payments provided in paragraph (iii) below, the
"Severance Payments"); and
(iii) for a thirty-six (36) month period after such termination,
the Company shall arrange to provide you with life, disability, dental, accident
and group health insurance benefits substantially similar to those which you
were receiving immediately prior to the Notice of Termination. Notwithstanding
the foregoing, the Company shall not provide any benefit otherwise receivable by
you pursuant to this paragraph (iii) if an equivalent benefit is actually
received by you during the thirty-six (36) month period following your
termination, and any such benefit actually received by you shall be reported to
the Company.
(d) Severance Payments under this Agreement shall be made without
regard to whether the deductibility of such payments (or any other payments to
or for your benefit) would be limited or precluded by Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code") and without regard to
whether such payments (or any other payments) would subject you to the federal
excise tax levied on certain "excise parachute payments"
under Section 4999 of the Code; provided, that if the total of all payments to
or for your benefit, after deduction of all federal taxes (including the tax set
forth in Section 4999 of the Code, if applicable) with respect to such payments
(the "total after-tax payments"), would be increased by the limitation or
elimination of any payment under this Agreement, amounts payable under this
Agreement shall be reduced to the extent, and only to the extent, necessary to
maximize the total
837899.1
-9-
<PAGE>
after-tax payments. The determination as to whether and to
what extent payments under this agreement are required to be reduced in
accordance with the preceding sentence shall be made by agreement between you
and the independent public accounting firm of the Company. To the extent that
any elimination or reduction of payments is made in accordance with this Section
5(d), the determination as to which payments shall be eliminated or reduced
shall be made by you.
(e) The payments provided for in Subsections 5(b) and (c) shall be
made not later than the fifth day following the Date of Termination, unless
otherwise specified; provided, however, that, if the amounts of such payments
cannot be finally determined on or before such day, the Company shall pay to you
on such day an estimate, as determined in good faith by the Company, of the
minimum amount of such payments and shall pay the remainder of such payments
(together with interest at the rate provided in Section 1274(b)(2)(B) of the
Code) as soon as the amount thereof can be determined but in no event later than
the thirtieth day after the Date of Termination. In the event that the amount of
the estimated payments exceeds the amount subsequently determined to have been
due, such excess shall constitute a loan by the Company to you, payable on the
fifth day after demand by the Company (together with interest at the rate
provided in Section 1274(b)(2)(B) of the Code).
(f) Except as provided in the second sentence of Subsection
5(c)(iii) hereof, you shall not be required to mitigate the amount of any
payment provided for in this Section 5 by seeking other employment or otherwise,
nor shall the amount of any payment or benefit provided for in this Section 5 be
reduced by any compensation earned by you as a result of employment by another
employer, by retirement benefits or by offset against any amount claimed to be
owed by you to the Company or otherwise.
6. Successors; Binding Agreement.
------------------------------
(a) The Company will require any successor (whether direct or
indirect, by
837899.1
-10-
<PAGE>
purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Company expressly to assume
and agree to perform this Agreement to the same extent that the Company would be
required to perform it if no such succession had taken place. Failure of the
Company to obtain an assumption of this Agreement at or prior to the
effectiveness of any succession shall be a breach of this Agreement and shall
constitute Good Reason if you elect to terminate your employment, except that
for purposes of implementing the foregoing, the date on which any such
succession becomes effective shall be deemed the Date of Termination. As used in
this Agreement, Company shall mean the Company as defined above and any
successor to its business or assets as aforesaid which assumes and agrees to
perform this Agreement by operation of law, or otherwise.
(b) This Agreement shall inure to the benefit of and be enforceable
by your personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If you should die while
any amount would still be payable to you hereunder if you had continued to live,
all such amounts, unless otherwise provided herein,
shall be paid in accordance with the terms of this Agreement to your devisee,
legatee or other designee or if there is no such designee, to your estate.
7. Notice.
------
For the purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
duly given when delivered or when mailed by United States registered or
certified mail, return receipt requested, postage prepaid, addressed to the
Chairman of the Board of Directors of the Company, at 111 Locke Drive,
Marlborough, Massachusetts 01752, and to you at the address shown above or to
such other address as either the Company or you may have furnished to the other
in writing in accordance herewith, except that notice of change of address shall
be effective only upon receipt.
8. Miscellaneous.
--------------
837899.1
-11-
<PAGE>
(a) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
(b) The validity, interpretation, construction and performance of
this Agreement shall be governed by the laws of the Commonwealth of
Massachusetts.
(c) No waiver by you at any time of any breach of, or compliance
with, any provision of this Agreement to be performed by the Company shall be
deemed a waiver of that or any other provision at any subsequent time.
(d) This Agreement may be executed in counterparts, each of which
shall be deemed to be an original but both of which together will constitute one
and the same instrument.
(e) Any payments provided for hereunder shall be paid net of any
applicable withholding required under federal, state or local law.
(f) This Agreement sets forth the entire agreement of the parties
hereto in respect of the subject matter contained herein and supersedes all
prior agreements, promises, covenants, arrangements, communications,
representations or warranties, whether oral or written, by any officer, employee
or representative of any party hereto; and any prior agreement of the parties
hereto in respect of the subject matter contained herein is hereby terminated
and cancelled.
If this letter sets forth our agreement on the subject matter hereof,
kindly sign and return to the Company the enclosed copy of this letter, which
will then constitute our agreement on this subject.
Sincerely,
HEMASURE INC.
By/s/Timothy J. Barberich
----------------------------------
Timothy J. Barberich
Chairman of the Board of Directors
837899.1
-12-
<PAGE>
Agreed to as of this 7th day of December, 1998
/s/John F. McGuire
- -------------------------------
John F. McGuire
Address: ___________________
___________________
837899.1
-13-
EXHIBIT 10.4
HEMASURE INC.
Senior Management Retention Agreement
-------------------------------------
Mr. James B. Murphy
c/o HemaSure Inc.
140 Locke Drive
Marlborough, Massachusetts 01752
Dear Mr. Murphy:
HemaSure Inc. (the "Company") recognizes that, as is the case with many
publicly-held corporations, the possibility of a change in control may exist and
that such possibility, and the uncertainty and questions which it may raise
among key personnel, may result in the departure or distraction of key personnel
to the detriment of the Company, its stockholders and its customers.
The Board of Directors of the Company (the "Board") has determined that
appropriate steps should be taken to reinforce and encourage the continued
attention and dedication of the Company's key personnel, including yourself, to
their assigned duties without distraction in the face of potentially disturbing,
circumstances arising from the possibility of a change in control of the
Company.
In order to induce you to remain in its employ, the Company agrees that
you shall receive the severance benefits set forth in this letter agreement (the
"Agreement") in the event your employment with the Company is terminated under
the circumstances described below subsequent to a "Change in Control" of the
Company (as defined below).
1. Certain Definitions. As used herein, the following terms shall have
the following respective meanings:
(a) A "Change in Control" shall occur or be deemed to have occurred
only if any of the following events occur: (i) any "person," as such term is
used in Sections 13 (d) and
837907.1
<PAGE>
14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
(other than the Company, Sepracor Inc. ("Sepracor"), any trustee or other
fiduciary holding securities under an employee benefit plan of the Company, or
any corporation owned directly or indirectly by the stockholders of the Company
in substantially the same proportion as their ownership of stock of the Company)
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company representing
more than 50% of the combined voting power of the Company's then outstanding
securities; (ii) individuals who, as of the date hereof, constitute the Board
(as of the date hereof, the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board, provided that any person becoming a
director subsequent to the date hereof whose election, or nomination for
election by the Company's stockholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board (other than an
election or nomination of an individual whose initial assumption of office is in
connection with an actual or threatened election contest relating to the
election of the directors of the Company, as such terms are used in Rule 14a-11
of Regulation 14A under the Exchange Act) shall be, for purposes of this
Agreement, considered as though such person were a member of the Incumbent
Board; or (iii) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than (A) a merger
or consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than 50% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately after
such merger or consolidation or (B) a merger or consolidation effected to
implement a recapitalization of the Company (or similar transaction) in which no
person (as hereinabove defined), other than a person holding more than 50% of
the combined voting power of the Company's then outstanding securities
immediately prior to such
837907.1
2
<PAGE>
recapitalization, acquires more than 50% of the combined voting power of the
Company's then outstanding securities; or (iv) the stockholders of the Company
approve an agreement for the sale of all or substantially all of the business of
the Company through the disposition by the Company of all or substantially all
of the Company's assets.
(b) A "Potential Change in Control" shall be deemed to have occurred
if:
(A) the Company enters in an agreement, the consummation of
which would result in the occurrence of a Change in Control of the Company,
(B) any person (including the Company and Sepracor) publicly
announces an intention to take or to consider taking actions which if
consummated would constitute a Change in Control of the Company; or
(C) the Board of Directors of the Company adopts a resolution to
the effect that, for purposes of this Agreement, a Potential Change in Control
of the Company has occurred.
2. Term of the Agreement.
The term of this Agreement (the "Term") shall commence on as of the
date hereof and shall continue in effect through December 31, 1998; provided,
however, that commencing on January 1, 1999 and each January 1 thereafter, the
Term shall be automatically extended for one additional year unless, not later
than October 30 of the preceding calendar year, the Company shall have given you
written notice that the Term will not be extended; and provided further that, if
a Change in Control of the Company shall have occurred during the original or
extended Term, this Agreement shall continue in effect for as long as you remain
an employee of HemaSure or any acquirer or successor of HemaSure hereunder.
3. Change in Control; Potential Change in Control.
(a) No benefits shall be payable under this Agreement unless there
has been a
837907.1
3
<PAGE>
Change in Control of the Company during the Term.
(b) You agree that, notwithstanding any provision to the contrary
in this Agreement, in the event of a Potential Change in
Control of the Company, you will not voluntarily resign as an
employee of the Company until the earliest of (A) a date
which is twelve (12) months after the occurrence of such
Potential Change in Control of the Company or (B) the
termination by you of your employment by reason of Disability
as defined in Section 4(b)(i) or for Good Reason as defined
in Section 4(b)(iii).
4. Employment Status; Termination Following Change in Control.
(a) You acknowledge that this Agreement does not constitute a
contract of employment or impose on the Company any obligation to retain you as
an employee and, except as set forth in Section 3(b), this Agreement does not
prevent you from terminating your employment at any time. If your employment
with the Company terminates for any reason and subsequently a Change in Control
shall have occurred, you shall not be entitled to any benefits hereunder. Any
termination of your employment by the Company or by you following a Change in
Control of the Company during the Term shall be communicated by written notice
of termination ("Notice of Termination") to the other party hereto in accordance
with Section 7. The "Date of Termination" shall mean the effective date of such
termination as specified in the Notice of Termination (provided that no such
Notice of Termination shall specify an effective date less than 10 days or more
than 120 days after the date of such Notice of Termination).
(b) Notwithstanding anything to the contrary herein, you shall be
entitled to the benefits provided in Section 5 only if a Change in Control shall
have occurred during the Term and your employment with the Company is
subsequently terminated or terminates after such Change in Control, unless such
termination is (A) because of your death, (B) by the
837907.1
4
<PAGE>
Company for Disability, (as defined in Section 4(b)(i)) or Cause (as defined in
Section 4(b)(ii)), or (C) by you within 12 months after a Change in Control
other than for Good Reason (as defined in Section 4(b)(iii)).
(i) Disability. If, as a result of incapacity due to physical or
mental illness, you shall have been absent from the full-time performance of
your duties with the Company for six (6) consecutive months and, within thirty
(30) days after written notice of termination is given to you, you shall not
have returned to the full-time performance of your duties, your employment may
be terminated for "Disability."
(ii) Cause. Termination by the Company of your employment for
"Cause" shall mean termination (A) upon your willful and continued failure to
substantially perform your duties with the Company (other than any such failure
resulting from your incapacity due to physical or mental illness or any such
actual or anticipated failure after the issuance of a Notice of Termination by
you for Good Reason as defined in Section 4(b)(iii)), provided that a written
demand for substantial performance has been delivered to you by the Company
specifically identifying the manner in which the Company believes that you have
not substantially performed your duties and you have not cured such failure
within 30 days after such demand, or (B) by reason of your willful engaging in
conduct which is demonstrably and materially injurious to the Company.
(iii) Good Reason. For purposes of this Agreement, "Good Reason"
shall mean, without your written consent, the occurrence after a Change in
Control of the Company of any of the following circumstances unless, in the
case of paragraphs (A), (C), (D), (F) or (G), such circumstances are fully
corrected prior to the Date of Termination (as defined in Section 4(a))
specified in the Notice of Termination (as defined in Section 4(a)) given in
respect thereof:
837907.1
5
<PAGE>
(A) any significant diminution in your position, duties,
responsibilities, power, title or office as in effect immediately prior to a
Change in Control;
(B) any reduction in your annual base salary as in effect on
the date hereof or as the same may be increased from time to time;
(C) the failure by the Company to (i) continue in effect any
material compensation or benefit plan in which vou participate immediately prior
to the Change in Control, unless an equitable arrangement (embodied in an
ongoing substitute or alternative plan) has been made with respect to such plan,
(ii) continue your participation therein (or in such substitute or alternative
plan) on a basis not materially less favorable, both in terms of the amount of
benefits provided and the level of your participation relative to other
participants, as existed at the time of the Change in Control or (iii) award
cash bonuses to you in amounts and in a manner substantially consistent with
past practice in light of the Company's financial performance;
(D) the failure by the Company to continue to provide you with
benefits substantially similar to those enjoyed by you under any of the
Company's life insurance, medical, health and accident, or disability plans in
which you were participating at the time of the Change in Control, the taking of
any action by the Company which would directly or indirectly materially reduce
any of such benefits, or the failure by the Company to provide you with the
number of paid vacation days to which you are entitled on the basis of years of
service with the Company in accordance with the Company's normal vacation policy
in effect at the time of the Change in Control;
(E) any requirement by the Company or of any person in control
of the Company that the location at which you perform your principal duties for
the Company be changed to a new location that is not at the United States
headquarters of the Company or the United States headquarters of the division
of the Company in which you
837907.1
6
<PAGE>
perform your assigned duties;
(F) the failure of the Company to obtain a reasonably
satisfactory agreement from any successor to assume and agree to perform this
Agreement, as contemplated in Section 6; or
(G) any purported termination of your employment which is not
effected pursuant to a Notice of Termination satisfying the requirements of
Section 7, which purported termination shall not be effective for purposes of
this Agreement.
5. Compensation Upon Termination. Following a Change in Control of the
Company, you shall be entitled to the following benefits during a period of
disability, or upon termination of your employment, as the case may be, provided
that such period or termination occurs during the Term:
(a) During any period that you fail to perform your full-time duties
with the Company as a result of incapacity due to physical or mental illness,
you shall continue to receive base salary and all other earned compensation at
the rate in effect at the commencement of any such period (offset by all
compensation payable to you under the Company's disability plan or program or
other similar plan during such period) until your employment is terminated
pursuant to Section 4(b)(i) hereof. Thereafter, or in the event your employment
is terminated by reason of death, your benefits shall be determined under the
Company's long-term disability, retirement, insurance and other compensation
programs then in effect in accordance with the terms of such programs.
(b) If your employment shall be terminated by the Company for Cause
or by you other than for Good Reason within 12 months after a Change in Control,
the Company shall pay you your full base salary and all other compensation
through the Date of Termination at the rate in effect at the time the Notice of
Termination is given, plus all other amounts to which you
837907.1
7
<PAGE>
are entitled under any compensation plan of the Company at the time such
payments are due, and the Company shall have no further obligations to you under
this Agreement.
(c) You shall be entitled to the benefits listed below in
Subsections (c)(i) through (c)(iii) below if your employment with the Company is
terminated (x) by the Company (other than for Cause, Disability or your death)
after a Change in Control, (y) by you for Good Reason within 12 months after a
Change in Control or (z) by you for any reason or no reason more than 12 months
after a Change in Control. Notwithstanding any provision to the contrary herein,
in the event a Change in Control occurs as a result of a sale of all or
substantially all of the business of the Company pursuant to a merger, sale of
assets or otherwise and you are entitled to the Severance Payments (as defined
below), the Severance Payments payable to you shall be reduced to the extent
that the net present value of the Severance Payments (as then reasonably
determined by the Board of Directors of the Company) are greater than 5% of the
Gross Proceeds. For purposes of this Agreement "Gross Proceeds" shall equal the
gross consideration paid by an acquirer or acquirers of the Company in
connection with the sale of all or substantially all of the business of the
Company pursuant to a merger, sales of assets or otherwise.
(i) the Company shall pay to you (A) your full base salary and all
other compensation through the Date of Termination at the rate in effect at the
time the Notice of Termination is given, no later than the full fifth day
following the Date of Termination, plus all other amounts to which you are
entitled under any compensation plan of the Company at the time such payments
are due and (B) if you so elect, in lieu of your right to continue to receive
deferred compensation under any deferred compensation plan of the Company then
in effect, no later than the fifth full day following the Date of Termination, a
lump-sum amount, in cash, equal to the deferred amounts together with any
earnings credited on such amounts under such plan;
837907.1
8
<PAGE>
(ii) the Company will pay as severance pay to you, in
twenty-four (24) equal monthly installments, beginning at the end of the first
full month subsequent to the Date of Termination, an aggregate amount equal to
the sum of (A) 200% of the higher of (x) your annual base salary in effect on
the Date of Termination or (y) your annual base salary in effect immediately
prior to the Change in Control, plus (B) 200% of the aggregate cash bonuses paid
or awarded to you in respect of the four fiscal quarters preceding the Date of
Termination (together with the payments provided in paragraph (iii) below, the
"Severance Payments"); and
(iii) for a thirty-six (36) month period after such termination,
the Company shall arrange to provide you with life, disability, dental, accident
and group health insurance benefits substantially similar to those which you
were receiving immediately prior to the Notice of Termination. Notwithstanding
the foregoing, the Company shall not provide any benefit otherwise receivable by
you pursuant to this paragraph (iii) if an equivalent benefit is actually
received by you during the thirty-six (36) month period following your
termination, and any such benefit actually received by you shall be reported to
the Company.
(d) Severance Payments under this Agreement shall be made without
regard to whether the deductibility of such payments (or any other payments to
or for your benefit) would be limited or precluded by Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code") and without regard to
whether such payments (or any other payments) would subject you to the federal
excise tax levied on certain "excise parachute payments" under Section 4999 of
the Code; provided, that if the total of all payments to or for your benefit,
after deduction of all federal taxes (including the tax set forth in Section
4999 of the Code, if applicable) with respect to Such payments (the "total
after-tax payments"), would be increased by the limitation or elimination of any
payment under this Agreement, amounts payable under this Agreement shall be
reduced to the extent, and only to the extent, necessary to maximize the total
837907.1
9
<PAGE>
after-tax payments. The determination as to whether and to what extent payments
under this agreement are required to be reduced in accordance with the preceding
sentence shall be made by agreement between you and the independent public
accounting firm of the Company. To the extent that any elimination or reduction
of payments is made in accordance with this Section 5(d), the determination as
to which payments shall be eliminated or reduced shall be made by you.
(e) The payments provided for in Subsections 5(b) and (c) shall be
made not later than the fifth day following the Date of Termination, unless
otherwise specified; provided, however, that, if the amounts of such payments
cannot be finally determined on or before such day, the Company shall pay you on
such day an estimate, as determined in good faith by the Company, of the minimum
amount of such payments and shall pay the remainder of such payments (together
with interest at the rate provided in Section 1274(b)(2)(B) of the Code) as soon
as the amount thereof can be determined but in no event later than the thirtieth
day after the Date of Termination. In the event that the amount of the estimated
payments exceeds the amount subsequently determined to have been due, such
excess shall constitute a loan by the Company to you, payable on the fifth day
after demand by the Company (together with interest at the rate in Section
1274(b)(2)(B) of the Code).
(f) Except as provided in the second sentence of Subsection
5(c)(iii) hereof, you shall not be required to mitigate the amount of any
payment provided for in this Section 5 by seeking other employment or otherwise,
nor shall the amount of any payment or benefit provided for in this Section 5 be
reduced by any compensation earned by you as a result of employment by another
employer, by retirement benefits or by offset against any amount claimed to be
owed by you to the Company or otherwise.
6. Successors; Binding Agreement.
(a) The Company will require any successor (whether direct or
indirect, by
837907.1
10
<PAGE>
purchase, merger, consolidation or otherwise) to all or substantially all of the
business or assets of the Company expressly to assume and agree to perform this
Agreement to the same extent that the Company would be required to perform it if
no such succession had taken place. Failure of the Company to obtain an
assumption of this Agreement at or prior to the effectiveness of any succession
shall be a breach of this Agreement and shall constitute Good Reason if you
elect to terminate your employment, except that for purposes of implementing the
foregoing, the date on which any such succession becomes effective shall be
deemed the Date of Termination. As used in this Agreement, Company shall mean
the Company as defined above and any successor to its business or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
(b) This Agreement shall inure to the benefit of and be enforceable
by your personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If you should die while
any amount would still be payable to you hereunder if you had continued to live,
all such amounts, unless otherwise provided herein, shall be paid in accordance
with the terms of this Agreement to your devisee, legatee or other designee or
if there is no such designee, to your estate.
7. Notice. For the purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
duly given when delivered or when mailed by United States registered or
certified mail, return receipt requested, postage prepaid, addressed to the
Chairman of the Board of Directors of the Company, at 111 Locke Drive,
Marlborough, Massachusetts 01752, and to you at the address shown above or to
such other address as either the Company or you may have furnished to the other
in writing in accordance herewith, except that notice of change of address shall
be effective only upon receipt.
8. Miscellaneous.
837907.1
11
<PAGE>
(a) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
(b) The validity, interpretation, construction and performance of
this Agreement shall be governed by the laws of the Commonwealth of
Massachusetts.
(c) No waiver by you at any time of any breach of, or compliance
with, any provision of this Agreement to be performed by the Company shall be
deemed a waiver of that or any other provision at any subsequent time.
(d) This Agreement may be executed in counterparts, each of which
shall be deemed to be an original but both of which together will constitute one
and the same instrument.
(e) Any payments provided for hereunder shall be paid net of any
applicable withholding required under federal, state or local law.
(f) This Agreement sets forth the entire agreement of the parties
hereto in respect of the subject matter contained herein and supersedes all
prior agreements, promises, covenants, arrangements, communications,
representations or warranties, whether oral or written, by any officer, employee
or representative of any party hereto; and any prior agreement of the parties
hereto in respect of the subject matter contained herein is hereby terminated
and cancelled.
If this letter sets forth our agreement on the subject matter hereof,
kindly sign and return to the Company the enclosed copy of this letter, which
will then constitute our agreement on this subject.
Sincerely,
HEMASURE INC.
By: /s/Timothy J. Barberich
--------------------------------------
Timothy J. Barberich
Chairman of the Board of Directors
837907.1
12
<PAGE>
Agreed to as of this 15th day of December, 1998
/s/James B. Murphy
- -----------------------------
James B. Murphy
Address:
---------------------
---------------------
837907.1
13
Exhibit 10.5
HEMASURE INC.
Senior Management Retention Agreement
Mr. Peter C. Sutcliffe
c/o HemaSure Inc.
140 Locke Drive
Marlborough, Massachusetts 01752
Dear Mr. Sutcliffe:
HemaSure Inc. (the "Company") recognizes that, as is the case with many
publicly-held corporations, the possibility of a change in control may exist and
that such possibility, and the uncertainty and questions which it may raise
among key personnel, may result in the departure or distraction of key personnel
to the detriment of the Company, its stockholders and its customers.
The Board of Directors of the Company (the "Board") has determined that
appropriate steps should be taken to reinforce and encourage the continued
attention and dedication of the Company's key personnel, including yourself, to
their assigned duties without distraction in the face of potentially disturbing
circumstances arising from the possibility of a change in control of the
Company.
In order to induce you to remain in its employ, the Company agrees that
you shall receive the severance benefits set forth in this letter agreement (the
"Agreement") in the event your employment with the Company is terminated under
the circumstances described below subsequent to a "Change in Control" of the
Company (as defined below).
1. Certain Definitions.
As used herein, the following terms shall have the following respective
meanings:
(a) A "Change in Control" shall occur or be deemed to have
occurred only if any of the following events occur: (i) any "person," as such
term is used in Sections 13(d) and
837921.1
<PAGE>
14(d) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), (other than the Company, Sepracor Inc.
("Sepracor"), any trustee or other fiduciary holding securities under an
employee benefit plan of the Company, or any corporation owned directly or
indirectly by the stockholders of the Company in substantially the same
proportion as their ownership of stock of the Company) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Company representing more than 50% of the
combined voting power of the Company's then outstanding securities; (ii)
individuals who, as of the date hereof, constitute the Board (as of the date
hereof, the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board, provided that any person becoming a director subsequent
to the date hereof whose election, or nomination for election by the Company's
stockholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board (other than an election or nomination of an
individual whose initial assumption of office is in connection with an actual or
threatened election contest relating to the election of the directors of the
Company, as such terms are used in Rule 14a-11 of Regulation 14A under the
Exchange Act) shall be, for purposes of this Agreement, considered as though
such person were a member of the Incumbent Board; or (iii) the stockholders of
the Company approve a merger or consolidation of the Company with any other
corporation, other than (A) a merger or consolidation which
would result in the voting securities of the Company outstanding immediately
prior thereto continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity) more than 50% of
the combined voting power of the voting securities of the Company or such
surviving entity outstanding immediately after such merger or consolidation or
(B) a merger or consolidation effected to implement a recapitalization of the
Company (or similar transaction) in which no person (as hereinabove defined),
other than a person holding more than 50% of the combined voting power of the
Company's then outstanding securities immediately prior to such
837921.1
-2-
<PAGE>
recapitalization, acquires more than 50% of the combined voting power of the
Company's then outstanding securities; or (iv) the stockholders of the Company
approve an agreement for the sale of all or substantially all of the business of
the Company through the disposition by the Company of all or substantially all
of the Company's assets.
(b) A "Potential Change in Control" shall be deemed to have
occurred if:
(A) the Company enters in an agreement, the consummation of
which would result in the occurrence of a Change in Control of the Company;
(B) any person (including the Company and Sepracor) publicly
announces an intention to take or to consider taking actions which if
consummated would constitute a Change in Control of the Company; or
(C) the Board of Directors of the Company adopts a
resolution to the effect that, for purposes of this Agreement, a Potential
Change in Control of the Company has occurred.
2. Term of the Agreement.
The term of this Agreement (the "Term") shall commence on as of the
date hereof and shall continue in effect through December 31, 1998; provided,
however, that commencing on January 1, 1999 and each January 1 thereafter, the
Term shall be automatically extended for one additional year unless, not later
than October 30 of the preceding calendar year, the Company shall have given you
written notice that the Term will not be extended; and provided further that, if
a Change in Control of the Company shall have occurred during the original or
extended Term, this Agreement shall continue in effect for as long as you remain
an employee of HemaSure or any acquirer or successor of HemaSure hereunder.
3. Change in Control; Potential Change in Control.
(a) No benefits shall be payable under this Agreement unless
there has been a
837921.1
-3-
<PAGE>
Change in Control of the Company during the Term.
(b) You agree that, notwithstanding any provision to the contrary
in this Agreement, in the event of a Potential Change in Control of the Company,
you will not voluntarily resign as an employee of the Company until the earliest
of (A) a date which is twelve (12) months after the occurrence of such Potential
Change in Control of the Company or (B) the termination by you of your
employment by reason of Disability as defined in Section 4(b)(i) or for Good
Reason as defined in Section 4(b)(iii).
4. Employment Status; Termination Following Change in Control.
(a) You acknowledge that this Agreement does not constitute a
contract of employment or impose on the Company any obligation to retain you as
an employee and, except as set forth in Section 3(b), this Agreement does not
prevent you from terminating your employment at any time. If your employment
with the Company terminates for any reason and subsequently a Change in Control
shall have occurred, you shall not be entitled to any benefits hereunder. Any
termination of your employment by the Company or by you following a Change in
Control of the Company during the Term shall be communicated by written notice
of termination ("Notice of Termination") to the other party hereto in accordance
with Section 7. The "Date of Termination" shall mean the effective date of such
termination as specified in the Notice of Termination (provided that no such
Notice of Termination shall specify an effective date less than 10 days or more
than 120 days after the date of such Notice of Termination).
(b) Notwithstanding anything to the contrary herein, you shall be
entitled to the benefits provided in Section 5 only if a Change in Control shall
have occurred during the Term and your employment with the Company is
subsequently terminated or terminates after such Change in Control, unless such
termination is (A) because of your death, (B) by the
837921.1
-4-
<PAGE>
Company for Disability (as
defined in Section 4(b)(i)) or Cause (as defined in Section 4(b)(ii)), or (C) by
you within 12 months after a Change in Control other than for Good Reason (as
defined in Section 4(b)(iii)).
(i) Disability. If, as a result of incapacity due to
physical or mental illness, you shall have been absent from the full-time
performance of your duties with the Company for six (6) consecutive months and,
within thirty (30) days after written notice of termination is given to you, you
shall not have returned to the full-time performance of your duties, your
employment may be terminated for "Disability."
(ii) Cause. Termination by the Company of your employment
for "Cause" shall mean termination (A) upon your willful and continued failure
to substantially perform your duties with the Company (other than any such
failure resulting from your incapacity due to physical or mental illness or any
such actual or anticipated failure after the issuance of a Notice of Termination
by you for Good Reason as defined in Section 4(b)(iii)), provided that a written
demand for substantial performance has been delivered to you by the Company
specifically identifying the manner in which the Company believes that you have
not substantially performed your duties and you have not cured such failure
within 30 days after such demand, or (B) by reason of your willful engaging in
conduct which is demonstrably and materially injurious to the Company.
(iii) Good Reason. For purposes of this Agreement, "Good
Reason" shall mean, without your written consent, the occurrence after a Change
in Control of the Company of any of the following circumstances unless, in the
case of paragraphs (A), (C), (D), (F) or (G), such circumstances are fully
corrected prior to the Date of Termination (as defined in Section 4(a))
specified in the Notice of Termination (as defined in Section 4(a)) given in
respect thereof:
837921.1
-5-
<PAGE>
(A) any significant diminution in your position,
duties, responsibilities, power, title or office as in effect immediately prior
to a Change in Control;
(B) any reduction in your annual base salary as in
effect on the date hereof or as the same may be increased from time to time;
(C) the failure by the Company to (i) continue in
effect any material compensation or benefit plan in which you participate
immediately prior to the Change in Control, unless an equitable arrangement
(embodied in an ongoing substitute or alternative plan) has been made with
respect to such plan, (ii) continue your participation therein (or in such
substitute or alternative plan) on a basis not materially less favorable, both
in terms of the amount of benefits provided and the level of your participation
relative to other participants, as existed at the time of the Change in Control
or (iii) award cash bonuses to you in amounts and in a manner substantially
consistent with past practice in light of the Company's financial performance;
(D) the failure by the Company to continue to provide
you with benefits substantially similar to those enjoyed by you under any of the
Company's life insurance, medical, health and accident, or disability plans in
which you were participating at the time of the Change in Control, the taking of
any action by the Company which would directly or indirectly materially reduce
any of such benefits, or the failure by the Company to provide you with the
number of paid vacation days to which you are entitled on the basis of years of
service with the Company in accordance with the Company's normal vacation policy
in effect at the time of the Change in Control;
(E) any requirement by the Company or of any person in
control of the Company that the location at which you perform your principal
duties for the Company be changed to a new location that is not at the United
States headquarters of the Company or the United States headquarters of the
division of the Company in which you
837921.1
-6-
<PAGE>
perform your assigned duties;
(F) the failure of the Company to obtain a reasonably
satisfactory agreement from any successor to assume and agree to perform this
Agreement, as contemplated in Section 6; or
(G) any purported termination of your employment which
is not effected pursuant to a Notice of Termination satisfying the requirements
of Section 7, which purported termination shall not be effective for purposes of
this Agreement.
5. Compensation Upon Termination. Following a Change in Control of
the Company, you shall be entitled to the following benefits during a period of
disability, or upon termination of your employment, as the case may be, provided
that such period or termination occurs during the Term:
(a) During any period that you fail to perform your full-time
duties with the Company as a result of incapacity due to physical or mental
illness, you shall continue to receive base salary and all other earned
compensation at the rate in effect at the commencement of any such period
(offset by all compensation payable to you under the Company's disability plan
or program or other similar plan during such period) until your employment is
terminated pursuant to Section 4(b)(i) hereof. Thereafter, or in the event your
employment is terminated by reason of death, your benefits shall be determined
under the Company's long-term disability, retirement, insurance and other
compensation programs then in effect in accordance with the terms of such
programs.
(b) If your employment shall be terminated by the Company for
Cause or by you other than for Good Reason within 12 months after a Change in
Control, the Company shall pay you your full base salary and all other
compensation through the Date of Termination at the rate in effect at the time
the Notice of Termination is given, plus all other amounts to which you
837921.1
-7-
<PAGE>
are entitled under any compensation plan of the Company at the time such
payments are due, and the Company shall have no further obligations to you under
this Agreement.
(c) You shall be entitled to the benefits listed below in
Subsections (c)(i) through (c)(iii) below if your employment with the Company is
terminated (x) by the Company (other than for Cause, Disability or your death)
after a Change in Control, (y) by you for Good Reason within 12 months after a
Change in Control or (z) by you for any reason or no reason more than 12 months
after a Change in Control. Notwithstanding any provision to the contrary herein,
in the event a Change in Control occurs as a result of a sale of all or
substantially all of the business of the Company pursuant to a merger, sale of
assets or otherwise and you are entitled to the Severance Payments (as defined
below), the Severance Payments payable to you shall be reduced to the extent
that the net present value of the Severance Payments (as then reasonably
determined by the Board of Directors of the Company) are greater than 5% of the
Gross Proceeds. For purposes of this Agreement "Gross Proceeds" shall equal the
gross consideration paid by an acquirer or acquirers of the Company in
connection with the sale of all or substantially all of the business of the
Company pursuant to a merger, sale of assets or otherwise:
(i) the Company shall pay to you (A) your full base salary
and all other compensation through the Date of Termination at the rate in effect
at the time the Notice of Termination is given, no later than the full fifth day
following the Date of Termination, plus all other amounts to which you are
entitled under any compensation plan of the Company at the time such payments
are due and (B) if you so elect, in lieu of your right to continue to receive
deferred compensation under any deferred compensation plan of the Company then
in effect, no later than the fifth full day following the Date of Termination, a
lump-sum amount, in cash, equal to the deferred amounts together with any
earnings credited on such amounts under such plan;
837921.1
-8-
<PAGE>
(ii) the Company will pay as severance pay to you, in
twenty-four (24) equal monthly installments, beginning at the end of the first
full month subsequent to the Date of Termination, an aggregate amount equal to
the sum of (A) 200% of the higher of (x) your annual base salary in effect on
the Date of Termination or (y) your annual base salary in effect immediately
prior to the Change in Control, plus (B) 200% of the aggregate cash bonuses paid
or awarded to you in respect of the four fiscal quarters preceding the Date of
Termination (together with the payments provided in paragraph (iii) below, the
"Severance Payments"); and
(iii) for a thirty-six (36) month period after such
termination, the Company shall arrange to provide you with life, disability,
dental, accident and group health insurance benefits substantially similar to
those which you were receiving immediately prior to the Notice of Termination.
Notwithstanding the foregoing, the Company shall not provide any benefit
otherwise receivable by you pursuant to this paragraph (iii) if an equivalent
benefit is actually received by you during the thirty-six (36) month period
following your termination, and any such benefit actually received by you shall
be reported to the Company.
(d) Severance Payments under this Agreement shall be
made without regard to whether the deductibility of such payments (or any other
payments to or for your benefit) would be limited or precluded by Section 280G
of the Internal Revenue Code of 1986, as amended (the "Code") and without regard
to whether such payments (or any other payments) would subject you to the
federal excise tax levied on certain "excise parachute payments" under Section
4999 of the Code; provided, that if the total of all payments to or for your
benefit, after deduction of all federal taxes (including the tax set forth in
Section 4999 of the Code, if applicable) with respect to such payments (the
"total after-tax payments"), would be increased by the limitation or elimination
of any payment under this Agreement, amounts payable under this Agreement shall
be reduced to the extent, and only to the extent, necessary to maximize the
total
837921.1
-9-
<PAGE>
after-tax payments. The determination as
to whether and to what extent payments under this Agreement are required to be
reduced in accordance with the preceding sentence shall be made by agreement
between you and the independent public accounting firm of the Company. To the
extent that any elimination or reduction of payments is made in accordance with
this Section 5(d), the determination as to which payments shall be eliminated or
reduced shall be made by you.
(e) The payments provided for in Subsections 5(b) and (c) shall
be made not later than the fifth day following the Date of Termination, unless
otherwise specified; provided, however, that, if the amounts of such payments
cannot be finally determined on or before such day, the Company shall pay to you
on such day an estimate, as determined in good faith by the Company, of the
minimum amount of such payments and shall pay the remainder of such payments
(together with interest at the rate provided in Section 1274(b)(2)(B) of the
Code) as soon as the amount thereof can be determined but in no event later than
the thirtieth day after the Date of Termination. In the event that the amount of
the estimated payments exceeds the amount subsequently determined to have been
due, such excess shall constitute a loan by the Company to you, payable on the
fifth day after demand by the Company (together with interest at the rate
provided in Section 1274(b)(2)(B) of the Code).
(f) Except as provided in the second sentence of Subsection
5(c)(iii) hereof, you shall not be required to mitigate the amount of any
payment provided for in this Section 5 by seeking other employment or otherwise,
nor shall the amount of any payment or benefit provided for in this Section 5 be
reduced by any compensation earned by you as a result of employment by another
employer, by retirement benefits or by offset against any amount claimed to be
owed by you to the Company or otherwise.
6. Successors; Binding Agreement.
(a) The Company will require any successor (whether direct or
indirect, by
837921.1
-10-
<PAGE>
purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Company expressly to assume
and agree to perform this Agreement to the same extent that the Company would be
required to perform it if no such succession had taken place. Failure of the
Company to obtain an assumption of this Agreement at or prior to the
effectiveness of any succession shall be a breach of this Agreement and shall
constitute Good Reason if you elect to terminate your employment, except that
for purposes of implementing the foregoing, the date on which any such
succession becomes effective shall be deemed the Date of Termination. As used in
this Agreement, Company shall mean the Company as defined above and any
successor to its business or assets as aforesaid which assumes and agrees to
perform this Agreement by operation of law, or otherwise.
(b) This Agreement shall inure to the benefit of and be
enforceable by your personal or legal representatives, executors,
administrators, successors, heirs, distributees,
devisees and legatees. If you should die while any amount would still be payable
to you hereunder if you had continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of this
Agreement to your devisee, legatee or other designee or if there is no such
designee, to your estate.
7. Notice. For the purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
duly given when delivered or when mailed by United States registered or
certified mail, return receipt requested, postage prepaid, addressed to the
Chairman of the Board of Directors of the Company, at 111 Locke Drive,
Marlborough, Massachusetts 01752, and to you at the address shown above or to
such other address as either the Company or you may have furnished to the other
in writing in accordance herewith, except that notice of change of address shall
be effective only upon receipt.
8. Miscellaneous.
837921.1
-11-
<PAGE>
(a) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
(b) The validity, interpretation, construction and performance of
this Agreement shall be governed by the laws of the Commonwealth of
Massachusetts.
(c) No waiver by you at any time of any breach of, or compliance
with, any provision of this Agreement to be performed by the Company shall be
deemed a waiver of that or any other provision at any subsequent time.
(d) This Agreement may be executed in counterparts, each of which
shall be deemed to be an original but both of which together will constitute one
and the same instrument.
(e) Any payments provided for hereunder shall be paid net of any
applicable withholding required under federal, state or local law.
(f) This Agreement sets forth the entire agreement of the parties
hereto in respect of the subject matter contained herein and supersedes all
prior agreements, promises, covenants, arrangements, communications,
representations or warranties, whether oral or written, by any officer, employee
or representative of any party hereto; and any prior agreement of the parties
hereto in respect of the subject matter contained herein is hereby terminated
and cancelled.
If this letter sets forth our agreement on the subject matter hereof,
kindly sign and return to the Company the enclosed copy of this letter, which
will then constitute our agreement on this subject.
Sincerely,
HEMASURE INC.
By /s/Timothy J. Barberich
--------------------------
Timothy J. Barberich
Chairman of the Board of Directors
837921.1
-12-
<PAGE>
Agreed to as of this 22nd day of December, 1998
/s/Peter C. Sutcliff
- -----------------------------
Peter C. Sutcliffe
Address:
--------------------
--------------------
837921.1
-13-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF HEMASURE INC. FOR THE THREE MONTHS ENDED MARCH 31, 1999
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 955
<SECURITIES> 0
<RECEIVABLES> 6
<ALLOWANCES> 0
<INVENTORY> 197
<CURRENT-ASSETS> 2,446
<PP&E> 3,394
<DEPRECIATION> 1,946
<TOTAL-ASSETS> 4,413
<CURRENT-LIABILITIES> 3,052
<BONDS> 0
<COMMON> 104
0
0
<OTHER-SE> (3,854)
<TOTAL-LIABILITY-AND-EQUITY> 4,413
<SALES> 4
<TOTAL-REVENUES> 4
<CGS> 335
<TOTAL-COSTS> 335
<OTHER-EXPENSES> 2,213
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (385)
<INCOME-PRETAX> (2,918)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,918)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,918)
<EPS-PRIMARY> (0.32)
<EPS-DILUTED> 0
</TABLE>
