As filed with the Securities and Exchange Commission on March 30, 2000
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 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 0-19410
HemaSure Inc.
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(Exact name of registrant as specified in its charter)
Delaware 04-3216862
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State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
140 Locke Drive
Marlborough, Massachusetts 01752
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (508) 485-6850
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None None
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Securities registered pursuant to Section 12(g) of the Act:
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Common Stock, par value $.01 per share
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(Title of class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (ss.229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of voting stock held by non-affiliates of the
registrant was $102,138,300 on March 24, 2000.
Number of shares outstanding of the registrant's class of common stock as of
March 24, 2000: 19,795,667.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement for 2000 Annual Meeting of Stockholders - Part III
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EXPLANATORY NOTE
This Annual Report on Form 10-K contains predictions, projections and
other statements about the future that are intended to be "forward-looking
statements" within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended (collectively, "Forward-Looking Statements"). Forward-Looking
Statements are included with respect to various aspects of the Company's
strategy and operations, including but not limited to, its product development
efforts, including regulatory requirements and approvals; potential development
and strategic alliances; and the Company's liquidity and capital resources. Each
Forward-Looking Statement that the Company believes is material is accompanied
by cautionary statements identifying important factors that could cause actual
results to differ materially from those described in the Forward-Looking
Statement. The cautionary statements are set forth following the Forward-Looking
Statement, and/or in other sections of the Annual Report on Form 10-K. IN
ASSESSING FORWARD-LOOKING STATEMENTS CONTAINED IN THIS ANNUAL REPORT ON FORM
10-K, READERS ARE URGED TO READ CAREFULLY ALL CAUTIONARY STATEMENTS -- INCLUDING
THOSE CONTAINED IN OTHER SECTIONS OF THIS ANNUAL REPORT ON FORM 10-K.
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PART I
Item 1. Business
Overview
HemaSure Inc. (the "Company") was incorporated as a Delaware corporation in
December 1993. Its principal executive offices are located at 140 Locke Drive,
Marlborough, Massachusetts 01752. The shares of its common stock, par value $.01
per share (the "Common Stock"), trade on the OTC Bulletin Board under the symbol
"HMSR".
The Company develops and supplies innovative blood filtration technologies
designed to help meet today's increasing demand for a safer, more reliable blood
supply. Its blood filtration technologies are designed to reduce virus-carrying
white blood cells (leukocytes) in donated blood to nominal levels (a process
known as "leukoreduction").
While approximately 30% to 35% of donated blood in the United States is
currently leukoreduced, the Company believes this percentage will increase. In
September 1998, the Food and Drug Administration's (the "FDA") Blood Products
Advisory Committee announced a non-binding recommendation that 100% of the blood
supply in the United States be leukoreduced. In addition, the American Red
Cross, which collected over 6 million units of blood in 1999 representing
approximately 50% of the blood donated in the United States, publicly announced
that it is striving to achieve 100% leukoreduction by the end of 2000. Moreover,
many other countries in the past several years have mandated the leukoreduction
of their blood supply.
The Company believes that with the r\LS System, the Company is able to
offer a more effective product than those offered in the market today based on
low cost, ease of use and improved operational fit. According to industry
sources, the leukoreduction industry represents a market potential of
approximately $800 million. The Company believes its proprietary technology,
marketing and distribution arrangements will help it to capitalize on the
anticipated growth in this industry.
The Company's current focus is to increase the sales of its r\LS System
both in the United States and internationally. It commenced commercialization of
the r\LS System in early 1999. The demand for the r\LS System has exceeded its
original expectations and, as a result, the Company has initiated a production
expansion plan. See " -- Strategic Relationships."
The Blood Market
Blood Collection
Industry sources have estimated that approximately 40 to 45 million units
of blood are collected and transfused by developed countries annually and that
this number reaches 70 to 80 million units worldwide. Collection is typically
done by affiliated blood collection centers (for example, the American Red
Cross), consortiums of independent blood collection centers (for example, Blood
Centers of America), independent blood collection centers (for example, New York
Blood Center) or government affiliated blood centers in some foreign countries.
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Blood is collected either manually or with the use of automated blood
collection equipment. If collected manually, the donated blood is tested and
separated into components. If collected through the use of automated blood
collection equipment, the desired component is extracted and the remaining
components are returned to the donor. Whole blood is composed of platelets,
which assist in clotting; plasma, which is the fluid part of blood that contains
proteins that fight infections, aid in clotting and retain blood volume; red
blood cells, which help carry oxygen throughout the body; and leukocytes, or
white blood cells, which are used by the body's immune system to help fight
infections.
Individuals suffering physical trauma or anemia, undergoing complex
surgical procedures or hemodialysis or undergoing treatment for cancer are among
the diverse group of patients who require blood transfusions in the course of
their medical care. Health risks, such as transfusion complications and
infections, may arise from contaminated blood and blood products, although
infection risks are lower today than in the recent past as a result of improved
donor education and selection and implementation of screening procedures to
identify certain virus contaminated blood units prior to transfusion. Moreover,
these health risks can increase in patients who receive frequent transfusions,
such as those suffering from kidney and liver disorders, and patients who are
immune-suppressed, such as those undergoing treatment for cancer.
The number of units of whole blood, blood components or plasma a patient
receives in a blood transfusion varies significantly. A patient undergoing
routine surgery may typically receive three or four units, while a cancer
patient undergoing platelet transfusion may receive in excess of 100 units over
time. The risk of infection to a patient increases as the number of units
transfused increases.
Transfusion Risks
Health risks from transfusions, including complications and infections,
arise from the presence of leukocytes, viruses and other pathogens in blood,
cellular blood components and plasma. In addition, autologous blood recovery and
reinfusion result in an increased risk of contamination of a patient's blood.
The Company believes that the demand for filtered blood for transfusions will
continue to increase over the next several years due to the growing recognition
in the medical field of the benefits of leukocyte reduction.
Leukocytes. Leukocytes may cause adverse reactions in patients receiving
blood transfusions, such as fever, chills, immune system suppression or
development of immunological responses that could cause the affected patient to
reject subsequent blood transfusions. In addition, leukocytes may harbor
infectious viruses and other agents, including cytomegalovirus, new variant CJD
and human T-cell lymphocyte virus I (HTLV-I).
Pathogens. Viruses such as HIV, hepatitis B and hepatitis C may be
contained inside or outside of the leukocytes and may be transmitted during
transfusions. Other viruses may develop or become prevalent over time. Of the
currently known viruses, there has been significant public focus on hepatitis
and HIV.
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Recent Trend Toward Leukoreduction
Historically, approximately 20% of donated blood in developed countries was
filtered to remove leukocytes. Due primarily to cost, generally only those
patients with diseases that may cause immune system complications, such as HIV,
or those with severely compromised immune systems, such as patients undergoing
chemotherapy, received leukoreduced blood and because of the relatively low
number, these were done at the patients hospital beside.
However, the developed nations throughout the world are increasingly
mandating universal leukoreduction of their blood supplies. In North America and
Europe, numerous countries are committed to providing 100% leukoreduced blood
components or have received recommendations to provide 100% leukoreduced blood
components.
France committed to 100% leukocyte reduction in April 1998, both on
clinical grounds and as a precautionary tool ensuring the safety of its blood
supply. Ireland announced its plans to move to 100% leukocyte reduction in April
1998. The United Kingdom has also made the decision to require leukocyte
reduction for all blood units and blood products derived from whole blood.
Following a directive issued by the Canadian Government, the Canadian Blood
Services and Hema-Quebec in Canada have announced plans to adopt leukocyte
reduction of all blood and blood products. In July 1999, Japan announced it
planned to begin full leukoreduction of its blood supply. The Company believes
that additional countries will recommend leukoreduction as more people seek to
protect themselves from the dangerous transmission of disease through
transfusion. Scientific studies have shown that the use of leukoreduced blood
could result in shorter hospital stays, fewer postoperative infections and/or
cost savings per patient of approximately $3,000 to $6,000 per patient for
certain procedures, including thoracic surgery, heart bypass surgery and
gastrointestinal surgery.
The United States is also moving toward universal leukoreduction of its
blood supply. Approximately 30% to 35% of donated blood in the United States is
currently filtered to remove leukocytes and this percentage is expected to
increase. In September 1998, the FDA's Blood Products Advisory Committee
announced a non-binding recommendation that the United States adopt 100%
leukoreduction of its donated blood supply. The committee said that, "The
benefit-to-risk ratio associated with leukoreduction is sufficiently significant
to justify the universal leukoreduction of all non-leukocyte cellular
transfusion blood components." Pre-storage filtration (filtration done at the
blood collection center prior to storage for shipment to the hospital) was
recognized by the FDA's Blood Products Advisory Committee as the preferred
method of leukoreduction.
Pre-storage leukoreduction is typically done using two different processes.
One such process requires a filter that is an integral part of the blood
collection set ("in-line"). The second process requires a filter to be sterile
docked to the blood collection set after the blood is collected. Scientific use
of each process is dependent upon a particular blood center's manufacturing
flow-process.
Recent medical studies have demonstrated the patient benefits of
leukoreduction. For example, a study of open heart surgery patients published in
the Annals of Thoracic Surgery found that filtering leukocytes reduced the risks
associated with this type of surgery and improved patient outcomes. It also
determined that leukoreduction in the approximately 300,000 patients who undergo
heart bypass surgeries could result in a 20% decrease in hospital stays and
savings of approximately $3,000 to $6,000 in costs
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per patient. Another major study published in the American Journal of Surgery
found that gastrointestinal surgery patients had fewer postoperative infections
and shorter hospital stays after they received leukocyte-filtered red cells.
Hospital stays averaged 12 days for patients who received leukocyte-reduced
transfusions compared to 18 days for those who received non-leukoreduced blood,
at a savings of approximately $6,000 per patient.
The Company's Solution
The Company's blood filtration technologies initially were developed from
core technologies transferred to it from Sepracor Inc. ("Sepracor") at the
Company's inception in 1993 relating to the development, manufacture and use and
sale of blood, blood products and blood components and membrane filter design
technologies. Since that time, the Company has developed technologies designed
to make the process of filtering blood easy and cost effective. The Company is
utilizing its technologies as the basis for developing products and
methodologies to address the needs of the leukoreduction market.
Based primarily on its discussions with the American Red Cross, the Company
believes that a dockable filter used in conjunction with a manual collection
process is the optimal method of high-volume, pre-storage leukoreduction in the
United States. The Company's current product, the r\LS System, was developed to
provide high-volume, centralized, pre-storage leukoreduction in blood centers in
batch processes. The Company believes that its r\LS System is well positioned to
take advantage of the anticipated growth in leukoreduction, particularly in the
United States.
Currently, the Company does not have an in-line blood cell filtration
system available for sale, which the Company understands from Gambro Inc., its
distribution partner, is used predominantly in Europe. However, the Company is
in discussions with manufacturers of blood bag systems to develop and
commercialize in-line leukocyte reduction systems for red blood cells. The
Company is evaluating different product design options and discussing potential
agreements with respect to supply and manufacturing arrangements. The Company
believes that the core filter technology used in the r\LS System could be used
in an in-line system.
Technological Benefits
The Company believes that the r\LS System provides significant value to
leukoreduction market participants. By implementing a more functional design
that incorporates such features as self priming, draining and a unique air
removal system, which allows the blood center technician to essentially hang the
blood unit and "walk away," the Company believes that it has been able to
incorporate features considered desirable in leukoreduction products. In
addition, the Company's r\LS System does not require the time-consuming
"stripping" operation that is required with other filters. The r\LS System is
predicated on a simple design that requires fewer manipulations which the
Company believes provides for a more efficient process.
Low Cost Supplier
The Company designed the r\LS System to be a low cost filter and developed
a manufacturing process, which the Company believes enables it to manufacture
and market the r\LS System at a low cost, and which, as a result, allows it to
effectively compete in the marketplace. In the product development
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and commercialization process, the Company has worked very closely with key
component suppliers to ensure high quality, low cost parts and to ensure that
the suppliers will be able to meet the demand for product. The manufacturing
process has been designed to permit multiple site assembly capacity. The Company
believes that its pre-storage filters will capture increased market share as the
relative benefits of pre-storage filtration become more pronounced in the next
few years.
Focus on Blood Center Customers
Unlike Pall Corporation ("Pall") and Baxter, the Company's major
competitors, the Company's products are marketed solely to blood donor centers
rather than to hospitals. The top four blood center organizations account for
approximately 70% of the supply of blood and blood products in the United
States. The Company believes that this approach will enable it to keep sales
costs low and provide value-added services to these customers.
Strategic Relationships
Strategic Partnership with American Red Cross
In August 1998, the Company completed an amended and restated Master
Strategic Alliance Agreement with the American Red Cross BioMedical Services,
which provides for, among other things, the development and enhancement of a
number of filtration products, based on the Company's core technology including
red blood cell leukoreduction, leukocyte recovery, platelet filtration, whole
blood filtration and tumor cell filtration. The agreement has a term of five
years, unless previously terminated, and can be renewed or extended. There is no
assurance, however, that such products will ultimately be developed or that any
definitive development arrangements with respect to such products will result
from the strategic alliance with the American Red Cross BioMedical Services.
Pursuant to the strategic alliance agreement, the Company entered into a
master purchase agreement with the American Red Cross that provides for the sale
of the r\LS System by the Company to the American Red Cross on specified terms.
The master purchase agreement provides for a thirty-eight month term expiring on
August 31, 2002, subject to, among other things, earlier termination by the
American Red Cross in the event (i) of the availability on the market of certain
new products that provide substantial safety and efficiency improvements over
the r\LS System, (ii) the American Red Cross deems that it has no further
requirement for leukoreduction filters generally, or (iii) the American Red
Cross changes its policies toward leukoreduction. The Company currently is not
aware of the availability of any such products, any such changes in requirements
for leukoreduction filters or any such changes in policies toward
leukoreduction. Under the master purchase agreement, the American Red Cross is
required to purchase specified minimum annual quantities of the r\LS System,
subject to certain terms and conditions. The term of the master purchase
agreement may be extended by one year in certain circumstances if the American
Red Cross fails to meet its minimum purchase obligation in the third year of the
agreement.
If the Company's agreements with the American Red Cross are terminated, or
not implemented, for any reason, the Company's business, financial condition and
results of operations could be materially and adversely affected.
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Global Distribution Capabilities through Partnership with Gambro Inc.
In 1998, the Company completed a distribution and development agreement,
which was amended in May 1999, with Gambro Inc. to act as the Company's
exclusive distributor of its r\LS System worldwide, except for sales to the
American Red Cross. Furthermore, this agreement provides that Gambro Inc. may
(upon mutual agreement by the Company and Gambro Inc.) distribute additional
future products developed by the Company that filter blood and its components.
Gambro Inc. is a leading manufacturer and distributor of automated blood
component collection systems which markets and sells blood component apheresis
equipment to the blood center market. The agreement with Gambro Inc.
contemplates the development by the Company of an OEM filter for use with Gambro
Inc.'s Trima(R) Automated Blood Collection System. The distribution agreement
provides for a five year term that expires in June 2004, subject to automatic
three year renewals unless the agreement is previously terminated.
The Company believes that Gambro Inc. will be an effective marketing
partner for it with respect to its r\LS System because their sales force
currently targets customers who the Company had identified as potential
customers of its r\LS System. The Company's agreement also gives it access to
Gambro Inc.'s extensive international distribution network, which includes sales
offices in more than 100 locations worldwide. This agreement provides for the
cooperation by Gambro Inc. with the Company with respect to certain patent
defense costs related to current and potential future products. The product
development agreement contemplates the supply by the Company of filtration
devices that may be used in connection with Gambro Inc.'s Trima(R) Automated
Blood Collection System.
Under the distribution agreement, Gambro Inc. is required to meet certain
minimum purchase requirements and is required to purchase from the Company all
of its requirements for certain blood filtration products, in each case at
agreed upon prices. The distribution agreement also provides for Gambro Inc. to
cooperate with the Company in the pending litigation against Pall which was
initiated by the Company and by Gambro BCT in April 1999. Gambro Inc. must also
cooperate with the Company in any patent infringement proceeding arising
subsequent to the time the distribution agreement was entered into and pay
certain expenses incident to any such proceeding other than damages against the
Company. See Item 3. "Legal Proceedings."
The Company is dependent on Gambro Inc. for sales, marketing and
distribution of its products. If Gambro Inc. does not successfully market and
sell the Company's products or the distribution agreement is terminated for any
reason, the Company's business, financial condition and results of operations
could be materially and adversely affected.
Production Capacity Expansion Initiative
In December 1999, the Company engaged the international engineering
consulting firm, PA Consulting Group, to assist it in its production capacity
expansion initiative. With this initiative, the Company began in March 2000 and
expects to increase manufacturing capacity in increments to several times its
current level over the next two years. The capacity expansion effort will
include process flow review, capital equipment design, qualification,
implementation, validation and vendor supply chain management.
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In December 1999, the Company entered into an agreement with Filtertek Inc.
("Filtertek") that provides for Filtertek to act as its exclusive manufacturer
and supplier of the filters used in its r\LS System, subject to certain terms
and conditions. The agreement has a term of five years, subject to an automatic
one-year extension in the event the Company fails to purchase a specified number
of products by the fifth year. Thereafter, the agreement will be subject to
automatic one-year renewals unless the agreement is previously terminated.
Under the agreement, the Company is required to purchase a minimum number
of, and is required to purchase from Filtertek all of its requirements for, the
filters used in its r\LS System, in each case at agreed upon prices. Pursuant to
the agreement, pricing is fixed for the first three years, subject to certain
raw material price increases or decreases. Under its supply agreement with
Filtertek, the Company is obligated to provide to Filtertek, on a quarterly
basis, forecasts for anticipated purchases for the upcoming 12-month period.
Under the agreement, Filtertek is required to make capital investment in
their production equipment at certain levels and by certain times. If Filtertek
is unable to meet such requirements, the Company has the right to terminate
Filtertek's rights to exclusivity under the agreement, subject to certain terms
and conditions. The Company depends on Filtertek to (i) allocate sufficient
capacity to the Company's manufacturing needs, (ii) produce acceptable quality
at agreed pricing, and (iii) deliver on a timely basis. Any failure in
performance by Filtertek for any reason could have a material and adverse effect
on the Company's business. The Company has no supply agreements with component
suppliers and, accordingly, the Company is dependent on the future ability of
Filtertek to purchase components. Failure or delay by suppliers in supplying
necessary components could adversely affect the Company's ability to deliver
products on a timely and competitive basis in the future.
In January 2000, the Company entered into an agreement with Command Medical
Products Inc. ("Command") that provides for Command, on a non-exclusive basis,
to (i) act as the Company's manufacturer and supplier of dry bags used in its
r\LS System and (ii) assemble the filters used in its r\LS System, subject to
certain terms and conditions. The agreement has a term of three years, subject
to an automatic one-year extension in the event the Company fails to purchase a
specified number of products by the third year and, also, upon the mutual
agreement by the Company and Command. Thereafter, the agreement will be subject
to automatic one-year renewals unless the agreement is previously terminated.
Under the Command agreement, the Company is required to purchase a minimum
number of dry bags used in its r\LS System and assembly requirements of the
filters used in its r\LS System, in each case at agreed upon prices. Pursuant to
the agreement, pricing is fixed for the first three years, subject to the risk
of price fluctuations in respect of raw materials, overhead and labor. Under the
Company's supply and assembly agreement with Command, the Company is obligated
to provide to Command 90 days before each year of the supply and assembly
agreement forecasts for anticipated purchases of the dry bags and assembly
requirements for the upcoming 12-month period.
The Company depends on Command to (i) allocate sufficient capacity to the
Company's manufacturing needs, (ii) produce acceptable quality at agreed
pricing, and (iii) deliver on a timely basis. Any failure in performance by
Command for any reason could have a material and adverse effect on the Company's
business.
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Current Product and Products Under Development
The Company is working to develop a range of related leukocyte filtration
products that utilize its core technology, including an in-line pre-storage
filter (the In-Line RBC Filtersets) and whole blood pre-storage. The Company is
also exploring the possibility of utilizing its core filtration technology to
develop non-leukocyte reduction filtration applications.
Red Blood Cell Systems
r\LS System. The Company's r\LS System has been designed for leukocyte
filtration by blood centers and hospital blood banks immediately prior to blood
storage, a process which it believes results in improved quality leukocyte
reduced blood. The Company believes that the demand for filtered blood for
transfusions will continue to increase over the next several years and that,
while a significant amount of leukocyte filtration currently takes place at the
patient bedside, as the demand for filtered blood increases, leukocyte removal
will all be done through centralized filtration performed at blood centers.
The r\LS System is based on a proprietary filter medium comprised of
multiple fibrous components. Leukocytes are removed by a combination of
entrapment and adhesion. With a proprietary automatic internal prime and drain
design, the filter device reduces operator intervention and facilitates high
volume, centralized processing in a blood center environment. The Company is
focusing its marketing efforts exclusively on blood centers and hospital blood
banks for pre-storage leukocyte reduction.
The Company filed an application for 510(k) pre-market notification
clearance with respect to its r\LS System with the FDA in May 1998. The Company
commenced commercialization of the r\LS System in foreign countries in early
1999. It received 510(k) pre-market notification clearance from the FDA in May
1999 for its r\LS System which was classified as a Class II medical device.
However, there is no assurance that the r\LS System will achieve market
acceptance.
While the Company believes that the performance and ease-of-use of the r\LS
System will compare favorably with other blood filtration devices, there is no
assurance that the performance or price of the r\LS System will be sufficient to
achieve significant sales, particularly in view of the dominant position in the
market held by Pall. See " -- Competition."
In-Line RBC Filtersets. The Company is in discussions with manufacturers of
blood bag systems to develop and commercialize in-line leukocyte reduction
systems for red blood cells. In these systems, the filter and receiving bags are
integrated with the collection bag and therefore require no sterile docking.
Currently, the Company is evaluating different product design options, and is
discussing potential agreements covering supply and manufacturing arrangements.
Whole Blood Filters
The Company is pursuing technology which it believes will enable the
development of whole blood filtration systems aimed at meeting the needs of two
distinct market segments: (i) traditional manual collection users of whole blood
filtration sets who prefer to continue to operate within their existing blood
collection and processing infrastructure, and (ii) integrating filtration
technology with blood collection
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equipment to do real-time, simultaneous collection/leukocyte reduction and,
optionally, subsequent component separation. These different approaches will
require different technical solutions. The Company believes that it is well
positioned to apply its core proprietary know-how to providing such solutions
independently, or in collaboration with selected partners.
Automated Blood Collection Solutions
Gambro Inc. markets and sells automated blood component apheresis equipment
to the blood center market. The agreement with Gambro Inc. contemplates the
development of a red blood cell leukoreduction filter for use with Gambro Inc.'s
Trima(R)Automated Blood Collection System.
OEM Filters
Other potential partners have asked the Company to provide them with price
quotes for a basic filtration device to use in their own applications. The
Company is pursuing these requests and expects that any such filter would use
the Company's core filtration technology.
Technologies
The Company's current and its planned products are based on its proprietary
technologies that the Company has acquired or developed in the areas of affinity
separations, membrane technology and device design and fabrication.
Affinity Separations
The Company has proprietary affinity separations technology that utilizes
ligand, which are molecules that bind to complementary biomolecules, in
connection with its various filtration products. The Company has identified a
family of carbohydrate-based ligand that recognize and bind to the cell surface
receptors on leukocytes. It has filed patent applications covering the use of
these carbohydrate-based ligand for removing leukocytes.
Membrane Technology
The Company believes that, as a result of the research and development work
performed at Sepracor over an eight-year period and transferred to it on January
1, 1994, the Company has expertise in the field of separations technology using
both composite matrices and flat- and hollow-fiber membranes. Successful
separation of a substance from its source depends on matching the properties of
that substance, such as size, molecular weight and surface characteristics, to
appropriate separations media. The ability to select and modify the composition
and physical structure of the media is a key to successful separations
technology. The Company can utilize a variety of media compositions, custom made
structures and surface modifications, including the attachment of selective
ligand, to separate a diverse variety of substances. The Company's separations
technologies can be used to separate substances including particulates, such as
cells and debris, macromolecules, such as enzymes, and low molecular weight
substances, such as salts, nutrients and anti-viral chemicals.
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Device Design and Fabrication
The Company believes that the benefits of high performance separations
media can only be realized in a well-designed device where access to and
placement of the media, hydrodynamics and selection of biocompatible materials
have been optimized. The Company has expertise in module design, including
theoretical calculations of mass transfer, hydrodynamic modeling, prototyping,
testing and manufacturing engineering.
Drawing from this expertise, the Company is integrating its proprietary
technologies in device design and media development with blood flow control
systems, tubing, collection containers and other assembly components, in devices
which are designed to achieve efficiency in increasing the safety of donated
blood and improving certain blood transfusion and collection procedures. The
Company considers its device design and fabrication capabilities to be
proprietary and intends to file patent applications where appropriate.
The Company has undertaken preliminary studies on the use of its
proprietary media in other applications such as the removal of tumor cells from
peripheral stem cell preparations and in whole blood leukoreduction.
Research and Development Expenses
Research and development expenses were $2,681,000 in the year ended
December 31, 1999 and $3,794,000 for the year ended December 31, 1998. Amounts
expended in the year ended December 31, 1999 were lower than that expended in
the comparable period in 1998, primarily because the majority of research and
development expenditures relating to the r\LS System were made in the 1998
period.
Competition
The Company expects to encounter significant competition in the sale of its
proposed products. Its proposed products, if commercialized, will compete with
other products currently on the market as well as with future products developed
by other medical device companies, biotechnology and pharmaceutical companies,
hospital supply companies, national and regional blood centers, certain
governmental organizations and agencies and academic institutions. Many of the
Company's competitors in the field of leukocyte reduction have substantially
greater resources, manufacturing and marketing capabilities, research and
production staffs and production facilities than the Company. Moreover, some of
the Company's competitors are significantly larger than the Company, have
greater experience in pre-clinical testing, human clinical trials and other
regulatory approval procedures. In addition, many of the Company's competitors
have access to greater capital and other resources, may have management
personnel with more experience than the Company and may have other advantages
over the Company in conducting certain businesses and providing certain
services. The Company's ability to compete successfully will depend, in part, on
its ability to develop and maintain products which are technically superior to
and/or of lower cost than those currently on the market; develop proprietary
products; attract and retain scientific personnel; obtain patent or other
proprietary protection for its products and technologies; obtain required
regulatory approvals; and manufacture, assemble and successfully market any
products the Company develops. In addition, many of the Company's competitors
have long-standing
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relationships with the national and regional blood centers to which the Company
will market its products. There is no assurance that the Company will be able to
compete effectively against such companies.
Presently, there are approximately seven to nine competitors in the
leukoreduction filter market. The market leader is Pall with approximately 50%
to 60% market share. Pall offers products to all product/market segments, with
an emphasis in the bedside leukoreduction market. Baxter, which has
approximately 25% market share, also plays a significant role in all
product/market segments. The remaining 15% of the market is shared by the other
five to seven competitors. The Company believes that the competitive landscape
for the leukoreduction market will level off as the market moves toward 100%
leukoreduction and market participants with smaller market shares realize
greater market penetration. Some of these competitors have long-standing and, in
certain cases, exclusive, relationships, including long-term supply contracts,
with the blood centers that are the Company's target customers. The Company
expects that the principal competitive factors in the area of leukocyte removal
will be removal efficiency, cost and ease of use.
The Company is pursuing areas of product development in a rapidly growing
field in which there is a potential for technological innovation in relatively
short periods of time. Its competitors may succeed in developing technologies or
products that are more effective than those of the Company. Technological change
or developments by others may result in the Company's technology or proposed
products becoming obsolete or noncompetitive.
Licenses, Patents and Proprietary Information
The Company has a Technology Transfer and License Agreement with Sepracor
under which Sepracor transferred to the Company all rights to the technology
developed by Sepracor for the development, manufacture, use and sale of medical
devices for the separation and purification of blood and blood components,
including technology relating to (i) optimization of flat membranes, hollow
fiber membranes and fibrous supports; (ii) specific affinity and immunoaffinity
ligand; (iii) linking chemistries; (iv) surface modification including
hydrophilic polymers and coatings; (v) device designs and engineering; (vi)
fabrication and manufacturing including encapsulation and assembly techniques;
and (vii) organic chemical synthesis.
The Company believes that protection of the proprietary nature of its
products and technology is critical to its business. Accordingly, the Company
has adopted and will maintain a vigorous program to secure and maintain such
protection. The Company's practice is to file patent applications with respect
to technology, inventions and improvements that are important to its business.
The Company also relies on trade secrets, unpatented know-how, continuing
technological invention and the pursuit of licensing opportunities to develop
and maintain its competitive position. There is no assurance that others will
not independently develop substantially equivalent proprietary technology or
that the Company can meaningfully protect its proprietary position.
To date, the Company owns or has filed 31 patent applications in the United
States relating to blood filtration and pathogen inactivation technologies.
Corresponding foreign patent applications have been filed with respect to
certain of these United States patent applications. Where appropriate, the
Company intends to file, or cause to be filed on its behalf, additional patent
applications relating to future discoveries and improvements, including, among
other things, the use of certain ligands for affinity
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separations. To date, 18 patents have been issued to the Company (which expire
at various dates from 2011 through 2017).
The Company success depends, in part, on its ability to obtain patents, to
protect trade secrets, to operate without infringing upon the proprietary rights
of others and to prevent others from infringing on its proprietary rights. See
Item 3. "Legal Proceedings." Proprietary rights relating to its planned products
will be protected from unauthorized use by third parties only to the extent that
they are covered by valid and enforceable patents or are maintained in
confidence as trade secrets. There is no assurance that any patents owned by or
licensed to the Company will afford protection against competitors or that any
pending patent applications now or hereafter filed by or licensed to the Company
will result in patents being issued. Competitors, including those with
substantially greater resources than those of the Company, may seek to challenge
the validity of the patents owned by or licensed to the Company or may use their
resources to design comparable products that do not infringe these patents. See
Item 3. "Legal Proceedings."
There are many issued third-party patents in the field of blood filtration,
including patents held by the Company's competitors. The Company may need to
acquire licenses to, or contest the validity of, some of such patents. It is
likely that significant funds would be required to defend any claim that the
Company infringes a third-party patent, and any such claim could adversely
affect sales of the challenged product until the claim is resolved. There is no
assurance that any license required under any such patent would be made
available on acceptable terms or that the Company would prevail in any
litigation involving such patent. See Item 3. "Legal Proceedings."
Much of the know-how of importance to the Company's technology and many of
its processes are dependent upon the unpatentable knowledge, experience and
skills of the Company's key scientific and technical personnel. To protect its
rights and to maintain the confidentiality of trade secrets and proprietary
information, the Company requires all of its employees, consultants and
commercial partners and members of its Scientific/Medical Advisory Board to
agree to keep its proprietary information confidential. These agreements
generally prohibit the disclosure of confidential information to anyone outside
HemaSure and require disclosure and assignment to the Company of ideas,
developments, discoveries and inventions. There is no assurance, however, that
these agreements will provide meaningful protection for the Company's
proprietary information in the event of unauthorized use or disclosure of such
information.
Government Regulation
The research, development, manufacturing and marketing of the Company's
products are subject to extensive regulation in the United States by numerous
regulatory authorities including the FDA under the Federal Food, Drug, and
Cosmetic Act (the "FDC Act") , the Federal Trade Commission (the "FTC") under
the Federal Trade Commission Act (the "FTC Act") and by comparable regulatory
authorities in foreign countries. These regulatory authorities and other
federal, state and local entities will regulate, among other things, the
pre-clinical and clinical testing, safety, effectiveness, approval, clearance,
manufacturing, labeling, packaging, export, storage, recordkeeping, adverse
event reporting, and promotion and advertising of the Company's products. FDA
approval or clearance of the Company's products, typically including a review of
the manufacturing processes and facilities used to produce such products, is
required before the products may be marketed in the United States. Further, if
cleared or approved, there may be significant conditions imposed, including
limitations on labeling and advertising
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claims and post-market testing, tracking or surveillance requirements. In
addition, for products exported from the United States to any foreign country or
territory, applicable FDA export requirements must be met. Failure to meet
regulatory standards or to obtain required marketing permissions could have a
material and adverse effect on the Company's business, financial condition,
results of operations and ability to market its products.
The Company believes that its In-line RBC Filtersets will be regulated as
new drugs by the FDA. Development of a new drug product for human use under
applicable laws and regulations is a multi-step process. First, in vitro and/or
animal testing must be conducted in accordance with good laboratory practices to
establish the potential safety and effectiveness of the experimental product for
a given disease. If a product is found to be reasonably safe and potentially
effective in pre-clinical trials, the next step in the process is human clinical
trials. An Investigative New Drug application ("IND") containing, among other
things, the pre-clinical data, chemistry, manufacturing, and control
information, and an investigative plan, must be submitted to the FDA and allowed
to become effective by the agency before such trials may begin. There can be no
assurance that submission of an IND will result in the ability to commence
clinical trials. In addition, the FDA may place a clinical trial on hold or
terminate it if, among other reasons, it concludes that clinical subjects are
being exposed to an unacceptable health risk.
Clinical trials under IND, or for medical devices under an Investigation
Device Exemption ("IDE"), typically involve three phases, although those phases
can overlap. Phase I is conducted to evaluate the safety and pharmacokinetics of
the experimental product in humans, and if possible, to gain early indications
of effectiveness. Phase I studies may also evaluate various routes, dosages and
schedules of product administration. If acceptable product safety is
demonstrated, Phase II studies are initiated. In Phase II, clinical trials are
conducted in groups of patients afflicted with a specific disease or condition
for which the product is intended for use in order to further test safety, begin
evaluating effectiveness, optimize dosage amounts, and determine dose schedules
and routes of administration. If Phase II studies yield satisfactory results and
no hold is placed on further studies by the FDA, Phase III studies are
commenced. Phase III studies are usually randomized, double blind studies
testing for product safety and effectiveness in an expanded patient population
in order to evaluate the overall risk/benefit relationship of the product and to
provide an adequate basis for product labeling. These studies also may compare
the safety and effectiveness of the product with currently available products.
It is not possible to estimate the time in which Phase I, II and III studies
will be completed with respect to a given product, if at all. The time period
may last as long as several years.
Following completion of clinical investigations, the pre-clinical and
clinical data that has been accumulated, together with chemistry, manufacturing,
and controls specifications and information, are submitted to the FDA in a New
Drug Application ("NDA"). There can be no assurance that a product will be
approved in a timely manner, if at all. The approval process can be very lengthy
and depends upon, among other things, the time it takes to review the submitted
data, the FDA's comments on the application, and the time required for us to
provide satisfactory answers or additional clinical data if requested.
If an NDA is approved, continued compliance with strict FDA current good
manufacturing practices requirements, enforced by periodic inspections, as well
as any special requirements imposed as a part of the NDA approval will be
required to continue marketing the approved product. Changes to approved drug
products that affect safety or effectiveness require approved supplemental
applications, as do changes in manufacturing that have a substantial potential
to adversely affect product safety or
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effectiveness. Such supplemental applications may require the submission of
clinical and/or manufacturing comparability data and must be approved before the
product may be marketed as modified. Manufacturers, packers and distributors are
also subject to adverse drug event reporting requirements, which depending on
their significance can result in, among other things, agency inspection,
recalls, and patient/physician notifications, and enforcement actions. Because
adverse drug experience reports are publicly available, they can also become the
basis for private lawsuits, including class actions. Depending on their
significance, such reports could have a material and adverse effect on the
Company's business, financial condition, results of operations and ability to
market its products.
The Company believes that its other products currently under development
will, like its r\LS System, be regulated as medical devices by the FDA. Before a
new device may be introduced into commercial distribution, the manufacturer must
generally obtain marketing clearance through a 510(k) pre-market notification
or approval through a pre-market approval application.
In the United States, medical devices for human use are classified into
three classes (Class I, Class II and Class III) on the basis of the controls
deemed reasonably necessary to assure their safety and effectiveness. Class I
devices are subject to general controls, unless exempt (for example, labeling,
pre-market notification under section 510(k) and quality system requirements).
Class II devices are devices for which general controls are insufficient to
provide a reasonable assurance of safety and effectiveness and for which there
is sufficient information to establish special controls (for example,
performance standards, FDA guidance documents or post-market surveillance) to
provide such assurance. Class III devices are those devices that are
life-supporting, life-sustaining or of substantial importance in preventing
impairment of human life and for which general and special controls are
insufficient to provide a reasonable assurance of safety and effectiveness, or
new devices for which a manufacturer cannot demonstrate substantial equivalence
to an already legally marketed device.
In order to demonstrate substantial equivalence, a manufacturer must submit
a pre-market notification ("510(k)") under section 510(k) of the FDC Act. The
FDA will clear a device if the manufacturer can demonstrate that the device is
"substantially equivalent" to an already legally marketed device. The FDA may or
may not require clinical data in support of a 510(k), and the FDA may require
additional data beyond that in the original submission to support a substantial
equivalence determination. There can be no assurance that the FDA will find a
device substantially equivalent. If the FDA finds that a device is not
substantially equivalent, the manufacturer may ask the FDA to make a risk-based
classification to place the device in Class I or Class II. However, if a timely
request for risk-based classification is not made, or if the FDA determines that
a Class III designation is appropriate, an approved pre-market application
("PMA") will be required before the device may be marketed.
The PMA approval process is lengthy, expensive and typically requires,
among other things, extensive data from pre-clinical testing and a
well-controlled clinical trial or trials that demonstrate a reasonable assurance
of safety and effectiveness. Clinical data for devices generally must be
obtained pursuant to Investigation Device Exemptions, which must be approved by
the FDA before a clinical trial may commence. Like an IND, an IDE contains,
among other things, the pre-clinical data, chemistry, manufacturing and control
information and an investigative plan, generally proceeding in three phases.
There is no guarantee that the agency will approve the IDE, and an IDE approval
process could result in significant delay. In addition, the FDA may place an IDE
on hold or terminate it if, among other reasons, it concludes that clinical
subjects are being exposed to an unacceptable health risk. There is no assurance
906583.4
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that review of a PMA will result in a timely PMA approval, if at all. Further,
if approved, there may be significant PMA conditions of approval, including
limitations on labeling and advertising claims and the imposition of post-market
testing, tracking or surveillance requirements.
Changes to devices cleared for marketing under section 510(k) that could
significantly affect safety and effectiveness will require clearance of a new
510(k). Changes to approved PMA products that affect safety and effectiveness
require the submission of a supplemental PMA. The Company would be prohibited
from marketing the modified device until it received FDA clearance or approval,
and there is no guarantee that the FDA would timely or at all clear or approve
the modified 510(k) or PMA device. Failure to obtain timely or any approval for
changes to marketed devices could have a material and adverse effect on the
Company's business, financial condition and results of operations.
The Company's r\LS System was cleared for marketing in 1999 in the United
States under section 510(k) with a post-market surveillance protocol to look for
filter-related transfusion reactions which was agreed to between the FDA and the
Company. The Company has found no filter-related transfusion reactions and
believe it has satisfied the FDA's post-market surveillance requirements. The
Company submitted a report to that effect in early March 2000. It anticipates
but cannot guarantee that the FDA will find its report satisfactory. The
post-market surveillance study does not currently affect the Company's ability
to market and sell the r\LS System.
The regulations relating to MDRs require that reports be submitted to the
FDA to report device-related deaths, serious injuries and malfunctions that
could result in death or serious injury were they to recur. MDRs can result in
agency action such as inspections, recalls and patient/physician notifications,
and are often the basis for agency enforcement actions. Because MDRs are
publicly available, they can also become the basis for private lawsuits,
including class actions. Failure to file MDRs constitutes a violation of the law
enforceable under the FDC Act. Depending on their significance, MDRs could have
a material and adverse effect on the Company's business, financial condition,
results of operations and ability to market its products.
The Company's marketed products will be subject to current good
manufacturing practice regulations for drugs and the quality system regulation
for medical devices. The Company cannot assure that it or its suppliers or
contractors will be able to attain or maintain compliance with these standards.
In addition, any changes to manufacturing facilities or methods may require FDA
clearance or approval.
The nature of marketing claims that the Company will be permitted to make
in the labeling and advertising of its products will be limited to those
specified in an FDA clearance or approval. Claims exceeding those that are
cleared or approved will constitute violations of the FDC Act. Advertisements of
the Company's products will also be subject to regulation by the FTC under the
FTC Act. The FTC Act prohibits unfair methods of competition and unfair or
deceptive acts in or affecting commerce. Violations of the FTC Act, such as
failure to have substantiation for product claims, would subject the Company to
a variety of enforcement actions, including compulsory process, cease and desist
orders and injunctions. FTC enforcement can result in orders requiring, among
other things, limits on advertising, corrective advertising, consumer redress
and recission of contracts. Violations of FTC enforcement orders can result in
substantial fines or other penalties.
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Violations of the FDC Act or regulatory requirements at any time during the
product development process, approval process or after approval may result in
FDA enforcement actions, including voluntary or mandatory recall, license
suspension or revocation, seizure of products, fines, injunctions and/or civil
or criminal penalties. Any such agency action could have a material and adverse
effect on the Company's business, financial condition and results of operations.
The Company is also subject to numerous and varying foreign regulatory
requirements governing the design and conduct of clinical trials and the
manufacturing and marketing of its products. The approval procedure varies among
countries. The time required to obtain foreign approvals often differs from that
required to obtain FDA approval. Moreover, approval by the FDA does not ensure
approval by regulatory authorities in other countries.
The Company cannot predict the nature of any future laws, regulations,
interpretations or applications. The Company also cannot predict what effect
additional governmental regulations or administrative orders, when and if
promulgated, would have on its business in the future. Any such requirements
could delay or prevent regulatory approval or clearance of products under
development. Any such requirements could have a material and adverse effect on
its business, financial condition, results of operations and ability to market
its products.
Manufacturing and Facilities
Currently, the Company occupies approximately 30,000 square feet of leased
office, laboratory and manufacturing space in a facility in Marlborough,
Massachusetts (which lease expires in February 2004, and provides for two
five-year renewal options thereafter). In June 2000, the Company plans to occupy
an additional 15,000 square feet in connection with its expansion plans. The
Company believes that these facilities are adequate and suitable for its needs
through 2000. See Item 1. "Business -- Strategic Relationships." The facility is
designed to conform to current good manufacturing practice regulations and other
applicable government standards.
In January 1998, the Company received ISO 9001 Registration and CE mark
EN46001 Certification, which was awarded by Bureau Veritas Quality
International. The ISO 9000 and EN46000 Series of international standards was
developed by the International Organization for Standardization to promote
homogeneous quality processes through the global trade community. ISO 9001
specifically addresses requirements for the manufacture, design, development,
installation and service of products and CE EN46001 addresses the requirements
to market medical devices in the European Union.
For manufacturing outside the United States, the Company will also be
subject to foreign regulatory requirements governing human clinical trials,
manufacturing and marketing approval for drugs or biologics and medical devices.
The regulatory requirements may vary widely from country to country. See "--
Government Regulation."
906583.4
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Source and Availability of Raw Materials
The Company acquires each of the main components of its products from
separate single suppliers. However, given that there are multiple sources
available to it for each such component, and based upon the Company's ongoing
relationship with each such supplier, the Company does not believe that the loss
of any of its current supply channels would result in a material and adverse
effect on its business or its results of operations.
Employees
As of March 24, 2000, the Company employed a total of 106 persons, of whom
23 were in research and development, 65 were in manufacturing and support and 18
were in sales and administration.
Relationships with Sepracor and Gambro
Sepracor. The Company was organized in December 1993 as a wholly-owned
subsidiary of Sepracor. Sepracor is engaged in the business of using chiral
chemistry to develop single-isomer forms of existing, widely sold
pharmaceuticals. Effective January 1, 1994, Sepracor transferred its blood
filtration and membrane filter design business to the Company in exchange for
3,000,000 shares of Common Stock. As of March 24, 2000, Sepracor owned 22% of
the Company's issued and outstanding Common Stock. As of the date hereof,
two executive officers of Sepracor serve as directors of the Company.
In September 1998, the Company completed a $5 million revolving line of
credit arrangement with a commercial bank. Sepracor has guaranteed to repay
amounts borrowed under the line of credit. In exchange for the guarantee, the
Company granted to Sepracor warrants to purchase up to 1,700,000 shares of the
Company's Common Stock at a price of $0.69 per share. The warrants will expire
in the year 2003 and have certain registration rights associated with them.
In March 1999, Sepracor purchased an additional 1,333,334 shares of common
stock of the Company for $1.50 per share and received warrants to purchase an
additional 667,000 shares at a price of $1.50 per share. Sepracor is entitled to
certain rights with respect to the registration under the Securities Act of
1933, as amended, of a total of 6,700,334 shares of Common Stock, including
shares of Common Stock issuable upon exercise of outstanding warrants. These
rights provide that Sepracor may require the Company to register shares subject
to certain conditions and limitations.
Any future arrangements and transactions between the Company and Sepracor
will continue to be on terms which the Company determines are fair and
reasonable to the Company.
Gambro. On May 3, 1999, the Company completed a private placement financing
with Gambro Inc. The stock subscription agreement, which the Company entered
into with Gambro Inc. in connection with this financing, provides for an initial
investment of $9,000,000 in exchange for 4,500,000 shares of the Company's
Common Stock. The stock subscription agreement also provides Gambro Inc. with an
option to purchase additional shares of the Company's Common Stock for up to an
aggregate purchase price of $3,000,000 at any time between August 3, 1999 and
May 3, 2000 with the price per share of Common Stock to be based upon the market
price of the Company's Common Stock. In October 1999,
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Gambro Inc. exercised this option in full. In connection with the exercise of
this option, Gambro Inc. purchased 498,355 shares at a price of $6.02 per share.
The price and number of shares reflects the average price of the Company's stock
in the 30 days prior to the exercise date of October 5, 1999. The stockholders'
agreement, which the Company entered into with Gambro Inc. in connection with
this financing, provides that Gambro Inc. will have representation on the
Company's board of directors of up to two directors and the Company's
representative committees and contains, among other things, various registration
rights and anti-dilution and standstill provisions. Subject to certain terms and
conditions, the anti-dilution provisions prohibit the Company from selling or
issuing the Company's common stock or securities convertible into the Company's
Common Stock in any offering to a third party without offering Gambro Inc. the
opportunity to purchase at the same price and terms that number of securities
necessary for Gambro Inc. to maintain its beneficial ownership of the Company's
outstanding Common Stock. Furthermore, in an offering or in certain other
limited situations, the Company must provide Gambro Inc. with notice of the
Company's intention to sell as well as a right to negotiate with the Company
first for the purchase of the Company's securities. Gambro Inc. agrees to
certain restrictions on its ability to sell the Company's Common Stock owned by
it and its permitted transferees. Gambro Inc. also agrees to refrain from
acquiring beneficial ownership of additional equity or debt securities of the
Company, engaging in certain proxy solicitation activities, seeking to control
the Company's management, policies or affairs and taking certain actions
relating to business combinations and similar transactions without prior
approval of the Company's board of directors. Gambro Inc. has purchased
1,178,680 shares of Common Stock in this offering. Gambro Inc. has agreed to
waive its registration rights in connection with the registration statement to
be filed by the Company in connection with this offering.
In 1998, the Company completed a distribution and development agreement,
which was amended in May 1999, with Gambro Inc. to act as the Company's
exclusive distributor of the Company's r\LS System worldwide, except for sales
to the American Red Cross. Furthermore, this agreement provides that Gambro Inc.
may (upon mutual agreement by the Company and Gambro Inc.) distribute additional
future products developed by the Company that filter blood and its components.
Gambro Inc. markets and sells blood component apheresis equipment to the blood
center market. The agreement with Gambro Inc. contemplates the development by
the Company of an OEM filter for use with Gambro Inc.'s Trima(R) Automated Blood
Collection System. The distribution agreement provides for a five year term that
expires in June 2004, subject to automatic three year renewals unless the
agreement is previously terminated.
Item 2. Properties
Currently, the Company occupies approximately 30,000 square feet of leased
office, laboratory and manufacturing space in a facility in Marlborough,
Massachusetts (which lease expires in February 2004, and provides for two
five-year renewal options thereafter). In June 2000, the Company plans to occupy
an additional 15,000 square feet in connection with its expansion plans. The
Company believes that these facilities are adequate and suitable for its needs
through 2000. See Item 1. "Business -- Strategic Relationships." The facility is
designed to conform to current good manufacturing practice regulations and other
applicable government standards. See Item 1. "Business -- Manufacturing and
Facilities."
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Item 3. Legal Proceedings
The Company is a defendant in a lawsuit brought by Pall regarding its
LeukoNet System, which is no longer made or sold by the Company. In a complaint
filed in November 1996, Pall alleged that the Company's manufacture, use and/or
sale of the LeukoNet System infringed upon two patents held by Pall. Pall
dropped its allegations concerning infringement of one of the patents and
alleges only that the Company's LeukoNet System infringed the '572 Patent.
With respect to the allegations concerning the '572 Patent, the Company
answered the complaint stating that the LeukoNet System does not infringe any
claim of the asserted patents. Further, the Company counterclaimed for
declaratory judgment of invalidity, noninfringement and unenforceability of the
'572 Patent. Pall amended its complaint to add Lydall, Inc., whose subsidiary
supplied the filter media for the LeukoNet System, as a co-defendant. The
Company filed for summary judgment of non-infringement, and Pall cross-filed for
summary judgement of infringement at the same time. Lydall, Inc. supported the
Company's motion for summary judgment of non-infringement, and 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. The court has not
acted on the summary judgment motions.
On April 5, 1999, the Company and Gambro filed a complaint for declaratory
relief against Pall in the United States District Court of Colorado. The Company
and Gambro seek declaratory relief that the '572 Patent, the '321 Patent and
Pall's U.S. Patent No.'s 5,229,012, 5,344,561, 5,501,795 and 5,863,436 are
invalid and not infringed by the Company's r\LS System and methods of using the
r\LS System. Pall moved to dismiss or transfer to the Eastern District of New
York or, in the alternative, to stay this action. The Company and Gambro opposed
Pall's motion. On July 16, 1999, the United States District Court of Colorado
denied Pall's motion to transfer or, in the alternative, to stay the action, and
the action is proceeding. On September 30, 1999, the Court denied Pall's motion
to dismiss the action and the case is proceeding. On October 20, 1999, Pall
submitted a counterclaim alleging that the Company's r\LS System infringes its
'572 patent and that the Company and Gambro BCT tortiously interfered and
unfairly competed with Pall's business. On March 22, 2000, Pall filed its second
amended answer and counterclaims alleging infringement of all the
patents-in-suit. Pall also added counterclaims against Gambro A.B.
On April 23, 1999, Pall filed a complaint against the Company and Gambro
BCT in the Eastern District of New York alleging that the Company's r\LS System
infringes Pall's '572 Patent and that the Company and Gambro BCT tortiously
interfered and unfairly competed with Pall's business. On May 19, 1999, Pall
amended its complaint and added Gambro Inc., Gambro A.B. and Sepracor as
defendants. The Company and Gambro have moved to dismiss, transfer or stay the
action and Pall has opposed the motion. There has been no decision on the
motion.
A prior lawsuit brought by Pall in February 1996 has concluded. In June
1999, the United States Court of Appeals for the Federal Circuit determined that
the LeukoNet System did not infringe claim 39 of the '321 Patent and Pall has
not appealed that decision.
The Company has engaged patent counsel to investigate the pending
litigations. The Company believes, based upon its review of these matters, that
a properly informed court should conclude that the manufacture, use and/or sale
by the Company or its customers of the LeukoNet System and the r\LS
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System do not infringe any valid enforceable claims of the Pall patents.
However, there is no assurance that the Company will prevail in the pending
litigations, and an adverse outcome in a patent infringement action would have a
material and adverse effect on the Company's financial condition and future
business and operations, including the possibility of significant damages in the
litigations and an injunction against the sale of the r\LS System if the Company
does not prevail in the litigations.
In January 1997, the Company entered into a Restructuring Agreement of the
debt related to the Company's acquisition of Novo Nordisk A/S's plasma products
unit. In January 1998, the Company elected to convert all indebtedness under the
approximately $11,700,000 promissory note which was issued to Novo Nordisk A/S
in connection with the Restructuring Agreement into Common Stock at a conversion
price of $10.50 per share, or 827,375 shares. The Company also elected to treat
as forgiven $3,000,000 in principal amount of the note, pursuant to the terms of
the note. Novo Nordisk A/S has contested the conversion of the note, including
the forgiveness of the $3,000,000 amount. This dispute, with or without merit,
could be time-consuming and expensive to litigate or settle if brought into a
court of law, and could divert management attention from administering the
Company's core business. If Novo Nordisk A/S succeeds on its dispute and the
Company is deemed to have wrongfully converted the original note, then the
827,375 shares of common stock issued to Novo Nordisk A/S may no longer be
outstanding and the Company may be obligated to repay certain indebtedness under
the original note.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders of the Company,
through solicitation of proxies or otherwise, during the last quarter of the
year ended December 31, 1999.
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EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is the name, age, position and a brief account of the
business experience of each of the Company's current executive officers.
Name Age Position
---- --- --------
John F. McGuire, III 53 President, Chief Executive Officer and Director
James B. Murphy 43 Senior Vice President, Finance and Administration
Peter C. Sutcliffe 50 Vice President and Chief Operating Officer
John F. McGuire, III has served as the Company's Chief Executive Officer,
President and as one of the Company's directors since April 1997. Prior to that
time, Mr. McGuire served as Vice President and General Manager of Johnson &
Johnson's Ortho Diagnostic Systems Blood Bank Business Unit since January 1996.
From March 1995 to January 1996, Mr. McGuire held the position of Vice
President, Sales & Marketing, North America for Johnson & Johnson. From August
1990 to March 1995, Mr. McGuire served as Managing Director of Ortho Diagnostic
Systems in the United Kingdom and Belgium for Johnson & Johnson. From September
1988 to August 1990, Mr. McGuire held the position of Marketing Director for the
AIDS and Hepatitis Business Unit of Johnson & Johnson. From 1977 to 1988, Mr.
McGuire held various management positions at E. I. du Pont de Nemours and
Company, the last of which was National Sales Manager, AIDS & Hepatitis
Business. Mr. McGuire is a member of the board of trustees of the National Blood
Foundation Trust Fund.
James B. Murphy has served as the Company's Senior Vice President, Finance
and Administration since February 1996. From April 1994 to January 1996, he
served as the Company's Vice President and Corporate Controller. Prior to that,
from 1990 to April 1994, he served as Corporate Controller of Sepracor.
Previously, Mr. Murphy held the positions of Senior Corporate Accountant at BBN
Inc. and Senior Accountant at Arthur Andersen LLP.
Peter C. Sutcliffe has served as the Company's Chief Operating Officer
since April 1998. From May 1996 to April 1998, Mr. Sutcliffe served as the
Company's Vice President of Manufacturing Operations. From May 1982 to May 1996,
Mr. Sutcliffe held the position of Vice President, Manufacturing for Corning
Costar Incorporated. From 1976 to 1982, he was a plant manufacturing manager at
Millipore Corporation.
906583.4
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<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
1. Market Information.
The Common Stock of the Company has been included for quotation on the OTC
bulletin board under the symbol HMSR since January 14, 1998. From October 28,
1997 until January 13, 1998, the Common Stock was included for quotation on The
Nasdaq SmallCap Market under the symbol HMSRC. Prior to October 28, 1997 and
since April 7, 1994, the Common Stock of the Company was included for quotation
on the Nasdaq National Market under the symbol HMSR. Prior to April 7, 1994, the
Company's Common Stock was not publicly traded. The following table sets forth
for the periods indicated the range of high and low bid information per share of
the Common Stock as included for quotation on the Nasdaq National Market or The
Nasdaq SmallCap Market, as the case may be.
1999 High Low
---- ---- ---
First Quarter 2 1/2 1 13/32
Second Quarter 4 7/8 2 1/8
Third Quarter 7 3/8 3 7/8
Fourth Quarter 6 1/2 4 1/2
1998 High Low
---- ---- ---
First Quarter 2 3/16 3/8
Second Quarter 2 1/16 7/16
Third Quarter 2 15/32 1 3/16
Fourth Quarter 2 15/16 7/8
2. Holders.
On March 24, 2000, the Company's Common Stock was held by approximately 125
stockholders of record. On March 24, 2000, the last reported sale price of the
Company's Common Stock on the OTC bulletin board was $11.
3. Dividend Information.
The Company has never paid dividends on its Common Stock. The Company
currently intends to reinvest its earnings, if any, for use in the business and
does not expect to pay cash dividends in the foreseeable future.
906583.4
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<PAGE>
4. Sales of Securities.
In March 2000, the Company completed a $28,000,000 private placement in
which institutional investors purchased 3,730,000 shares of the Company's common
stock at a purchase price of $7.50 per share. The Company has agreed to
register, prior to June 2, 2000, such shares for resale.
On May 3, 1999, the Company completed a private placement financing with
Gambro Inc. The stock subscription agreement, which the Company entered into
with Gambro Inc. in connection with this financing, provided for an initial
investment of $9,000,000 in exchange for 4,500,000 shares of the Company's
Common Stock. The stock subscription agreement also provided Gambro Inc. with an
option to purchase additional shares of the Company's Common Stock for up to an
aggregate purchase price of $3,000,000 at any time between August 3, 1999 and
May 3, 2000 with the price per share of Common Stock to be based upon the market
price of the Company's Common Stock. In October 1999, Gambro Inc. exercised this
option in full. In connection with the exercise of this option, Gambro Inc.
purchased 498,355 shares at a price of $6.02 per share. The price and number of
shares reflects the average price of HemaSure stock in the 30 days prior to the
exercise date of October 5, 1999.
In March 1999, Sepracor purchased an additional 1,333,334 shares of common
stock of the Company for $1.50 per share and received warrants to purchase an
additional 667,000 shares at a price of $1.50 per share. Sepracor is entitled to
certain rights with respect to the registration under the Securities Act of
1933, as amended, of a total of 6,700,334 shares of Common Stock, including
shares of Common Stock issuable upon exercise of outstanding warrants. These
rights provide that Sepracor may require the Company to register shares subject
to certain conditions and limitations.
In September 1998, the Company completed a $5 million revolving line of
credit arrangement with a commercial bank. Sepracor has guaranteed to repay
amounts borrowed under the line of credit. In exchange for the guarantee, the
Company granted to Sepracor warrants to purchase up to 1,700,000 shares of the
Company's Common Stock at a price of $0.69 per share. The warrants will expire
in the year 2003 and have certain registration rights associated with them.
In each case, the securities were issued pursuant to an exemption from the
registration requirements of the Securities Act under Section 4(2).
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS DATA
(In thousands, except per share data)
Year Ended December 31, 1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Revenues:
<S> <C> <C> <C> <C> <C>
Product sales $ 805 $ 25 $ 2,357 $ 725 $ 534
Collaborative research and development - - - 54 300
------- ------ -------- ------ -----
Total revenues 805 25 2,357 779 834
------- ------ -------- ------ -----
Costs and expenses:
Cost of products sold 2,408 657 4,158 3,785 1,073
</TABLE>
906583.4
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<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Cost of collaborative research and
development - - - 41 283
Research and development 2,681 3,794 3,577 6,128 4,061
Legal expense related to patents 1,361 3,340 506 744 152
Selling, general and administrative 3,728 4,201 4,458 7,325 3,729
Restructuring charge - - 1,215 - -
------- -------- -------- ------- --------
Total costs and expenses 10,178 11,992 13,914 18,023 9,298
------- -------- -------- ------- --------
Loss from operations (9,373) (11,967) (11,557) (17,244) (8,464)
Other (expense) income (1,292) (203) 1,673 1,394 1,014
-------- ---------- -------- --------- ---------
Net loss from continuing operations (10,665) (12,170) (9,884) (15,850) (7,450)
-------- --------- --------- --------- ---------
Discontinued operations:
Loss from operations of discontinued
business - - - (9,550) -
Loss on disposal of discontinued business - - - (15,198) -
--------- ---------- ---------- --------- ---------
Net loss $ (10,665) $ (12,170) $ (9,884) $(40,598) $ (7,450)
---------- ---------- ---------- --------- ---------
Net loss per common share - basic and diluted:
Net loss from continuing operations $ (0.77) $ (1.35) $ (1.22) $ (1.96) $ (1.20)
Loss from operations of discontinued
business - - - (1.18) -
Loss on disposal of discontinued business - - - (1.88) -
---------- --------- --------- --------- ---------
Net loss $ (0.77) $ (1.35) $ (1.22) $ (5.03) $ (1.20)
------------ ----------- ----------- ----------- ----------
Weighted average number of shares of
common stock outstanding - basic and diluted: 13,766 9,025 8,127 8,069 6,205
----------- ---------- ---------- --------- ----------
BALANCE SHEET DATA
(In thousands)
Cash and marketable securities $ 5,243 $ 1,827 $ 8,156 $16,724 $47,841
Working capital (327) 37 6,071 14,844 46,905
Total assets 9,090 5,655 10,607 20,560 50,212
Capital lease obligations long term - 68 289 525 286
Notes payable long-term 43 5,073 72 - -
Convertible subordinated note payable long
term - - 8,687 8,687 -
Stockholders' equity (deficit) 1,227 (2,832) (1,467) 7,929 48,002
</TABLE>
906583.4
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<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operation
Overview
The Company was established in December 1993 as a wholly-owned subsidiary
of Sepracor. Effective as of January 1, 1994, in exchange for 3,000,000 shares
of Common Stock, Sepracor transferred to the Company its technology relating to
the manufacture, use and sale of medical devices for the separation and
purification of blood, blood products and blood components and its membrane
filter design technologies.
HemaSure develops and supplies innovative blood filtration technologies
designed to help meet today's increasing demand for a safer, more reliable blood
supply. The Company's blood filtration technologies are designed to reduce
virus-carrying white blood cells (leukocytes) in donated blood to nominal levels
(a process known as "leukoreduction").
In June 1995, the Company received clearance from the United States Food
and Drug Administration (the "FDA") for the LeukoNet System, a medical device
designed for the removal of contaminating leukocytes from donated blood. Fiscal
1996 was the first full year of commercial sale of its LeukoNet System. In
February 1998, the Company determined to discontinue manufacturing the LeukoNet
System and focus on the completion of development and market introduction of its
next generation red cell filtration product, the r\LS System.
In May 1999, the Company received 510(k) clearance from the FDA to market
its r\LS System in the United States. The Company initiated sales of the r\LS
System in the United States in the third quarter 1999.
All of the Company's other planned blood-related products are in the
research and development stage, and certain of these products may require
pre-clinical and clinical testing prior to submission of any regulatory
application for commercial use. The Company's success will depend on the
commercial acceptance of the r\LS System and development and commercial
acceptance of the other blood-related products.
Results of Continuing Operations
Revenues were $805,000 in 1999, $25,000 in 1998 and $2,357,000 in 1997. All
revenues in 1999, 1998 and 1997 were from the sale of the Company's
leukoreduction systems. In 1999, the Company initiated sales of its next
generation red blood cell leukoreduction system, the r\LS System. In February
1998, the Company decided to discontinue the manufacture and sale of its former
leukoreduction filter, the LeukoNet System, which accounts for the increase in
revenues in 1999 from those in 1998 and for the decrease in 1998 from those in
1997 when all revenues were attributed to the LeukoNet System. In 1999, one
customer represented 66% of total revenues and another customer represented 33%
of total revenues. In 1998 one customer represented 53% of total revenues and
another customer represented 10% of total revenues. In 1997, one customer
represented 86% of total revenues.
The cost of products sold was $2,408,000 in 1999, $657,000 in 1998 and
$4,158,000 in 1997. Cost of products sold exceeded product sales in all periods
due to the high costs associated with low volume
906583.4
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<PAGE>
production and to the start-up costs of new product introduction. Cost of
products sold in 1997 includes a charge of approximately $800,000 related to the
Company's determination to discontinue manufacturing the LeukoNet System and to
focus exclusively on its next generation red cell filter.
Research and development expenses were $2,681,000 in 1999, $3,794,000 in
1998 and $3,577,000 in 1997. The decrease in 1999 from 1998 is primarily
attributable to costs associated with the development of the Company's next
generation red cell filtration system, the r\LS System, for which a majority of
the effort was expended in the 1998 period. The increase in 1998 over amounts
expended in 1997 is attributable to costs associated with development of the
Company's r\LS System.
Legal expense related to patents were $1,361,000 in 1999, $3,340,000 in
1998 and $506,000 in 1997. In 1998 the Company incurred significant expenses in
connection with expert witness and discovery related activities associated with
its outstanding patent litigation with Pall. The decrease in 1999 from those
expended in 1998 is due to a reduction in these costs as well as from
cooperation with Gambro BCT in connection with such costs consistent with the
Company's distribution and development agreement with Gambro. See " --
Litigation."
Selling, general and administrative expenses were $3,728,000 in 1999,
$4,201,000 in 1998 and $4,458,000 in 1997. The decrease in the amount expended
in 1999 from 1998 is primarily due to a lower level of general corporate
expenses. The decrease in the amount expended in 1998 from 1997 is primarily due
to a lower level of sales and marketing expense associated with the lower
revenues in 1998 compared to 1997. Sales and marketing costs may increase in
future periods from current levels as the Company continues its efforts to
market and launch sales of its blood filtration products.
In April 1997, the Company determined to focus management resources on its
core business of blood filtration technologies. In connection therewith, the
Company incurred a one-time restructuring charge of $1,215,000 in 1997 for
severance and related charges in connection with executive management
departures. At December 31, 1998 all amounts related to this charge were paid.
Interest income in 1999, 1998 and 1997 primarily represents interest earned
on available cash and marketable securities balances during those periods.
The increase in interest expense in 1999 compared to 1998 is primarily
related to amounts outstanding on the Company's line of credit which was
outstanding for all of 1999 and only for approximately three months in 1998. The
decrease in interest expense in 1998 compared to 1997 is primarily related to a
convertible subordinated note payable which was outstanding for all of 1997 and
converted to Common Stock in 1998 and lower average capital lease obligation
balances.
In September 1997, the Company reached an out-of-court settlement with
Pharmacia & Upjohn Inc. arising out of the alleged breach by Pharmacia & Upjohn
Inc. of an agreement to sell to the Company Pharmacia & Upjohn Inc.'s plasma
pharmaceutical business located in Stockholm, Sweden. The terms of settlement
included a cash payment to the Company and the granting of an option to
Pharmacia & Upjohn Inc. to license, on a non-exclusive basis, certain
intellectual property held by the Company and its subsidiaries relating to
plasma fractionation. The cash payment was recognized as other income in 1997
and represents the majority of the amount in other income for that year.
906583.4
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<PAGE>
New Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. The statement requires companies to
recognize all derivatives as either assets or liabilities, with the instruments
measured at fair value. The accounting for changes in fair value, gains or
losses depends on the intended use of the derivative and its resulting
designation. The statement is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000. The Company does not expect such adoption to have
a material impact on its financial statements.
In December 1999, the Securities and Exchange Commission (the "Commission")
issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in
Financial Statements," which is effective no later than the quarter ending June
30, 2000. SAB 101 clarifies the Commission's views related to revenue
recognition and disclosure. The Company will adopt SAB 101 effective in the
second quarter of 2000 and are presently determining the effect it will have on
the Company's financial statements, but management does not believe the effect
will be material.
Litigation
The Company is a defendant in a lawsuit brought by Pall regarding the
Company's LeukoNet System, which is no longer made or sold by the Company. In a
complaint filed in November 1996, Pall alleged that the manufacture, use and/or
sale of the LeukoNet System infringed upon two patents held by Pall. Pall
dropped its allegations concerning infringement of one of the patents and
alleges only that the LeukoNet System infringed Pall's U.S. Patent No. 4,952,572
(the "'572 Patent").
With respect to the allegations concerning the '572 Patent, the Company
answered the complaint stating that the LeukoNet System does not infringe any
claim of the asserted patents. Further, the Company counterclaimed for
declaratory judgment of invalidity, noninfringement and unenforceability of the
'572 Patent. Pall amended its complaint to add Lydall, Inc., whose subsidiary
supplied the filter media for the LeukoNet System, as a co-defendant. The
Company filed for summary judgment of non-infringement, and Pall cross-filed for
summary judgement of infringement at the same time. Lydall, Inc. supported the
Company's motion for summary judgment of non-infringement, and 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. The court has not
acted on the summary judgment motions.
The Company and Gambro BCT filed a complaint for declaratory relief against
Pall in the United States District Court of Colorado. The Company and Gambro BCT
seek declaratory relief that the '572 Patent, Pall's U.S. Patent No. 5,451,321
(the "'321 Patent") and Pall's U.S. Patent No.'s 5,229,012, 5,344,561, 5,501,795
and 5,863,436 are invalid and not infringed by the Company's r\LS System and
methods of using the r\LS System. Pall moved to dismiss or transfer to the
Eastern District of New York or, in the alternative, to stay this action. The
Company and Gambro BCT opposed Pall's motion. On July 16, 1999, the United
States District Court of Colorado denied Pall's motion to transfer or, in the
alternative, to stay the action, and the action is proceeding. On September 30,
1999, the Court denied Pall's motion to dismiss the action and the case is
proceeding. On October 20, 1999,
906583.4
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<PAGE>
Pall submitted a counterclaim alleging that the Company's r\LS System infringes
its '572 patent and that the Company and Gambro BCT tortiously interfered and
unfairly competed with Pall's business.Pall has also asserted that the r\LS
System infringes one or more of the other patents that are the subject of the
lawsuit.
On April 23, 1999, Pall filed a complaint against the Company and Gambro
BCT in the Eastern District of New York alleging that the Company's r\LS System
infringes Pall's '572 Patent and that the Company and Gambro BCT tortiously
interfered and unfairly competed with Pall's business. On May 19, 1999, Pall
amended its complaint and added Gambro Inc., Gambro A.B. and Sepracor as
defendants. The Company and Gambro BCT have moved to dismiss, transfer or stay
the action and Pall has opposed the motion. There has been no decision on the
motion.
A prior lawsuit brought by Pall in February 1996 has concluded. In June
1999, the United States Court of Appeals for the Federal Circuit determined that
the LeukoNet System did not infringe claim 39 of the '321 Patent and Pall has
not appealed that decision.
The Company has engaged patent counsel to investigate the pending
litigations. The Company believes, based upon its review of these matters, that
a properly informed court should conclude that the manufacture, use and/or sale
by the Company or its customers of the LeukoNet System and the r\LS System 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 and
adverse effect on the Company's financial condition and future business and
operations, including the possibility of significant damages in the litigations
and an injunction against the sale of the r\LS System if the Company does not
prevail in the litigations.
On November 1, 1996, the Company filed a complaint in the Supreme Court,
State of New York, County of New York, against Pharmacia & Upjohn Inc. In its
complaint, the Company sought damages arising out of the alleged breach by
Pharmacia & Upjohn Inc. of an agreement to sell to the Company Pharmacia &
Upjohn Inc.'s plasma pharmaceutical business located in Stockholm, Sweden. In
September 1997, the Company reached an out-of-court settlement with Pharmacia &
Upjohn Inc. The terms of settlement included a cash payment to the Company and
the granting of an option to Pharmacia & Upjohn Inc. to license, on a
non-exclusive basis, certain intellectual property held by the Company and its
subsidiaries relating to plasma fractionation. The cash payment was recognized
as other income in 1997.
Liquidity and Capital Resources
The net increase in cash and cash equivalents in 1999 was $3,416,000. This
net increase is attributable to net cash provided by financing activities of
$14,472,000 offset in part by net cash used in operating activities of
$10,539,000 and net cash used in investing activities of $517,000.
Net cash provided by financing activities relates to net proceeds from
issuance of Common Stock of $14,724,000 offset in part by repayments of capital
lease obligations of $225,000. Net cash used in operating activities is
primarily attributable to the net loss of $10,665,000, a reduction in accounts
payable of $343,000 and increases in accounts receivable of $443,000 and
inventories of $600,000, offset in part by non-cash charges to operating
activities of $1,024,000 related to warrant financing costs and depreciation and
amortization of $475,000. Net cash used in investing activities relates to
additions to property and equipment of $517,000.
906583.4
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<PAGE>
In March 2000, the Company completed a $28,000,000 private placement in
which institutional investors purchased 3,730,000 shares of the Company's common
stock at a purchase price of $7.50 per share. The Company has agreed to
register, prior to June 2, 2000, such shares for resale. The Company intends to
use the proceeds of the financing for working capital, capital equipment and
general corporate purposes.
The Company believes, based on its current operating plan, that its
existing cash balances together with the financing provided in March 2000 will
be sufficient to fund the Company's operations beyond the first quarter 2001. If
the Company's plans or assumptions change, if the Company's assumptions prove to
be inaccurate or if the Company experiences unanticipated costs or competitive
pressures, it may seek to raise additional capital by pursuing strategic
partnerships, public or private equity and/or debt financing. If the Company
fails to generate such cash flow or obtain any such financing on terms favorable
to it or if other unforeseen circumstances occur, the Company may be unable to
continue to commercialize and market the r\LS System or complete the development
of the Company's proposed products and/or market such products successfully, or
to continue the Company's current operations as presently conducted, if at all,
beyond the first quarter 2001. 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.
On May 3, 1999, the Company completed a private placement financing with
Gambro Inc. The stock subscription agreement, which the Company entered into
with Gambro Inc. in connection with this financing, provided for an initial
investment of $9,000,000 in exchange for 4,500,000 shares of the Company's
Common Stock. The stock subscription agreement also provided Gambro Inc. with an
option to purchase additional shares of the Company's Common Stock for up to an
aggregate purchase price of $3,000,000 at any time between August 3, 1999 and
May 3, 2000 with the price per share of Common Stock to be based upon the market
price of the Company's Common Stock. In October 1999, Gambro Inc. exercised this
option in full. In connection with the exercise of this option, Gambro Inc.
purchased 498,355 shares at a price of $6.02 per share. The price and number of
shares reflects the average price of HemaSure stock in the 30 days prior to the
exercise date of October 5, 1999.
In March 1999, Sepracor purchased an additional 1,333,334 shares in a
private placement of Common Stock of the Company for $1.50 per share and
received warrants to purchase an additional 667,000 shares at a price of $1.50
per share. The financing agreement contains certain registration rights and
warrant exercise provisions.
In September 1998, the Company completed a $5 million revolving line of
credit arrangement with a commercial bank. As of December 31, 1999, the entire
$5 million was outstanding under the line. The revolving line of credit, which
expires in August 2000, is being used to help finance the Company's working
capital requirements and for general corporate purposes. Amounts borrowed under
the line bear interest at the bank's prime lending rate plus 1/2% payable
quarterly in arrears. The weighted-average borrowing rate for the period ended
December 31, 1999 was 8.67%. The Company recorded interest expense related to
borrowings under the line of $434,000 and $93,000 for the periods ended December
31, 1999 and 1998, respectively. The credit agreement contains customary
covenants and provisions. The bank has a first lien on all assets of the Company
including its intellectual property.
906583.4
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<PAGE>
Sepracor, the Company's largest shareholder, has guaranteed to repay amounts
borrowed under the line of credit. In exchange for the guarantee, the Company
granted to Sepracor warrants to purchase up to 1,700,000 shares of the Company's
Common Stock at a price of $0.69 per share. The warrants will expire in the year
2003 and have certain registration rights associated with them. HemaSure has
placed a value of $1,938,000 on the 1,700,000 warrants as of the date of the
final agreement and is amortizing this deferred financing charge on a monthly
basis over the term of the line of credit. The Company amortized $1,024,000 and
$189,000 of this deferred finance charge and recorded it as interest expense in
the Consolidated Statements of Operations for the periods ended December 31,
1999 and 1998, respectively.
In April 1997, the Company determined to focus management resources on its
core business of blood filtration technologies. In connection therewith, the
Company incurred a one-time restructuring charge of $1,215,000 in 1997 for
severance and related charges in connection with executive management
departures. At December 31, 1998 all amounts related to this charge were paid.
In March 1997, the Company exercised its right, under the lease arrangement
of its Marlborough, Massachusetts facility, to have a portion of its leasehold
improvements financed and received $140,000 in connection with this arrangement.
This amount will be repaid in 60 equal monthly installments at a rate of 12% per
annum. As of December 31, 1999, there was a balance of $73,000 remaining to be
paid on this note.
In January 1997, the Company entered into a Restructuring Agreement with
respect to the indebtedness incurred by the Company in connection with its
acquisition of the plasma pharmaceutical business unit of Novo Nordisk. Pursuant
to the Restructuring Agreement, approximately $23,000,000 of indebtedness owed
to Novo Nordisk was restructured by way of issuance by the Company to Novo
Nordisk of a 12% convertible subordinated promissory note in the principal
amount of approximately $11,700,000, which was due and payable on December 31,
2001, with interest payable quarterly (provided that up to approximately
$3,000,000 would be forgiven in certain circumstances). Approximately $8,500,000
of the reduction of such indebtedness was forgiven; such forgiveness is
reflected in the 1996 Statement of Operations as a reduction of the loss on
disposal of the discontinued plasma business. The remainder of the reduction
represented a net amount due from Novo Nordisk to the Company related to various
service arrangements between the two companies. The amount included in the
balance sheet at December 31, 1997 and 1996 includes the effect of the
Restructuring Agreement net of the $3,000,000 contingency amount to reflect the
most probable result of the Company's decision to exit the plasma business. All
amounts outstanding under such note were convertible by either party, commencing
January 1998, into shares of Common Stock at a conversion price equal to $10.50
per share. In December 1997, the Company's Danish subsidiary was placed in
bankruptcy and the Company notified the holder of the note of its intent to
convert in January 1998, $8,687,000 of debt, which it believes was the entire
amount outstanding as of the date of conversion. On January 6, 1998, the Company
converted the note, pursuant to its terms, into shares of Common Stock at a
conversion price of $10.50 per share, or 827,375 shares. The holder of the note
has contested the conversion of the note, including the forgiveness of the
$3,000,000 amount. The Company believes that such claims are without merit.
In 1994, in collaboration with Sepracor and certain of its other
subsidiaries, the Company executed an equipment leasing arrangement that
provided for a total of $2,000,000 to Sepracor and certain of its other
subsidiaries for purposes of financing capital equipment. Under certain
circumstances, Sepracor is the guarantor of any amounts outstanding under this
financing arrangement. In October 1996, the
906583.4
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<PAGE>
Company executed a replacement leasing arrangement for the benefit of the
Company only with the same leasing company providing $1,100,000 of equipment
lease financing. This arrangement terminated in March 1997. All amounts
outstanding under the 1994 leasing facility are being repaid under the original
terms of that leasing arrangement. There was $71,000 outstanding under all
leasing arrangements as of December 31, 1999.
Future Operating Results
Certain of the information contained in this Annual Report, including
information with respect to the development and commercialization of the
Company's products under development and the Company's other plans and strategy
for its business, consists of forward-looking statements. Important factors that
could cause actual results to differ materially from the forward-looking
statements include the following:
The Company believes that the performance of its blood-related products
will be competitive with products sold by other vendors of blood filtration and
transfusion products and may encounter significant competition in the sale of
such products from biotechnology, pharmaceutical and hospital supply companies.
In the leukoreduction field, several of the Company's competitors have
substantially greater resources, manufacturing and marketing capabilities,
research and production staffs, and production facilities than the Company.
Moreover, some of the Company's competitors are significantly larger than the
Company, have greater experience in preclinical testing, human clinical trials
and other regulatory approval procedures. In addition, many of the Company's
competitors have access to greater capital and other resources, may have
management personnel with more experience than that of the Company and may have
other advantages over the Company in conducting certain businesses and providing
certain services. There can be no assurance that the Company will be able to
compete effectively against such companies. The Company is a defendant in a
lawsuit brought by Pall regarding its LeukoNet System, which is no longer made
or sold by the Company. In addition, the Company and Gambro BCT filed a
complaint for declaratory relief against Pall in the United States District
Court of Colorado regarding six patents related to its r\LS System. Pall has
filed a complaint against the Company and Gambro BCT in the Eastern District of
New York alleging that the Company's r\LS System infringes one of Pall's
patents.
The Company believes, based on its current operating plan, that its
existing cash balances together with the financing provided in March 2000 will
be sufficient to fund the Company's operations beyond the first quarter 2001. If
the Company's plans or assumptions change, if the Company's assumptions prove to
be inaccurate or if the Company experiences unanticipated costs or competitive
pressures, it may seek to raise additional capital by pursuing strategic
partnerships, public or private equity and/or debt financing. If the Company
fails to generate such cash flow or obtain any such financing on terms favorable
to it or if other unforeseen circumstances occur, the Company may be unable to
continue to commercialize and market the r\LS System or complete the development
of the Company's proposed products and/or market such products successfully, or
to continue the Company's current operations as presently conducted, if at all,
beyond the first quarter 2001. 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.
The customers for the Company's potential products are a limited number of
national and regional blood centers, which collect, store and distribute blood
and blood products. In the United States, the American Red Cross collects and
distributes approximately 50% of the nation's supply of blood products.
906583.4
-31-
<PAGE>
Other major blood centers include the New York Blood Center, Blood Centers of
America, America's Blood Centers and United Blood Services, each of which
distributes 6% to 12% of the nation's supply of blood and blood products. In
Europe, various national blood transfusion services or Red Cross organizations
collect, store and distribute virtually all of their respective nation's blood
and blood products supply. The Company's principal competitors have
long-standing relationships with these blood centers and there can be no
assurance that the Company will be successful in marketing its products to these
centers.
In August 1998, the Company completed an amended and restated Master
Strategic Alliance Agreement with the American Red Cross BioMedical Services,
which provides for, among other things, the development and enhancement of a
number of filtration products, based on the Company's core technology including
red blood cell leukoreduction, leukocyte recovery, platelet filtration, whole
blood filtration and tumor cell filtration. Pursuant to the strategic alliance
agreement, the Company entered into a master purchase agreement with the
American Red Cross that provides for the sale of the r\LS System by the Company
to the American Red Cross on specified terms.
In 1998, the Company completed a distribution and development agreement,
which was amended in May 1999, with Gambro Inc. to act as the Company's
exclusive distributor of its r\LS System worldwide, except for sales to the
American Red Cross. Furthermore, this agreement provides that Gambro Inc. may
(upon mutual agreement by the Company and Gambro Inc.) distribute additional
future products developed by the Company that filter blood and its components.
In May 1999, the Company received 510(k) clearance from the FDA to market
its r\LS System in the United States. The Company initiated sales of the r\LS
System in the United States in the third quarter 1999. If the Company's
agreements with the American Red Cross are terminated, or not implemented, for
any reason, the Company's business, financial condition and results of
operations could be materially and adversely affected. If Gambro Inc. does not
successfully market and sell the Company's products or the distribution
agreement is terminated for any reason, the Company's business, financial
condition and results of operations could be materially and adversely affected.
All of the Company's other planned blood filtration and transfusion
products are in the research and development stage. The Company will be required
to conduct significant research, development, testing and regulatory compliance
activities on these products that, together with anticipated costs expenses,
could to result in additional losses through 2000. The Company's ability to
achieve a profitable level of operations will depend on successfully
implementing its supply and distribution agreements for its current product and
completing development, obtaining regulatory approvals and achieving market
acceptance of its other blood-related products.
Some or all of the Company's blood filtration and transfusion products may
require preclinical and clinical testing prior to submission of any regulatory
application for commercial use. The Company does not expect regulatory approval
for commercial sale in the United States of any of its other planned products
before the end of 2000.
To succeed in the implementation of the Company's business strategy, the
Company must implement effective planning and operating processes. In addition,
to manage anticipated growth, the Company must continue to expand and upgrade
core technologies, continue to implement and improve its operational, financial
and management information systems, and hire, train and retain additional
qualified
906583.4
-32-
<PAGE>
personnel. The Company has limited experience with the manufacture of our
products on a commercial scale. The Company's systems and procedures may not be
adequate to support its operations, and its management may not be able to
achieve the rapid execution necessary to exploit the market for its products and
services.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 8. Financial Statements and Supplementary Data
The financial statements filed as part of this Annual Report on Form 10-K
are provided under Item 14 below.
Item 9. Changes in and Disagreements on Accounting and Financial Disclosure
Not applicable.
906583.4
-33-
<PAGE>
PART III
Items 10-13.
The information required for Part III in this Annual Report on Form 10-K is
incorporated by reference from the Company's definitive proxy statement for the
Company's 2000 Annual Meeting of Stockholders. Such information will be
contained in the sections of such proxy statement captioned "Stock Ownership of
Certain Beneficial Owners and Management," "Election of Directors," "Board and
Committee Meetings," "Compensation for Directors," "Compensation for Executive
Officers" and "Certain Relationships and Related Transactions." Information
regarding executive officers of the Company is also furnished in Part I of this
Annual Report on Form 10-K under the heading "Executive Officers of the
Registrant."
906583.4
-34-
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
a (1) Financial Statements
HemaSure Inc. Consolidated Financial Statements as of
December 31, 1999 and for each of the three years in
the period ended December 31, 1999. See pages F-1
through F-7, which are included herein.
a (2) Financial Statement Schedules
All schedules are omitted because they are
inapplicable, not required or the information is
included in the consolidated financial statements or
the notes thereto.
a (3) Exhibits
The exhibits listed in the Exhibit Index immediately
preceding the exhibits are filed as part of this Annual
Report on Form 10-K.
(b) No Current Reports on Form 8-K were filed by the
Company during the last quarter of the period covered
by this report.
The following trademarks are mentioned in this Annual Report on Form 10-K:
HemaSure r/LS and LeukoNet.
906583.4
-35-
<PAGE>
HemaSure Inc.
<TABLE>
<CAPTION>
Index to Financial Statements Page
-----------------------------
<S> <C>
Report of Independent Accountants.......................................................................... F-2
Consolidated Balance Sheets at December 31, 1999 and 1998.................................................. F-3
Consolidated Statements of Operations for the Years
Ended December 31, 1999, 1998 and 1997..................................................................... F-4
Consolidated Statements of Stockholders' Equity (Deficit)
for the Years Ended December 31, 1999, 1998 and 1997....................................................... F-5
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1999, 1998 and 1997..................................................................... F-6
Notes to Consolidated Financial Statements................................................................. F-7
</TABLE>
906583.4
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of HemaSure Inc.:
In our opinion, the accompanying consolidated balance sheets
and the related consolidated statements of operations, stockholders' equity
(deficit) and cash flows present fairly, in all material respects, the financial
position of HemaSure Inc. at December 31, 1999 and 1998, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
February 4, 2000
except for Note Q for
which the date is
March 2, 2000
906583.4
F-2
<PAGE>
HemaSure Inc.
Consolidated Balance Sheets
December 31,
(In thousands, except par value amounts)
<TABLE>
<CAPTION>
ASSETS 1999 1998
---- ----
Current assets:
<S> <C> <C>
Cash and cash equivalents (Note B) $ 5,243 $ 1,827
Accounts receivable (Note D) 443 -
Inventories (Note E) 806 206
Deferred financing costs (Note H) 725 1,024
Prepaid expenses and other current assets 276 326
--------- ---------
Total current assets 7,493 3,383
Property and equipment, net (Note F) 1,547 1,505
Deferred financing costs long-term (Note H) - 725
Other assets 50 42
---------- ----------
Total assets $ 9,090 $ 5,655
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 1,199 $ 1,542
Accrued expenses (Note G) 1,520 1,549
Current portion of notes payable (Note H) 5,030 27
Current portion of capital lease obligations (Note G) 71 228
---------
Total current liabilities 7,820 3,346
Capital lease obligations (Note G) - 68
Notes payable (Note H) 43 5,073
Total liabilities 7,863 8,487
------- -------
Commitments and contingencies (Notes G, H and I) Stockholders' equity (deficit)
(Notes K and L):
Preferred stock, $0.01 par value, 1,000 shares authorized, none issued
and outstanding in 1999 and 1998
Common stock, $0.01 par value, authorized shares 35,000
in 1999, issued and outstanding
15,823 in 1999 and 9,088 in 1998 158 91
Additional paid-in capital 86,241 71,584
Accumulated deficit (85,172) (74,507)
-------- ---------
Total stockholders' equity (deficit) 1,227 (2,832)
----- ---------
Total liabilities and stockholders' equity (deficit) $ 9,090 $ 5,655
======= ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
906583.4
F-3
<PAGE>
HemaSure Inc.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year Ended December 31,
(In thousands, except per share amounts) 1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Revenue $ 805 $ 25 $ 2,357
Costs and expenses:
Cost of products sold 2,408 657 4,158
Research and development 2,681 3,794 3,577
Legal expense related to patents 1,361 3,340 506
Selling, general and administrative 3,728 4,201 4,458
Restructuring charge - - 1,215
------------- ------------- ---------
Total costs and expenses 10,178 11,992 13,914
--------- --------- --------
Loss from operations (9,373) (11,967) (11,557)
Other income (expense):
Interest income 201 169 577
Interest expense (1,493) (372) (1,401)
Other income - - 2,497
------------ ------------- --------
Net loss $(10,665) $(12,170) $ (9,884)
========= ========= =========
Net loss per share - basic and diluted: $ (0.77) $ (1.35) $ (1.22)
========== ========== ==========
Weighted average number of shares of common stock
outstanding - basic and diluted 13,766 9,025 8,127
</TABLE>
The accompanying notes are an integral part of the financial statements.
906583.4
F-4
<PAGE>
HemaSure Inc.
Consolidated Statements of Stockholders' Equity (Deficit)
Year ended
December 31, 1999, 1998
and 1997 (In thousands)
<TABLE>
<CAPTION>
Total
Additional Stockholders'
Common Stock Paid-in Unearned Accumulated Equity
Shares Amount Capital Compensation Other Deficit (Deficit)
-------- ------ --------- ------------ ----- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 8,098 $81 $60,702 $(398) $(3) $(52,453) $7,929
Issuance of common stock to
employees under stock plans 66 1 176 177
Unearned compensation amortization 309 309
Other 2 2
Net loss (9,884) (9,884)
--------- ------- -------- --------- ------------- -----------
Balance at December 31, 1997 8,164 82 60,878 (89) (1) (62,337) (1,467)
Issuance of common stock to
employees under stock plans 97 1 89 90
Issuance of common stock for debt 827 8 8,679 8,687
Issuance of warrants 1,938 1,938
Unearned compensation amortization 89 89
Other 1 1
Net loss (12,170) (12,170)
--------- ------- -------- --------- ------------- -----------
Balance at December 31, 1998 9,088 91 71,584 - - (74,507) (2,832)
Issuance of common stock to
employees under stock plans 404 4 813 817
Issuance of common stock
in private placements, net of
issuance costs of $93 6,331 63 13,844 13,907
Net loss (10,665) (10,665)
--------- ------- -------- --------- ------------- -----------
Balance at December 31, 1999 15,823 $ 158 $ 86,241 $ - $ - $ (85,172) $ 1,227
====== ========== ========== ============ =========== ============ ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
906583.4
F-5
<PAGE>
HemaSure Inc.
Consolidated Statements of Cash Flows
Year ended December 31,
(In thousands)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
Cash flows from operating activities:
<S> <C> <C> <C>
Net loss $(10,665) $ (12,170) $ (9,884)
Adjustments to reconcile net loss to net
cash used in operating activities:
Financing costs related to warrants 1,024 189 -
Impairment of assets - - 475
Depreciation and amortization 475 479 859
Accretion of marketable securities discount - 20 4
Loss on disposal of equipment - 5 -
Changes in operating assets and liabilities:
Net assets of discontinued business - - 500
Accounts receivable (443) 436 (153)
Inventories (600) (48) 218
Prepaid expenses and other current assets 50 21 33
Accounts payable (343) 666 (736)
Accrued expenses (29) (297) 273
Other assets (8) (10) 20
----------- ---------- ---------
Net cash used in operating activities (10,539) (10,709) (8,391)
-------- -------- -------
Cash flows from investing activities:
Purchases of marketable securities - (20,255) (99,752)
Maturities of marketable securities - 27,117 104,235
Unrealized holding loss of available for sale marketable securities - 1 2
Additions to property and equipment (517) (422) (220)
----- ----- -----
Net cash provided by (used in) investing activities (517) 6,441 4,265
----- ----- -----
Cash flows from financing activities:
Net proceeds from issuance of common stock 14,724 90 177
Borrowing from notes payable arrangements - 5,000 140
Repayment of notes payable (27) (9) (31)
Repayments of capital lease obligations (225) (260) (241)
------- ------ ------
Net cash provided by financing activities 14,472 4,821 45
------ ----- -------
Net (decrease) increase in cash and cash equivalents 3,416 553 (4,081)
Cash and cash equivalents at beginning of period 1,827 1,274 5,355
------- ------- -------
Cash and cash equivalents at end of period $5,243 $1,827 $1,274
====== ====== ======
Supplemental schedule of cash flow information:
Cash paid during the year for interest $ 453 $503 $1,072
Noncash investing and financing activities:
Acquisition of fixed assets financed by capital leases $ - $ - $ 38
Common stock issued for convertible subordinated note $ - $8,687 $ -
Value of warrants issued for guaranteed line of credit $ - $1,938 $ -
</TABLE>
The accompanying notes are an integral part of the financial statements.
906583.4
F-6
<PAGE>
HemaSure Inc.
Notes to Consolidated Financial Statements
A. THE COMPANY:
Nature of the Business
HemaSure Inc. (the "Company") is utilizing its proprietary filtration
technologies to develop products to increase the safety of donated blood and to
improve certain blood transfusion procedures. The Company's currently-marketed
blood filtration product ("r/LS System") is designed for use by blood centers
and hospital blood banks worldwide. From the Company's inception through the
first quarter of fiscal 1996, HemaSure had sold non-blood related filter
products primarily to Sepracor Inc. ("Sepracor"), a related party, for use in
chemical processing applications. Subsequently and throughout 1997, the
Company's revenue was derived from the commercial sales of its LeukoNet System,
a medical device designed for the removal of contaminating leukocytes from
donated blood. In February 1998, the Company determined to discontinue
manufacturing the LeukoNet System and focus on the completion of development and
market introduction of its next-generation red cell filtration product. In May
1999, the Company received 510(k) clearance from the U.S. Food and Drug
Administration ("FDA") to market its r/LS System in the United States. The
Company initiated sales of the r/LS System in the United States in the third
quarter 1999.
The Company is subject to risks common to companies in the medical
technology industry, including, but not limited to, development by the Company
or its competitors of new technological innovations, dependence on key
personnel, protection of proprietary technology, and compliance with regulations
of the FDA and similar foreign regulatory authorities and agencies.
Since its inception, the Company has suffered recurring losses from
operations and, as of December 31, 1999, had an accumulated deficit of $85.2
million. Other than the Company's r\LS System, all of its planned blood-related
products are in the research and development stage, and certain of these
products that the Company is currently developing may require pre-clinical and
clinical testing prior to submission of any regulatory application for
commercial use. The Company's success will depend on the commercial acceptance
of its r\LS System and the development and commercial acceptance of its other
planned blood-related products. The Company believes that the funds currently
available, including the funds raised in March 2000 (Note Q) will be sufficient
to fund operations through at least the next twelve months.
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Cash and Cash Equivalents
The Company considers all demand deposits, money market instruments and
repurchase agreements to be cash and cash equivalents. Cash equivalents of
$4,743,000 and $2,138,000 and at December 31, 1999 and 1998, respectively,
consist of repurchase agreements with a commercial bank. The carrying amount
approximates fair value because of the short maturity of those instruments.
Marketable Securities
Management determines the appropriate classification of its investments
in debt and equity securities at the time of purchase. The Company held no
marketable securities at December 31, 1999 and 1998.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market.
Property and Equipment
Property and equipment are stated at cost. Costs of major additions and
betterments are capitalized; maintenance and repairs, which do not improve or
extend the life of the respective assets, are charged to
906583.4
F-7
<PAGE>
operations. On disposal, the related cost and accumulated depreciation or
amortization is removed from the accounts and any resulting gain or loss is
included in the results of operations. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets. All
laboratory, manufacturing and office equipment have estimated useful lives of
three to 10 years.
Revenue Recognition
Revenues from product sales are recognized when goods are shipped.
Research and Development
Research and development costs are expensed in the year incurred.
Net Loss Per Share
The Company follows Statement of Financial Accounting Standards No.
128, "Earnings Per Share" ("SFAS 128"), which established standards for
computing and presenting earnings per share ("EPS"). Net loss per common share
is based on the weighted average number of shares of common stock outstanding
during each period. Potential common stock has not been included because the
effect would be antidilutive. The potential common stock of the Company consist
of common stock warrants (see Notes C and H), stock options (see Note L) and a
convertible subordinated note payable (see Note I). The Company had 4,757,000,
4,214,000 and 2,846,000 potential common stock shares as of December 31, 1999,
1998, and 1997, respectively. The convertible subordinated note was converted
into 827,375 shares of common stock of the Company in January 1998.
Income Taxes
Deferred income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities reflect the estimated future tax
consequences attributable to tax benefit carryforwards and to "temporary
differences" between amounts of assets and liabilities for financial reporting
purposes and such amounts as measured by tax laws. A valuation reserve is
established if it is more likely than not that all or a portion of the deferred
tax asset will not be realized.
Net operating losses of the Company incurred while operating as a
division of Sepracor are not available for carryforward because the Company's
results for those periods were included in the tax returns of Sepracor.
Additionally, based upon the Internal Revenue Code and changes in company
ownership, utilization of the Company's net operating loss may be subject to an
annual limitation.
Comprehensive Income
For all periods presented, net income and comprehensive income are the
same due to the realization of all previously unrealized gains and losses in the
statement of operations.
New Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for
Derivative Instruments and Hedging Activities." This statement establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively referred to as
"derivatives"), and for hedging activities. The statement requires companies to
recognize all derivatives as either assets or liabilities, with the instruments
measured at fair value. The accounting for changes in fair value, gains or
losses depends on the intended use of the derivative and its resulting
designation. The statement is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000. The Company does not expect such adoption to have
a material impact on its financial statements.
In December 1999, the Commission issued Staff Accounting Bulletin No.
101 ("SAB 101"), "Revenue Recognition in Financial Statements," which is
effective no later than the quarter ending June 30, 2000. SAB 101
906583.4
F-8
<PAGE>
clarifies the Commission's views related to revenue recognition and disclosure.
The Company will adopt SAB 101 in the second quarter of 2000 and is presently
determining the effect it will have on the Company's financial statements,
although management does not believe the effect will be material.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at December 31, 1999 and 1998
and the reported amounts of revenues and expenses during the years ended
December 31, 1999, 1998 and 1997. Actual results could differ from those
estimates.
C. AGREEMENTS WITH SEPRACOR:
The Company was formerly a wholly-owned subsidiary of Sepracor. As of
January 31, 2000, Sepracor owned 27% of the common stock, $.01 par value, of the
Company (the"Common Stock").
Under a Technology Transfer and License Agreement, Sepracor transferred
to the Company all technology owned or controlled by Sepracor, including trade
secrets, patents and patent applications, that relates to and is used in
researching, developing or manufacturing products in the Company Field as
defined in the agreement. Further, Sepracor granted an exclusive license to the
Company for any improvements to the transferred technology, which were
developed, or otherwise acquired, by Sepracor during the period beginning on the
date of the Technology Transfer and License Agreement and terminating on the
earlier of January 1, 1998 or the acquisition of Sepracor or the Company (the
"Effective Period"). The Company granted to Sepracor an exclusive license to the
transferred technology for the development, manufacture, use or sale of any
products within the field of chiral synthesis, chiral separations and the
development, manufacture, use or sale of chiral drugs and chiral drug
intermediates, as well as a non-exclusive license to the transferred technology
for the development, manufacture, use or sale of any products outside of the
Company Field. All licenses were royalty-free. Sepracor also granted the Company
a right of first refusal to any product, which Sepracor proposed to sell, or
license a third party to sell during the Effective Period, for use within the
Company Field.
In addition, beginning in April 1998, Sepracor was entitled to certain
rights with respect to the registration under the Securities Act of 1933, as
amended, of a total of 3,000,000 shares of common stock related to the
technology transfer and establishment of the Company in 1993. These rights
provide that Sepracor may require the Company, on two occasions, to register
shares having an aggregate offering price of at least $5,000,000, subject to
certain conditions and limitations.
In September 1998, the Company obtained a $5 million revolving line of
credit arrangement with a commercial bank. Sepracor has guaranteed repayment of
amounts borrowed under the line of credit. In exchange for the guarantee, the
Company granted to Sepracor warrants to purchase up to 1,700,000 shares of the
Company's common stock at a price of $0.69 per share. The warrants will expire
in the year 2003 and have certain registration rights associated with them. (See
Note H)
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 the Company's common stock 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, the Company is entitled to require Sepracor to exercise
these warrants.
D. ACCOUNTS RECEIVABLE:
The Company's 1999 and 1998 trade receivables primarily represent
amounts due for product sales. The allowance for doubtful accounts was $5,000
and $7,000 at December 31, 1999 and 1998, respectively.
The Company performs ongoing credit evaluations of its customers and
generally does not require collateral.
906583.4
F-9
<PAGE>
E. INVENTORIES:
Inventories consist of the following at December 31:
(In thousands) 1999 1998
---- ----
Raw materials $ 393 $ 206
Work in Progress 401 -
Finished goods 12 -
-------- ----------
$ 806 $ 206
======== ==========
F. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31:
<TABLE>
<CAPTION>
(In thousands) 1999 1998
---- ----
<S> <C> <C>
Laboratory and manufacturing equipment $ 1,479 $ 874
Leased laboratory and manufacturing equipment 505 505
Office equipment 858 759
Leasehold improvements 772 766
-------
3,614 2,904
Accumulated depreciation and amortization (2,324) (1,849)
-------
1,290 1,055
Construction in progress 257 450
--------
$ 1,547 $ 1,505
======== ========
</TABLE>
Depreciation and amortization expense was $475,000, $391,000 and
$548,000, in 1999, 1998 and 1997, respectively. In conjunction with its
determination to discontinue manufacture of the LeukoNet System in February
1998, a provision for impairment of $475,000 for manufacturing and related
assets was recorded for the period ended December 31, 1997.
Accumulated amortization of assets under lease was $106,000 and
$395,000 as of December 31, 1999 and 1998, respectively.
906583.4
F-10
<PAGE>
G. ACCRUED EXPENSES AND COMMITMENTS AND CONTINGENCIES:
Accrued expenses consist of the following at December 31:
(In thousands) 1999 1998
---- ----
Compensation $ 189 $ 43
Professional fees 155 104
Interest on notes payable 41 26
Customer refunds 175 175
Services 678 750
Miscellaneous 282 451
====== =======
$1,520 $1,549
====== ======
Lease Obligations
The Company leased certain laboratory, research and office space from
Sepracor through 1995. In 1995, the Company executed a lease for these facility
requirements, which commenced in February 1996 and extends through February
2004. The lease provides for two five-year renewal options. Under the terms of
the lease, the Company is required to pay its allocated share of taxes and
operating costs in addition to the base annual rent.
In 1994, the Company, in collaboration with Sepracor and certain of its
other subsidiaries, executed an equipment leasing arrangement that provided for
a total of $2,000,000 to these companies for purposes of financing capital
equipment. In October 1996, the Company executed a separate follow-on equipment
leasing arrangement that provided $1,100,000 of equipment financing through
March 31, 1997. The Company has leased various laboratory, manufacturing and
computer equipment under noncancelable capital leases. Terms of arrangements
with the leasing company contain bargain purchase provisions at the expiration
of the lease term, which range from 36 months to 42 months. In some instances,
the Company is required to make a deposit of 20% of the original equipment cost,
which earns interest at an annual rate of 4%. As of December 31, 1999 the
Company had $68,000 on deposit at the leasing company under this leasing
arrangement. Under certain circumstances, Sepracor is the guarantor of debt
incurred to acquire equipment under the leasing facilities. The interest rate
charged on the Company's capital leases ranges from 14% to 21%.
906583.4
F-11
<PAGE>
Future minimum payments under all noncancelable leases in effect at
December 31, 1999 are as follows:
<TABLE>
<CAPTION>
(In thousands) Operating Capital
Year Leases Leases
- ---- ------ ------
<S> <C> <C>
2000 $ 236 $ 74
2001 236 -
2002 236 -
2003 236 -
2004 20 -
------- ---------
Total minimum lease payments $ 964 74
------ --------
Less amount representing interest 3
Present value of minimum lease payments $ 71
=======
</TABLE>
Based on the borrowing rates currently available to the Company for capital
leases with similar terms and average maturities, the fair value of capital
leases approximates the carrying value.
The total charged to rent expense for all noncancelable leases
including amounts for building maintenance, utilities and other operating costs
was $660,000, $833,000, and $803,000, in 1999, 1998, and 1997, respectively.
In December 1999, the Company entered into an exclusive five-year
manufacturing and supply agreement with a major supplier of a component to the
Company's product. The agreement contains minimum purchase requirements in
future years, which if not met could require the Company to purchase certain
production equipment of the supplier as defined in the agreement. The supplier,
under certain conditions, will acquire such equipment during fiscal years 2000
and 2001. The agreement also contains provisions under which the agreement could
become non-exclusive under certain conditions as defined in the agreement and
for extensions of the term of the agreement.
H. NOTES PAYABLE
Notes payable consist of the following at December 31:
(In thousands) 1999 1998
---- ----
Leasehold improvements financing $ 73 $ 100
Revolving line of credit 5,000 5,000
----- -----
5,073 5,100
Less current portion 5,030 27
----- -------
$ 43 $ 5,073
======= =======
In March 1997, the Company exercised its right, under the lease, to
have a portion of its leasehold improvements financed and received $140,000 in
connection with this arrangement. This amount will be repaid in 60 equal monthly
installments with an interest rate of 12% per annum.
In September 1998, the Company completed a $5 million revolving line of
credit arrangement with a commercial bank. As of December 31, 1999, the entire
$5 million was outstanding under the line. The revolving line of credit, which
expires in August 2000, is being used to help finance the Company's working
capital requirements and for general corporate purposes. Amounts borrowed under
the line bear interest at the bank's prime lending rate plus 1/2% payable
monthly in arrears. The weighted average borrowing rate for the period ended
December 31, 1999 was 8.67%. For the period ended December 31, 1999, the Company
recorded interest expense related to borrowings under the line of $434,000. The
credit agreement contains customary covenants and provisions. The bank has a
first lien on all assets of the Company including its intellectual property.
906583.4
F-12
<PAGE>
Sepracor, the Company's largest shareholder, has guaranteed to repay
amounts borrowed under the line of credit. In exchange for the guarantee, the
Company granted to Sepracor warrants to purchase up to 1,700,000 shares of the
Company's common stock at a price of $0.69 per share. The warrants will expire
in the year 2003 and have certain registration rights associated with them.
HemaSure has placed a value of $1,938,000 on the 1,700,000 warrants as of the
date of the final agreement and is amortizing this deferred financing charge on
a monthly basis over the term of the line of credit. For the periods ended
December 31, 1999 and 1998 the Company amortized $1,024,000 and $189,000,
respectively, of this deferred finance charge and recorded it as interest
expense in the Statement of Operations.
I. CONVERTIBLE SUBORDINATED NOTE PAYABLE
In May 1996, the Company acquired the plasma product unit of Novo
Nordisk A/S, a Denmark corporation ("Novo Nordisk"), through its Danish
subsidiary, HemaSure A/S (the "Denmark Acquisition"). The purchase price for the
transaction was comprised of a combination of promissory notes, convertible
subordinated notes (which would convert to common stock of the Company or a
subsidiary of the Company) and additional consideration payable in 1998 in cash
or stock, at the option of the Company, which would not be paid in certain
events. On February 20, 1997, the Company's board of directors voted to
discontinue the development and operation of the Danish Plasma Business,
retroactive to December 31, 1996.
In January 1997, the Company entered into a Restructuring Agreement of
the debt related to the Denmark Acquisition. Pursuant to the Restructuring
Agreement, approximately $23,000,000 of indebtedness owed to Novo Nordisk was
restructured by way of issuance by the Company to Novo Nordisk of a 12%
convertible subordinated promissory note in the principal amount of
approximately $11,700,000, which was due and payable on December 31, 2001, with
interest payable quarterly (provided that up to approximately $3,000,000 would
be forgiven in certain circumstances). Approximately $8,500,000 of the reduction
of such indebtedness was forgiven. The remainder of the reduction represented a
net amount due from Novo Nordisk to the Company related to various service
arrangements between the two companies. The amount included in the balance sheet
at December 31, 1997 included the effect of the Restructuring Agreement net of
the $3,000,000 contingency amount to reflect the most probable result of the
Company's decision to exit the plasma business. In December 1997, the Company
notified the holder of the note of its intent to convert in January 1998
$8,687,000 of debt, which it believes was the entire amount outstanding as of
the date of conversion. On January 6, 1998, the Company converted the note,
pursuant to its terms, into shares of common stock at a conversion price of
$10.50 per share, or 827,375 shares. The holder of the note has contested the
conversion of the note, including the forgiveness of the $3,000,000 amount. The
Company believes that such assertions are without merit.
J. SEGMENT INFORMATION
The Company operates exclusively in the blood filtration business,
which the Company considers to be one business segment.
Revenue from significant unaffiliated customers are as follows:
Year Ended December 31: 1999 1998 1997
---- ---- ----
Customer A. 66% 53% 86%
Customer B. 33% - -
Customer C. - 10% -
K. STOCKHOLDERS' EQUITY (DEFICIT)
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 the Company's common stock 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, the Company is entitled to require Sepracor to exercise
these warrants.
906583.4
F-13
<PAGE>
On May 3, 1999, the Company completed a private placement financing
with Gambro Inc ("Gambro"). The stock subscription agreement, which the Company
entered into with Gambro Inc. in connection with this financing, provided for an
initial investment of $9,000,000 in exchange for 4,500,000 shares of the Company
common stock. The stock subscription agreement also provided Gambro Inc. with an
option to purchase additional shares of the Company's common stock for up to an
aggregate purchase price of $3,000,000 at any time between August 3, 1999 and
May 3, 2000 with the price per share of common stock to be based upon the market
price of the Company's common stock. In October 1999, Gambro Inc. exercised this
option in full. In connection with the exercise of this option, Gambro Inc.
purchased 498,355 shares at a price of $6.02 per share. The price and number of
shares reflected the average price of the Company's stock in the 30 days prior
to the exercise date of October 5, 1999.
L. STOCK OPTION PLANS
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS No. 123"), encourages, but does not require
companies to record compensation cost for stock-based employee compensation
plans at fair value. The Company has chosen to continue to account for
stock-based compensation using the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations. Accordingly, compensation cost for
stock options is measured as the excess, if any, of the quoted market price of
the Company's stock at the date of the grant over the amount an employee must
pay to acquire the stock.
The Company has two stock options plans currently in effect under which
future grants may be issued: the 1994 Stock Option Plan, as amended, and the
1994 Director Option Plan, as amended (collectively, the "Plans"). A total of
3,000,000 shares have been authorized by the Company for grants of options or
shares, of which 155,000 are still available for grant. Stock options granted
during 1999 and 1998 generally have a maximum term of ten years and vest ratably
over a period of two to five years.
906583.4
F-14
<PAGE>
A summary of the Company's stock option activity for the years ended
December 31 follows:
<TABLE>
<CAPTION>
Number of Options Weighted Average
(In thousands) Exercise Price
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Outstanding at December 31, 1996 2,373 $ 9.24
Granted 1,262 $ 3.02
Exercised (24) $ 2.25
Terminated (1,592) $12.06
-------
Outstanding at December 31, 1997 2,019 $ 3.25
Granted 2,029 $ 0.72
Exercised - -
Terminated (1,534) $ 3.06
-------
Outstanding at December 31, 1998 2,514 $ 1.31
Granted 302 $ 5.27
Exercised (363) $ 2.02
Terminated (63) $ 0.94
----
Outstanding at December 31, 1999 2,390 $ 1.72
===== =======
</TABLE>
The following table summarizes the status of the Company's stock options at
December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- -------------------------------------------------------------------------------------------------------------------------
Weighted Weighted Number
Number Average Average Exercisable Weighted
Outstanding As Remaining Exercise As of Average
Of 12/31/99 Contractual Price 12/31/99 Exercise
Range of Exercise Prices (In thousands) Life (In thousands) Price
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ .63 - $ .94 1,581 8.1 $ .64 408 $ .65
$ 1.25 - $ 1.75 294 8.5 $ 1.28 65 $ 1.34
$ 2.00 - $ 3.50 183 4.9 $ 2.54 138 $ 2.25
$ 3.88 - $ 5.94 284 9.6 $ 5.51 5 $ 5.50
$ 12.38 - $ 16.25 48 6.3 $14.74 40 $ 15.17
------ --- ----- --- -------
2,390 8.0 $ 1.72 656 $ 1.98
</TABLE>
The weighted average grant date fair value for options granted during
1999, 1998 and 1997 was $3.57, $0.49 and $2.04 per option, respectively. The
fair value of these options at date of grant was estimated using the Black-
Scholes model with the following weighted average assumptions for 1999, 1998 and
1997: risk-free interest rate of 5.5%; dividend yields of 0%; volatility factor
of the market price of the Company's common stock of 75%; and a weighted average
expected life of the options of 5.5 years.
During 1994 and prior to the Company's initial public offering, options
to purchase 482,000 shares of common stock were granted under the Plans at an
exercise price of $2.00 per share. The estimated fair market value on the date
of grant was $4.00 per share. The Company recorded compensation expense of
$89,000 and $309,000 in 1998 and 1997, respectively, related to these options.
In January 1998, the Company adopted a one time stock option exchange
program. Upon employee consent, the program provides for the grant to each
employee of a new stock option in exchange for the cancellation of the old stock
option. The new stock option, granted at fair market value at date of issuance,
will become exercisable for a number of shares of common stock equal to the
number of shares covered by the old stock option.
906583.4
F-15
<PAGE>
In 1995, the Company adopted the 1995 Employee Stock Purchase Plan (the
"Stock Purchase Plan"). Under the Stock Purchase Plan, an aggregate of 500,000
shares of common stock may be purchased by employees at 85% of market value on
the first or last day of each six -month offering period, whichever is lower,
through accumulation of payroll deductions ranging from 1% to 10% of
compensation as defined, subject to certain limitations. Options were exercised
to purchase 41,071 shares for a total of $117,000 during the year ended December
31, 1999 and 96,695 shares for a total of $88,000 during the year ended December
31, 1998. At December 31, 1999, 291,397 shares of common stock were reserved for
future issuance under the plan.
Had compensation cost for the Company's stock option plans been
determined based on the fair value at the grant date for awards in 1999, 1998
and 1997 consistent with the provisions of SFAS No. 123, the Company's net loss
and net loss per share would have been reduced to the pro forma amounts
indicated below. The application of SFAS No. 123 to the employee stock purchase
plan would not result in a significant difference from reported net income and
earnings per share.
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net loss - as reported $(10,665) $ (12,170) $ (9,884)
Net loss - pro forma $(11,274) $ (12,610) $(10,415)
Net loss per share - as reported - basic and diluted $ (0.77) $ (1.35) $ (1.22)
Net loss per share - pro forma - basic and diluted $ (0.82) $ (1.40) $ (1.28)
</TABLE>
The pro forma effect on net income for 1999, 1998 and 1997 is not
representative of the pro forma effect on net income in future years because it
does not take into consideration pro forma compensation expense related to
grants made prior to 1995 or anticipated future option activity.
In connection with the initial public offering, the Company granted to
the underwriter an option to purchase 217,500 shares of common stock at an
exercise price equal to 150% of the initial public offering price or $10.50 and
subject to adjustment in certain circumstances. The option was exercisable at
any time or from time to time after April 14, 1995 and before April 14, 1999.
The option was not exercised.
906583.4
F-16
<PAGE>
M. INCOME TAXES
The components of the Company's deferred tax assets and liabilities are
as follows at December 31:
<TABLE>
<CAPTION>
(In thousands) 1999 1998
---- ----
Deferred taxes:
<S> <C> <C>
Net operating loss carryforwards $31,315 $21,463
Research and development expense capitalization 4,392 3,892
Tax credit carryforwards 1,235 999
Inventory reserves 20 43
Deferred compensation 285 284
Accrued charges not paid 512 466
Other 7 21
Property and equipment 1 (16)
-----------
37,767 27,152
Valuation allowance (37,767) (27,152)
-------- --------
Net deferred taxes $ - $ -
=========== ===========
</TABLE>
Due to the uncertainty surrounding the realization of the favorable tax
attributes in future tax returns, the Company has placed a valuation allowance
against its otherwise recognizable net deferred tax assets.
The Company's statutory and effective tax rates were 34% and 0%,
respectively, for 1999, 1998 and 1997. The effective tax rate was 0% due to a
net operating loss and the non-recognition of any net deferred tax asset. At
December 31, 1999, the Company had federal and state tax net operating loss
carryforwards ("NOLs") of approximately $73,000,000 and $67,000,000,
respectively, to offset future regular taxable earnings. The federal and state
NOLs begin to expire in 2009 and 2000. Approximately $4,000,000 of state NOLs
expired in 1999. The Company has research and development tax credits of
approximately $690,000 and $520,000, respectively, which both begin to expire in
2009. The Company has a state investment tax credit carryforward of
approximately $20,000, which begins to expire in 2000.
N. AGREEMENTS
In July 1999, the Company entered into a master purchase agreement with
the American Red Cross that provides for the sale of the r\LS System by the
Company to the American Red Cross on specified terms. The master purchase
agreement provides for a thirty-eight month term expiring on August 31, 2002,
subject to, among other things, earlier termination by the American Red Cross in
certain circumstances. Under the master purchase agreement, the American Red
Cross is required to purchase specified minimum annual quantities of the r\LS
System, subject to certain terms and conditions. The term of the master purchase
agreement may be extended by one year in certain circumstances if the American
Red Cross fails to meet its minimum purchase obligation in the third year of the
agreement.
In August 1998, the Company completed an amended and restated Master
Strategic Alliance Agreement with the American Red Cross BioMedical Services,
which provides for, among other things, the development and enhancement of a
number of filtration products, based on the Company's core technology. The
agreement has a term of five years, unless previously terminated, and can be
renewed or extended. In connection with this agreement, the American Red Cross
is eligible to receive warrants to purchase common stock of the Company up to a
maximum of 400,000 shares based on certain milestones and at a price of $1.51
per share, as determined at the date of this agreement.
In 1998, the Company completed a distribution and development
agreement, which was amended in May 1999, with Gambro Inc. to act as the
Company's exclusive distributor of the Company's r\LS System worldwide, except
for sales to the American Red Cross. Under the amended distribution and
development agreement, Gambro Inc. is required to purchase specified minimum
annual quantities of the r\LS System, subject to certain terms and conditions.
Furthermore, this agreement provides that Gambro Inc. may, upon mutual agreement
by the Company and Gambro Inc., distribute additional future products developed
by us that filter blood and its
906583.4
F-17
<PAGE>
components. The distribution agreement provides for a five-year term that
expires in June 2004, subject to automatic three-year renewals unless the
agreement is previously terminated.
O. EMPLOYEES' SAVINGS PLAN
The Company has a 401(k) plan for all employees. Under the provisions
of the plan, employees may voluntarily contribute up to 15% of their
compensation subject to statutory limitations. In addition, the Company can make
a matching contribution at its discretion. In 1999, 1998 and 1997, the Company
provided matching contributions of approximately $40,000, $0, and $34,000,
respectively.
P. LITIGATION
The Company is a defendant in a lawsuit brought by Pall Corporation
("Pall") regarding the LeukoNet System, which is no longer made or sold by the
Company. In a complaint filed in November 1996, Pall alleged that the
manufacture, use and/or sale of the LeukoNet System infringed upon two patents
held by Pall. Pall dropped its allegations concerning infringement of one of the
patents and alleges only that the LeukoNet System infringed Pall's U.S. Patent
No. 4,952,572 (the "'572 Patent").
With respect to the allegations concerning the '572 Patent, the Company
answered the complaint stating that the LeukoNet System does not infringe any
claim of the asserted patents. Further, the Company counterclaimed for
declaratory judgment of invalidity, noninfringement and unenforceability of the
'572 Patent. Pall amended its complaint to add Lydall, Inc., whose subsidiary
supplied the filter media for the LeukoNet System, as a co-defendant. The
Company filed for summary judgment of non-infringement, and Pall cross-filed for
summary judgement of infringement at the same time. Lydall, Inc. supported the
Company's motion for summary judgment of non- infringement, and 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. The court has not
acted on the summary judgment motions.
The Company and Gambro BCT filed a complaint for declaratory relief
against Pall in the United States District Court of Colorado. The Company and
Gambro BCT seek declaratory relief that the '572 Patent, Pall's U.S. Patent No.
5,451,321 ("'321 Patent") and Pall's U.S. Patent Nos. 5,229,012, 5,344,561,
5,501,795 and 5,863,436 are invalid and not infringed by the Company's r\LS
System and methods of using the r\LS System. Pall moved to dismiss or transfer
to the Eastern District of New York or, in the alternative, to stay this action.
The Company and Gambro BCT opposed Pall's motion. On July 16, 1999, the United
States District Court of Colorado denied Pall's motion to transfer or, in the
alternative, to stay the action, and the action is proceeding. On September 30,
1999, the Court denied Pall's motion to dismiss the action and the case is
proceeding. Pall submitted a counterclaim alleging that the r\LS System
infringes the'572 patent and that the Company and Gambro BCT tortiously
interfered and unfairly competed with Pall's business. Pall has also asserted
that the r\LS System infringes one or more of the other patents that are the
subject of the lawsuit.
On April 23, 1999, Pall filed a complaint against the Company and
Gambro BCT in the Eastern District of New York alleging that the r\LS System
infringes the '572 Patent and that the Company and Gambro BCT tortiously
interfered and unfairly competed with Pall's business. On May 19, 1999, Pall
amended its complaint and added Gambro Inc., Gambro A.B., a Swedish company, of
which Gambro Inc. is a business unit, and Sepracor as defendants. The Company
and Gambro BCT have moved to dismiss, transfer or stay the action and Pall has
opposed the motion. There has been no decision on the motion.
The Company has engaged patent counsel to investigate the pending
litigations. The Company believes, based upon its review of these matters, that
a properly informed court should conclude that the manufacture, use and/or sale
by the Company or its customers of the LeukoNet System and the r\LS System 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 and
adverse effect on the Company's financial condition and future business and
operations, including the possibility of significant damages in the litigations
and an injunction against the sale of the r\LS System if the Company does not
prevail in the litigations.
906583.4
F-18
<PAGE>
A prior lawsuit brought by Pall in February 1996 has concluded. In June
1999, the United States Court of Appeals for the Federal Circuit determined that
the LeukoNet System did not infringe claim 39 of the '321 Patent and Pall has
not appealed that decision.
Q. SUBSEQUENT EVENT
In March 2000, the Company completed a $28,000,000 private placement in
which institutional investors purchased 3,730,000 shares of its common stock at
a purchase price of $7.50 per share. The Company has agreed to register, prior
to June 2, 2000, 2,551,320 of such shares for resale. The Company intends to use
the proceeds of the private placement for working capital, capital equipment and
general corporate purposes.
The Company entered into an agreement with Command effective January
31, 2000 that provides for Command, on a non-exclusive basis, to (i) act as its
manufacturer and supplier of dry bags used in its r\LS System and (ii) assemble
the filters used in its r\LS System, subject to certain terms and conditions.
The agreement has a term of three years, subject to an automatic one-year
extension in the event the Company fails to purchase a specified number of
products by the third year and, also, upon the mutual agreement by the Company
and Command. Thereafter, the agreement will be subject to automatic one-year
renewals unless the agreement is previously terminated.
Under the agreement, the Company is required to purchase a minimum
number of dry bags used in its r\LS System and assembly requirements of the
filters used in its r\LS System, in each case at agreed upon prices. Pursuant to
the agreement, pricing is fixed for the first three years, subject to the risk
of price fluctuations in respect of raw materials, overhead and labor. Under the
Company's supply and assembly agreement with Command, the Company is obligated
to provide to Command 90 days before each year of the supply and assembly
agreement forecasts for anticipated purchases of the dry bags and assembly
requirements for the upcoming 12-month period.
906583.4
F-19
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 30th day of
March, 2000.
HEMASURE INC.
By: /s/ John F. McGuire, III
-------------------------
John F. McGuire, III
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ John F. McGuire, III President, Chief Executive March 30, 2000
- ---------------------------
John F. McGuire, III Officer and Director (Principal
Executive Officer)
/s/ James B. Murphy Senior Vice President, Finance March 30, 2000
- ---------------------------
James B. Murphy and Administration (Principal
Financial Officer)
/s/ Timothy J. Barberich Director March 30, 2000
- ---------------------------
Timothy J. Barberich
/s/ David S. Barlow Director March 30, 2000
- ---------------------------
David S. Barlow
/s/ Frank Corbin Director March 30, 2000
- ---------------------------
Frank Corbin
/s/ Justin E. Doheny Director March 30, 2000
- ---------------------------
Justin E. Doheny
/s/ Edward C. Wood Director March 30, 2000
- ---------------------------
Edward C. Wood
</TABLE>
906583.4
S-1
<PAGE>
EXHIBIT INDEX
The following exhibits are filed as part of this Annual Report on Form 10-K:
<TABLE>
<CAPTION>
Exhibit No. Description
---------- -----------
<S> <C>
2.1(6) 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(9) Registration Rights Agreement, dated January 23, 1997, by and among the
Company and Novo Nordisk A/S
4.3(10) Registration Rights Agreement, dated as of September 15, 1998, between the
Company and Sepracor.
4.4(11) Warrant Agreement, dated as of September 15, 1998,
between the Company and Sepracor.
4.5(11) Warrant Certificate, dated as of September 15, 1998,
between the Company and Sepracor.
4.6(13) Registration Rights Agreement, dated as of March 23, 1999, between the
Company and Sepracor.
4.7(13) Warrant Agreement, dated as of March 23, 1999, between the Company and
Sepracor.
4.8(13) Warrant Certificate, dated as of March 23, 1999, between the Company and
Sepracor.
4.9(14) Stock Subscription Agreement, dated as of May 3, 1999, between the Company
and COBE.
4.10(14) Stockholder's Agreement, dated as of May 3, 1999, between the Company and
COBE.
10.1(9) 1994 Stock Option Plan, as amended.
10.2(9) 1994 Director Option Plan.
10.3(1) Form of Technology Transfer and License Agreement between the Company and
Sepracor Inc.
10.4(6) Lease Agreement for 140 Locke Drive, Marlborough, MA,
dated as of November 1995, between the Company and
First Marlboro Development Trust.
10.5(4) Employment Agreement between the Company and Dr. Hans
Heiniger, dated January 10, 1994.
935681.2
<PAGE>
10.6(7) Asset Purchase Agreement dated as of May 2, 1996
between the Company, HemaPharm Inc., HemaSure A/S and
Novo Nordisk A/S.
10.7(8) Restructuring Agreement, dated January 23, 1997,
between the Company, HemaPharm Inc., HemaSure A/S and
Novo Nordisk A/S.
10.8(9) Convertible Subordinated Note Due December 31, 2001 in
the amount of U.S. $11,721,989, issued by the Company
to Novo Nordisk A/S, dated January 23, 1997.
10.9(9) Amendment to the Company's 1994 Director Option Plan, dated June 25, 1996.
10.10(9) Amendment to the Company's 1994 Director Option Plan, effective as of May 16,
1996.
10.11(9) Amendment to the Company's 1994 Stock Option Plan, dated June 25, 1996.
10.12(9) Amendment to the Company's 1994 Stock Option Plan, effective as of May 16,
1996.
10.13(9) Sublease Agreement, between the Company and Novo
Nordisk A/S, dated May 2, 1996, for the Premises
(Denmark), as amended.
10.14(9) Sublease Agreement between the Company and Novo
Nordisk A/S, dated May 2, 1996, for the Warehouse
(Denmark), as amended.
10.15(12) Employment Agreement between the Company and John F. McGuire, dated April
1, 1997.
10.16(12) Settlement Agreement, dated September 1997, by and among the Company,
HemaSure AB, HemaPharm Inc., Pharmacia & Upjohn Inc. and Pharmacia &
Upjohn AB.
10.17(10) 1995 Employee Stock Purchase Plan, as amended.
10.18(11) Revolving Credit and Security Agreement, dated as of September 15, 1998,
between the Company and Fleet National Bank.
10.19(11) Intellectual Property Security Agreement, dated as of September 15, 1998,
between the Company and Fleet National Bank.
10.20(11) Promissory Note, dated as of September 15, 1998, made by the Company in
favor of Fleet National Bank.
10.21(11) Amended and Restated Master Strategic Alliance Agreement between the
Company and the American Red Cross.
10.22(14) Senior Management Retention Agreement, dated as of December 7, 1998, between
the Company and John F. McGuire.
10.23(14) Senior Management Retention Agreement, dated as of December 15, 1998,
between the Company and James B. Murphy.
10.24(14) Senior Management Retention Agreement, dated as of December 22, 1998,
between the Company and Peter C. Sutcliffe.
935681.2
<PAGE>
10.25(13) Securities Purchase Agreement, dated as of March 23, 1999, between the
Company and Sepracor.
10.26(14 Amended and Restated Exclusive Distribution Agreement,
dated as of May 3, 1999, between the Company and COBE.
10.27(15) Master Purchase Agreement, dated as of July 1, 1999, between the Company and
The American National Red Cross.
10.28 Manufacturing and Supply Agreement, dated as of December 22, 1999, between
the Company and Filtertek Inc.
10.29 Supply and Assembly Agreement, dated as of January 31, 2000, between the
Company and Command Medical Products Inc.
10.30 Placement Agency Agreement, dated February 3, 2000, between the Company
and Warburg Dillon Read LLC.
10.31 Form of Purchase Agreement, dated March 2, 2000.
10.32 Schedule of purchasers which purchased shares of common stock pursuant to the
Form of Purchase Agreement set forth in 10.42.
21.1(12) Subsidiaries of the Company.
23.1 Consent of PricewaterhouseCoopers LLP
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, 1994.
(3) Incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1995.
(4) Incorporated herein by reference to the Company's Registration Statement on Form S-1, as
amended (File No. 33-95540).
(5) Incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1994.
(6) Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year
ended December 31, 1995.
(7) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1996.
(8) Incorporated by reference to the Company's Current Report on Form 8-K filed with the
Securities and Exchange Commission on February 27, 1997.
935681.2
<PAGE>
(9) Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended
December 31, 1996.
(10) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1998.
(11) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1998.
(12) Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended
December 31, 1997.
(13) Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended
December 31, 1998.
(14) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1999.
(15) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1999.
+ Confidential treatment requested as to certain portions.
</TABLE>
935681.2
Exhibit 10.28
MANUFACTURING AND SUPPLY AGREEMENT
WITNESSETH, THIS MANUFACTURING AND SUPPLY AGREEMENT (the
"Agreement") entered into effective as of the 22nd day of December, 1999
("Effective Date"), by and between FILTERTEK INC., a Delaware corporation with
an office and principal place of business at 11411 Price Road, Hebron, IL 60034
("Filtertek"); and HEMASURE INC., a Delaware corporation with an office and
principal place of business at 140 Locke Drive, Marlborough, MA 01752
("HemaSure"). Filtertek and HemaSure may be referred to hereinafter individually
as a "party" or collectively as the "parties."
WHEREAS, Filtertek desires to manufacture and supply to HemaSure and
HemaSure desires to purchase from Filtertek all of HemaSure's requirements for
the manufacture and supply of Leukoreduction Filters, as defined herein,
pursuant to and in compliance with all of the terms and conditions set forth
herein; and
WHEREAS, Filtertek shall make a capital investment in the
Semi-Automated Cell - Phase 1 and may make capital investments in the
Semi-Automated Cell - Phase 2 and two Automated Cells - Phase 3, as those terms
are defined herein, in exchange for, among other things, HemaSure granting
exclusive manufacturing rights to the Leukoreduction Filters for a period of
time and upon certain conditions as set forth herein.
NOW THEREFORE, in consideration of these premises, the promises and the
mutual agreements herein, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties agree as
follows:
ARTICLE I
DEFINITIONS
In addition to words and expressions defined elsewhere in this
Agreement, for purposes of this Agreement, the following words and expressions
shall have the meanings hereby assigned to them. For the purpose of the
definitions contained in this Article and defined elsewhere in this Agreement,
the singular shall include the plural and vice-versa.
1. "Products" shall mean the products listed on Attachment A, attached
hereto and hereby incorporated by reference, as amended in a writing
signed by both parties from time to time.
2. "Product Pricing" shall mean the price of each Product as set forth on
Attachment B attached hereto and hereby incorporated by reference, as
amended in a writing signed by both parties from time to time.
902773.3
<PAGE>
3. "Product Specifications" shall mean the Product specifications as set
forth on Attachment C, attached hereto and hereby incorporated by
reference, as amended in a writing signed by both parties from time to
time, which in all cases, shall be deemed to requirements and standards
included in applicable federal, state and local laws including, without
limitation, the Food, Drug and Cosmetic Act, the Medical Device
Amendments of 1976, the Safe Medical Devices Act of 1990, and similar
foreign laws, rules and regulations, including without limitation, the
European Medical Device Directive.
4. "Agreement Year" shall mean the period commencing on the Effective Date
and ending on December 31, 2000, and following such period, it shall
mean the applicable period of time during the term of this Agreement
and any extension or renewal thereof beginning on January 1 of that
respective Agreement Year and ending on December 31 of that respective
Agreement Year.
5. "Actual Annual Purchases" for any respective Agreement Year shall mean
the amount of each Product actually purchased by HemaSure from
Filtertek as determined by release orders for the Products issued by
HemaSure and accepted by Filtertek during that Agreement Year.
6. "Leukoreduction Filter" shall mean the filters used for pre-storage
reduction of the level of leukocytes in blood to trace levels currently
designated as r\Ls, and any revisions, derivatives, or improvements
thereto.
7. "Operational Date" shall mean the date that a particular Production
Cell is capable of producing a certain amount of units for a defined
period of time and Filtertek has completed the validation for that
particular Production Cell. The Operational Date for the Semi-Automated
Cell - Phase 1 shall be the date upon which the Semi-Automated Cell -
Phase 1 has produced 10,000 units per day for a period of five
continuous days and Filtertek has submitted its validation documents to
HemaSure. The Operational Date for the Semi-Automated Cell - Phase 2
shall be the date upon which the Semi-Automated Cell - Phase 2 has
produced 20,000 units per day for a period of five continuous days and
Filtertek has submitted its validation documents to HemaSure. The
Operational Date for each Automated Cell - Phase 3 shall be the date
upon which the respective Automated Cell - Phase 3 has produced 20,000
units per day for a period of five continuous days and Filtertek has
submitted its validation documents for the respective Automated Cell -
Phase 3 to HemaSure.
8. "Semi-Automated Cell - Phase 1" shall mean the production concept
described and the production equipment and automation set forth in
Attachment D attached hereto and hereby incorporated by reference, as
amended in a writing signed by both parties from time to time.
902773.3
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<PAGE>
9. "Semi-Automated Cell - Phase 2" shall mean the production concept
described and the production equipment, tooling, and automation set
forth in Attachment H attached hereto and hereby incorporated by
reference, as may be amended in a writing signed by both parties from
time to time.
10. "Automated Cell - Phase 3" shall mean the production concept described
and the production equipment, tooling, and automation set forth in
Attachment E attached hereto and hereby incorporated by reference, as
may be amended in a writing signed by both parties from time to time.
11. "Manual System" shall mean the production equipment set forth in
Attachment I (with the exceptions of Steps 1 and 2 as provided in
Section 5(g) of Article II) attached hereto and hereby incorporated by
reference, as may be amended in a writing signed by both parties from
time to time.
12. "HemaSure Materials" shall mean the materials supplied by HemaSure to
Filtertek as set forth in Attachment F attached hereto and hereby
incorporated by reference, as may be amended in a writing signed by
both parties from time to time.
13. "Manufacturing Technology" shall mean those specific proprietary rights
in the molds, drawings, manufacturing processes, know-how, show-how and
technical data related to the manufacturing and production of the
Products set forth and identified on Attachment G attached hereto and
hereby incorporated by reference, as may be amended in a writing signed
by both parties from time to time.
14. "Confidential Information" shall mean such confidential and proprietary
information each party hereto owns and uses in order to conduct its
business to which this Agreement pertains which includes without
limitation confidential and proprietary computer programs, inventions,
discoveries, tools, machines, articles of manufacture, mechanisms,
molds, fixtures, methods, processes, compositions, mixtures, formulae,
designs, techniques of production, manufacture or assembly, know-how,
show how, information which concerns the financial affairs, development
research, marketing practices, marketing plans and strategies, internal
policies and procedures, products, contracts, suppliers, or customer
lists, information with respect to any corporate affairs, and other
information which may or may not rise to the level of a trade secret
under applicable law, but which is not generally in the public domain
(and includes information transferred orally, visually, electronically
or by other means). For Filtertek "Confidential Information" shall
include without limitation the Manufacturing Technology. Confidential
information shall not include: (i) information already known or
independently developed by the receiving party as evidenced by
competent proof; (ii) information in the public domain through no
wrongful act of the receiving party; or (iii) information received by
the receiving party from a third party having a lawful right to
disclose it.
902773.3
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<PAGE>
15. "Annual Production Capacity" shall mean, at the applicable measurement
date, Filtertek's then current annual production capacity for the
Products defined as operating 3 shift(s) per day, 5 days per week, 50
weeks per year, utilizing equipment existing at the time of such
calculation. Filtertek's current Annual Production Capacity for the
Products is set forth in Attachment A. After the Operational Date for
the Semi- Automated Cell - Phase 1, the Annual Production Capacity
shall include without limitation the incremental capacity associated
with the Semi-Automated Cell - Phase 1. After the Operational Date for
the Semi-Automated Cell - Phase 2, the Annual Production Capacity shall
include without limitation the incremental capacity associated with the
Semi-Automated Cell - Phase 2. After the Operational Date for each
Automated Cell - Phase 3, the Annual Production Capacity shall include
without limitation the incremental capacity associated with the
respective operational Automated Cell - Phase 3.
16. "Material Review Board" shall mean any internal board, committee, or
other group of Filtertek employees authorized to review and approve raw
materials used in the Products (excluding, in the case of approval,
with respect to the HemaSure Materials).
17. "American Red Cross" shall mean the American National Red Cross, a
not-for-profit corporation chartered by an act of Congress, and its
parents, subsidiaries, affiliates, permitted assignees, or successors
in interest.
18. "COBE" shall mean COBE Laboratories, Inc., a corporation organized and
existing under the laws of the state of Colorado, and its parents,
subsidiaries, affiliates, permitted assignees, or successors in
interest.
19. "FDA" shall mean the Food and Drug Administration of the United States
of America.
ARTICLE II
SUPPLY ARRANGEMENTS
1. Production of Products. Filtertek shall manufacture and supply the
Products solely in accordance with the Product Specifications supplied by
HemaSure. Although the obligation to fabricate the Products conforming to
Product Specifications belongs exclusively to Filtertek, and the obligation to
designate and thereafter to approve the applicable specifications belongs
exclusively to HemaSure, and without intending to relieve either party of their
respective exclusive obligations, the parties hereto shall provide reasonable
cooperation and assistance to each other to facilitate the fabrication of the
Products. Filtertek shall make no deviations or changes from the Product
Specifications or perform with any waivers from the Material Review Board
without HemaSure's prior approval.
902773.3
4
<PAGE>
2. Product Pricing. Product Pricing shall be fixed for the first three
Agreement Years with the exception that Filtertek may increase or decrease the
Product Pricing on account of, and solely to the extent of, raw material price
increases or decreases no more than once per Agreement Year during any
respective Agreement Year, and in any such case, no more than five percent (5%)
of the applicable Product Pricing. Any such Product Pricing increase or decrease
shall not exceed the actual amount of the applicable percentage increase or
decrease in raw material prices included in Product Pricing for that respective
Agreement Year as evidenced by Filtertek's written records, which shall be
provided to HemaSure (it being understood that the applicable percentage
increase or decrease shall relate solely to the raw material components, and not
the full Product Pricing). Any such Product Pricing increase or decrease shall
take effect upon thirty (30) days advance written notice to HemaSure.
(a) In addition, at the end of every Agreement Year Filtertek
shall compare the Actual Annual Purchases of Products by
HemaSure to the quantities that were used to establish the
mutually agreed upon invoiced Product Pricing as provided in
Attachment B for that respective Agreement Year (and shall
promptly provide to HemaSure a detailed, written copy of such
comparison). In the event Actual Annual Purchases of Products
exceed said quantities for that respective Agreement Year,
then Filtertek shall issue a rebate or a credit to HemaSure in
accordance with the quantity pricing set forth on Attachment
B. In the event Actual Annual Purchases are less than said
quantities for that respective Agreement Year, then Filtertek
shall issue a debit to HemaSure in accordance with the
quantity pricing set forth on Attachment B. Filtertek may, in
its sole discretion, waive or reduce any such debit for any
respective Agreement Year. Any such waiver or reduction of a
debit for any respective Agreement Year shall be on a
non-precedential basis without prejudice and Filtertek shall
not be obligated in any of the following Agreement Years to
waive or reduce any future debit.
(b) After the first three Agreement Years, Product Pricing shall
be subject to additional adjustments to account for increases
or decreases in Filtertek's overhead costs that are evidenced
by Filtertek's written records which shall be provided to
HemaSure. Such overhead costs shall include without limitation
costs associated with government mandated benefits, payroll
taxes, electricity and other utilities. At least one hundred
twenty (120) days prior to the commencement of any Agreement
Year, Filtertek shall provide written notice (setting forth
reasonable detail) to HemaSure of projected increases or
decreases to the Product Pricing for the upcoming respective
Agreement Year. The parties hereby agree to negotiate in good
faith and to agree upon Product Pricing for each such
respective Agreement Year and to amend Attachment B each
Agreement Year accordingly. In the event no agreement on
Product Pricing is reached prior to the commencement of any
respective Agreement Year, and for so long as such
disagreement continues or the disagreement shall not have been
902773.3
5
<PAGE>
resolved pursuant to Section 12(b) of Article III then
Filtertek may upon thirty (30) days advance written notice to
HemaSure increase Product Pricing by the lesser of (i) the
increase in the Producers Price Index for the previous
respective Agreement Year or (ii) three percent (3%).
(c) The parties will use reasonable efforts to endeavor to develop
cost saving measures applicable to the Products. After
recoupment at a mutually agreed upon rate of any capital
investment made by a party in developing or implementing such
cost saving measures, such savings will be shared on a
fifty/fifty (50/50) basis between the parties in the form of
reduced Product Pricing.
3. Delivery. Each order placed under this Agreement shall be considered
"on-time" if it is received by HemaSure during the period of 3 days prior to and
up until 3 days after the scheduled delivery date which is stated on the release
order issued by HemaSure and accepted by Filtertek. If a delivery is not
expected to be made "on-time," as defined herein, Filtertek shall notify
HemaSure and shall take all reasonable steps at its own cost to expedite
delivery.
4. Supply and Capacity Commitments. HemaSure shall utilize Filtertek as
its exclusive manufacturer and supplier for Leukoreduction Filters throughout
the term of this Agreement such that HemaSure purchases all of its requirements
for the Leukoreduction Filters from Filtertek, subject to HemaSure's rights to
terminate such exclusivity, as provided herein. HemaSure shall purchase at least
the minimum quantity of Leukoreduction Filters from Filtertek as provided in
Section 7 of Article II. Filtertek shall utilize HemaSure as its exclusive buyer
for Leukoreduction Filters and shall use its best efforts to supply all of
HemaSure's requirements. However, Filtertek shall not be obligated to
manufacture and/or sell to HemaSure more than 100% of Filtertek's Annual
Production Capacity for the Products. Filtertek and HemaSure shall notify each
other of any events which may impact their respective abilities to supply and
purchase Products including, without limitation, FDA inspections, labor issues,
facility issues and the like. Filtertek shall maintain a two (2) week inventory
of the Products during the term of this Agreement and any extension or renewal
thereof as determined by reference to purchase orders issued by HemaSure and
accepted by Filtertek.
5. Production Cells.
(a) Semi-Automated Cell - Phase 1. Filtertek shall purchase all
equipment associated with the Semi-Automated Cell - Phase 1
and shall hold sole and exclusive title to the Semi-Automated
Cell - Phase 1 except as provided otherwise herein. The
purchase price of the Semi-Automated Cell - Phase 1 shall not
exceed and is estimated to be Five Hundred Sixty Thousand
Dollars ($560,000). The incremental Annual Production Capacity
of the Semi-Automated Cell - Phase 1 is projected to be
2,400,000 units. The Semi-
902773.3
6
<PAGE>
Automated Cell - Phase 1 is projected to be ordered in
December 1999 and estimated to be operational by March 31,
2000.
(b) Semi-Automated Cell - Phase 2. Upon the occurrence of the
following conditions, Filtertek shall purchase all equipment,
tooling, and automation associated with the Semi-Automated
Cell - Phase 2 and shall hold sole and exclusive title to the
Semi-Automated Cell - Phase 2 except as provided otherwise
herein. The purchase price of the Semi-Automated Cell - Phase
2 shall not exceed and is estimated to be Two Million Six
Hundred Seventy Thousand Dollars ($2,670,000) not inclusive of
any Filtertek facility improvements required for the
Semi-Automated Cell - Phase 2. The incremental Annual
Production Capacity of the Semi-Automated Cell - Phase 2 is
projected to be 5,000,000 units. The Semi-Automated Cell -
Phase 2 is projected to be ordered in December 1999 and
estimated to be operational by July 31, 2000. Filtertek shall
purchase the Semi-Automated Cell - Phase 2 upon the occurrence
of the following conditions:
(1) Receipt by Filtertek by December 31, 1999 of a
blanket purchase order from HemaSure for at least
2,000,000 units for Agreement Year (calendar year)
2000; and
(2) Approval of the capital expenditure for the
Semi-Automated Cell - Phase 2 by ESCO Electronics
Corporation (which approval Filtertek reasonably
believes shall be obtained reasonably promptly
following the date hereof).
(c) First Automated Cell - Phase 3. Upon completion of all
automation, the Semi- Automated Cell - Phase 2 shall become
the first Automated Cell - Phase 3. Filtertek shall purchase
all equipment associated with the first Automated Cell - Phase
3 and shall hold sole and exclusive title to the first
Automated Cell - Phase 3 except as provided otherwise herein.
The incremental Annual Production Capacity of the first
Automated Cell - Phase 3 is projected to be 5,000,000 units.
The first Automated Cell - Phase 3 is projected to be ordered
in April 2000 and estimated to be operational by September 30,
2000. HemaSure must provide the HemaSure Materials, including
without limitation, the particle trap layer in roll form, in
order for Filtertek to implement the Automated Cell - Phase 3.
(d) Second Automated Cell - Phase 3. Upon the occurrence of the
following conditions, Filtertek shall purchase all equipment,
tooling, and automation associated with the second Automated
Cell - Phase 3 and shall hold sole and exclusive title to the
second Automated Cell - Phase 3 except as provided otherwise
herein. The purchase price for the second Automated Cell -
Phase 3 shall not exceed and is estimated to be Two Million
Five Hundred Four
902773.3
7
<PAGE>
Thousand Dollars ($2,504,000) not inclusive of any Filtertek
facility improvements required for the second Automated Cell -
Phase 3. The incremental Annual Production Capacity of the
second Automated Cell - Phase 3 is projected to be 5,000,000
units. The second Automated Cell - Phase 3 is projected to be
ordered in July 2000 and estimated to be operational by April
30, 2001. Filtertek may elect to purchase the second Automated
Cell - Phase 3 upon the occurrence of the following
conditions:
(1) Receipt by Filtertek by September 30, 2000 of a
blanket purchase order from HemaSure for at least
3,000,000 units for Agreement Year (calendar year)
2001; and
(2) Approval of the capital expenditure for the second
Automated Cell - Phase 3 by ESCO Electronics
Corporation; and
(3) Neither the FDA, HemaSure, Filtertek, the American
Red Cross, COBE, nor any other customer of HemaSure
or end user of the Products has initiated, undertaken
or participated in a material recall associated with
any significant, uncurable technical problem for any
of the Products; and
(4) The FDA has completed its PMI of any incident reports
arising from use of the Products and no such PMI's
are pending; and
(5) No court of competent jurisdiction has ordered
injunctive relief, entered a damages award, or issued
a materially adverse decision against HemaSure
arising out of or in connection with any patent
litigation associated with the Leukoreduction Filters
that prevents HemaSure from selling the Products (and
any such injunctive relief shall not have been
lifted); and
(6) HemaSure has continued and continues to purchase at
least eighty percent (80%), or such other percentage,
if any, that HemaSure is obligated to purchase
hereunder, of Filtertek's Annual Production Capacity
as evidenced by shipments against the blanket
purchase order for Agreement Year 2000; and
(7) Neither party is in material breach of any provision
of this Agreement and any breaches of this Agreement
that have occurred have been cured as provided
herein.
(e) In the event Filtertek elects to not order the Semi-Automated
Cell - Phase 2, the first Automated Cell - Phase 3, and/or the
second Automated Cell - Phase 3, then HemaSure may (i)
manufacture the Products or pursue alternate suppliers for the
Products to meet its requirements and (ii) terminate
Filtertek's rights to exclusivity under this Agreement,
provided that HemaSure shall continue to purchase at least
eighty percent (80%) of Filtertek's Annual Production Capacity
until the termination, expiration, or non-renewal of this
Agreement.
902773.3
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<PAGE>
(f) Remedies for Schedule/Estimate Failure by Filtertek.
(1) Exclusivity. In the event that Filtertek fails to
meet an estimated Operational Date for any particular
Production Cell by three (3) months or more or in the
event that the respective incremental Annual
Production Capacity for any particular Production
Cell is less than ninety percent (90%) of the
estimated capacity as provided herein, then HemaSure
may (i) manufacture the Products or pursue alternate
suppliers for the Products to meet its requirements
and (ii) terminate Filtertek's rights to exclusivity
under this Agreement, provided that HemaSure shall
continue to purchase at least seventy percent (70%)
of Filtertek's Annual Production Capacity until the
termination, expiration, or non-renewal of this
Agreement. For purposes of this subsection only,
Filtertek may elect, at its expense, to run the
Production Cells beyond 5 days per week, 50 weeks per
year in order to achieve at least ninety percent
(90%) of the estimated capacity provided herein.
Further in the event that Filtertek's failure as
described in this subsection causes a material change
in HemaSure's customer order rate as evidenced by
HemaSure's written records which shall be provided to
Filtertek, then HemaSure shall not be obligated to
utilize seventy percent (70%) of Filtertek's Annual
Production Capacity, but rather the parties shall
mutually agree to an equitable level of commitment
from HemaSure to Filtertek's Annual Production
Capacity.
(2) Product Pricing. In the event that Filtertek fails to
meet an estimated Operational Date for any particular
Production Cell as provided herein by two months or
more, then the mutually agreed upon invoiced Product
Pricing as provided in Attachment B and any
rebate/debit calculation provided in Section 2(a) of
this Article II shall be adjusted as if that
particular Production Cell were operational as of the
date that is two (2) months from the estimated
Operational Date.
(3) HemaSure shall neither terminate Filtertek's
exclusivity hereunder nor receive the Product Pricing
consideration described above to the extent any delay
or other failure in Filtertek's performance is caused
by (i) modifications, alterations, or other changes
to the design, manufacturing, or production of the
Products or their packaging by HemaSure or at
HemaSure's request, (ii) HemaSure's failure to supply
the HemaSure Materials including without limitation
supplying the particle trap layer in rolls as
provided herein, (iii) other acts or omissions of
HemaSure, or (iv) events described in the Section 10
of Article III and titled Force Majeure.
902773.3
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<PAGE>
(4) The parties acknowledge and agree that, except in the
case of bad faith or willful misconduct, the remedies
provided in this subsection are the sole and
exclusive remedies for HemaSure in the event of a
failure by Filtertek to meet an estimated Operational
Date or an estimated incremental Annual Production
Capacity for any particular Production Cell.
(g) HemaSure Pilot Production Cell. No sooner than six (6) months
after the Operational Date for the second Automated Cell -
Phase 3 HemaSure may upon written notice to Filtertek request
that the Manual System be relocated to HemaSure's designated
facility for pilot production, prototype production, and
production of low volume specials of the Products by HemaSure.
The Manual System shall not include the presses and support
equipment owned by Filtertek nor the tooling owned by HemaSure
utilized for the molding of inlet and outlet housings (Steps 1
and 2 of Attachment I). Filtertek shall supply inlet and
outlet housings to HemaSure at mutually agreed upon terms.
HemaSure shall pay Filtertek the net book value for the Manual
System and shall pay for the costs or other expenses related
to the removal, packaging, shipping, installation, and
start-up of the Manual System at HemaSure's designated
facility.
(h) If any modifications, alterations or other changes are made to
the Products by HemaSure or at HemaSure's request which result
in modifications, alterations or other changes to the
Semi-Automated Cell - Phase 1, the Semi-Automated Cell - Phase
2, the first Automated Cell - Phase 3, or the second Automated
Cell - Phase 3 (the "Production Cells"); then such
modifications to the Production Cells shall be made at
HemaSure's expense and Filtertek shall have additional time to
perform its obligations hereunder as is reasonable under the
circumstances.
(i) The parties shall meet on a periodic basis to discuss future
capacity increases. Any such future capacity increases shall
be mutually agreed to by both parties.
6. Forecasts to Filtertek. HemaSure shall submit to Filtertek, on a
quarterly basis, good faith, written forecasts setting forth projected purchases
of the Products for the upcoming twelve (12) month period. Forecasts prepared by
HemaSure pursuant to this Section shall be prepared by HemaSure in good faith
and shall represent HemaSure's reasonable expectation of its requirements for
the forecasted period. HemaSure shall not be bound to purchase Products on
account of such forecasts.
7. Ordering. HemaSure shall submit a blanket purchase order by
September 30 of each year setting forth its minimum purchase requirements for
the following Agreement Year. The blanket orders for Agreement Years 2000 and
2001 shall be as set forth in Section 5 of
902773.3
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<PAGE>
this Article II. The blanket orders for all five Agreement Years shall total at
least fifteen million (15,000,000) units.
(a) HemaSure shall submit a release order to Filtertek on a
monthly basis at least 6 weeks in advance of any required
shipment date in said release order in compliance with
HemaSure's most recent forecast. Filtertek and HemaSure shall
keep each other apprised in good faith of their respective
requirements, projections, production capability limitations
and similar matters.
(b) In the event HemaSure fails to purchase pursuant to release
orders the quantity of Products designated in the blanket
order for any respective Agreement Year, then the remaining
number of Products necessary to meet the quantity designated
in the blanket order for that respective Agreement Year shall
be added to the purchase quantity in the blanket order for the
subsequent Agreement Year. In the event that HemaSure fails to
purchase the quantity of Products designated in the blanket
order for the fifth Agreement Year and any purchase quantities
added to that blanket order from previous Agreement Years as
provided herein, then the term of this Agreement shall be
extended for one year during which time HemaSure must purchase
the remaining number of Products as are necessary to meet the
purchase quantities designated in the blanket order for the
fifth Agreement Year and any purchase quantities added to that
blanket order from previous Agreement Years as provided
herein.
8. HemaSure Supplied Materials. HemaSure shall provide Filtertek with a
continuous supply of the HemaSure Materials at no cost to Filtertek such that
Filtertek can produce the Products in quantities sufficient to meet HemaSure's
requirements of submitted and accepted purchase orders. In addition, HemaSure
shall make reasonable efforts to control or eliminate defects in the HemaSure
Materials. Further, HemaSure shall obtain and maintain an FDA validation for the
HemaSure Materials and shall provide Filtertek with advance written notice of
any changes in source, grade or quality of the HemaSure Materials. Filtertek's
failure to supply HemaSure with Products, failure to meet the Operational Date
for any particular Production Cell, or otherwise fail to perform its obligations
hereunder shall not be deemed a breach of this Agreement to the extent such
failure is caused by a lack of such a supply of the HemaSure Materials from
HemaSure. HemaSure shall maintain a two (2) week inventory of the HemaSure
Materials during the term of this Agreement and any extension or renewal thereof
as determined by reference to purchase orders for the Products issued by
HemaSure and accepted by Filtertek.
9. Shipping. All Product shipments shall be EX WORKS (Incoterms 1990),
Filtertek's manufacturing facility. Risk of loss shall pass to HemaSure at such
time as the Products are delivered to the carrier at Filtertek's facilities.
HemaSure shall arrange for a carrier and mode of shipment. Filtertek shall
validate a packaging method to assure that the Products arrive at HemaSure's
designated facility integral and intact. All freight, insurance and
902773.3
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<PAGE>
other shipping expenses shall be borne by HemaSure and HemaSure shall be
responsible for filing any and all freight claims.
10. Acceptance.
(a) Acceptance by HemaSure or the receiving entities specified by
HemaSure of Products delivered by Filtertek hereunder shall be
subject to reasonable inspection and test by HemaSure or such
receiving entities in order to determine that the Products
comply with the Product Specifications; provided, however,
HemaSure shall notify Filtertek in writing of any defects in
any shipment of Products within 30 business days of the date
of delivery at HemaSure's designated manufacturing site. If
HemaSure does not notify Filtertek of any such defects within
such time, the Products shall be deemed accepted.
(b) Filtertek shall validate each new Production Cell and
associated molds and tooling prior to commencement of shipping
any Product to HemaSure from the new Production Cell.
Filtertek shall generate a plan for validation and shall
submit all validation documentation to HemaSure prior to
commencement of shipping any Product to HemaSure from the new
Production Cell. For molds in particular, a CpK > 1.33 for
each cavity for critical dimensions is considered in control
and validated. In addition, Filtertek shall assemble molded
components for validation.
11. Quality Control. Filtertek shall operate and maintain its
manufacturing operations in a sound state of control in compliance with
applicable FDA, QSR, ISO9001 and/or CEEN46001 regulations. HemaSure and its
customers shall have the right, but not the obligation, to conduct periodic
audits of all sites under Filtertek's control involved with manufacturing the
Product. Filtertek shall provide reasonable access to Filtertek's facilities,
employees, specifications, production records, drawings, or other records as
necessary for HemaSure to secure regulatory approvals, respond to regulatory
inquires, investigate and address technical problems and achieve technical
improvements and address customer complaints. HemaSure and its customers shall
provide sixty (60) days written notice of any site audits. Each party agrees to
provide the other party with copies of any written notices related to the
manufacturing, sale, or use of the Products issued by any governmental
regulatory agency promptly after receipt from the governmental regulatory agency
or third party.
12. Payment. Payment terms for all Products purchased pursuant to this
Agreement shall be net 30 days. Filtertek reserves the right to withhold
shipment of Products or to ship Products C.O.D. until full payment is received
for any outstanding amounts.
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13. Limited Warranty.
(a) All Products sold by Filtertek shall be warranted to comply
with the Product Specifications and be free of manufacturing
defects, with the exception of the HemaSure Materials, for a
period of one year after shipment of the Products to HemaSure.
HemaSure warrants that the HemaSure Materials supplied to
Filtertek comply with the Product Specifications and be free
of manufacturing defects. THE FOREGOING WARRANTY IS IN LIEU OF
AND EXCLUDES ALL OTHER WARRANTIES NOT EXPRESSLY SET FORTH
HEREIN, WHETHER EXPRESS OR IMPLIED BY OPERATION OF LAW OR
OTHERWISE INCLUDING, WITHOUT LIMITATION, ANY WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR PARTICULAR PURPOSE. IN NO EVENT
SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR
INCIDENTAL, CONSEQUENTIAL, SPECIAL OR INDIRECT DAMAGES
INCLUDING, WITHOUT LIMITATION, LOST BUSINESS, PROFITS OR
DAMAGES ARISING FROM OR CONNECTED WITH LOSS OF GOODWILL.
NOTHING HEREIN SHALL BE DEEMED TO LIMIT OR RESTRICT THE
RESPECTIVE RIGHTS OR OBLIGATIONS OF THE PARTIES UNDER SECTIONS
2 AND 6(c) OF ARTICLE III WITH RESPECT TO BREACHES OF THE
PRODUCT WARRANTY DESCRIBED HEREIN.
(b) Filtertek's liability under the foregoing warranty to HemaSure
is hereby expressly limited to the repair or replacement of
any Products found to be non- compliant with the Product
Specifications or, at Filtertek's election, to the repayment
of, or crediting HemaSure with, an amount equal to the
purchase price for said Products, except as otherwise
specifically provided herein.
(c) Filtertek shall not be liable for any damages or loss due to
fire, flood, acts of God and other natural calamities,
strikes, lockouts, accidents, riots, insurrections, theft,
arson, vandalism, criminal acts, tampering, abuse,
incompatible applications or other misuse.
(d) Prior to returning any non-compliant Products to Filtertek,
HemaSure shall obtain a return goods authorization number from
Filtertek and return said Products to Filtertek with a
detailed description of the non-compliance and any
accompanying data or samples regarding such non-compliance.
Any claim made by HemaSure under this warranty shall be made
in writing to Filtertek within ninety (90) days of the date
HemaSure discovered or should have discovered with the
exercise of reasonable care such non-compliance.
14. Production Cell Implementation and Validation. Filtertek shall
provide reasonable access to its facilities for HemaSure's employees and
consultants to participate in
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Production Cell implementation and validation processes. HemaSure's employees
and consultants shall not unreasonably interfere with Filtertek's operations and
shall observe all safety and/or work rules of Filtertek. Further, Filtertek may
require HemaSure's employees and consultants to execute confidentiality
agreements to protect Filtertek's Confidential Information.
ARTICLE III
MISCELLANEOUS
1. Intellectual Property. All intellectual property of Filtertek which
shall include, without limitation, any inventions, patents, improvements,
trademarks, service marks, mask works, copyrights, trade secrets, the
Manufacturing Technology, or other proprietary information of any kind shall
remain the sole and exclusive property of Filtertek. Filtertek expressly
reserves its entire right, title and interest in any and all intellectual
property including, without limitation, any inventions, patents, improvements,
know-how, show-how, the Manufacturing Technology, or other proprietary
information of any kind related to the processing, production or manufacturing
of the Products. All intellectual property of HemaSure which shall include,
without limitation, any inventions, patents, improvements, trademarks, service
marks, mask works, copyrights, trade secrets or other proprietary information of
any kind shall remain the sole and exclusive property of HemaSure. HemaSure
expressly reserves its entire right, title and interest in any and all
intellectual property including, without limitation, any inventions, patents,
improvements, know-how, show-how, or other proprietary information of any kind
related to the design and construction of the Products.
2. Indemnification. Filtertek's liability, with the exception of this
indemnification provision, shall be limited pursuant to and in compliance with
the section titled Limited Warranty to the repair or replacement of any Products
or, at Filtertek's election, to the repayment of, or crediting HemaSure with, an
amount equal to the purchase price for said Products. The provisions of this
indemnification section shall survive the termination, expiration, or
non-renewal of this Agreement.
(a) HemaSure represents and warrants to Filtertek that the
Products will not infringe any United States or foreign
patents, trademarks (but only United States trademarks), trade
secrets, copyrights, or other proprietary rights of any kind.
HemaSure shall defend, indemnify and hold Filtertek harmless
from any loss, cost, damage, expense or liability of any kind
including, without limitation, attorneys' fees and court costs
on account of claims or actions brought by third parties
against Filtertek, in each case subject to paragraph (d)
below, whether based in whole or in part, on account of
infringement or alleged infringement related to the Products
of any United States or foreign patents, trademarks, trade
secrets, copyrights, or other proprietary rights of any kind;
provided that
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Filtertek has manufactured the Products in compliance with the
Product Specifications. Without limiting the foregoing, the
indemnification shall specifically include the following
litigation:
(1) COBE BCT, Inc, et al. v. Pall Corporation, Case No.
99-CV-675, currently pending in the U.S. District
Court for the District of Colorado.
(2) Pall Corporation v. HemaSure, et al., Case No.
99-2350 (LDW/VVP), currently pending in the U.S.
District Court for the Eastern District of New York.
(b) Other than as set forth in subparagraph (a) of this section,
HemaSure agrees to indemnify and hold harmless Filtertek and
its directors, officers and employees from and against any and
all losses, costs, damages, fees and expenses arising out of
the development, manufacture or sales of the Product, but only
to the extent such losses, costs, damages, fees, and expenses
were incurred as a result of the negligence, gross negligence,
recklessness, willful misconduct, or bad faith of HemaSure,
provided that HemaSure shall have the right to control the
defense or settlement of any claim for which Filtertek is
entitled to indemnification hereunder. HemaSure shall not be
liable for any litigation costs or expenses incurred by
Filtertek (or its directors, officers or employees) without
HemaSure's prior written consent. Notwithstanding the
foregoing, HemaSure shall not be required to indemnify
Filtertek for matters which HemaSure is indemnified by
Filtertek hereunder.
(c) Filtertek represents and warrants that it does not use any of
its United States or foreign patents, trademarks, or
copyrights of any kind in the manufacture of the Products.
Filtertek agrees to indemnify and hold harmless HemaSure and
its directors, officers and employees from and against any and
all losses, costs, damages, fees, and expense arising out of
the development, manufacture or sales of the Product, but only
to the extent such losses, costs, damages, fees, and expenses
were incurred as a result of the negligence, gross negligence,
recklessness, willful misconduct, or bad faith of Filtertek,
provided that Filtertek shall have the right to control the
defense or settlement of any claim for which HemaSure is
entitled to indemnification hereunder. Filtertek shall not be
liable for any litigation costs or expenses incurred by
HemaSure (or its directors, officers or employees) without
Filtertek's prior written consent. Notwithstanding the
foregoing, Filtertek shall not be required to indemnify
HemaSure for matters which Filtertek is indemnified by
HemaSure hereunder.
(d) A party seeking indemnification hereunder (the "Indemnified
Party") shall provide prompt written notice to the party from
whom indemnification is sought (the "Indemnifying Party") of
any written notice of a claim, action or demand of any kind
from a third party. The Indemnifying Party shall undertake
promptly
902773.3
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the defense of such claim, action or demand with defense
counsel selected by the Indemnifying Party, but reasonably
satisfactory to Indemnified Party. Notwithstanding any other
provision of this Agreement, the Indemnified Party may at any
time elect to participate in the defense of any claim, action
or demand with counsel of its own choice and at its sole
expense without waiving the Indemnifying Party's obligation to
defend Indemnified Party. The Indemnifying Party shall obtain
the advance written consent of the Indemnified Party (which
consent shall not be unreasonably withheld) prior to settling
any claim, action or demand.
3. Confidentiality. The parties may disclose certain Confidential
Information to each other. The party that discloses Confidential Information
pursuant to this Agreement is referred to herein as the "Disclosing Party" and
the party that receives such Confidential Information is referred to herein as
the "Receiving Party." The terms of this Agreement shall apply to any
Confidential Information that may be disclosed during the term of this Agreement
and any extension or renewal thereof and for a period of three (3) years after
the termination, expiration, or non-renewal of this Agreement for any reason,
with the exception that Confidential Information designated in writing by a
party to be a trade secret shall be protected by this Article for such time as
such Confidential Information remains a trade secret under
applicable law. Such Confidential Information shall be used solely for the
purpose of each party performing its obligations hereunder and not for any other
purpose ("Purpose").
(a) Receiving Party acknowledges that the Confidential Information
is confidential and/or proprietary to Disclosing Party and is
claimed to be valuable, special and unique assets of
Disclosing Party. Accordingly, the parties agree that during
the term of this Agreement and for the respective
post-termination periods set forth herein, Receiving Party
shall:
(1) maintain the Confidential Information in confidence;
and
(2) not use any such Confidential Information received
from Disclosing Party except for the above-stated
Purpose; and
(3) disclose such Confidential Information received from
Disclosing Party only to its employees that have a
need to know such Confidential Information in order
to fulfill the Purpose; and
(4) not disclose any portion of the Confidential
Information received from Disclosing Party to any
third party without the prior written consent of
Disclosing Party, even if such third party is under
similar restriction on disclosure with Disclosing
Party.
(b) Receiving Party agrees to use the same degree of care to
protect the confidentiality of all Confidential Information it
receives as it uses to protect its own Confidential
Information. However, Receiving Party in no event shall use
902773.3
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<PAGE>
less than a reasonable degree of care to protect the
Confidential Information received from Disclosing Party.
(c) If Receiving Party is confronted with legal action to disclose
Confidential Information received under this Agreement,
Receiving Party shall promptly notify Disclosing Party, and
reasonably assist Disclosing Party in obtaining a protective
order requiring that any portion of the Confidential
Information required to be disclosed be used only for the
purpose for which a court issues an order, or for such other
purposes as required by law.
(d) All Confidential Information disclosed under this Agreement
shall remain the property of Disclosing Party. At Disclosing
Party's request, all Confidential Information received by
Receiving Party in tangible form shall be promptly returned or
destroyed.
(e) It is understood and agreed that damages may not be an
adequate remedy for Disclosing Party in the event of a breach
or threatened breach of this subsection (3) and, accordingly,
Receiving Party agrees that Disclosing Party will be entitled
to receive injunctive or other appropriate equitable relief
against Receiving Party and its representatives in the event
of such a breach or threatened breach.
4. Non-Solicitation. During the term of this Agreement and any
extensions or renewals thereof and for a period of one year thereafter, neither
party shall solicit for employment, employ, solicit for another business
relationship or otherwise retain any employee of the other party who is an
employee of the said other party at any time during the term of this Agreement
and any extensions or renewals thereof.
5. No Partnership or Agency. Nothing contained in this Agreement shall
be construed to create a partnership or joint venture among the parties or to
make a party an agent of the other party for any purpose.
6. Additional Representations and Warranties of the Parties.
(a) Each party represents and warrants that it shall obtain,
maintain and preserve any licenses, permits or other
authorizations necessary for the party to conduct its business
in accordance with this Agreement. Both parties shall comply
in all material respects with all of their respective
obligations under applicable federal, state and local laws
including, without limitation, the Food, Drug and Cosmetic
Act, the Medical Device Amendments of 1976, the Safe Medical
Devices Act of 1990, and similar foreign laws, rules and
regulations, including without limitation, the European
Medical Device Directive.
902773.3
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<PAGE>
(b) In addition, each party represents and warrants to the other
party that, as of the date hereof, (i) it has the authority to
execute, deliver, and perform its obligations under this
Agreement, (ii) this Agreement has been duly executed and
delivered by such party and constitutes the legal, valid, and
binding obligation of such party enforceable against such
party in accordance with its terms (except as enforceability
may be limited by bankruptcy, insolvency, or similar laws of
general application from time to time affecting the rights of
creditors generally, or subject to general principles of
equity), (iii) neither the execution or delivery of this
Agreement nor the performance of its obligations hereunder
will conflict with or violate any provision of, or result in
the breach of, any material agreement, note, mortgage, or
indenture to which such party is a party or by which its
assets are bound, and (iv) there are no actions, suits,
proceedings, or investigations pending or threatened in any
court or before any governmental agency or instrumentality
against, by or affecting it or any of its subsidiaries or
their business, operations, or financial condition or any of
their properties or assets, or which would prevent the
carrying out of this Agreement or any of the transactions
contemplated hereby or declare the same unlawful or cause the
rescission thereof.
(c) Each party represents and warrants that it shall maintain the
following insurance coverages in full force and effect
throughout the term of this Agreement and any extension or
renewal thereof.
(i) Commercial General Liability Insurance in an amount of at
least $10,000,000 (Ten Million Dollars) naming the other party as an additional
insured party, Workers' Compensation coverage covering the party's own employees
(but not employees of the other party) with statutory limits for each
jurisdiction where required by the laws of that jurisdiction (including
monopolistic states if any work is to be performed in one or more of them) and
an employers' liability policy with at least a limit of $250,000 per accident
per employee.
(ii) Each party further agrees to maintain not less than
$10,000,000 (Ten Million Dollars) of products liability coverage naming the
other party as an additional insured party. For Filtertek such product liability
policy shall extend to Products manufactured and sold to HemaSure. For HemaSure
such product liability policy shall extend to the design of the Products and to
the HemaSure Materials provided to Filtertek.
(iii) Filtertek agrees to maintain full replacement value "All
Risk" property insurance on all property and equipment of Filtertek used by
Filtertek at Filtertek's facilities under this Agreement, and further said
property insurance shall insure at all times all Products being manufactured and
Filtertek agrees to waive any right of subrogation for loss or damage to any of
Filtertek's property at, on, or in Filtertek's facilities. Filtertek agrees to
obtain, if required in such property insurance, a waiver of subrogation in favor
of HemaSure. Said
902773.3
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<PAGE>
property insurance shall include Business Interruption and Extra Expense
coverage for such losses arising from loss or damage to aforementioned Filtertek
property without expectation of contribution from any such insurance HemaSure
may maintain.
(iv) Each party shall, at its sole expense, keep in force
policies of insurance in the amounts as specified, and as required by statute,
with carriers reasonably satisfactory to the other party. Such insurance shall
be written as primary policy coverage and not as contributing with, or in excess
of, any insurance which the other party shall carry. Certificates of insurance
evidencing all of the above coverages and conditions (types and amounts) shall
be produced upon written request and remain in full force and effect throughout
the term of this Agreement. Each party's certificate(s) of insurance shall
provide for not less than thirty (30) days written notice of cancellation,
non-renewal or reduction to the other party.
7. Term. This Agreement shall commence on the Effective Date and shall
continue for an initial term of five (5) Agreement Years unless extended for an
additional sixth Agreement Year pursuant to Section 7 of Article II. Thereafter,
this Agreement shall renew for additional successive one (1) year renewal terms
until either party terminates this Agreement upon one (1) year advance written
notice to the other party.
8. Termination for Cause. This Agreement may be terminated at any time
immediately upon written notice upon the occurrence of any of the following
events:
(a) by either party in the event the other party materially
breaches any term or provision of this Agreement and such
breach is not cured within 90 days of such party's receipt of
written notice of such breach;
(b) by either party in the event the other party makes an
assignment for the benefit of creditors, or is subject to any
voluntary or involuntary provincial or federal receivership,
insolvency or bankruptcy proceedings, or becomes unable, or
admits in writing its inability, to meet its obligations as
they mature;
(c) by either party in the event the other party makes any
materially false or misleading statement, representation or
claim; with respect to the subject matter of this agreement
and such party ability to perform thereunder;
(d) by either party in the event the other party is dissolved or
liquidated;
(e) by Filtertek in the event HemaSure fails to pay any
indebtedness which is due and payable and which failure is not
remedied within 60 days following notice;
(f) by HemaSure in the event Filtertek fails to supply (i) any
single product shipment within 60 days of its scheduled supply
date as evidenced in a release order issued by HemaSure and
accepted by Filtertek, or (ii) more than fifty
902773.3
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(50%) percent of product shipments "on-time," as defined
herein, with respect to those shipments' respective scheduled
supply dates as evidenced in release orders issued by HemaSure
and accepted by Filtertek, for any two month period and, in
both cases, for reasons other than those set forth in the
section titled Force Majeure or for reasons other than those
attributable to HemaSure including without limitation
HemaSure's failure to supply the HemaSure Materials; and/or
(g) as otherwise provided in this Agreement.
Without prejudice to any other remedy for breach of this Agreement,
upon termination for cause of this Agreement, neither party shall be released
from the payment of any sum owed to the other party, which sum shall become
immediately due and payable.
9. Rights and Obligations Upon Termination. Upon the termination,
non-renewal, or expiration of this Agreement the following rights and
obligations shall apply.
(a) Notwithstanding the termination of this Agreement each party
shall continue to hold the other party's Confidential
Information in confidence and prevent disclosure to third
parties as provided herein.
(b) Except in the event of a valid termination of this Agreement
by HemaSure under the foregoing subsection (8) (in which case
HemaSure may (but shall not be required) in its sole
discretion, cause Filtertek to sell to HemaSure the system and
cells as provided below), Filtertek may sell to HemaSure and,
if Filtertek deems to do so, HemaSure shall purchase from
Filtertek the Manual System (if not transferred earlier as
provided herein), the Semi-Automated Cell - Phase 1, the
Semi-Automated Cell - Phase 2, the first Automated Cell -
Phase 3, and the second Automated Cell - Phase 3 for the net
book value of the respective Production Cells plus Three
Hundred Thousand Dollars ($300,000) to compensate Filtertek
for costs and expenses associated with discontinuing
production of the Products. In addition, HemaSure shall pay
for the costs and expenses associated with the removal,
packaging, shipping, installation, and start-up of the
Production Cells. Attachment J hereto sets forth the agreed
upon amortization and depreciation schedule for such system
and cells, for the purpose of determining the applicable net
book values thereof.
(c) After the Production Cells are transferred to HemaSure as
provided herein, HemaSure may utilize the Production Cells and
the Manufacturing Technology for production of the Products at
HemaSure's facilities provided HemaSure pays a royalty to
Filtertek of (i) $0.10 per unit for the first four (4) years
after the termination, expiration, or non-renewal of this
Agreement and (ii) $0.07 per unit thereafter, provided,
however, that the Royalty to Filtertek in the event that
902773.3
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the production cells are transferred to HemaSure following a
termination of this Agreement by HemaSure under the foregoing
subsection (8) shall be $0.05 per unit. HemaSure shall remit
such royalties on a quarterly basis along with a written
report of units produced for that quarter. Filtertek shall
have the right, but not the obligation, to audit HemaSure's
written records associated with production of the Products to
verify the amount of royalties paid.
(d) Filtertek shall provide reasonable and necessary training to
HemaSure or HemaSure's designee at HemaSure's or HemaSure's
designee's facility at HemaSure's expense in the form of up to
two (2) technical personnel at a rate of $65/hour plus travel
expenses and up to one (1) operator at a rate of $40/hour plus
travel expenses with a minimum call-out of one eight hour day
per visit for each such training personnel.
(e) HemaSure shall purchase from Filtertek, Filtertek's inventory
of finished Products manufactured in accordance with
HemaSure's most recent forecast. Further, HemaSure shall
reasonably compensate Filtertek for its work in process, raw
material inventory, and non-cancelable raw material
commitments reasonably made pursuant to and in compliance with
HemaSure's forecasts.
(f) Immediately upon the termination, non-renewal, or expiration
of this Agreement, all sums owed by each party hereto to the
other shall become due and payable immediately upon such
termination, non-renewal, or expiration of this Agreement. All
payments shall be made within thirty (30) days of the
effective date of such termination, non-renewal, or expiration
provided, however, that payments under subsection (c) shall be
made (i) prior to removal of the Production Cells for seventy
percent (70%) of the net book value of the Production Cells
and the balance of thirty percent (30%) made within thirty
(30) days from the date the Production Cells are operational
at HemaSure's facility and (ii) within thirty (30) days of the
effective date of such termination, non- renewal, or
expiration for payments related to Filtertek discontinuing the
production of the Products.
(g) The provisions of this Agreement which are expressed to
survive this Agreement or to apply notwithstanding termination
hereof shall be observed and respected by both parties.
10. Force Majeure. Neither party shall be liable to the other party for
its failure to perform or for delay in the performance of its obligations under
this Agreement to the extent such failure or delay results from causes beyond
its reasonable control, including, without limitation, acts of God, fires,
explosions, wars or other hostilities, insurrections, revolutions, strikes,
labor unrest, earthquakes, floods, epidemics or quarantine restrictions, lack of
materials, unforeseeable governmental restrictions or controls, or
transportation embargoes or
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interruptions; provided, however, that a party must provide written notice to
the other party of such extraordinary circumstances that may prevent or delay
the party's performance hereunder. If a party is prevented from performing its
obligations under this Agreement because of such extraordinary circumstances for
a period of 60 consecutive days, then the other party may terminate this
Agreement upon 30 day's notice to the other party with a further opportunity to
perform until the date of such termination.
11. Contingency Planning. In the event of an occurrence as defined in
the Force Majeure section, Filtertek shall make reasonable efforts to relocate
all or a portion of the Production Cells to other Filtertek manufacturing sites.
It is projected that the Semi-Automated Cell - Phase 1 and the first Automated
Cell - Phase 3 shall be located in Hebron, Illinois. It is projected that the
second Automated Cell - Phase 3 shall be located in either Hebron, Illinois or
Patillas, Puerto Rico. The parties shall mutually agree on the establishment of
multiple manufacturing sites.
12. Governing Law; Jurisdiction.
(a) This Agreement, all transactions executed hereunder, and the
legal relations between the parties shall be governed and
construed solely in accordance with the laws of the State of
New York, without reference to the conflict of laws
principles thereof.
(b) In the event of any dispute or controversy arises between the
parties with respect to this Agreement or a breach hereof,
then the parties shall submit such dispute or controversy to
binding arbitration before the American Arbitration
Association ("AAA") in New York, New York in accordance with
the Commercial Arbitration Rules of AAA. Each party hereby
irrevocably agrees that service of process, summons, notices
or other communications related to the arbitration procedure
shall be deemed served and accepted by the other party if
forwarded in accordance with the Notices section of this
Agreement. The arbitrator shall apportion all costs and
expenses of the arbitration including without limitation the
arbitrator's fees and expenses and the attorneys' fees and
expenses of both parties, between the prevailing and
non-prevailing party as the arbitrator deems fair and
reasonable. The award may be enforced in any court of
competent jurisdiction.
(c) Notwithstanding the foregoing or any other provision of this
Agreement, either party may seek and obtain provisional
equitable, injunctive or other judicial relief from a court of
competent jurisdiction in order to preserve the status quo
pending resolution of disputes or controversies pursuant to
this section. The provisions of this Article III, Section 12
shall survive the termination, expiration, or non- renewal of
this Agreement.
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13. Binding Effect. This Agreement shall be binding upon and be for the
benefit of the parties and their respective successors and permitted assigns.
14. Supremacy. The terms and conditions of this Agreement take
precedence over all purchase orders and all sales confirmations between
Filtertek and HemaSure. To the extent any term in any purchase order or any
sales confirmation conflicts in any manner with any term or condition of this
Agreement, this Agreement shall govern.
15. Severability. If any provision of this Agreement is held by a court
of competent jurisdiction to be invalid, illegal, or unenforceable, then the
remainder of this Agreement shall remain in full force and effect. In the event
any such provision previously held to be invalid, illegal, or unenforceable, is
thereafter held by a court of competent jurisdiction to be valid, legal, or
enforceable, then said provision shall automatically be revived and incorporated
into this Agreement.
16. Waiver. No waiver of any rights or breach of any provision of this
Agreement shall constitute a waiver of any other right or breach of any other
provisions, nor shall it be deemed to be a general waiver of such provision by
the waiving party or to sanction any subsequent breach by the other party.
17. Assignment. Neither party shall assign this Agreement, or any right
or obligation thereunder, to any third party without the prior written consent
of the other party. In the event either party consents to such an assignment by
the other party, then all provisions and obligations of this Agreement shall
apply equally to any assignee with the same force and effect as they apply to
the assignor.
18. Modification. This Agreement may not be altered or modified except
in writing, duly executed by an authorized representative of both parties.
19. Notices. All notices, requests or other communications to any party
shall be sufficient if contained in a written instrument delivered in person,
sent by fax with confirming copy sent by registered or certified mail or sent by
overnight courier, addressed to such party at the address set forth below or
such other address as may be designated in writing:
Filtertek: HemaSure:
Filtertek Inc. HemaSure Inc.
11411 Price Road 140 Locke Drive
Hebron, IL 60034 Marlborough, MA 01752
Fax No. 815/648-4705 Fax No. 508/485-6045
Attn: Ron Kay Attn: John F. McGuire
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Any notice sent in compliance with this section shall be effective upon the date
of delivery if delivered in person, upon the date of transmission if sent by
fax, or upon the date following the date the notice is sent by overnight
courier.
20. Public Statements. No party hereto shall use or reference the name
of any other party hereto including without limitation issuing any press
releases or otherwise making any public statement with respect to this Agreement
(unless such press release or statement is required by applicable law,
regulation, or the requirements of any listing agreement with any applicable
stock exchange), without the prior written consent of the other party, which
consent shall not be unreasonably withheld.
21. Facsimile Signatures. Counterpart copies of this Agreement may be
signed by all parties hereto and signature pages exchanged by facsimile. The
parties intend that counterpart copies signed and exchanged as provided in the
preceding sentence shall be fully binding. Counterpart originals of this
Agreement shall be exchanged by U.S. mail or courier service at the earliest
reasonable date following the exchange of signature pages by facsimile.
22. Entire Agreement. This Agreement contains the entire agreement
between the parties with respect to the subject matter of this Agreement and
supersedes all prior arrangements, agreements or understandings with respect to
such matters including without limitation the Supply Agreement between the
parties fully executed on December 10, 1998. No course of performance or prior
dealings nor any custom or usage of trade shall be relevant to supplement or
explain any terms used in this Agreement.
902773.3
24
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed in duplicate originals by their duly authorized representatives as of
the day and year first above written.
FILTERTEK INC.: HEMASURE INC.:
/s/ Ronald J. Kay /s/ John F. McGuire III
- --------------------------- ---------------------------
Ronald J. Kay John F. McGuire III
President President & CEO
902773.3
25
<PAGE>
LIST OF ATTACHMENTS
Attachment Name Responsibility to Prepare
- ---------- ---- -------------------------
Attachment A Product List Filtertek
Attachment B Product Pricing Filtertek
Attachment C Product Specifications HemaSure
Attachment D Semi-Automated Cell - Phase 1 Filtertek
Attachment E Automated Cell - Phase 3 Filtertek
Attachment F HemaSure Materials HemaSure
Attachment G Manufacturing Technology Filtertek
Attachment H Semi-Automated Cell - Phase 2 Filtertek
Attachment I Manual System Filtertek
902773.3
<PAGE>
ATTACHMENT A
PRODUCT LIST
1. r\Ls
Annual Production Capacity (Manual System) = 760,000 units
902773.3
<PAGE>
<TABLE>
ATTACHMENT B
PRODUCT PRICING
<CAPTION>
Actual Annual Manual S.A.C.(1) S.A.C.(1) A.C.(2)
Purchases System Phase 1 Phase 2 Phase 3
<S> <C> <C> <C> <C>
Up to 500,000 $2.20 $2.20 n/a n/a
500,001 to 750,000 n/a $2.00 n/a n/a
750,001 to 1,000,000 n/a $1.90 n/a n/a
1,000,001 to 1,500,000 n/a $1.80 n/a n/a
1,500,001 to 2,000,000 n/a $1.70 $1.70 $1.60
2,000,001 to 2,500,000 n/a $1.65 $1.65 $1.50
2,500,001 to 3,000,000 n/a n/a $1.50 $1.40
3,000,001 to 4,000,000 n/a n/a $1.40 $1.25
4,000,001 to 5,000,000 n/a n/a $1.30 $1.15
5,000,001 to 7,500,000 n/a n/a $1.20 $1.05
7,500,001 and above n/a n/a $1.10 $0.95
Start-Up Pricing5 n/a $2.20 $1.65 $1.60
1. "S.A.C." - Semi-Automated Cell.
2. "A.C." - Automated Cell.
</TABLE>
NOTES:
(1) Product Pricing is firm for the first three years of the
Agreement, except for material price increases/decreases and
as otherwise provided in the Agreement.
(2) Product Pricing assumes HemaSure will provide the HemaSure
Materials including without limitation the particle trap layer
on rolls for processing. If the HemaSure Materials are not
provided on rolls, then the parties will mutually agree upon
increased Product Pricing as provided herein.
902773.3
<PAGE>
(3) If the HemaSure Materials provided by HemaSure must be sheet
fed Product Pricing for quantities above 5 million units
annually shall be as reflected in the S.A.C. - Phase 2 column
above.
(4) Product Pricing assumes for the Semi-Automated Cell - Phase 1
Filtertek will achieve cycle rates, staffing, etc. as set
forth in Attachment D and an incremental Annual Production
Capacity of 2,400,000 units. If these assumptions fail, then
the parties will mutually agree upon increased Product Pricing
not to exceed 102% of the established Product Pricing except
(i) if Filtertek's production inefficiencies are due to
HemaSure's failure to supply the HemaSure Materials on a
consistent basis or (ii) if the HemaSure Materials excluding
in this case the particle trap layer are not provided on rolls
for processing, then the increased Product Pricing may exceed
102% of the established Product Pricing.
(5) Product Pricing assumes for the Semi-Automated Cell - Phase 2
Filtertek will achieve cycle rates, staffing, etc. as set
forth in Attachment H and an incremental Annual Production
Capacity of 5,000,000 units. If these assumptions fail, then
the parties will mutually agree upon increased Product Pricing
not to exceed 102% of the established Product Pricing except
(i) if Filtertek's production inefficiencies are due to
HemaSure's failure to supply the HemaSure Materials on a
consistent basis or (ii) if the HemaSure Materials excluding
in this case the particle trap layer are not provided on rolls
for processing, then the increased Product Pricing may exceed
102% of the established Product Pricing.
(6) Product Pricing assumes for the Automated Cell - Phase 3
Filtertek will achieve cycle rates, staffing, etc. as set
forth in Attachment E and an incremental Annual Production
Capacity of 5,000,000 units for each Automated Cell - Phase 3.
If these assumptions fail, then the parties will mutually
agree upon increased Product Pricing not to exceed 102% of the
established Product Pricing except (i) if Filtertek's
production inefficiencies are due to HemaSure's failure to
supply the HemaSure Materials on a consistent basis or (ii) if
the HemaSure Materials including without limitation the
particle trap layer are not provided on rolls for processing,
then the increased Product Pricing may exceed 102% of the
established Product Pricing.
(7) "Start-Up Pricing" shall apply for the first thirty (30) days
after the Operational Date for the Semi-Automated Cell - Phase
1 to account for additional technical support provided by
Filtertek during the start-up and initial operational period.
"Start-Up Pricing"
902773.3
<PAGE>
shall apply for the first forty five (45) days after the
Operational Date for the Semi-Automated Cell - Phase 2.
"Start-Up Pricing" shall apply for the first thirty (30) days
after the Operational Date for the second Automated Cell -
Phase 3.
(8) After the respective "Start-Up Pricing" periods, Product
Pricing shall be invoiced at a mutually agreed upon weighted
average blended rate based upon cell production from the
respective Production Cells, HemaSure's forecasts for the
Products, and Filtertek's recovery of its capital investments
subject to the annual rebate/debit calculation provided
herein.
(9) Product Pricing for the Semi-Automated Cell - Phase 1, the
Semi-Automated Cell - Phase 2, and the Automated Cell - Phase
3 does not include packaging.
902773.3
<PAGE>
ATTACHMENT C
PRODUCT SPECIFICATIONS
HemaSure's Purchase Specification, Document No. PU H70037, dated 9/21/99, and
titled "HemaSure r\LS Pre-Storage Leukoreduction Filter, Bulk Non-Sterile,
Solvent Bond Ports, Domestic Tubing."
902773.3
<PAGE>
ATTACHMENT D
Semi-Automated Cell
Phase 1
(Module Cell A Implementation Concept)
1. Mold Inlet Housing
4 cavity, Hot Runner Tool, Uses 200 Ton Horizontal-30 Sec
Cycle Runs Automatic = No Operator, 480 Pieces per Hour Annual
Capacity = 2,400,000 parts, Customer paid for tooling
2. Mold Outlet Housing
4 cavity, Hot Runner Tool, Uses 200 Ton Horizontal-30 Sec
Cycle Runs Automatic = No Operator, 480 Pieces per Hour Annual
Capacity = 2,400,000 parts, Customer paid for tooling
3. Stake Versapor Vent into Inlet Housing and Test (Module Cell A)
Vent consists of 2 layers of Versapor, R200 and 3000R Versapor
membrane purchased by Filtertek and slit to width Using an
Automated Station, 1 Operator:
Places Inlet Housings into a feeder bowl Automation
Punches and Stakes Vent into Inlet Housing Automation
Wets out Vent with Filtertek Purchased Solvent and
tests Automation Punches FEL Disc into Tested Inlet
Automation ejects Staked/Tested Vent Inlet Housing
Automated Station, 1 Operator,
1000 Parts per Hour, Annual Capacity of 5,000,000
4. Punch and Place Media into Staked/Tested Vent Inlet Housing
Hemasure provides Media in a roll slit to width Filtertek
provides 6 cavity Preco Press, Operator and Air Washer Using
the Preco Press, 1 Operator:
Loads 6 Vent-Staked Inlet Housings into nests
Punches media discs directly into Inlet Housings
using Preco Press Operator removes Inlet Housing with
Media and Air Washes Parts are set aside for future
operation
902773.3
<PAGE>
Six cavity punch press, 1 Operator, 36 second cycle 600 Parts
per Hour, Annual Capacity of 3,000,000
5. Weld Particle Trap Media into Outlet Housing - Description of 1 Cell
Hemasure provides Particle Trap Media stamped to size
Filtertek provides 1 cavity Sonic Weld Station Using the
single station Sonic Weld Station, 1 Operator:
Places Molded Outlet Housing into sonic weld nest
Places stamped Particle Trap Media in place
Sonic welds Media to Outlet
Single Station Sonic Weld Station, 1 Operator, 18 second cycle
200 Parts per Hour, Annual Capacity of 1,000,000 Note: 3 Cells
are needed to reach 3,000,000 Annual Capacity
6. Assemble Halves, Weld and Pack
Filtertek provides single station Sonic Weld station Using the
single station Sonic Weld Station, 1 Operator:
Assembles Inlet and Outlet Housings and places into
sonic weld nest Sonic welds Housings and places in a
box
Single Station Sonic Weld Station, 1 Operator, 18 second cycle
200 Parts per Hour, Annual Capacity of 1,000,000 Note: 3 Cells
are needed to reach 3,000,000 Annual Capacity
902773.3
<PAGE>
ATTACHMENT E
Automated Cell
Phase 3
(Module Cell D Implementation Concept)
1. Mold Inlet Housing
8 cavity, Hot Runner Tool, Uses 500 Ton Horizontal-30 Sec
Cycle
Runs Automatic = No Operator, 960 Pieces per Hour
Annual Capacity = 4,800,000 parts, Filtertek paid tooling
2. Mold Outlet Housing
8 cavity, Hot Runner Tool, Uses 500 Ton Horizontal-30 Sec Cycle
Runs Automatic = No Operator, 960 Pieces per Hour
Annual Capacity = 4,800,000 parts, Filtertek paid tooling
3. Stake Versapor Vent into Inlet Housing and Test (Module Cell A)
Vent consists of 2 layers of Versapor, R200 and 3000R Versapor
membrane purchased by Filtertek and slit to width Using an
Automated Station, 1 Operator:
Places Inlet Housings into a feeder bowl Automation
Punches and Stakes Vent into Inlet Housing Automation
Wets out Vent with Filtertek Purchased Solvent and
tests Automation Punches FEL Disc into Tested Inlet
Automation ejects Staked/Tested Vent Inlet Housing
Automated Station, 1 Operator,
1,000 Parts per Hour, Annual Capacity of 5,000,000
4. Punch and Place Media into Staked/Tested Vent Inlet Housing (Module
Cell B)
Hemasure provides Media in a roll slit to width Filtertek
provides 6 cavity Die Punch Press and Air Washer Using the Die
Punch Press,
Receives Vent-Staked Inlet Housings into nests
Punches media discs directly into Inlet Housings
using Preco Press
Removes Inlet Housing with Media and Air Washes
Multi cavity punch press, No Operator 1,000 Parts per Hour,
Annual Capacity of 5,000,000
902773.3
<PAGE>
5. Weld Particle Trap Media into Outlet Housing (Module Cell D)
Hemasure provides Particle Trap Media on rolls Filtertek
provides automation station, 1 Operator Using the automation
station, 1 Operator:
Automation places Molded Outlet Housing into sonic
weld nest Automation places Partical Trap Media in
place Automation sonic welds Media to Outlet
Automation Station, 1 Operator,
1,000 Parts per Hour, Annual Capacity of 5,000,000
6. Assemble Halves, Weld and Pack (Module Cell C)
Filtertek provides Automated In Line Sonic Weld Station
Assembles Inlet and Outlet Housings and places into
sonic weld nest Sonic welds Housings and ejects final
part
Automated Sonic Weld Station, 1 Operator,
1,000 Parts per Hour, Annual Capacity of 5,000,000
902773.3
<PAGE>
ATTACHMENT F
HEMASURE MATERIALS
The following items from HemaSure's Purchase Specification, Document No. PU
H70037, dated 9/21/99, and titled "HemaSure r\LS Pre-Storage Leukoreduction
Filter, Bulk Non-Sterile, Solvent Bond Ports, Domestic Tubing."
. Item 4.3 - FEL Media.
. Item 4.4 - Leuko-Reduction Media.
. Item 4.7 - Particle Trap Stack.
902773.3
<PAGE>
ATTACHMENT G
MANUFACTURING TECHNOLOGY
*** CONFIDENTIAL AND PROPRIETARY ***
Manufacturing Technology - HemaSure acknowledges that Filtertek developed the
scale-up capability of the r/ls Leukoreduction filter.
Filtertek acknowledges that HemaSure developed the prototyping and process
feasibility of the r/LS Leukoreduction filter.
902773.3
<PAGE>
ATTACHMENT H
Semi-Automated Cell
Phase 2
(Module B&C Implementation Concept)
1. Mold Inlet Housing
8 cavity, Hot Runner Tool, Uses 500 Ton Horizontal-30 Sec Cycle
Runs Automatic = No Operator, 960 Pieces per Hour
Annual Capacity = 4,800,000 parts, Filtertek paid tooling
2. Mold Outlet Housing
8 cavity, Hot Runner Tool, Uses 500 Ton Horizontal-30 Sec Cycle
Runs Automatic = No Operator, 960 Pieces per Hour
Annual Capacity = 4,800,000 parts, Filtertek paid tooling
3. Stake Versapor Vent into Inlet Housing and Test (Module Cell A)
Vent consists of 2 layers of Versapor, R200 and 3000R Versapor
membrane purchased by Filtertek and slit to width Using an
Automated Station, 1 Operator:
Places Inlet Housings into a feeder bowl Automation
Punches and Stakes Vent into Inlet Housing Automation
Wets out Vent with Filtertek Purchased Solvent and
tests Automation Punches FEL Disc into Tested Inlet
Automation ejects Staked/Tested Vent Inlet Housing
Automation Station, 1 Operator,
1,000 Parts per Hour, Annual Capacity of 5,000,000
4. Punch and Place Media into Staked/Tested Vent Inlet Housing (Module Cell B)
Hemasure provides Media in a roll slit to width Filtertek
provides 6 cavity Die Punch Press and Air Washer Using the Die
Punch Press,
Receives Vent-Staked Inlet Housings into nests
Punches media discs directly into Inlet Housings
using Preco Press
Removes Inlet Housing with Media and Air Washes
Multi cavity punch press, No Operator 1,000 Parts per Hour,
Annual Capacity of 5,000,000
902773.3
<PAGE>
5. Weld Particle Trap Media into Outlet Housing - Description of 1 Cell
Hemasure provides Particle Trap Media stamped to size
Filtertek provides 1 cavity Sonic Weld Station Using the
single station Sonic Weld Station, 1 Operator:
Places Molded Outlet Housing into sonic weld nest
Places stamped Particle Trap Media in place
Sonic welds Media to Outlet
Single Station Sonic Weld Station, 1 Operator, 18 second cycle
200 Parts per Hour, Annual Capacity of 1,000,000 Note: 5 Cells
are needed to reach 5,000,000 Annual Capacity
6. Assemble Halves, Weld and Pack (Module Cell C)
Filtertek provides Automated In Line Sonic Weld Station
Assembles Inlet and Outlet Housings and places into
sonic weld nest Sonic welds Housings and ejects final
part
Automated Sonic Weld Station, 1 Operator,
1,000 Parts per Hour, Annual Capacity of 5,000,000
902773.3
<PAGE>
ATTACHMENT I
Manual System
1. Mold Inlet Housing
4 cavity, Hot Runner Tool, Uses 200 Ton Horizontal-30 Sec
Cycle Runs Automatic = No Operator, 480 Pieces per Hour Annual
Capacity = 2,400,00 parts, Customer paid for tooling
2. Mold Outlet Housing
4 cavity, Hot Runner Tool, Uses 200 Ton Horizontal-30 Sec
Cycle Runs Automatic = No Operator, 480 Pieces per Hour Annual
Capacity = 2,400,000 parts, Customer paid for tooling
3. Stake Versapor Vent into Inlet Housing and Test
Vent consists of 2 layers of Versapor, R200 and 3000R Versapor
membrane purchased by Filtertek and slit to width Using a
Prefabricated Single Station Fixture, 1 Operator:
Advances the two layers of Membrane Places one Inlet
Housing into a nest, and Punches and Stakes Vent into
Inlet Housing Removes Staked Vent Inlet Housing and
places in another nest Wets out Vent with Filtertek
Purchased Solvent and tests Removes Staked/Tested
Vent Inlet Housing and places aside A Pre-Cut FEL
Disc is added to the Tested Inlet
Single Station Fixture, 1 Operator, 23.7 Second Cycle
152 Parts per Hour, Annual Capacity of 760,000
4. Punch and Place Media into Staked/Tested Vent Inlet Housing
Hemasure provides Media in a roll slit to width Filtertek
provides 6 cavity Preco Press, Operator and Air Washer Using
the Preco Press, 1 Operator:
Loads 6 Vent-Staked Inlet Housings into nests
Punches media discs directly into Inlet Housings
using Preco Press Operator removes Inlet Housing with
Media and Air Washes Parts are set aside for future
operation
Six cavity punch press, 1 Operator, 36 second cycle 600 Parts
per Hour, Annual Capacity of 3,000,000
902773.3
<PAGE>
5. Weld Particle Trap Media into Outlet Housing
Hemasure provides Particle Trap Media stamped to size
Filtertek provides 1 cavity Sonic Weld Station Using the
single station Sonic Weld Station, 1 Operator:
Places Molded Outlet Housing into sonic weld nest
Places stamped Particle Trap Media in place
Sonic welds Media to Outlet
Single Station Sonic Weld Station, 1 Operator, 18 second cycle
200 Parts per Hour, Annual Capacity of 1,000,000
6. Assemble Halves, Weld and Pack
Filtertek provides single station Sonic Weld Station Using the
single station Sonic Weld Station, 1 Operator:
Assembles Inlet and Outlet Housings and places into
sonic weld nest Sonic welds Housings and places in a
box
Single Station Sonic Weld Station, 1 Operator, 18 second cycle
200 Parts per Hour, Annual Capacity of 1,000,000
902773.3
<PAGE>
<TABLE>
ATTACHMENT J
"NET BOOK VALUE" DEFINITION
<CAPTION>
Total Purchases Year 1 Year 2 Year 3 Year 4 Year 5 Year 6
<S> <C> <C> <C> <C> <C> <C>
> 15,000,000 units 90% of Filtertek 70% of Filtertek 50% of Filtertek 30% of Filtertek 10% of Filtertek See Notes 5, 6,
Capital Capital Capital Capital Capital and 7 below
Investment Investment Investment Investment Investment
< 15,000,000 units 90% of Filtertek 70% of Filtertek 50% of Filtertek 30% of Filtertek 10% of Filtertek 10% of Filtertek
Capital Capital Capital Capital Capital Capital
Investment plus Investment plus Investment plus Investment plus Investment plus Investment plus
Amortization Amortization Amortization Amortization Amortization Amortization
Rate multiplied Rate multiplied Rate multiplied Rate multiplied Rate multiplied Rate multiplied
by Shortfall by Shortfall by Shortfall by Shortfall by Shortfall by Shortfall
</TABLE>
Notes:
1. "Total Purchases" shall mean the total number of units that have been
(i) ordered by HemaSure, (ii) manufactured and shipped by Filtertek,
and (iii) accepted and paid for by HemaSure under the Agreement from
the Effective Date up to and including the effective date of the
termination, expiration, or non-renewal of the Agreement.
2. "Filtertek Capital Investment" shall mean the total of the original
purchase prices for all of the production equipment, tooling, and
automation utilized in the Production Cells (but not including any
facility improvements made by Filtertek) as evidenced by Filtertek's
written records or, in the case of leased Assets, by lessor's written
records which shall be provided to HemaSure.
3. "Amortization Rate" shall mean for Agreement Years 1 through 5 the
difference between the Filtertek Capital Investment and the residual
value from Row 1 of the above chart for the respective Agreement Year
divided by 15,000,000. For Agreement
902773.3
<PAGE>
Year 6 the Amortization Rate shall mean the difference between the
Filtertek Capital Investment and the residual value from Row 1 of the
above chart for Agreement Year 5 divided by 15,000,000.
4. "Shortfall" shall mean 15,000,000 units less the Total Purchases of
HemaSure from Filtertek under the Agreement.
5. "Customized Filtertek Capital Investment" shall mean the total of the
original purchase prices for all of the customized production equipment
utilized in the Production Cells including without limitation tooling
and automation (but not including any presses, welders, and facility
improvements made by Filtertek) as evidenced by Filtertek's written
records or, in the case of leased Assets, by lessor's written records
which shall be provided to HemaSure. After Agreement Year 5, the
component of the "Net Book Value" definition associated with tooling,
automation, and other customized production equipment shall be defined
as zero (0).
6. "Non-Customized Filtertek Capital Investment" shall mean the total of
the original purchase prices for all of the non-customized production
equipment utilized in the Production Cells including without limitation
presses and welders (but not including any tooling, automation, and
facility improvements made by Filtertek) as evidenced by Filtertek's
written records or, in the case of leased Assets, by lessors' written
records which shall be provided to HemaSure. After Agreement Year 5,
the component of the "Net Book Value" definition associated with the
Non-Customized Filtertek Capital Investment shall be defined as fifteen
percent (15%) of the original purchase price.
7. After Year 5 of the Agreement and HemaSure Total Purchases are greater
than or equal to 15,000,000 units, then HemaSure shall only be
obligated to purchase the Customized Filtertek Capital Investment and
may, at its option, purchase the Non- Customized Filtertek Capital
Investment as provided in the Agreement provided, however, that in the
event of a termination by HemaSure pursuant to Article III, Section 8
of the Agreement, then HemaSure shall not be obligated to purchase the
Customized Filtertek Capital Investment and in that case may, at its
option, purchase the Customized Filtertek Capital Investment.
Example 1: Filtertek Capital Investment is $5,300,000, HemaSure Total Purchases
are 25,000,000 units, and Agreement terminates in Year 3.
. "Net Book Value" is $2,650,000. [50% of $5,300,000]
-------------------------------
902773.3
<PAGE>
Example 2: Filtertek Capital Investment is $5,300,000, HemaSure Total Purchases
are 10,000,000 units, and Agreement terminates in Year 3.
<TABLE>
<S> <C> <C>
. "Amortization Rate" is $0.177/ unit. [($5,300,000 - $2,650,0000)/15,000,000]
. "Shortfall" is 5,000,000 units. [15,000,000 - 10,000,000]
. "Net Book Value" is $3,535,000. [$2,650,000 + ($0.177 X 5,000,000)]
------------------------------
</TABLE>
Example 3: Filtertek Capital Investment is $5,300,000 of which $2,300,000 is
Non-Customized Filtertek Capital Investment, HemaSure Total Purchases are
30,000,000 units, and the Agreement terminates in Year 6.
. "Net Book Value" of the Customized Filtertek Capital Investment is $0.
----------------------------------------------------------------------
. HemaSure may, at its option, purchase the Non-Customized Filtertek
Capital Investment for $345,000.
902773.3
EXHIBIT 10.29
SUPPLY AND ASSEMBLY AGREEMENT
WITNESSETH, THIS SUPPLY AGREEMENT (the "Agreement") entered into and
effective as of the 31st day of January, 2000 ("Effective Date"), by and between
COMMAND MEDICAL PRODUCTS INC., a Florida corporation with an office and
principal place of business at 15 Signal Avenue, Ormond Beach, FL 32174
("Command"); and HEMASURE INC., a Delaware corporation with an office and
principal place of business at 140 Locke Drive, Marlborough, MA 01752
("HemaSure"). Command and HemaSure may be referred to hereinafter individually
as a "party" or collectively as the "parties."
WHEREAS, Command desires to manufacture and supply to HemaSure and
HemaSure desires to purchase from Command dry bag set Products, as defined
herein, on a non-exclusive basis pursuant to and in compliance with all of the
terms and conditions set forth herein; and
WHEREAS, Command desires to assemble HemaSure's r\LS System Filters, as
described herein, and HemaSure desires to retain Command for the assembly of
r\LS System Filters, on a non-exclusive basis pursuant to and in compliance with
all of the terms and conditions set forth herein.
NOW THEREFORE, in consideration of these premises, the promises and the
mutual agreements herein, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties agree as
follows:
ARTICLE I
DEFINITIONS
In addition to words and expressions defined elsewhere in this
Agreement, for purposes of this Agreement, the following words and expressions
shall have the meanings hereby assigned to them. For the purpose of the
definitions contained in this Article and defined elsewhere in this Agreement,
the singular shall include the plural and vice-versa.
1. "Agreement Year" shall mean the period commencing on the Effective Date
and ending on December 31, 2000, and following such period, it shall
mean the applicable period of time during the term of this Agreement
and any extension or renewal thereof beginning on January 1 of that
respective Agreement Year and ending on December 31 of that respective
Agreement Year.
2. "Actual Annual Purchases" for any respective Agreement Year shall
mean, as applicable, the amount of each Product actually purchased by
HemaSure from Command as determined by release orders for the Products
issued by HemaSure and accepted by
908278.5
<PAGE>
Command during that Agreement Year and/or the actual number of r/LS
System Filters assembled by Command and delivered to HemaSure during
that Agreement Year.
3. "American Red Cross" shall mean the American National Red Cross, a
not-for-profit corporation chartered by an act of Congress, and its
parents, subsidiaries, affiliates, permitted assignees, or successors
in interest.
4. "Assembly Pricing" shall mean the price per assembled r/LS System
Filter as set forth on Attachment A attached hereto and hereby
incorporated by reference, as amended in a writing signed by both
parties from time to time.
5. "COBE" shall mean Gambro, Inc. (formerly named COBE Laboratories,
Inc.), a corporation organized and existing under the laws of the state
of Colorado, and its parents, subsidiaries, affiliates, permitted
assignees, or successors in interest.
6. "Confidential Information" shall mean such confidential and
proprietary information each party hereto owns and uses in order to
conduct its business to which this Agreement pertains which includes,
without limitation, confidential and proprietary computer programs,
inventions, discoveries, tools, machines, articles of manufacture,
mechanisms, molds, fixtures, methods, processes, compositions,
mixtures, formulae, designs, techniques of production, manufacture or
assembly, know-how, show how, information which concerns the financial
affairs, development research, marketing practices, marketing plans and
strategies, internal policies and procedures, products, contracts,
suppliers, or customer lists, information with respect to any corporate
affairs, and other information which may or may not rise to the level
of a trade secret under applicable law, but which is not generally in
the public domain (and includes information transferred orally,
visually, electronically or by other means). Confidential Information"
shall include, without limitation, the Manufacturing Technology.
Confidential information shall not include: (i) information already
known or independently developed by the receiving party as evidenced by
competent proof; (ii) information in the public domain through no
wrongful act of the receiving party; or (iii) information received by
the receiving party from a third party having a lawful right to
disclose it.
7. "FDA" shall mean the Food and Drug Administration of the United
States of America.
8. "HemaSure Materials" shall mean the materials and parts supplied by
HemaSure to Command as set forth in Attachment B attached hereto and
hereby incorporated by reference, as may be amended in a writing signed
by both parties from time to time.
9. "Manufacturing Technology" shall mean those proprietary rights of the
respective parties in the molds, drawings, manufacturing processes,
know-how, show-how and technical data related to the manufacturing and
production of the Products and, in the case of HemaSure, the r/LS
System Filter.
908278.5
-2-
<PAGE>
10. "Product Pricing" shall mean the price of each Product as set forth on
Attachment C attached hereto and hereby incorporated by reference, as
amended in a writing signed by both parties from time to time.
11. "Products" shall mean the dry bag sets listed and described on
Attachment D, attached hereto and hereby incorporated by reference, as
amended in a writing signed by both parties from time to time.
12. "Product and Assembly Specifications" shall mean the respective
Product and r/LS System Filter assembly specifications, in each case,
as set forth on Attachment E, attached hereto and hereby incorporated
by reference, as amended in a writing signed by both parties from time
to time, which in all cases, shall be deemed to meet requirements and
standards included in applicable federal, state and local laws
including, without limitation, the Food, Drug and Cosmetic Act, the
Medical Device Amendments of 1976, the Safe Medical Devices Act of
1990, and similar foreign laws, rules and regulations, including,
without limitation, the European Medical Device Directive.
13. "r\LS System Filter" shall mean HemaSure's filters used for pre-storage
reduction of the level of leukocytes in blood, and any revisions,
derivatives, or improvements thereto.
ARTICLE II
SUPPLY AND ASSEMBLY ARRANGEMENTS
1. Production of Products and Assembly of r/LS System Filters. Command
shall (i) manufacture and supply the Products and (ii) assemble r/LS System
Filters, in each case, solely in accordance with the Product and Assembly
Specifications supplied by HemaSure. Although the obligation to fabricate the
Products and assemble the r/LS System Filters conforming to Product and Assembly
Specifications belongs exclusively to Command, and the obligation to designate
and thereafter to approve the applicable specifications belongs exclusively to
HemaSure, and without intending to relieve either party of their respective
exclusive obligations, the parties hereto shall provide reasonable cooperation
and assistance to each other to facilitate the fabrication of the Products and
assembly of the r/LS System Filters. Command shall make no deviations or changes
from the Product and Assembly Specifications without HemaSure's prior approval.
2. Product and Assembly Pricing. Product & Assembly Pricing for each
purchase order issued by HemaSure shall be calculated per Attachment A
Attachment C. Hemasure shall issue quarterly purchase orders and annualize the
volumes to determine the corresponding price schedule. Product Assembly
Pricing shall be fixed for the term of the Agreement with the exception that
Command may increase or decrease the Product & Assembly Pricing on account of,
and solely to the extent of, (i) Command's raw material price increases or
decreases that are evidenced by Command's written records which shall be
provided to HemaSure and based on increases or decreases of Command's vendor
prices and (ii) after the first Agreement Year,
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Command's overhead cost increases or decreases that are evidenced by Command's
written records which shall be provided to HemaSure; and (iii) after one year,
Command's direct labor cost increases or decreases as evidenced by Command's
written records which shall be provided to HemaSure. Such Product & Assembly
Price increases may be affected only once per Agreement Year, and in any such
case, shall not be more than five percent (5%) of the then applicable Product &
Assembly Pricing. Notwithstanding the above, both parties acknowledge that this
five percent (5%) cap may need to be re-negotiated during the term of this
agreement based on any unforeseen circumstances beyond either parties control.
Overhead costs shall include costs associated with government mandated benefits,
payroll taxes, electricity and other utilities.
(a) In addition, at the end of every Agreement Year Command
shall compare the Actual Annual Purchases of Products by
HemaSure to the quantities that were used to establish the
mutually agreed upon invoiced Product Pricing as provided in
Attachment C or Assembly Pricing as provided in Attachment A
for that respective Agreement Year (and shall promptly provide
to HemaSure a detailed, written copy of such comparison). In
the event Actual Annual Purchases exceed said quantities for
that respective Agreement Year, then Command shall issue a
rebate or a credit to HemaSure in accordance with the quantity
pricing set forth on Attachment A and/or C, as the case may
be. In the event Actual Annual Purchases are less than said
quantities for that respective Agreement Year, then Command
shall issue a debit to HemaSure in accordance with the
quantity pricing set forth on Attachment A and/or C, as the
case may be. Command may, in its sole discretion, waive or
reduce any such debit for any respective Agreement Year. Any
such waiver or reduction of a debit for any respective
Agreement Year shall be on a non-precedential basis without
prejudice and Command shall not be obligated in any of the
following Agreement Years to waive or reduce any future debit.
(b) At least sixty (60) days prior to the commencement of any
Agreement Year, Command shall provide written notice (setting
forth reasonable details) to HemaSure of projected increases
or decreases to the Product Pricing for the upcoming
respective Agreement Year based on those Product Pricing
increase or decrease guidelines set forth above. The parties
hereby agree to negotiate in good faith and to agree upon
Product Pricing based on those Product Pricing increase or
decrease guidelines set forth above for each such respective
Agreement Year and to amend Attachment C each Agreement Year
accordingly. In the event no agreement on Product Pricing is
reached prior to the commencement of any respective Agreement
Year, such agreement shall be resolved pursuant to Section
12(b) 11(b) of Article III.
(c) The parties will use reasonable efforts to endeavor to develop
cost saving measures applicable to the Products and assembly
of the r/LS System Filter. After recoupment at a mutually
agreed upon rate of any capital investment made by a
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party in developing or implementing such cost saving measures,
such savings will be shared on a fifty/fifty (50/50) basis
between the parties in the form of reduced Product and/or
Assembly Pricing, as the case may be.
3. Delivery. HemaSure shall provide Command with specific order
delivery dates. Each order placed under this Agreement shall be considered
"on-time" if it is received by HemaSure during the period of 3 days prior to and
up until 3 days after the scheduled delivery date which is stated on the release
order issued by HemaSure and accepted by Command. If a delivery is not expected
to be made "on-time," as defined herein, Command shall notify HemaSure and shall
take all reasonable steps at its own cost to expedite delivery.
4. Supply Ability and Inventory. Command and HemaSure shall notify each
other of any events which may impact their respective abilities to supply and
purchase Products and assemble r/LS System Filters, including, without
limitation, FDA inspections, labor issues, facility issues and the like.
5. Tooling and Equipment of r\LS System Filters. HemaSure shall bear
the cost of tooling and equipment associated with the assembly of the r\LS
System Filters, and shall hold sole and exclusive title to such tooling and
equipment. The tooling and assembly equipment initially shall reside at
Command's facilities.
(a) In the event that Command fails to meet its delivery
requirements, HemaSure may request the transfer of its tooling
and assembly equipment to another facility designated by
HemaSure. In such Event, Command shall breakdown, package,
ship (FOB Ormond Beach, Florida), install and start-up the
applicable tooling and equipment. Command shall be paid for
the above services at a rate of $75 per hour, not to exceed
2,000 hours.
(b) Command shall be responsible for the maintenance of the
tooling and equipment and shall provide reasonable care in the
storage and handling of the tooling. HemaSure shall be
responsible for the repair of the tooling and equipment.
6. Forecasts to Command. HemaSure shall submit to Command, ninety (90)
days before each Agreement Year, in good faith, written forecasts setting forth
projected purchases on a quarterly basis of the Products and assembly
requirements for the upcoming twelve (12) month period. Forecasts prepared by
HemaSure pursuant to this Section shall be prepared by HemaSure in good faith
and shall represent HemaSure's reasonable expectation of its requirements for
the forecasted period. HemaSure shall commit to purchase eighty percent (80%) of
the Products and assembly requirements on account of such forecasts. The amount
of Products not purchased in any one Agreement Year shall rollover into the
following Agreement Year.
On a quarterly basis, HemaSure and Command shall review forecast and
capacity requirements for the following twelve (12) months and plan accordingly.
In the event that
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forecasts are updated or modified, HemaSure shall make a firm commitment to
purchase the Products and assembly requirements for the first two (2) months of
such updated forecast.
7. Ordering. HemaSure shall submit purchase orders on a monthly basis
setting forth its purchase requirements and delivery dates. The orders for
Products in the first two (2) months of an updated forecast as described in
Section 6 above shall become fixed orders.
(a) HemaSure shall submit a release order to Command on a monthly
basis at least six (6) weeks in advance of any required
shipment date in said release order in compliance with
HemaSure's most recent forecast. Command and HemaSure shall
keep each other apprised in good faith of their respective
requirements, projections, production capability limitations
and similar matters.
(b) Subject to the following sentence and Article III, Section
9(c), HemaSure agrees to purchase from Command from time to
time hereunder the minimum quantity purchases set forth on
Attachment F hereto. In the event HemaSure fails to purchase
the quantity of Products and assembly requirements as
designated in Attachment F in any respective Agreement Year,
then the remaining number of Products or assembly requirements
necessary to meet the quantity designated in Attachment F for
that respective Agreement Year shall be added to the purchase
quantities in for the subsequent Agreement Year. In the event
that HemaSure fails to purchase the quantity of Products or
assembly requirements designated in the purchase orders for
the third Agreement Year and any purchase requirements added
from previous Agreement Years as provided herein, then the
term of this Agreement shall be extended for one year during
which time HemaSure must purchase the remaining number of
Products and assembly requirements as are necessary to meet
the purchase requirements designated in Attachment F for the
third Agreement Year and any purchase requirements added from
previous Agreement Years as provided herein. Command's sole
recourse in the event of a breach by HemaSure of this Section
7(b) of this Agreement shall be as set forth in Article III,
Section 9(c). Notwithstanding the above paragraphs, HemaSure
must purchase at least 80% of the contract minimums per
Attachment F each Agreement Year.
8. HemaSure Supplied Materials. HemaSure shall provide Command with a
continuous supply of the HemaSure Materials at no cost to Command such that
Command can assemble the r\LS System Filters in quantities sufficient to meet
HemaSure's requirements of submitted and accepted purchase orders. If HemaSure
is unable to maintain a continuous supply of the HemaSure Materials and this
failure forces Command to shut down its production line, HemaSure agrees to pay
to Command, as its sole recourse, $1.71 per unit scheduled to be built during
the shutdown period at the then prevailing unit production run-rate. This will
cover all unrecoverable costs including labor and overhead. Command's failure to
supply HemaSure with assembly requirements or otherwise fail to perform its
obligations hereunder shall not be deemed a breach of this Agreement to the
extent such failure is caused by a lack of such a supply of the HemaSure
Materials from HemaSure. HemaSure intends to maintain a two (2) week inventory
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of the HemaSure Materials at Command's facility during the term of this
Agreement and any extension or renewal thereof as determined by reference to
purchase orders for assembly of r/LS System Filters issued by HemaSure and
accepted by Command.
9. Shipping. All Product shipments shall be EX WORKS Command's
manufacturing facility. Risk of loss shall pass to HemaSure at such time as the
Products are delivered to the carrier at Command's facilities. HemaSure shall
arrange for a carrier and mode of shipment. All freight, insurance and other
shipping expenses shall be borne by HemaSure and HemaSure shall be responsible
for filing any and all freight claims.
10. Acceptance.
(a) Acceptance by HemaSure or the receiving entities specified
by HemaSure of Products and assembled r/LS System Filters
delivered by Command hereunder shall be subject to reasonable
inspection and test by HemaSure or such receiving entities in
order to determine that the Products and assembled r/LS System
Filters comply with the Product and Assembly Specifications;
provided, however, HemaSure shall notify Command in writing of
any defects in any shipment of Products or assembled r/LS
System Filters within thirty (30) business days of the date of
delivery at HemaSure's designated manufacturing site. If
HemaSure does not notify Command of any such defects within
such time, the Products and assembled r/LS System Filters
shall be deemed accepted.
(b) The Products and assembled r/LS System Filters shall
consistently meet performance metrics mutually agreed upon by
HemaSure and Command. These metrics may change over the
performance of the Agreement to the satisfaction and
acceptance of both HemaSure and Command.
11. Quality Control. Command shall operate and maintain its
manufacturing and assembly operations in a sound state of control in compliance
with applicable FDA, QSR, ISO9002 and CEEN46002 regulations and/or HemaSure's
customer specifications as defined, including, but not limited to, the American
Red Cross and COBE. HemaSure and its customers shall have the right, but not the
obligation, to conduct periodic audits of all sites under Command's control
involved with manufacturing or assembling the Products and r/LS System Filters.
Command shall provide HemaSure and its customers with reasonable access to
Command's facilities, employees, specifications, production records, drawings,
or other records as necessary for HemaSure to secure regulatory approvals,
respond to regulatory inquires, investigate and address technical problems and
achieve technical improvements and address customer complaints. HemaSure and its
customers shall provide thirty (30) days written notice of any site audits. Each
party agrees to provide the other party with copies of any written notices
related to the manufacturing, sale, or use of the Products issued by any
governmental regulatory agency promptly after receipt from the governmental
regulatory agency or third party.
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12. Payment. Payment terms for all Products purchased pursuant to this
Agreement shall be in United States dollars and net thirty (30) days.
ARTICLE III
MISCELLANEOUS
1. Intellectual Property. Command expressly reserves its entire right,
title and interest in any and all intellectual property including, without
limitation, any inventions, patents, improvements, know-how, show-how, the
Manufacturing Technology, or other proprietary information of any kind related
to the production or manufacturing of the Products. All intellectual property of
HemaSure which shall include, without limitation, any inventions, patents,
improvements, trademarks, service marks, mask works, copyrights, trade secrets
or other proprietary information of any kind shall remain the sole and exclusive
property of HemaSure. HemaSure expressly reserves its entire right, title and
interest in any and all intellectual property including, without limitation, any
inventions, patents, improvements, know-how, show-how, or other proprietary
information of any kind related to the r/LS System Filter.
2. Indemnification. The provisions of this indemnification section
shall survive the termination, expiration, or non-renewal of this Agreement.
(a) HemaSure agrees to indemnify and hold harmless Command and
its directors, officers and employees from and against any and
all losses, costs, damages, fees and expenses arising out of
the assembly of the r/LS System Filter (excluding with respect
to the manufacture of the Products) but only to the extent
such losses, costs, damages, fees, and expenses were incurred
as a result of the negligence, gross negligence or willful
misconduct of HemaSure, provided that HemaSure shall have the
right to control the defense or settlement of any claim for
which Command is entitled to indemnification hereunder.
HemaSure shall not be liable for any litigation costs or
expenses incurred by Command (or its directors, officers or
employees) without HemaSure's prior written consent.
Notwithstanding the foregoing, HemaSure shall not be required
to indemnify Command for matters which HemaSure is indemnified
by Command hereunder.
(b) Command agrees to indemnify and hold harmless HemaSure and
its directors, officers and employees from and against any and
all losses, costs, damages, fees, and expense arising out of
the manufacture or sales of the Products and assembly of the
r/LS System Filter (excluding with respect to the HemaSure
Supplied Materials themselves), but only to the extent such
losses, costs, damages, fees, and expenses were incurred as a
result of the negligence, gross negligence or willful
misconduct of Command, provided that Command shall have the
right to control the defense or settlement of any claim for
which HemaSure is entitled to indemnification hereunder.
Command shall not be liable for any litigation costs or
expenses incurred by HemaSure (or its directors, officers or
employees)
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without Command's prior written consent. Notwithstanding the
foregoing, Command shall not be required to indemnify HemaSure
for matters which Command is indemnified by HemaSure
hereunder.
(c) A party seeking indemnification hereunder (the
"Indemnified Party") shall provide prompt written notice to
the party from whom indemnification is sought (the
"Indemnifying Party") of any written notice of a claim, action
or demand of any kind from a third party. The Indemnifying
Party shall undertake promptly the defense of such claim,
action or demand with defense counsel selected by the
Indemnifying Party, but reasonably satisfactory to Indemnified
Party. Notwithstanding any other provision of this Agreement,
the Indemnified Party may at any time elect to participate in
the defense of any claim, action or demand with counsel of its
own choice and at its sole expense without waiving the
Indemnifying Party's obligation to defend Indemnified Party.
The Indemnifying Party shall obtain the advance written
consent of the Indemnified Party (which consent shall not be
unreasonably withheld) prior to settling any claim, action or
demand.
3. Confidentiality. The parties may disclose certain Confidential
Information to each other. The party that discloses Confidential Information
pursuant to this Agreement is referred to herein as the "Disclosing Party" and
the party that receives such Confidential Information is referred to herein as
the "Receiving Party." The terms of this Agreement shall apply to any
Confidential Information that may be disclosed during the term of this Agreement
and any extension or renewal thereof and for a period of three (3) years after
the termination, expiration, or non-renewal of this Agreement for any reason,
with the exception that Confidential Information designated in writing by a
party to be a trade secret shall be protected by this Article for such time as
such Confidential Information remains a trade secret under applicable law. Such
Confidential Information shall be used solely for the purpose of each party
performing its obligations hereunder and not for any other purpose ("Purpose").
(a) Receiving Party acknowledges that the Confidential Information
is confidential and/or proprietary to Disclosing Party and is
claimed to be valuable, special and unique assets of
Disclosing Party. Accordingly, the parties agree that during
the term of this Agreement and for the respective
post-termination periods set forth herein, Receiving Party
shall:
(1) maintain the Confidential Information in confidence;
and
(2) not use any such Confidential Information received
from Disclosing Party except for the above-stated
Purpose; and
(3) disclose such Confidential Information received from
Disclosing Party only to its employees that have a
need to know such Confidential Information in order
to fulfill the Purpose; and
(4) not disclose any portion of the Confidential
Information received from Disclosing Party to any
third party without the prior written consent of
Disclosing Party, even if such third party is under
similar restriction on disclosure with Disclosing
Party.
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(b) Receiving Party agrees to use the same degree of care to
protect the confidentiality of all Confidential Information it
receives as it uses to protect its own Confidential
Information. However, Receiving Party in no event shall use
less than a reasonable degree of care to protect the
Confidential Information received from Disclosing Party.
(c) If Receiving Party is confronted with legal action to disclose
Confidential Information received under this Agreement,
Receiving Party shall promptly notify Disclosing Party, and
reasonably assist Disclosing Party in obtaining a protective
order requiring that any portion of the Confidential
Information required to be disclosed be used only for the
purpose for which a court issues an order, or for such other
purposes as required by law.
(d) All Confidential Information disclosed under this Agreement
shall remain the property of Disclosing Party. At Disclosing
Party's request, all Confidential Information received by
Receiving Party in tangible form shall be promptly returned or
destroyed.
(e) It is understood and agreed that damages may not be an
adequate remedy for Disclosing Party in the event of a breach
or threatened breach of this subsection (3) and, accordingly,
Receiving Party agrees that Disclosing Party will be entitled
to receive injunctive or other appropriate equitable relief
against Receiving Party and its representatives in the event
of such a breach or threatened breach.
4. Non-Solicitation. During the term of this Agreement and any
extensions or renewals thereof and for a period of one year thereafter, neither
party shall solicit for employment, employ, solicit for another business
relationship or otherwise retain any employee of the other party who is an
employee of the said other party at any time during the term of this Agreement
and any extensions or renewals thereof.
5. No Partnership or Agency. Nothing contained in this Agreement shall
be construed to create a partnership or joint venture among the parties or to
make a party an agent of the other party for any purpose.
6. Additional Representations and Warranties of the Parties.
(a) Each party represents and warrants that it shall obtain,
maintain and preserve any licenses, permits or other
authorizations necessary for the party to conduct its business
in accordance with this Agreement. Both parties shall comply
in all material respects with all of their respective
obligations under applicable federal, state and local laws
including, without limitation, the Food, Drug and Cosmetic
Act, the Medical Device Amendments of 1976, the Safe Medical
Devices Act of
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1990, and similar foreign laws, rules and regulations,
including, without limitation, the European Medical Device
Directive.
(b) In addition, each party represents and warrants to the
other party that, as of the date hereof, (i) it has the
authority to execute, deliver, and perform its obligations
under this Agreement, (ii) this Agreement has been duly
executed and delivered by such party and constitutes the
legal, valid, and binding obligation of such party enforceable
against such party in accordance with its terms (except as
enforceability may be limited by bankruptcy, insolvency, or
similar laws of general application from time to time
affecting the rights of creditors generally, or subject to
general principles of equity), (iii) neither the execution or
delivery of this Agreement nor the performance of its
obligations hereunder will conflict with or violate any
provision of, or result in the breach of, any material
agreement, note, mortgage, or indenture to which such party is
a party or by which its assets are bound, and (iv) there are
no actions, suits, proceedings, or investigations pending or
threatened in any court or before any governmental agency or
instrumentality against, by or affecting it or any of its
subsidiaries or their business, operations, or financial
condition or any of their properties or assets, or which would
prevent the carrying out of this Agreement or any of the
transactions contemplated hereby or declare the same unlawful
or cause the rescission thereof.
(c) Each party represents and warrants that it shall maintain the
following insurance coverages in full force and effect
throughout the term of this Agreement and any extension or
renewal thereof.
(i) Commercial General Liability Insurance in an
amount of at least $10,000,000 (Ten Million Dollars)
naming the other party as an additional insured
party, Workers' Compensation coverage covering the
party's own employees (but not employees of the other
party) with statutory limits for each jurisdiction
where required by the laws of that jurisdiction
(including monopolistic states if any work is to be
performed in one or more of them) and an employers'
liability policy with at least a limit of $250,000
per accident per employee.
(ii) Each party further agrees to maintain not less than
$10,000,000 (Ten Million Dollars) of products
liability coverage naming the other party as an
additional insured party. For Command such product
liability policy shall extend to Products
manufactured (and r/LS System Filters assembled) and
sold to HemaSure.
(iii) Command agrees to maintain full replacement
value "All Risk" property insurance on all property
and equipment of Command or HemaSure used by Command
at Command's facilities under this Agreement, and
further said property insurance shall insure at all
times all Products being
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manufactured or r/LS System Filters being assembled
and Command agrees to waive any right of subrogation
for loss or damage to any of Command's property at,
on, or in Command's facilities. Command agrees to
obtain, if required in such property insurance, a
waiver of subrogation in favor of HemaSure. Said
property insurance shall include Business
Interruption and Extra Expense coverage for such
losses arising from loss or damage to aforementioned
Command property without expectation of contribution
from any such insurance HemaSure may maintain.
(iv) Each party shall, at its sole expense, keep in
force policies of insurance in the amounts as
specified, and as required by statute, with carriers
reasonably satisfactory to the other party. Such
insurance shall be written as primary policy coverage
and not as contributing with, or in excess of, any
insurance which the other party shall carry.
Certificates of insurance evidencing all of the above
coverages and conditions (types and amounts) shall be
produced upon written request and remain in full
force and effect throughout the term of this
Agreement. Each party's certificate(s) of insurance
shall provide for not less than thirty (30) days
written notice of cancellation, non-renewal or
reduction to the other party.
7. Term. This Agreement shall commence on the Effective Date and shall
continue for an initial term of three (3) Agreement Years (i.e., the last
Agreement Year ending on December 31, 2002) unless extended for any additional
Agreement Years as provided herein or as may be mutually agreed upon by both
parties. Thereafter, this Agreement automatically shall renew for one (1) or
more additional successive year renewal terms until either party terminates this
Agreement upon one (1) year advance written notice to the other party.
8. Termination for Cause. This Agreement may be terminated at any time
immediately upon written notice upon the occurrence of any of the following
events:
(a) by either party in the event the other party materially
breaches any term or provision of this Agreement and such
breach is not cured within sixty (60) days of such party's
receipt of written notice of such breach;
(b) by either party in the event the other party makes an
assignment for the benefit of creditors, or is subject to any
voluntary or involuntary provincial or federal receivership,
insolvency or bankruptcy proceedings, or becomes unable, or
admits in writing its inability, to meet its obligations as
they mature;
(c) by either party in the event the other party is dissolved or
liquidated;
(d) by Command in the event HemaSure (i) fails to pay any order
invoices which are due and payable and which failure is not
remedied within sixty (60) days following written notice, (ii)
fails to purchase the minimum amount of Products or
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assembly requirements as specified in Article II, or (iii) is
permanently prevented from manufacturing the r/LS System
Filter due to material and adverse audit results of customers
or regulatory agencies;
(e) by HemaSure in the event Command (i) fails to meet its
delivery requirements and provide consistent product
acceptance metrics as mutually agreed upon by both parties, so
long as, in the case of the r\LS System Filters, HemaSure
supplies the HemaSure Materials as provided herein, (ii) fails
to meet, and agree to in writing, the cost targets set forth
in Attachments A and C hereto as and when specified therein,
or (iii) is prevented from manufacturing Product due to
material and adverse audit results of customers or regulatory
agencies; and/or
(f) as otherwise provided in this Agreement.
Without prejudice to any other remedy for breach of this Agreement,
upon termination for cause of this Agreement, neither party shall be released
from the payment of any sum owed to the other party, which sum shall become
immediately due and payable.
9. Rights and Obligations Upon Termination. Upon the termination,
non-renewal, or expiration of this Agreement, the following rights and
obligations shall apply:
(a) Notwithstanding the termination of this Agreement, each party
shall continue to hold the other party's Confidential
Information in confidence and prevent disclosure to third
parties as provided herein.
(b) In the event that Command fails to meet delivery, cost and
acceptance metrics, HemaSure shall not be obligated to
purchase the Product minimums.
(c) In the event that HemaSure fails to purchase the contract
minimums set forth in Attachment F and provided in Article II,
Section 7(b), HemaSure shall reimburse Command, as its sole
recourse, $0.75 per unit shortfall when and as provided in
such Section and Attachment. This shortfall will be used to
cover commitments made by Command to procure building and
other long term capital expenditures. This shortfall payment
obligation shall not be applicable if HemaSure terminates this
agreement due to any fault of Command.
(d) Immediately upon the termination, non-renewal, or expiration
of this Agreement, all sums owed by each party hereto to the
other shall become due and payable immediately upon such
termination, non-renewal, or expiration.
(e) The provisions of this Agreement which are expressed to
survive this Agreement or to apply notwithstanding termination
hereof shall be observed and respected by both parties.
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10. Force Majeure. Neither party shall be liable to the other party for
its failure to perform or for delay in the performance of its obligations under
this Agreement to the extent such failure or delay results from causes beyond
its reasonable control, including, without limitation, acts of God, fires,
hurricanes, explosions, wars or other hostilities, insurrections, revolutions,
strikes, labor unrest, earthquakes, floods, epidemics or quarantine
restrictions, lack of materials, unforeseeable governmental restrictions or
controls, or transportation embargoes or interruptions; provided, however, that
a party must provide written notice to the other party of such extraordinary
circumstances that may prevent or delay the party's performance hereunder. If a
party is prevented from performing its obligations under this Agreement because
of such extraordinary circumstances for a period of sixty (60) consecutive days,
then the other party may terminate this Agreement upon thirty (30) days' notice
to the other party with a further opportunity to perform until the date of such
termination.
11. Governing Law; Jurisdiction.
(a) This Agreement, all transactions executed hereunder, and the
legal relations between the parties shall be governed by and
construed solely in accordance with the laws of the State of
New York, without reference to the conflict of laws principles
thereof.
(b) In the event that any dispute or controversy arises
between the parties with respect to this Agreement or a breach
hereof, the parties shall submit such dispute or controversy
to binding arbitration before the American Arbitration
Association ("AAA") in New York, New York in accordance with
the Commercial Arbitration Rules of AAA. Each party hereby
irrevocably agrees that service of process, summons, notices
or other communications related to the arbitration procedure
shall be deemed served and accepted by the other party if
forwarded in accordance with the Notices section of this
Agreement. The arbitrator shall apportion all costs and
expenses of the arbitration including, without limitation, the
arbitrator's fees and expenses and the attorneys' fees and
expenses of both parties, between the prevailing and
non-prevailing party as the arbitrator deems fair and
reasonable. The award may be enforced in any court of
competent jurisdiction.
(c) Notwithstanding the foregoing or any other provision of this
Agreement, either party may seek and obtain provisional
equitable, injunctive or other judicial relief from a court of
competent jurisdiction in order to preserve the status quo
pending resolution of disputes or controversies pursuant to
this section. The provisions of this Article III, Section 11
shall survive the termination, expiration, or non-renewal of
this Agreement.
12. Binding Effect. This Agreement shall be binding upon and be for
the benefit of the parties and their respective successors and permitted
assigns.
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13. Supremacy. The terms and conditions of this Agreement take
precedence over all purchase orders and all sales confirmations between Command
and HemaSure. To the extent any term in any purchase order or any sales
confirmation conflicts in any manner with any term or condition of this
Agreement, this Agreement shall govern.
14. Severability. If any provision of this Agreement is held by a court
of competent jurisdiction to be invalid, illegal, or unenforceable, then the
remainder of this Agreement shall remain in full force and effect. In the event
any such provision previously held to be invalid, illegal, or unenforceable, is
thereafter held by a court of competent jurisdiction to be valid, legal, or
enforceable, then said provision shall automatically be revived and incorporated
into this Agreement.
15. Waiver. No waiver of any rights or breach of any provision of this
Agreement shall constitute a waiver of any other right or breach of any other
provisions, nor shall it be deemed to be a general waiver of such provision by
the waiving party or to sanction any subsequent breach by the other party.
16. Assignment. Neither party shall assign this Agreement, or any
right or obligation thereunder, to any third party without the prior written
consent of the other party. In the event either party consents to such an
assignment by the other party, then all provisions and obligations of this
Agreement shall apply equally to any assignee with the same force and effect as
they apply to the assignor.
17. Modification. This Agreement may not be altered or modified except
in writing, duly executed by an authorized representative of both parties.
18. Notices. All notices, requests or other communications to any party
shall be sufficient if contained in a written instrument delivered in person,
sent by fax with confirming copy sent by registered or certified mail or sent by
overnight courier, addressed to such party at the address set forth below or
such other address as may be designated in writing:
Command: HemaSure:
Command Medical Products, Inc. HemaSure Inc.
15 Signal Avenue 140 Locke Drive
Ormond Beach, FL. 32174 Marlborough, MA 01752
Fax No. 904/677-7781 Fax No. 508/485-604
Attn: David T. Slick, Sr. Attn: John F. McGuire
Any notice sent in compliance with this section shall be effective upon the date
of delivery if delivered in person, upon the date of transmission if sent by
fax, or upon the date following the date the notice is sent by overnight
courier.
908278.5
-15-
<PAGE>
19. Public Statements. No party hereto shall use or reference the name
of any other party hereto including, without limitation, issuing any press
releases or otherwise making any public statement with respect to this Agreement
(unless such press release or statement is required by applicable law,
regulation, or the requirements of any listing agreement with any applicable
stock exchange), without the prior written consent of the other party, which
consent shall not be unreasonably withheld.
20. Facsimile Signatures. Counterpart copies of this Agreement may be
signed by all parties hereto and signature pages exchanged by facsimile. The
parties intend that counterpart copies signed and exchanged as provided in the
preceding sentence shall be fully binding. Counterpart originals of this
Agreement shall be exchanged by United States mail or courier service at the
earliest reasonable date following the exchange of signature pages by facsimile.
21. Entire Agreement. This Agreement contains the entire agreement
between the parties with respect to the subject matter of this Agreement and
supersedes all prior arrangements, agreements or understandings with respect to
such matters. No course of performance or prior dealings nor any custom or usage
of trade shall be relevant to supplement or explain any terms used in this
Agreement.
908278.5
-16-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed in duplicate originals by their duly authorized representatives as of
the day and year first above written.
COMMAND MEDICAL PRODUCTS HEMASURE INC.:
INC.:
/s/ David T. Slick, Sr. /s/ John F. McGuire III
- ------------------------------ --------------------------------
Name: John F. McGuire III
President President & CEO
908278.5
-17-
<PAGE>
ATTACHMENT A
ASSEMBLY PRICING
Product Description Annual Quantity Price
R/LS DR0030 <2mm $3.60
R/LS DR0030 2mm and > $3.52
R/LS DR0030 3mm and > $3.18
R/LS DR0030 5mm and > *
R/LS DR0030 10mm and > **
o The packaging proposal and requirements incorporated into Assembly
Pricing shall meet conventional quality standards for shipment
integrity, maintenance of sterility and ease of use.
** No later than 45 days from the date of this Agreement, Command shall
agree in writing with HemaSure that the Assembly Pricing for the
specified annual quantity shall be less than $2.00 per unit, and in the
case of annual quantities at or in excess of 10 million units, the
price shall be reasonably less than the agreed upon pricing for
quantities at or in excess of 5 million.
908278.5
<PAGE>
ATTACHMENT B
HEMASURE MATERIALS
1. Part Number BNSR01001, HemaSure r/LS(TM) Pre-Storage
Leukoreduction Filter-Bulk, Non-Sterile
908278.5
<PAGE>
ATTACHMENT C
PRODUCT PRICING
Product Description Annual Quantity Price
R/LS Bulk Bag Assembly <2mm $2.25
H50050-001
R/LS Bulk Bag Assembly 2mm and > $1.85
H50050-001
R/LS Bulk Bag Assembly 3mm and> $1.70
H50050-001
R/LS Bulk Bag Assembly 5mm and > *
H50050-0
R/LS Bulk Bag Assembly 10mm and > *
H50050-0
* No later than 45 days from the date of this Agreement, Command shall
agree in writing with HemaSure that the Product Pricing for the
specified annual quantity shall be less than $1.00 per unit, and in the
case of annual quantities at or in excess of 10 million units, the
price shall be reasonably less than the agreed upon pricing for
quantities at or in excess of 5 million.
908278.5
<PAGE>
ATTACHMENT D
PRODUCTS
1. Assembly, r\LS Blood Bag, 4 Port, 600ml with Pillow Bag, Part
Number H50050
2. Assembly, r\LS, Part Number RLSDR0030, (Non-Sterile)
908278.5
<PAGE>
ATTACHMENT E
PRODUCT AND ASSEMBLY SPECIFICATIONS
(Attached)
1. PS H00002, REV-, Assembly, r\LS, Dated 1/24/00
2. PS H00001, REV C, Assembly, r\LS Blood Bag, 4 Port, 600ml, with Pillow Bag.
935008.1 3/28/2000 10:58p
<PAGE>
Page 1 of 4
HemaSure PART DOC NO. REV
SPECIFICATION PS H00002
SUBJECT Assembly, r\LS DATE RCA
1/24/00
1.0 SCOPE
This document describes the conditions and specifications that must be met for
the part described herein regardless of the source of supply. This document is
to be used in conjunction with individual purchase specifications written for
each r\LS configuration and supplier.
2.0 CONDITIONS
2.1. For the purpose of this specification "visible" or "visual"
refers to features which are apparent to the unaided eye when
viewed at 18-20 inches maximum distance, for 5 seconds at
normal room lighting.
3.0 SPECIFICATIONS
3.1. General.
3.1.1. HemaSure is responsible for the design of the r\LS
assembly.
3.1.2. HemaSure will notify supplier in writing of any
changes to the materials, assembly, packaging, or
labeling that may be required.
3.1.3. Supplier is responsible for ensuring that the assembly
meets the requirements specified in this document and
the applicable assembly drawings.
3.1.4. Supplier may not make changes to the design,
materials, or processes, which could impact the
performance or appearance of the assembly without
notifying the HemaSure Purchasing Department and
securing written approval from HemaSure.
3.2. Quality Requirements.
3.2.1 The assembly must be manufactured, processed, and
tested in conformance with FDA's Medical Device
Quality System (21 CFR 820).
3.2.2 Supplier may not subcontract components,
sub-assemblies, or testing except for injection
molded parts. HemaSure reserves the right to perform
periodic audits of supplier.
3.2.3 The r\LS must be assembled in a class 100,000
cleanroom on operation per FED STD 209E.
AUTHOR DATE 1ST APPROVER DATE
MAB 1/24/00
2ND APPROVER DATE OTHER APPROVER DATE
935008.1 3/28/2000 10:58p
<PAGE>
Page 2 of 4
HemaSure PART DOC NO. REV
SPECIFICATION PS H00002
SUBJECT Assembly, r\LS DATE RCA
1/24/00
3.2.4. Supplier is required to communicate any deviations to
the process that affect the ability of supplier to
release the assembly to HemaSure.
3.2.5. The assembly must be produced under controlled,
validated processes. A Quality Plan, Validation Master
Plan, and a Device Master Record are required for each
r\LS configuration and each manufacturing facility.
3.2.6. Supplier must ensure that Quality Control records are
to be kept for 7 years.
3.2.7. HemaSure reserves the right to audit the quality
system of its suppliers, to recommend corrective
actions, and to verify the implementation and
effectiveness of corrective actions.
3.2.8. A copy of the Quality Certification must be included
with each shipment of bags. The content of the Quality
Certification is specified in the individual Purchase
Specifications and is agreed to by HemaSure and the
supplier by the signing of the Purchase Specification
document.
3.2.9. A member of the supplier's QA department must sign the
Quality Certification.
3.3. Regulatory Requirements.
3.3.1. Supplier must maintain a device history record (DHR)
for the assembly which satisfies the requirements of
FDA's Medical Device Quality System Final Rule (21 CFR
820.184).
3.3.2. Supplier will perform environmental monitoring of all
cleanroom areas used in the manufacture of the r\LS
assembly. Monitoring will include particulate and
microbiological surveys at supplier defined frequency.
Results of the monitoring will be made available to
HemaSure for review.
3.4. Manufacturing/Materials of Construction Requirements.
3.4.1. Materials of construction per applicable HemaSure DMR
(refer to individual purchase specification).
3.4.2. No material substitutions can be made to the suppliers
DMR without written approval from HemaSure's Quality
Assurance.
3.4.3. Assembly and configuration.
935008.1 3/28/2000 10:58p
<PAGE>
Page 3 of 4
HemaSure PART DOC NO. REV
SPECIFICATION PS H00002
SUBJECT Assembly, r\LS DATE RCA
1/24/00
3.4.3.1. per attached drawing.
3.4.4. Labeling
3.4.4.1. All devices are to be labeled with a lot number and
expiration date of 2 years from the date of
sterilization.
3.4.4.2. The lot number is to be located on the blood storage
bag, the tyvek lid and the outer box.
3.4.4.3. The expiration date is to be located on the tyvek
lid and the outer box.
3.4.5. Sampling
3.4.5.1. Samples of the production lot for testing and
retains are to be boxed in separate boxes and
identified as to prevent inadvertent mixup with the
rest of the normal production lot.
3.4.6. Sterilization
3.4.6.1. All devices are to be Gamma sterilized by a HemaSure
qualified sterilization facility. A sterilization
validation must be done for each facility that
manufactures the r\LS. (Per ANSI/AAMI/ISO 11137)
3.4.6.2. A dose setting validation must be done for each
manufacturing facility. (Per ANSI/AAMI/ISO 11137)
3.4.7. Device History Record (DHR)
3.4.7.1. A DHR must be maintained for each production
lot that is manufactured. The DHR must contain all
quality records listed in the Device Master Record
(DMR). Also, copy of all labeling that was used to
identify the product.
3.5. Physical and Functional Requirements
3.5.1. Tubing strength > 10 lb.
3.5.2. Tubing free of permanent kinks.
3.5.3. Port Bond strength: > 4.5 lb. force
3.5.4. The r\LS device and all connections to the device must
be integral and tested at 100%, with no exceptions.
The method of determining integrity shall be pressure
decay at 10.5 psi + .05psi. Leak limit rate shall be
.5in H2O.
3.5.5. Imbedded and/or loose particulate matter: No more than
6 particles exceeding .40 sq. mm. No more than 6
particles total; no more than 3 particles per sq. in.,
per TAPPI standards T213 & T437.
935008.1 3/28/2000 10:58p
<PAGE>
Page 4 of 4
HemaSure PART DOC NO. REV
SPECIFICATION PS H00002
SUBJECT Assembly, r\LS DATE RCA
1/24/00
3.6. Packaging Requirements.
3.6.1. The supplier is responsible for insuring that devices
arrive at HemaSure (or designed storage location)
integral, damage free, and contamination free.
3.6.2. Package burst testing at the start and end of each
production shift required for each production lot.
Burst testing parameters:
Pressure 40.00 psig
Time 4.00 sec
Flow 8 porous
Burst test limit >.66
3.7. Testing Requirements.
3.7.1. The following tests are to be performed on the r\LS
after sterilization for final release testing:
3.7.2. 10 devices per lot for LAL pyrogen per USP XXIII
Pg. 1696
3.7.3. 1 device per quarter for Cytotoxicity (MEM Elution)
per USP XXIII
Pg. 1697
3.7.4. 10 device semi annually for Rabbit pyrogen per USP
XXIII Pg. 1718
3.7.5. 12 devices per lot for blood performance TP H00034.
3.7.6. 3 devices for bag bond strength TP H00030.
3.7. References.
ISO 10993 Biological Evaluation of Medical Devices.
USP XXIII
US Federal Standard 209E Airborn Particulate Cleanliness
Classes in Cleanrooms and Clean Zones.
Tappi-TC13, T437 methodology
21 CFR 820 FDA Medical Device Quality System Final Rule
ISO 3826 Plastic collapsible containers for human blood
and blood components
935008.1 3/28/2000 10:58p
<PAGE>
Page 1 of 6
HemaSure PART DOC NO. REV
SPECIFICATION PS H00001 C
SUBJECT Assembly, r\LS Blood Bag, 4 Port, DATE RCA
600 mL, with Pillow Bag 9/20/99 1523
1.0 SCOPE
This document describes the conditions and specifications that must be met for
the part described herein regardless of the source of supply. This document is
to be used in conjunction with individual purchase specifications written for
each bag configuration and supplier.
2.0 CONDITIONS
Each shipment is to include a Quality Certification per section 3.8. Quality
Certifications may be formatted individually by each supplier as long as they
contain the information required by this specification.
3.0 SPECIFICATIONS
3.1. General.
3.1.1. HemaSure is responsible for the design of the Blood
Bag assembly.
3.1.2. HemaSure will notify supplier in writing of any
changes to the materials, assembly, packaging, or
labeling that may be required.
3.1.3. Supplier is responsible for ensuring that the assembly
meets the requirements specified in this document and
the applicable assembly drawings.
3.1.4. Supplier may not make changes to the design,
materials, or processes, which could impact the
performance or appearance of the assembly without
notifying the HemaSure Purchasing Department and
securing written approval from HemaSure.
3.1.5. Supplier will supply HemaSure with a cup of resin for
every lot of ES3000.
3.2. Manufacturing Requirements.
3.2.1. The assembly must be manufactured, processed, and
tested in conformance with FDA's Medical Device
Quality System (21 CFR 820).
3.2.2. Supplier may not subcontract components,
sub-assemblies, or testing except for injection molded
parts. HemaSure reserves the right to perform periodic
audits of supplier.
AUTHOR DATE 1ST APPROVER DATE
MAB, RBD 9/20/99
2ND APPROVER DATE OTHER APPROVER DATE
935008.1 3/28/2000 10:58p
<PAGE>
Page 2 of 6
HemaSure PART DOC NO. REV
SPECIFICATION PS H00001 C
SUBJECT Assembly, r\LS Blood Bag, 4 Port, DATE RCA
600 mL, with Pillow Bag 9/20/99 1523
3.3. Quality Requirements.
3.3.1. Supplier is required to communicate any deviations to
the process that affect the ability of supplier to
release the assembly to HemaSure.
3.3.2. The assembly must be produced under controlled,
validated processes.
3.3.3. Supplier must ensure that the assemblies meet the
requirements of HemaSure's Test Specification TS
H00006. Quality Control records are to be kept for 7
years. Five (5) blood bag retains are to be kept by
HemaSure also for 7 years.
3.3.4. HemaSure reserves the right to audit the quality
system of its suppliers, to recommend corrective
actions, and to verify the implementation and
effectiveness of corrective actions.
3.4. Physical and Functional Requirements.
3.4.1. Pyrogenicity.
3.4.1.1. The assembly must pass the U.S.P. LAL
Pyrogen Test. Test method must comply
with USP XXIII.
3.4.1.2. A 10 unit composite (random samples) is
to be tested using the LAL methodology.
The maximum acceptable Pyrogen level is
< 5 EU/assembly.
3.4.1.3. Particles - no more than the following
effluent particulate
levels (USP XXIII):
50 particles per ml >10 u
5 particles per ml > 25 u
6.5 fibers
3.4.1.4. Once validated, the LAL and particulate
testing for each lot is not required. The
environmental monitoring will serve as an
indicator to the process.
3.4.2. Cleanliness
Surfaces of the assembly must be free of
non-embedded foreign matter. No embedded
particles larger than 0.4mm2, using Tappi
TC13 and T437 methodology, are
acceptable.
3.4.3. No visible film vestige on bag perimeter
seal edges.
3.4.4. The bag must be assembled in a class
10,000 cleanroom in operation per FED Std
209E.
935008.1 3/28/2000 10:58p
<PAGE>
Page 3 of 6
HemaSure PART DOC NO. REV
SPECIFICATION PS H00001 C
SUBJECT Assembly, r\LS Blood Bag, 4 Port, DATE RCA
600 mL, with Pillow Bag 9/20/99 1523
3.4.5. Materials (refer to attached drawing for
configuration).
Description
600 ml storage bag: ES3000 clear virgin PVC
gamma stabilized compound containing plasticizer
di-2-ethylhexylphthalate (DEHP); taffeta finish
on inside, matte finish on other side. Thickness
.016" + 1"
Spike ports: TechnoFlex model TS450.50 (gamma
stable). Tube sleeves for 600 ml bag: ES3000
virgin PVC; 0.149" + .003 I.D., 0.209" + .003
O.D., 0.75" + .05 long; frosted finish. -
Spike Port Sleeve: 0.310" + .005 O.D., 0.250" +
.005 I.D., 1.0" + .05 long
50 ml pillow bag: ES3000 clear virgin PVC (same
as 600 ml storage bag).
Tube sleeve: virgin ES3000; 0.149" + .003 I.D.,
0.209" + .003 O.D., 0.54" - 0.80" long; frosted
finish.
Tubing: virgin ES3000; extruded;
frosted; 0.160" - .004 O.D., 0.118 - .004 I.D.
Two lengths of transfer tubing, both tubing
lengths imprinted with segmented identification
numbers. Outlet tubing: Minimum 13 usable
segments; tubing length 44" - 47" ref. only.
Pillow bag tubing: Minimum 4 usable segments;
tubing length 17" - 17.50" ref. only. Maximum
105o tubing end cut.
Tubing clamps: blue and Red polypropylene, gamma
stable; 1" long; Halkey-Roberts #C340TCSPB
(blue), #C340TCSPR (Red) or equivalent.
3.4.6 Assembly and configuration.
3.4.6.1. The assembly is to be assembled per
attached drawing.
3.4.6.2. Coiling:
Refer to individual purchase
specifications for instructions.
3.4.6.3. The 600 ml bag must be free of scuff
marks, smudges, stray markings, or other
cosmetic defects.
3.4.6.4. Vinyl imperfections:
Material shall be free from wrinkles and grease
when viewed from a distance of 18 inches. Pin holes
are not allowed. Particulate - With a sample size
of 3 linear feet, particles embedded in the
material such as black, brown, yellow resin shall
be reported as follows:
935008.1 3/28/2000 10:58p
<PAGE>
Page 4 of 6
HemaSure PART DOC NO. REV
SPECIFICATION PS H00001 C
SUBJECT Assembly, r\LS Blood Bag, 4 Port, DATE RCA
600 mL, with Pillow Bag 9/20/99 1523
Size Particle Count Score Point
---- --------------------------
> .031 Reject
.020 - .030 4
.010 - .019 10
.005 - .009 15
3.4.7. Labeling of the 600 ml blood storage bag (if
applicable - refer to individual Purchase
Specifications):
3.4.7.1. Label alignment - label should be no more
than .5" off centerline in any direction.
3.4.7.2. Printing must be clear and legible. No
smearing is allowed.
3.4.7.3. Misprinted letters are acceptable if no
more than 50% of a letter is misprinted
with a maximum of 1 misprinted letter per
word and 5 misprinted words per assembly.
3.4.8. Labeling of the tubing segments.
3.4.8.1. Outlet tubing: 13 segments per unit min.,
44" - 47" tubing length (ref. only).
Pillow bag tubing: 4 segments per unit
min., 17" - 17.5" tubing length (ref.
only). No missing letters or numbers.
3.4.9. Tubing strength: > 10 lb.
3.4.10. Tubing free of permanent kinks.
3.4.11. Open end of tubing must be cut evenly,
maximum 105o angle cut, no jagged cuts.
3.4.12. Port Bond strength: > 10 lb.
3.4.13. Final leak test: inline pressure decay
testing.
3.5. Packaging Requirements.
3.5.1. Assemblies are to be placed in a double poly lined
shipper in a manner that precludes damage during
shipping and handling. The inner poly liner must be
tied (or otherwise fastened) closed. The outer liner
must be closed to prevent contamination.
3.5.2. No more than 1 product lot is to be contained within
a shipper.
3.5.3. Refer to individual purchase specifications for
labeling of the shipment (shipper and packing slip)
and for the quantity of assemblies per container.
935008.1 3/28/2000 10:58p
<PAGE>
Page 5 of 6
HemaSure PART DOC NO. REV
SPECIFICATION PS H00001 C
SUBJECT Assembly, r\LS Blood Bag, 4 Port, DATE RCA
600 mL, with Pillow Bag 9/20/99 1523
3.6. Regulatory Requirements.
3.6.1. Supplier must maintain a device history record (DHR)
for the assembly which satisfies the requirements of
FDA's Medical Device Quality System Final Rule (21
CFR 820.184).
3.6.2. The DHR must also indicate that each lot conforms
with the specified particulate levels and testing
protocol.
3.6.3. Supplier will perform environmental monitoring of
all cleanroom areas used in the manufacture of the
blood bag assembly. Monitoring will include
particulate and microbiological surveys at supplier
defined frequency. Results of the monitoring will be
made available to HemaSure for review.
3.7. References.
3.7.1. Refer to individual purchase specifications for any
unique labeling and packaging.
3.7.2. HemaSure Test Specification TS H00006, 600 ml Blood
Bag.
3.7.3. ISO 3826 Plastics collapsible containers for human
blood and blood components.
3.7.4. ISO 10993 Biological Evaluation of Medical Devices.
3.7.5. USP XXIII.
3.7.6. US Federal Standard 209E Airborne Particulate
Cleanliness Classes in Cleanrooms and Clean Zones.
3.7.7. Tappi - TC13, T437 methodology.
3.7.8. 21 CFR 820 FDA Medical Device Quality System Final
Rule.
3.7.9. Blood Bag Testing Protocol TP H00030.
3.7.10. Blood Bag Testing Form H148.
3.8. Quality Certification.
3.8.1. A copy of the Quality Certification must be included
with each shipment of bags. The content of the
Quality Certification is specified in the individual
Purchase Specifications and is agreed to by HemaSure
and the supplier by signing the Purchase Spec.
document.
3.8.2. A member of supplier's QA department must sign the
Quality Certification.
935008.1 3/28/2000 10:58p
<PAGE>
Page 6 of 7
HemaSure PART DOC NO. REV
SPECIFICATION PS H00001 C
SUBJECT Assembly, r\LS Blood Bag, 4 Port, DATE RCA
600 mL, with Pillow Bag 9/20/99 1523
[DRAWING OMITTED]
935008.1 3/28/2000 10:58p
<PAGE>
Page 7 of 7
HemaSure PART DOC NO. REV
SPECIFICATION PS H00001 C
SUBJECT Assembly, r\LS Blood Bag, 4 Port, DATE RCA
600 mL, with Pillow Bag 9/20/99 1523
REVISIONS
<TABLE>
<CAPTION>
<S> <C> <C>
Rev RCA - Date Released Description
C 1523 / 9-21-99 Change length reference dimensions of tube sleeve,
outlet tubing, air bag tubing per GCM. Encompass
range suitable for both vendors. See Sections 3.4.5
chart, 3.4.8.1. drawing.
B 1477 / 5/26/99 See RCA 1477.
A 1473 / 5/26/99 See RCA 1473.
- 1461 / 4/14/99 Released - See RCA 1461.
</TABLE>
935008.1 3/28/2000 10:58p
<PAGE>
ATTACHMENT F
MINIMUM PURCHASE SCHEDULE*
<TABLE>
<S> <C> <C> <C>
Product/Agreement Year Ending 12/31/2000 12/31/2001 12/31/2002
1. Assembly, r\LS Blood Bag, 4 Port, 1.8mm 3.0mm 3.0mm
600ml with Pillow bag.
2. Assembly, r\LS, Part Number: 1.00mm 2.0mm 2.00mm
RLSDR0030, (Non Sterile)
</TABLE>
o SUBJECT TO ARTICLE II, SECTION 7(b).
935008.1 3/28/2000 10:58p
<PAGE>
Exhibit 10.30
HEMASURE INC.
PLACEMENT AGENCY AGREEMENT
February 3, 2000
Warburg Dillon Read LLC
299 Park Avenue
New York, New York 10171
Gentlemen:
HemaSure Inc. (the "Company"), a Delaware corporation, hereby confirms
its agreement with the Placement Agent (as defined below) as follows:
1. The Offering. The Company is offering to persons who qualify as
institutional "accredited investors," as that term is defined in Rule 501(a)(1),
(2), (3) or (7) under the Securities Act of 1933, as amended (the "Act") (each,
an "Accredited Investor"), shares of the Company's common stock, $.01 par value
per share (the "Shares"), at a price per Share to be determined by negotiations
between the Company and the Purchasers (as defined below) and which results in
gross proceeds to the Company of $20.0 million (or such other amount as may be
agreed to between the Company, the Placement Agent and the Purchasers (as
defined below)). The foregoing offer and sale of the Shares is hereinafter
referred to as the "Offering".
2. Appointment of Placement Agent. Warburg Dillon Read LLC is hereby
appointed the exclusive placement agent of the Company (the "Placement Agent")
during the Offering Period (as defined herein) for the purpose of assisting the
Company in identifying qualified investors with respect to the Shares. The
"Offering Period" shall commence on the date the Offering Materials are first
made available to the Placement Agent by the Company for delivery in connection
with the Offering and shall terminate on or before the close of business on
March 15, 2000 unless extended by agreement between the Company and the
Placement Agent. Warburg Dillon Read LLC hereby accepts such agency and agrees
to assist the Company in identifying qualified investors on a "best efforts"
basis. It is understood that the offering and sale of the Shares is intended by
all parties to be exempt from the registration requirements of the Act pursuant
to Section 4(2) thereof and the rules and regulations of the Securities and
Exchange Commission thereunder, including Regulation D (the "Rules and
934971.1
<PAGE>
Regulations"). The Placement Agent understands that all subscriptions for Shares
are subject to the acceptance of the Company in its sole discretion.
3. Offering Materials. The Company has prepared and delivered to the
Placement Agent a reasonable number of copies of a Confidential Private
Placement Memorandum dated February 3, 2000. Such Confidential Private Placement
Memorandum, including all documents delivered in connection therewith, is
referred to herein as the "Offering Materials," except that if the Offering
Materials shall be supplemented or amended, the term "Offering Materials" shall
refer to the Offering Materials as so supplemented or amended by the Company
from and after the time of delivery to the Placement Agent of such supplement or
amendment.
The Company hereby authorizes the Placement Agent to transmit the
Offering Materials to those prospective investors previously identified by the
Placement Agent to the Company in writing and such other prospective investors
as may be agreed to between the Company and the Placement Agent. The Offering
Materials are the only documents that are to be delivered to prospective
investors in connection with the offering of the Shares. The Company will
furnish, or cause to be furnished, to the Placement Agent all data, material and
other information that is in the possession of the Company requested by the
Placement Agent for the purposes of performing the services contemplated
hereunder. The Company represents and warrants to the Placement Agent that the
information in the Offering Materials, and, to the best of the Company's
knowledge, any other information (whether written or oral) supplied to the
Placement Agent by or on behalf of the Company in connection with the
performance of the Placement Agent's services hereunder, will not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements therein, in light of the circumstances in which such
information was provided, not misleading. It is understood that the Company does
not intend to provide any information to prospective investors other than the
Offering Materials; provided, however, that if any additional information is
provided to prospective investors by or on behalf of the Company (it being
understood that the Placement Agent will not distribute any such additional
information to prospective investors without the Company's prior written
consent), such additional information will not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
therein, in light of the circumstances in which such information was provided,
not misleading. It is further understood that in performing its services under
this engagement the Placement Agent will be entitled to rely on and use all
information contained in the Offering Materials, all information furnished to
the Placement Agent by or on behalf of the Company, all information authorized
by the Company to be furnished by the Placement Agent to prospective Purchasers
or other parties and all other information that is publicly available without
independent verification thereof, and the Placement Agent will not be
responsible in any respect for the accuracy, completeness or reasonableness of
any such information or to conduct any independent verification thereof or any
appraisal of assets or liabilities.
2
934971.1
<PAGE>
4. Closing; Delivery; Placement Fees.
(a) The closing of the purchase and sale of the Shares (the
"Closing") shall take place at such time and on such date and at such place as
shall be agreed upon by the Company and the Purchasers (the "Closing Date").
(b) At the Closing, there shall be delivered to the Company on
behalf of each investor purchasing Shares (the "Purchasers") a stock purchase
agreement substantially in the form included in the Offering Materials (with
such modifications as may be agreed to between the Company and such Purchasers)
(each, a "Purchase Agreement"), and there shall also be delivered to the Company
on behalf of each Purchaser the full purchase price, in same-day funds, of the
Shares which such Purchaser is to purchase, and all other documents provided for
in the Purchase Agreements. At the Closing, the Company will deliver to the
Purchasers certificates representing the Shares purchased by them and will
deliver to the Purchasers and the Placement Agent other documents provided for
by the Purchase Agreements.
(c) At the Closing, the Company shall pay or cause to be paid to the
Placement Agent a placement fee, in same-day funds, in an amount equal to 7%
(the "Placement Fee") of the gross proceeds received by the Company from the
sale of the Shares. Notwithstanding the immediately preceding sentence, in the
event that Gambro, Inc. or an affiliate thereof (formerly named Cobe
Laboratories, Inc., "Cobe") purchases Shares in the Offering, the fees payable
by the Company to the Placement Agent shall be 3.5% of the gross proceeds with
respect to that number of shares purchased by Cobe in the Offering which is less
than or equal to the number obtained by multiplying (i) the aggregate number of
Shares sold by the Company to all Purchasers in the Offering by (ii) that
percentage of the Company's common stock, $.01 par value per share, beneficially
owned by Cobe and its affiliates (as defined in Rule 12b-2 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) on the date hereof
(calculated in accordance with Rule 13d-3 of the Exchange Act); provided that it
is understood that the fees payable by the Company to the Placement Agent with
respect to gross proceeds relating to any Shares purchased by Cobe in the
Offering in excess of such number calculated above shall be 7%.
5. Representations, Warranties and Covenants of the Company. For the
benefit of the Placement Agent, the Company hereby confirms and agrees to comply
with the representations, warranties and covenants made by it to the Purchasers
in the Purchase Agreement, and hereby further represents and warrants that this
Agreement has been duly authorized, executed and delivered on behalf of the
Company and constitutes the legal, valid and binding agreement of the Company
(except insofar as enforcement of the indemnification or contribution provisions
hereof may be limited by applicable laws or principles of public policy and
subject, as to enforcement, to the availability of equitable remedies and
limitations imposed by bankruptcy, insolvency, reorganization and other similar
laws and related court decisions relating to or affecting creditors' rights
generally).
3
934971.1
<PAGE>
6. Additional Covenants of the Company. The Company further covenants
and agrees with the Placement Agent that:
(a) The Company will notify the Placement Agent of any event of
which it is aware and as a result of which the Offering Materials would include
an untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein not misleading; and it will not use any
amendment or supplement to the Offering Materials without the prior consent of
the Placement Agent (which consent will not be unreasonably withheld). The
Company will conduct the Offering in compliance with Section 4(2) of the Act and
the Rules and Regulations and all applicable state securities laws and
regulations.
(b) The Company covenants and agrees with the Purchaser that the
Company will pay all expenses, fees and taxes in connection with (i) the
preparation of the Offering Materials and all other documents delivered to
prospective investors, (ii) the furnishing of the opinions of counsel for the
Company, comfort letters and other closing documents, (iii) the registration or
qualification of the Shares for resale in states requested by selling
Purchasers, provided that the Company may do so without incurring unreasonable
effort or expense; provided, however, that the Company shall not be obligated to
(A) file any general consent to service of process, (B) qualify as a foreign
corporation in any jurisdiction in which it is not so qualified or (C) take any
action that would subject it to income taxation in any jurisdiction, and (iv)
the registration of the Shares under the Act in accordance with Section 8 of the
Purchase Agreements. The Company also agrees that it will reimburse the
Purchaser for its reasonable out-of-pocket expenses in connection with the
Offering, and will pay the reasonable fees and expenses of Dewey Ballantine LLP,
counsel to the Placement Agent.
(c) The Company agrees to reasonably cooperate with the Placement
Agent and its counsel with respect to their due diligence investigation.
(d) The Company agrees to deliver to the Placement Agent the legal
opinions, comfort letters and other documents specified in Annex A hereto at the
times set forth therein.
7. Conditions of Placement Agent's Performance. The purchase and sale
of the Shares and the obligations of the Placement Agent as provided herein
shall be subject to the accuracy, as of the date hereof and the Closing Date (as
if made on and as of such Closing Date), of the representations and warranties
of the Company herein and in the Purchase Agreements and to the performance in
all material respects by the Company of its obligations hereunder and under the
Purchase Agreements.
8. Representations, Warranties, and Covenants of the Placement Agent.
The Placement Agent hereby represents and warrants to, and covenants
with, the Company that:
4
934971.1
<PAGE>
(a) This Agreement has been duly authorized, executed and delivered
by the Placement Agent and constitutes the legal, valid and binding obligation
of the Placement Agent, enforceable against it in accordance with its terms
(subject, as to enforcement, to the availability of equitable remedies and
limitations imposed by bankruptcy, insolvency, reorganization and other similar
laws and related court decisions relating to or affecting creditors' rights
generally).
(b) The Placement Agent will comply with any reasonable written
advice of the Company with respect to the manner in which to offer and sell the
Shares so as to ensure that the offering and sale thereof will comply with the
securities laws of any state in which Shares are offered by the Placement Agent,
and the Placement Agent will not make an offer of Shares in any state which the
Company advises it in writing that such offer would be unlawful.
(c) The Placement Agent is (i) a registered broker-dealer under the
Exchange Act, (ii) is a member in good standing of the National Association of
Securities Dealers, Inc. (the "NASD"), and (iii) registered as a broker-dealer
in each jurisdiction in which it is required to be registered as such in order
to offer and sell the Shares in such jurisdiction.
(d) Except by means of materials or communications provided or
approved by the Company or except as otherwise agreed to by the Company, the
Placement Agent has not and will not make an offer of Shares on the basis of any
communications or documents relating to the Company or the Shares except by
means of the Offering Materials. The Placement Agent will deliver a copy of the
Offering Materials, as then amended or supplemented, to each prospective
investor solicited by it prior to such offeree's execution of a Purchase
Agreement.
(e) The Placement Agent has not and will not make an offer of
Shares on behalf of the Company, or of any securities, the offering of which may
be integrated with the Offering, by any form of general solicitation or general
advertising in violation of Rule 502(c) of Regulation D such as would cause the
offering of Shares not to qualify under Section 4(2) of the Act as a transaction
except from Section 5 thereof. Any information relating to the Placement Agent
or the Offering and furnished by the Placement Agent in writing expressly for
inclusion in the Offering Materials (it being understood that any of such
information will be specified in a separate letter between the Company and the
Placement Agent) will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make such information, in light of the circumstances under which it is used, not
misleading.
(f) Except as would not cause the offering of Shares not to qualify
under Section 4(2) of the Act as a transaction exempt from Section 5 thereof or
under any similar exemption under state securities laws, the Placement Agent
will not transmit to the Company any written offer from an offeree to purchase
Shares unless, immediately prior thereto, it reasonably believes that:
(i) the offeree is an Accredited Investor; and
5
934971.1
<PAGE>
(ii) the offeree meets all other offeree and/or purchaser
suitability standards, if any, required under applicable state
securities laws and regulations.
(g) The Placement Agent will periodically notify the Company at
reasonable intervals of the jurisdictions in which the Shares are being offered
by it or will be offered by it pursuant to this Agreement, and will periodically
notify the Company at reasonable intervals of the status of the Offering
conducted pursuant to this Agreement.
9. Indemnification and Contribution. In the event that the
Placement Agent becomes involved in any capacity in any claim, suit, action,
proceeding, investigation or inquiry (including, without limitation, any
shareholder or derivative action or arbitration proceeding) in connection with
any matter in any way referred to in this Agreement or arising out of the
matters contemplated by this Agreement with respect to which the Placement Agent
is entitled to indemnification as contemplated herein (a "Proceeding"), the
Company will reimburse the Placement Agent for its reasonable legal and other
expenses (including the cost of any investigation and preparation) as such
expenses are incurred by the Placement Agent in connection therewith. The
Company also agrees to indemnify, defend and hold the Placement Agent harmless,
to the fullest extent permitted by law, from and against any losses, claims,
damages, liabilities and expenses (A) arising out of or based upon any untrue
statement or alleged untrue statement of any material fact contained in the
Offering Materials or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary in order to make the
statements therein not misleading, or (B) in connection with any matter in any
way relating to or referred to in this Agreement or arising out of the matters
contemplated by this Agreement, unless, in the case of this clause (B), it shall
be determined by a court of competent jurisdiction in a judgment that has become
final in that it is no longer subject to appeal or other review that such
losses, claims, damages, liabilities and expenses resulted solely from the gross
negligence or willful misconduct of the Placement Agent. The Company may assume
the defense of any such Proceeding, including the employment of counsel
reasonably satisfactory to the Placement Agent. If such indemnification to which
the Placement Agent is entitled were for any reason not to be available or
sufficient to hold the Placement Agent harmless, the Company agrees to
contribute to the losses, claims, damages, liabilities and expenses involved in
the proportion appropriate to reflect the relative benefits paid or received or
sought to be paid or received by the Company and its stockholders on the one
hand, and the Placement Agent, on the other hand, in the matters contemplated by
this Agreement; provided, that in no event shall the Company contribute less
than the amount necessary to assure that the Placement Agent is not liable for
losses, claims, damages, liabilities and expenses in excess of the amount of
fees that the Placement Agent is entitled to receive pursuant to this Agreement.
The Company will not settle any Proceeding in respect of which indemnity may be
sought hereunder, whether or not the Placement Agent is an actual or potential
party to such Proceeding, without the Placement Agent's prior written consent
(which consent shall not be unreasonably withheld). For purposes of this
paragraph, the Placement Agent shall include Warburg Dillon Read LLC, any of its
affiliates, each other person, if any, controlling Warburg Dillon Read LLC or
any of its affiliates, their
6
934971.1
<PAGE>
respective officers, current and former directors, employees and agents, and the
successors and assigns of all of the foregoing persons. The foregoing indemnity
and contribution agreement shall be in addition to any rights that the Placement
Agent or any indemnified party may have at common law or otherwise.
The Company also agrees that neither the Placement Agent nor any of
its affiliates, directors, agents, employees or controlling persons shall have
any liability to the Company or any person asserting claims on behalf of or in
right of the Company in connection with or as a result of either the Placement
Agent 's appointment under this Agreement or any matter referred to in this
Agreement except to the extent that any losses, claims, damages, liabilities or
expenses incurred by the Company are determined by a court of competent
jurisdiction in a judgment that has become final in that it is no longer subject
to appeal or other review to have resulted solely from the gross negligence or
willful misconduct of the Placement Agent in performing the services that are
the subject of this Agreement.
10. Representations, Warranties and Covenants to Survive Delivery.
All representations, warranties and covenants of the Company herein shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of the Placement Agent, the Company, or any of their respective
officers, directors or controlling persons, and shall survive delivery of the
Shares.
11. Termination. This Agreement shall terminate if the Closing of
the sale of the Shares does not occur on or before March 15, 2000, unless
extended by the mutual agreement of the Company and the Placement Agent. Upon
any such termination, (i) the Company shall reimburse the Placement Agent for
its reasonable out-of-pocket expenses, and pay the reasonable fees and expense
of Dewey Ballantine LLP, counsel to the Placement Agent, in each case as
provided in Section 6(b) hereof, and (ii) the obligations of the parties set
forth in Section 9 hereof shall survive termination of this Agreement.
12. Notices. All notices of communications hereunder, except as
herein otherwise specifically provided, shall be in writing mailed, delivered or
faxed to the Placement Agent at 299 Park Avenue, New York, NY 10171, Attention:
Benjamin D. Lorello (fax: 212-821-5520), with a copy to Dewey Ballantine LLP,
1301 Avenue of the Americas, New York, NY 10019, Attn: Donald J. Murray (fax:
212-259-6333) or, if sent to the Company, at 140 Locke Drive, Marlborough, MA
01752, Attn: President (fax: 508-485-6045), with a copy to Battle Fowler LLP, 75
East 55th Street, New York, New York 10022, Attn: Luke P. Iovine, III (fax:
212-856-7816).
13. Announcements and Advertisements. After the Closing and public
announcement of the Offering, the Placement Agent may, at its own expense, place
customary tombstone announcements or advertisements in financial newspapers and
journals describing its services hereunder; provided, that, prior to
consummation of the Offering, such announcements or advertisements (other than
those appearing in trade journals or other marketing materials of the Placement
Agent) shall require the prior approval of the Company (which approval shall not
be unreasonably withheld), unless in
7
934971.1
<PAGE>
the case of multiple announcements, the form of such announcement or
advertisement previously has been approved by the Company.
14. Governing Law; Consent to Jurisdiction; Waiver of Trial by
Jury. This Agreement and any claim, counterclaim or dispute of any kind or
nature whatsoever arising out of or in any way relating to this Agreement
("Claim"), directly or indirectly, shall be governed by and construed in
accordance with the laws of the State of New York. Except as set forth below, no
Claim may be commenced, prosecuted or continued in any court other than the
courts of the State of New York located in the City and County of New York or in
the United States District Court for the Southern District of New York, which
courts shall have exclusive jurisdiction over the adjudication of such matters,
and the Company and the Placement Agent consent to the jurisdiction of such
courts and personal service with respect thereto. The Company hereby consents to
personal jurisdiction, service and venue in any court in which any Claim arising
out of or in any way relating to this Agreement is brought by any third party
against the Placement Agent or any indemnified party. Each of the Placement
Agent and the Company waives all right to trial by jury in any Proceeding or
counterclaim (whether based upon contract, tort or otherwise) in any way arising
out of or relating to this Agreement. The Company agrees that a final judgment
in any such Proceeding or counterclaim brought in any such court shall be
conclusive and binding upon the Company and may be enforced in any other courts
to the jurisdiction of which the Company is or may be subject, by suit upon such
judgment.
15. Lending Relationships. A lending affiliate of the Placement
Agent may have lending relationships with the Company. To the extent required
under the securities laws, the Company will disclose in the Offering Materials
the existence of any such lending relationships and whether the proceeds of the
Offering will be used to repay debts owed to affiliates of the Placement Agent.
16. Benefits of Agreement. This Agreement shall be binding upon
and, except as set forth in the following sentence, is solely for the benefit of
the Placement Agent and the Company and any successor or assign of any
substantial portion of the Company's and the Placement Agent's respective
businesses and/or assets. Nothing expressed or mentioned herein is intended or
shall be construed to give any other person, firm or corporation any legal or
equitable right, remedy or claim under or in respect of this Agreement or any
representation, warranty or agreement herein contained, except as set forth in
Section 9.
17. No Effect on Letter Agreement. Neither the entering into of
this Agreement nor any termination of this Agreement shall be deemed to change
the obligations of the parties under that certain letter agreement dated January
11, 2000 between the Company and the Placement Agent, which letter agreement
shall continue to be remain in effect in accordance with the terms thereof.
8
934971.1
<PAGE>
18. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
Very truly yours,
HEMASURE INC.
By: /s/John F. McGuire
______________________________________
John F. McGuire
President and Chief Executive Officer
WARBURG DILLON READ LLC
By:/s/Benjamin D. Lorello
___________________________
Benjamin D. Lorello
Managing Director
By:/s/Real H. Leclerc
___________________________
Real H. Leclerc
Director
9
934971.1
<PAGE>
ANNEX A TO PLACEMENT AGENCY AGREEMENT
Legal Opinion of Battle Fowler LLP(1)
Battle Fowler LLP, counsel to the Company, shall have delivered a
legal opinion, dated the Closing Date and addressed to the Placement Agent, to
the effect that:
a. The Company is a corporation validly existing and in good
standing under the laws of the State of Delaware and has all
requisite corporate power and authority to conduct its
business as presently conducted; and the Company is duly
qualified to conduct its business as a foreign corporation in
Massachusetts.
b. The authorized capital stock of the Company consists of (a)
35,000,000 shares of common stock, $.01 par value per share,
and (b) 1,000,000 shares of undesignated preferred stock, $.01
par value per share.
c. When issued and paid for in accordance with the Agreements,
the Shares will be validly issued, fully paid and
non-assessable and will not have been issued in violation of
any preemptive rights contained in the Company's Certificate
of Incorporation or under the Delaware General Corporation
Law.
d. The Company has the requisite corporate power and authority
(A) to enter into this Agreement and (B) to issue, sell and
deliver the Shares to be sold by it to the Purchasers as
provided in the Purchase Agreements; and the Purchase
Agreements have been duly authorized, executed and delivered
by the Company.
e. The Purchase Agreements constitute the valid and binding
obligation of the Company, enforceable against the Company in
accordance with their terms.
f. Neither the offer, sale or delivery of the Shares, the
execution, delivery or performance by the Company of the
Purchase Agreements, nor the consummation by the Company of
the transactions contemplated thereby constitutes or will
constitute a breach or violation of, or a default under, the
Certificate of Incorporation or Bylaws of the Company or any
agreement, indenture, lease or other instrument to which the
Company is a party or by which its properties or assets is
subject and, in each case, which is identified as an exhibit
to the Company's Annual Report on Form 10-K for the Year Ended
December 31, 1998 (the "1998 10-K") or to any Quarterly Report
on Form 10-
- --------
(1)Subject to customary assumptions, qualifications, and limitations.
913304.5
<PAGE>
Q or Current Report on Form 8-K filed with the Commission
subsequent to the 1998 10-K (each such agreement, indenture,
lease or other contract or instrument herein, a "Material
Agreement"), or will result in the creation or imposition of
any material lien, charge or encumbrance upon any property or
assets of the Company pursuant to the terms of any Material
Agreement, nor will any such action result in any material
violation of any existing law, or any regulation, ruling
judgment, injunction, order or decree known to us to be
applicable to the Company and to transactions of the nature
contemplated by the Offering.
g. No consent, approval, authorization or other order of, or
registration or filing with, any court, regulatory body,
administrative agency or other governmental body, agency or
official is required on the part of the Company (except such
as may be required under state securities or Blue Sky laws
governing the sale of the Shares, the filing of a Form D with
respect to the issuance of the Shares with the Commission, or
such as may be required in connection with the performance by
the Company of its obligations under Section 8 of the Purchase
Agreements, as to which we express no opinion) for the
issuance and sale of the Shares to the Purchasers as
contemplated by the Purchase Agreements.
h. To our knowledge, there are no legal or governmental
proceedings pending or threatened against the Company, or to
which the Company or any of its properties are subject, which
are not disclosed or identified in the Offering Memorandum and
which, if adversely decided, would likely cause a Material
Adverse Effect or materially and adversely affect the issuance
of the Shares or the consummation of the transactions
contemplated by the Purchase Agreements.
i. The offer and sale of the Shares in the manner contemplated
by the Offering Memorandum, the Placement Agency Agreement and
the Purchase Agreements do not require registration under
Section 5 of the Act.
j. The Company is not, and upon consummation of the sale of the
Shares will not be, an "investment company" or a person
"controlled" by an "investment company" within the meaning of
the Investment Company Act of 1940, as amended.
In addition, we have participated in conferences with officers and
other representatives of the Company, representatives of the independent public
accountants of the Company, the Placement Agent and representatives of the
Placement Agent at which the contents of the Offering Memorandum were discussed
and, although we are is not passing upon and do not assume responsibility for
the accuracy, completeness or fairness of the statements contained in the
Offering Memorandum, on the basis of the foregoing nothing has come to the
attention of such counsel that causes them to believe that the Offering
Memorandum as of its date and as of
2
913304.5
<PAGE>
the date hereof contained or contains an untrue statement of a material fact or
omitted or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading (it being understood
that we express no opinion with respect to the financial statements and
schedules and other financial, accounting and statistical data included in or
excluded from the Offering Memorandum).
In rendering their opinion as aforesaid, counsel may rely upon an
opinion or opinions of other counsel retained by it or the Company as to laws of
any jurisdiction other than the United States, the State of New York or the
General Corporation Law of the State of Delaware; provided that (i) each such
local counsel is reasonably acceptable to the Placement Agent, (ii) such
reliance is expressly authorized by each opinion so relied upon and a copy of
each such opinion is delivered to the Placement Agent and is in form and
substance satisfactory to them and their counsel and (iii) counsel shall state
in its opinion that it believes that it and the Placement Agent are justified in
relying thereon.
Legal Opinion of Heslin & Rothenberg, P.C.
Heslin & Rothenberg, P.C., intellectual property counsel to the
Company, shall have delivered a legal opinion dated the Closing Date and
addressed to the Placement Agent to the effect that to such counsel's knowledge,
the statements in the Offering Memorandum under the captions "Risk Factors - We
May Be Unable to Adequately Protect Our Proprietary Rights," "Risk Factors - We
May Be Sued by Third Parties for Infringement of Their Proprietary Rights, in
the first and second paragraphs under the caption "Risk Factors - We May Not
Prevail in Pending or Potential Lawsuits", "Business - Licenses, Patents and
Proprietary Information" and in the first through fifth paragraphs under the
caption "Business - Legal Proceedings" insofar as such statements constitute
summaries of intellectual property matters with respect to the Company and the
Subsidiary, are in all material respects accurate and complete statements or
summaries of the matters therein set forth.
Legal Opinion of Pennie & Edmonds LLP
Pennie & Edmonds LLP, intellectual property litigation counsel to the
Company, shall have delivered a legal opinion dated the Closing Date and
addressed to the Placement Agent to the effect that to such counsel's knowledge
the statements in the Offering Memorandum in the first and second paragraphs
under the captions "Risk Factors - We May Not Prevail in Pending or Potential
Lawsuits" and in the first through sixth paragraphs under the caption "Business
- - Legal Proceedings," as of the date of the Offering Memorandum and as of the
date of such opinion, are in all material respects accurate and complete
statements or summaries of the matters therein set forth.
3
913304.5
<PAGE>
Legal Opinion of Vinson & Elkins L.L.P.
Vinson & Elkins L.L.P., intellectual property litigation counsel to
the Company, shall have delivered a legal opinion dated the Closing Date and
addressed to the Placement Agent to the effect that to such counsel's knowledge
the statements in the Offering Memorandum in the first and second paragraphs of
the section captioned "Risk Factors - We May Not Prevail in Pending or Potential
Lawsuits" and in the third and fourth paragraphs of the section captioned
"Business - Legal Proceedings," as of the date of the Offering Memorandum and as
of the date of such opinion, are in all material respects accurate and complete
statements or summaries of the matters therein set forth.
Legal Opinion of Hale and Dorr LLP
Hale and Dorr LLP, special regulatory counsel to the Company shall
have delivered a legal opinion dated the Closing Date and addressed to the
Placement Agent to the effect that to such counsel's knowledge the statements in
the Offering Memorandum under the caption "Risk Factors - We May Not Be Able to
Timely Obtain Regulatory Approvals, If at All" and "Business - Government
Regulation," insofar as such statements constitute summaries of law under the
Federal Food, Drug and Cosmetic Act applicable to the Company's business and
products as set forth in the Offering Memorandum, as of the date of the Offering
Memorandum and as of the date of such opinion, are in all material respects
accurate summaries.
Comfort Letters
The Placement Agent shall have received from PricewaterhouseCoopers
LLP "comfort" letters dated the date of the Offering Memorandum, the date of the
Agreements and the Closing Date, substantially in the forms heretofore approved
by the Placement Agent.
4
913304.5
Exhibit 10.31
FORM OF PURCHASE AGREEMENT
HEMASURE INC.
March 2, 2000
926907.2
<PAGE>
HEMASURE INC.
PURCHASE AGREEMENT
This Purchase Agreement (the "Agreement") is made as of the __ day of
March, 2000 (the "Agreement Date"), by and between HemaSure Inc., a Delaware
corporation (the "Company"), with its principal office at 140 Locke Drive,
Marlborough, Massachusetts 01752, and the purchaser whose name and address is
set forth on the signature page hereof (the "Purchaser").
IN CONSIDERATION of the mutual covenants contained in this Agreement,
the Company and the Purchaser agree as follows:
SECTION 1
Authorization of Sale of the Shares
-----------------------------------
1.1 Authorization of Sale of the Shares. Subject to the terms and
conditions of this Agreement, the Company has authorized the sale of up to an
aggregate of 3,730,000 shares (the "Offered Shares") of common stock, $.01 par
value, of the Company (the "Common Stock"), pursuant to the Offering Memorandum
(as defined below).
SECTION 2
Purchase and Sale of Common Stock
---------------------------------
2.1 Purchase and Sale of Common Stock. The Purchaser agrees to purchase
from the Company, and the Company agrees to issue and sell to the Purchaser,
upon the terms and conditions hereinafter set forth, the number of Offered
Shares set forth below (the "Shares") at the purchase price (the "Purchase
Price") set forth below:
Number of Shares to
be Purchased Purchase Price Per Share Purchase Price
------------------- ------------------------ --------------
$7.50
The Company proposes to enter into substantially the same form of
purchase agreement with certain other investors (the "Other Purchasers," and
together with the Purchaser, the "Purchasers") and expects to complete sales of
the Offered Shares to them. The term "Placement Agent" shall refer to Warburg
Dillon Read LLC.
926907.2
<PAGE>
SECTION 3
Closing Date; Delivery
----------------------
3.1 Closing Date. The completion of the purchase and sale of the Shares
(the "Closing") will be held at such place and time as designated by the
Company, and the Purchaser will receive prior notification of the Closing by
facsimile, telex, cable or by other means deemed appropriate by the Company. The
date of the Closing to occur hereunder (the "Closing Date") shall not be later
than 5:00 p.m. ET on March __, 2000.
3.2 Delivery. At the Closing, the Company will deliver to the Purchaser
the certificates evidencing the Shares purchased by the Purchaser, as described
above. Such delivery shall be against payment of the Purchase Price by wire
transfer of immediately available funds from the Purchaser to the Company.
Certificates representing the Shares purchased by the Purchaser will be
registered in the Purchaser's name, or in the name of a nominee if designated by
the Purchaser.
SECTION 4
Representations, Warranties and Covenants of the Company
--------------------------------------------------------
The Company represents, warrants and covenants to the Purchasers as
follows:
4.1 Offering Memorandum. The Company's private placement memorandum
(including all attachments thereto) dated February 3, 2000 (the "Offering
Memorandum") as amended and/or supplemented through the Closing Date does not
contain 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; there are
no statutes, regulations, material agreements, contracts, indentures, leases or
other instruments that are not described in the Offering Memorandum that would
be required to be described if the Offering Memorandum were a prospectus
required to be filed under the Securities Act of 1933, as amended (the
"Securities Act"); and the Company has not distributed any offering material in
connection with the offering or sale of the Shares other than the Offering
Memorandum.
4.2 Organization and Good Standing. The Company is a corporation duly
organized and validly existing under the laws of the State of Delaware and is in
good standing as a domestic corporation under the laws of such state, and has
the requisite corporate power and authority to own its properties and to carry
on its business as now being conducted.
4.3 Foreign Qualification. The Company is duly qualified to do business
and is in good standing as a foreign corporation in every jurisdiction in which
its ownership of property or the conduct of its business requires it so to be
qualified, except where the failure to so qualify would not have a material
adverse effect on the business, operations, prospects, properties, condition
(financial or otherwise) or results of operation of the Company and the
Subsidiary (as hereinafter defined) taken as a whole (a "Material Adverse
Effect").
926907.2
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4.4 No Material Subsidiaries. The Company has no subsidiaries that,
individually or in the aggregate, conduct any material business activities or
have any material assets or liabilities (whether fixed or contingent).
4.5 Due Execution, Delivery and Performance of the Agreements. The
Company has all requisite corporate power and authority and has taken all
requisite corporate action to duly authorize, execute and deliver this
Agreement, to sell and issue the Shares and to carry out and perform all of its
obligations under and contemplated by this Agreement. The Company's execution,
delivery and performance of this Agreement, the issuance and sale of the Shares
and the consummation of the transactions contemplated hereby (a) have been duly
authorized under Delaware law by all requisite corporate action by the Company
and (b) will not (i) conflict with, or result in any breach or violation of or
constitute a default under (nor constitute any event which with notice, lapse of
time, or both would result in any breach or violation of, or constitute a
default under) any provisions of the certificate of incorporation or by-laws of
the Company or under any provision of any material license, permit, indenture,
mortgage, deed of trust, bank loan or credit agreement or other evidence of
indebtedness, or any material lease, contract or other agreement or instrument
to which the Company is a party or by which it or its properties may be bound or
affected, or under any federal, state, local or foreign law, regulation or rule
or any decree, judgment or order applicable to the Company or (ii) result in the
imposition of any lien or encumbrance upon any asset or property of the Company
pursuant to any material indenture, mortgage, deed of trust, bank loan or credit
agreement or other evidence of indebtedness, or any lease, contract or other
agreement or instrument to which the Company is a party or by which it or its
properties may be bound or affected, except for any such liens or encumbrances
as would not, individually or in the aggregate, have a Material Adverse Effect.
Upon the execution and delivery of this Agreement by the Company and assuming
the valid execution and delivery hereof by the Purchaser, this Agreement will
constitute the valid and binding obligation of the Company enforceable against
the Company in accordance with its terms, except insofar as enforcement of the
indemnification or contribution provisions hereof may be limited by applicable
laws or principles of public policy and subject, as to enforcement, to the
availability of equitable remedies and limitations imposed by bankruptcy,
insolvency, reorganization and other similar laws and related court decisions
relating to creditors' rights generally.
4.6 Issuance and Delivery. When issued and paid for in accordance with
the terms hereof, the Shares will be validly issued and outstanding, fully paid
and non-assessable, will have been issued in compliance with all federal and
state securities laws (assuming the accuracy of each Purchaser's representations
and warranties in Section 5 of their respective Agreements and of the Placement
Agent set forth in the Placement Agency Agreement by and between the Company and
the Placement Agent) and will not have been issued in violation of any
preemptive right, anti-dilution right, resale right, right of first refusal or
similar right. Except as disclosed in the Offering Memorandum, no stockholder of
the Company has any right (other than any such right as has been waived or has
expired by reason of lapse of time following notification of the Company's
intent to file the Registration Statement (as hereinafter defined)) to require
the Company to register the sale of any securities owned by such holder under
the Securities Act, pursuant to the Registration Statement. No further approval
or authority of the stockholders or the Board of Directors of the Company will
be required for the issuance and sale of the Shares at and as of the Closing.
926907.2
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4.7 Use of Proceeds. The Company currently intends to apply the net
proceeds from the sale of the Shares substantially in the manner set forth under
the caption "Use of Proceeds" in the Offering Memorandum.
4.8 Sales of the Company's Securities. Except as provided in this
Agreement, the Company will not sell, offer to sell, contract to sell or
otherwise transfer or dispose of any Common Stock or any securities convertible
into or exercisable or exchangeable for Common Stock, or grant any options or
warrants to purchase Common Stock, for a period commencing on the date of the
Offering Memorandum and ending after the expiration of 180 days after the
Closing Date, without the prior written consent of the Placement Agent other
than (i) shares of Common Stock issuable upon the exercise of options or
warrants outstanding on the date hereof and described in the Offering Memorandum
and (ii) grants of options under the Company's existing stock option plans,
which options shall not be exercisable for at least 180 days after the Closing
Date (except pursuant to change in control provisions contained in the
applicable plan) unless the holder of such option shall have executed a
"lock-up" letter in the form contemplated by Section 4.9 below.
4.9 "Lock-up" Letters. The Company has furnished to the Placement Agent
"lock-up" letters, in form and substance satisfactory to the Placement Agent,
signed by each of its current directors and executive officers.
4.10 Market Activities. Except as stated in this Agreement or the
Offering Memorandum, the Company has not taken, nor will it take, directly or
indirectly, any action designed to or that might reasonably be expected to cause
or result in stabilization or manipulation of the price of the Common Stock of
the Company to facilitate the sale or resale of the Shares.
4.11 Integration. The Company agrees not to sell, offer for sale or
solicit offers to buy or otherwise negotiate in respect of any security (as
defined in the Securities Act) that would be integrated with the sale of the
Shares in a manner that would require the registration under the Securities Act
of the sale to the Purchasers of the Shares.
4.12 Governmental Consents. Except as stated in the Offering
Memorandum, no consent, approval, order or authorization of, or registration,
qualification, designation, declaration or filing with, any federal, state, or
local governmental authority on the part of the Company is required in
connection with the execution and delivery of this Agreement and the
consummation of the transactions contemplated by this Agreement (except such as
may be required under state securities or blue sky laws governing the sale of
the Shares, the filing of a Form D with respect to the issuance of the Shares
with the Securities and Exchange Commission (the "Commission"), which will be
filed in a timely manner, and such as may be required in connection with the
Company's compliance with its obligations under Section 8 hereof).
4.13 Regulatory Consents. The Company has all necessary material
licenses, permits, authorizations, consents and approvals and has made all
necessary material filings required under any federal, state, local or foreign
law, regulation or rule, and has obtained all necessary material authorizations,
consents and approvals from other persons, in order to conduct its respective
businesses as currently conducted; the Company is not in violation of, or in
default under, any such license, permit, authorization, consent or approval or
any federal, state, local or foreign law, regulation or rule or any decree,
order or judgment applicable to the Company, the effect of which could,
individually or in the aggregate, have a Material Adverse Effect.
926907.2
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4.14 SEC Documents. The Company has filed in a timely manner all
documents that the Company was required to file with the Commission under
Sections 13, 14(a) and 15(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), since January 1, 1999 (the "SEC Documents"). As of their
respective filing dates, all SEC Documents filed by the Company with the
Commission complied in all material respects with the requirements of the
Exchange Act. None of the SEC Documents, as of their respective dates, contained
any untrue statement of material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements made therein,
in light of the circumstances under which they were made, not misleading. The
financial statements included in the SEC Documents have been prepared in
accordance with generally accepted accounting principles consistently applied
and fairly present, in all material respects, the consolidated financial
position, the consolidated results of operations and consolidated cash flows of
the Company for the periods then ended (subject, in the case of unaudited
statements, to normal adjustments).
4.15 Independent Auditors. PricewaterhouseCoopers LLP are independent
public accountants as required by the Securities Act.
4.16 Financial Statements. There are no financial statements
(historical or pro forma) that would be required to be included in the Offering
Memorandum if the Offering Memorandum were a prospectus required to be filed
under the Securities Act, as of the date of the Offering Memorandum, that are
not so included. All financial statements so included have been prepared in
accordance with United States generally accepted accounting principles
consistently applied and fairly present the consolidated financial position of
the Company at the dates thereof and the consolidated results of the Company's
operations and consolidated cash flows for the periods then ended (subject, in
the case of unaudited statements, to normal adjustments).
4.17 Exempt Transactions. Subject to the accuracy of each Purchaser's
representations and warranties in Section 5 of their respective Agreements and
of the Placement Agent set forth in the Placement Agency Agreement by and
between the Company and the Placement Agent, the offer, sale and issuance of the
Shares in conformity with the terms of the Agreements do not require
registration under Section 5 of the Securities Act or registration or
qualification under the laws of any applicable state or United States
jurisdiction, except as stated in the Offering Memorandum.
4.18 No Material Adverse Change. Except as otherwise disclosed in the
Offering Memorandum, since September 30, 1999 there has not been any change in
the assets, liabilities, financial condition, business or operations of the
Company except for changes in the ordinary course of business which have not
been, either individually or in the aggregate, materially adverse.
4.19 Intellectual Property. Except as otherwise disclosed in the
Offering Memorandum, the Company owns or possesses sufficient rights to use all
patents, patent rights, inventions, trademarks, trade names, copyrights,
licenses, trade secrets, know-how, proprietary rights and processes that are
necessary for the conduct and proposed conduct of its business as described in
the Offering Memorandum (the "Proprietary Rights") without any conflict with or
infringement of the rights of others that might, individually or in the
aggregate, result in a Material Adverse Effect. Except as otherwise disclosed in
the Offering Memorandum, the Company believes that there are no third parties
that have or will be able to establish rights to any of the Proprietary Rights
that might result in a Material Adverse Effect. Except as otherwise disclosed in
the Offering Memorandum, to the knowledge of the Company, there is no
infringement by any third parties of the Proprietary Rights. Except as otherwise
disclosed in the Offering
926907.2
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<PAGE>
Memorandum, the Company has not received any notice of, or has no knowledge of
any basis for, any infringement of or conflict with asserted rights of others
with respect to any patent, patent right, invention, trademark, trade name,
copyright, license, trade secret, know-how or other proprietary right or process
that, individually or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, could have a Material Adverse Effect.
4.20 Authorized Capital Stock. The authorized capital stock of the
Company conforms in all material respects to the statements relating thereto
contained in the Offering Memorandum. The issued and outstanding shares of
capital stock of the Company have been duly authorized, validly issued and are
fully paid and nonassessable. No warrants, options or other rights to purchase,
agreements or other obligations to issue, or agreements or other rights to
convert any obligation into, any shares of capital stock of the Company have
been granted or entered into by the Company, other than those described in the
Offering Memorandum. All of the above securities of the Company were issued in
material compliance with all applicable federal and state securities laws and
were not issued in violation of any preemptive right, anti-dilution right,
resale right, right of first refusal or similar right.
4.21 Litigation. Except as disclosed in the Offering Memorandum, there
are no actions, suits, proceedings or investigations pending or, to the best of
the Company's knowledge, threatened against the Company, the Subsidiary or any
of their respective properties before or by any court or arbitrator or any
governmental body, agency or official which, if adversely decided, would (a)
have a Material Adverse Effect or (b) impair the ability of the Company to
perform in any material respect its obligations under this Agreement. Neither
the Company nor the Subsidiary is in default with respect to any judgment, order
or decree of any court or governmental agency or instrumentality which,
individually or in the aggregate, would have a Material Adverse Effect.
4.22 Compliance. The business and operations of the Company have been
and are being conducted in accordance with all applicable laws, rules and
regulations of all governmental authorities, except for such violations of
applicable laws, rules and regulations which would not, individually or in the
aggregate, have a Material Adverse Effect. The Company is not in violation of
its charter or by-laws nor is it in violation of, or in default under, any lien,
indenture, mortgage, lease, agreement, instrument, commitment or arrangement,
except for such defaults which would not, individually or in the aggregate, have
a Material Adverse Effect, or subject to any restriction which would prohibit
the Company from entering into or performing its obligations under the
Agreement.
4.23 Brokers or Finders. To the knowledge of the Company and except for
claims of the Placement Agent in connection with their agency services in this
transaction, no person, firm or corporation has or will have, as a result of any
act or omission of the Company, any right, interest or valid claim against the
Purchasers for any commission, fee or other compensation ("Fees") as a finder,
broker, or consultant in connection with the transactions contemplated by this
Agreement. The Fees payable to the Placement Agent shall be paid by the Company
on the Closing Date.
4.24 Contracts. The contracts described in the Offering Memorandum are
in full force and effect on the date hereof, and the Company is not in material
breach of or default under any of such contracts.
4.25 Investment Company. The Company is not, and upon completion of the
transactions contemplated hereby will not be, an "investment company" or an
"affiliated person" of or "promoter" or
926907.2
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"principal underwriter" for an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
4.26 Insurance. The Company maintains and will continue to maintain
from time to time insurance of the types and in the amounts that the Company
reasonably believes is adequate for its business, all of which insurance is in
full force and effect.
SECTION 5
Representations, Warranties and Covenants of the Purchaser
----------------------------------------------------------
5.1 The Purchaser represents, warrants and covenants to, the
Company that:
(a) the Purchaser, taking into account the personnel and
resources it can bring to bear on the purchase of the Shares
contemplated hereby, is knowledgeable, sophisticated and experienced in
making, and is qualified to make, decisions with respect to investments
in shares presenting an investment decision like that involved in the
purchase of the Shares, including investments in securities issued by
companies comparable to the Company, and has requested, received,
reviewed and considered all information it deems relevant in making an
informed decision to purchase the Shares;
(b) the Purchaser is acquiring the number of Shares set forth
in Section 2 above in the ordinary course of its business and solely
for its own account for investment only and with no present intention
of distributing any of such Shares or any arrangement or understanding
with any other persons regarding the distribution of such Shares;
(c) the Purchaser will not, directly or indirectly, offer,
sell, pledge, transfer or otherwise dispose of (or solicit any offers
to buy, purchase or otherwise acquire or take a pledge of) any of the
Shares except in compliance with (i) the Securities Act and the rules
and regulations promulgated thereunder, and (ii) any applicable state
securities laws;
(d) the Purchaser has completed or caused to be completed the
Registration Statement Questionnaire and the Stock Certificate
Questionnaire, both attached hereto as Appendix I, for use in
preparation of the Registration Statement, and the answers thereto are
true and correct as of the date hereof and will be true and correct as
of the effective date of the Registration Statement;
(e) the Purchaser has, in connection with its decision to
purchase the number of Shares set forth in Section 2 above, relied
solely upon the Offering Memorandum and the representations and
warranties of the Company contained herein; and
(f) the Purchaser qualifies as an institutional "accredited
investor" within the meaning of Rule 501(a)(1), (2), (3) or (7) of
Regulation D promulgated under the Securities Act.
5.2 The Purchaser hereby covenants with the Company not to make any
sale of the Shares without effectively causing the prospectus delivery
requirements under the Securities Act to be satisfied, and the Purchaser
acknowledges and agrees that such Shares are not transferable on the books of
the Company unless (a) such Shares are sold (i) pursuant to the Registration
Statement, (ii) pursuant to Rule
926907.2
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<PAGE>
144 under the Securities Act ("Rule 144"), or (iii) pursuant to an exemption
from registration, other than Rule 144, and (b) a certificate is submitted to
the transfer agent evidencing the Shares is accompanied by a separate officer's
certificate: (i) in the form of Appendix II hereto; (ii) executed by an officer
of, or other authorized person designated by, the Purchaser; and (iii) to the
effect that the Shares have been sold pursuant to (A) the Registration
Statement, in which case the Purchaser certifies that the requirement of
delivering a current prospectus has been complied with or will be complied with
in connection with the sale, (B) Rule 144, in which case the Purchaser certifies
that it has complied with or will comply with the requirements of Rule 144, or
(C) pursuant to an exemption from registration, other than Rule 144, in which
case the Purchaser must provide the Company with an opinion (in form and
substance reasonably satisfactory to the Company) of its counsel (who shall be
reasonably satisfactory to the Company) to the effect that the transaction is so
exempt. The Purchaser acknowledges that there may occasionally be times when the
Company must suspend the use of the Prospectus in accordance with Section 8.1(g)
hereof.
5.3 The Purchaser further represents and warrants to, and
covenants with, the Company that:
(a) the Purchaser is a ________, duly organized, validly
existing and in good standing under the laws of ________. The Purchaser
has full right, requisite [corporate][partnership] power, authority and
capacity to enter into this Agreement, to carry out its obligations
hereunder and to consummate the transactions contemplated hereby and
has taken all requisite [corporate][partnership] action to duly
authorize, execute and deliver this agreement and perform all of its
obligations under and contemplated by this Agreement;
(b) upon the execution and delivery of this Agreement, this
Agreement shall constitute a valid and binding obligation of the
Purchaser enforceable against the Purchaser in accordance with its
terms except insofar as enforcement of the indemnification or
contribution provisions hereof may be limited by applicable laws or
principles of public policy and subject, as to enforcement, to the
availability of equitable remedies and limitations imposed by
bankruptcy, insolvency, reorganization and other similar laws and
related court decisions relating to creditors' rights generally;
(c) the Purchaser's execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated
hereby (a) have been authorized by all requisite
[corporate][partnership] action by the Purchaser, and (b) will not
conflict with, or result in any breach or violation of or constitute a
default under (nor constitute any event which with notice, lapse of
time, or both would result in any breach or violation of, or constitute
a default under) any provisions of the organizational documents of the
Purchaser or under any provision of any material license, permit,
indenture, mortgage, deed of trust, bank loan or credit agreement or
other evidence of indebtedness, or any material lease, contract or
other agreement or instrument to which the Purchaser is a party or by
which it or its properties may be bound or affected, or under any
federal, state, local or foreign law, regulation or rule or any decree,
judgment or order applicable to the Purchaser; and
(d) no consent, approval, order or other authorization, action
by, filing with, or notification to any federal, state or local
governmental authority on the part of the Purchaser is required in
connection with its execution and delivery of this Agreement and its
consummation of the transactions contemplated by this Agreement, except
for such consents, approvals, orders or authorizations as have been
obtained.
926907.2
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5.4 The Purchaser understands that nothing in this Agreement or any
other materials presented to the Purchaser in connection with the purchase of
the Shares constitutes legal, tax or investment advice. The Purchaser has
consulted such legal, tax and investment advisors as it, in its sole discretion,
has deemed necessary or appropriate in connection with its purchase of the
Shares.
5.5 The Purchaser acknowledges and agrees that any information or data
it has acquired from the Company, not otherwise properly in the public domain,
was received in confidence. The Purchaser agrees not to divulge, communicate or
disclose, except as may be required by law after obtaining written consent from
the Company (which consent shall not be unreasonably withheld), or use to the
detriment of the Company or for the benefit of any other person or persons, or
misuse in any way, any confidential information of the Company; provided
however, that the Purchaser may furnish the Offering Materials in confidence to
its officers, directors, employees or advisors to the extent necessary to
evaluate the offering of the Offered Shares.
SECTION 6
Conditions to Closing of the Purchaser
--------------------------------------
The obligation of the Purchaser to purchase the Shares at the Closing
is subject to the fulfillment as of the Closing Date of the following
conditions:
6.1 Representations and Warranties. The representations and warranties
made by the Company in Section 4 hereof shall be true and correct when made, and
shall be true and correct on the Closing Date with the same force and effect as
if they had been made on and as of said date.
6.2 Covenants. All covenants, agreements and conditions contained in
this Agreement to be performed by the Company on or prior to the Closing shall
have been performed or complied with in all material respects.
6.3 Compliance Certificate. The President or Chief Financial Officer of
the Company shall have delivered to the Purchaser a certificate, dated as of the
Closing Date, certifying that the conditions specified in Sections 6.1 and 6.2
have been fulfilled.
6.4 Legal Opinion of Company Counsel. Battle Fowler LLP, counsel to the
Company, shall have delivered a legal opinion, dated the Closing Date addressed
to the Purchaser, substantially in the form as set forth in Annex A hereto.
6.5 Legal Opinion of Patent Counsel. Heslin & Rothenberg, P.C.,
intellectual property counsel to the Company, shall have delivered a legal
opinion dated the Closing Date and addressed to the Purchaser, substantially in
the form as set forth in Annex A hereto.
6.6 Legal Opinions of Patent Litigation Counsel
(a) Pennie & Edmonds LLP, intellectual property litigation
counsel to the Company, shall have delivered a legal opinion dated the
Closing Date and addressed to the Purchaser, substantially in the form
as set forth in Annex A hereto.
926907.2
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(b) Vinson & Elkins L.L.P., intellectual property litigation
counsel to the Company, shall have delivered a legal opinion dated the
Closing Date and addressed to the Purchaser, substantially in the form
as set forth in Annex A hereto.
6.7 Legal Opinion of Regulatory Counsel. Hale and Dorr LLP, regulatory
counsel to the Company, shall have delivered a legal opinion dated the Closing
Date and addressed to the Purchaser, substantially in the form as set forth in
Annex A hereto.
SECTION 7
Conditions to Closing of the Company
------------------------------------
The Company's obligation to sell and issue the Shares at the Closing to
a Purchaser is subject to the fulfillment or waiver of the following conditions:
7.1 Representations and Warranties. The representations and warranties
made by such Purchaser in Section 5 hereof shall be true and correct when made,
and shall be true and correct on the Closing with the same force and effect as
if they had been made on and as of such date.
7.2 Covenants. All covenants, agreements and conditions contained in
this Agreement to be performed by such Purchaser on or prior to the Closing
shall have been performed or complied with in all material respects.
7.3 Compliance Certificate. An authorized representative of the
Purchaser shall have delivered to the Company a certificate, dated as of the
Closing Date, certifying that the conditions specified in Sections 7.1 and 7.2
have been fulfilled.
SECTION 8
Registration Rights
-------------------
8.1 Registration Requirements.
(a) The Company shall, within 30 days following the Closing,
prepare and file a registration statement on the applicable form with
the Commission under the Securities Act to register the resale of the
Offered Shares purchased by the Purchasers, and the Company shall use
its best efforts to secure the effectiveness of such registration
statement within 90 days following the Closing Date. For purposes
hereof, the term "Registration Statement" shall refer to such
Registration Statement, including any prospectus(es) constituting a
part thereof and together with any amendments and supplements thereto.
(b) The Company shall pay all Registration Expenses (as
defined below) in connection with any registration, qualification or
compliance hereunder, and the Purchasers shall pay all Selling Expenses
(as defined below) and other expenses that are not Registration
Expenses relating to the Offered Shares resold by the Purchasers.
"Registration Expenses" shall mean all expenses, except for Selling
Expenses, incurred by the Company in complying with the registration
provisions herein described, including, without limitation, all
registration, qualification and filing
926907.2
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<PAGE>
fees, printing expenses, escrow fees, fees and disbursements of counsel
for the Company, reasonable fees and disbursements (not to exceed
$15,000) of one counsel for the Purchasers (selected by the Purchasers
owning a majority of the Offered Shares to be registered in the
Registration Statement), reasonable blue sky fees and expenses, the
expense of any special audits of the Company incident to or required by
any such registration and any fees and expenses, other than Selling
Expenses incurred in connection with any underwritten offering.
"Selling Expenses" shall mean all selling commissions, underwriting
fees and stock transfer taxes applicable to the Offered Shares.
(c) In the case of the registration effected by the Company
pursuant to these registration provisions, the Company will use its
best efforts to: (i) keep the Registration Statement effective until
the earlier of (A) such date as all of the Offered Shares have been
resold pursuant to the Registration Statement, or (B) such time as
Offered Shares held by the Purchasers can be sold without compliance
with the registration requirements of the Securities Act pursuant to
Rule 144(k) thereunder (or any successor rule thereto); (ii) prepare
and file with the Commission such amendments and post-effective
amendments to the Registration Statement as may be necessary to keep
the Registration Statement effective for the applicable period
specified in this Section 8.1(c); (iii) cause the related prospectus to
be supplemented by any required prospectus supplement, and as so
supplemented to be filed pursuant to Rule 424 (or any similar
provisions then in force) under the Securities Act; (iv) comply with
the provisions of the Securities Act with respect to the disposition of
all securities covered by the Registration Statement during the
applicable period in accordance with the intended methods of
disposition by the sellers thereof set forth in the Registration
Statement as so amended or such prospectus as so supplemented; (v)
furnish such number of prospectuses and other documents incident
thereto, including any amendment of or supplement to the prospectus, as
the Purchaser from time to time may reasonably request in order to
facilitate the disposition of Shares covered by the Registration
Statement, and the Company hereby consents to the use of such
prospectus or each amendment and supplement thereto by each of the
Purchasers selling Offered Shares and the underwriters, if any, in
connection with the offering and sale of the Shares covered by such
prospectus or any amendment or supplement thereto; (vi) cause the
Shares covered by the Registration Statement to be listed on each
securities exchange and quoted on each quotation service on which
similar securities issued by the Company are then listed or quoted and
maintain the listing of the Shares covered by the Registration
Statement; (vii) provide a transfer agent and registrar for all Shares
registered pursuant to the Registration Statement and a CUSIP number
for all such Shares; (viii) otherwise use its best efforts to comply
with all applicable rules and regulations of the Commission with
respect to maintaining the effectiveness of the Registration Statement;
and (ix) use its best efforts to register or otherwise qualify the
Shares for resale in states requested by the Purchaser; provided that
the Company may do so without incurring unreasonable effort or expense;
provided, further, that the Company shall not be obligated to (x) file
any general consent to service of process, (y) qualify as a foreign
corporation in any jurisdiction in which it is not so qualified or (z)
take any action that would subject it to income taxation in any such
jurisdiction.
In the event that any Offered Shares included in the
Registration Statement subject to, or required by, this Agreement
remain unsold at the end of the period during which the Company is
obligated to use its best efforts to maintain the effectiveness of the
Registration Statement, the
926907.2
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<PAGE>
Company may file a post-effective amendment to the Registration
Statement for the purpose of removing such Offered Shares from
registered status.
(d) It shall be a condition precedent to the obligations of
the Company to take any action pursuant to this Section 8.1 with
respect to the Offered Shares of any Purchaser that such Purchaser
shall furnish to the Company such information regarding such Purchaser,
the number of the Offered Shares owned by it, and the intended method
of disposition of such Offered Shares as shall be reasonably required
to effect the registration of such Offered Shares, and to cooperate
with the Company to the extent reasonably required in preparing such
registration.
(e) With a view to making available to the Purchaser the
benefits of Rule 144 and any other rule or regulation of the Commission
that may at any time permit the Purchaser to sell Shares to the public
without registration or pursuant to a registration on Form S-3 (if then
available), the Company covenants and agrees to: (i) make and keep
public information available, as those terms are understood and defined
in Rule 144, until the earlier of (A) such date as all of the Offered
Shares shall have been resold pursuant to the Registration Statement or
(B) such time as all of the Offered Shares held by Purchasers can be
sold without compliance with the registration requirements of the
Securities Act pursuant to Rule 144(k) thereunder (or any successor
rule thereto); (ii) file with the Commission in a timely manner all
reports and other documents required of the Company under the
Securities Act and Exchange Act; and (iii) furnish to the Purchaser
upon request, as long as the Purchaser owns any Shares, (A) a written
statement by the Company that it has complied with the reporting
requirements of the Securities Act and the Exchange Act, (B) a copy of
any annual, quarterly or current report of the Company, and (C) such
other information as may be reasonably requested in order to avail the
Purchaser of any rule or regulation of the Commission that permits the
selling of any such Shares without registration or pursuant to such
Form S-3.
(f) The Company shall notify the Purchaser, if the Purchaser
has registered Shares in a Registration Statement which remain unsold,
(i) when a prospectus or any prospectus supplement or post-effective
amendment has been filed, and, with respect to the Registration
Statement or any post-effective amendment, when the same are declared
effective, (ii) of any request by the Commission or any other federal
or state governmental authority during the period of effectiveness of
the Registration Statement for amendments or supplements to the
Registration Statement or related prospectus or for additional
information relating to the Registration Statement, (iii) of the
issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or the initiation of any
proceedings for that purpose, (iv) of the receipt by the Company of any
notification with respect to the suspension of the qualification or
exemption from qualification of any of the Shares for sale in any
jurisdiction or the initiation or threatening of any proceeding for
such purpose, (v) of the happening of any event which makes any
statement made in the Registration Statement or related prospectus
untrue in any material respect or which requires the making of any
changes in the Registration Statement or prospectus so that, in the
case of the Registration Statement, it will not contain any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading, and that in the case of the prospectus, it will
not contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which
they were made, not
926907.2
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<PAGE>
misleading, and (vi) of the Company's reasonable determination that a
post-effective amendment to the Registration Statement would be
appropriate.
(g) The Company may, upon written notice to the Purchaser of
(i) the happening of any event of the kind described in Section
8.1(f)(ii), 8.1(f)(iii), 8.1(f)(iv), 8.1(f)(v) or 8.1(f)(vi) hereof or
(ii) that, in the judgement of the Company's Board of Directors, it is
advisable to suspend use of the prospectus for a discrete period of
time due to pending corporate developments, public filings with the SEC
or similar events, require the Purchaser, and the Purchaser agrees, to
discontinue disposition of Shares covered by the Registration Statement
or prospectus until copies of the supplemented or amended prospectus
contemplated by Section 8.1(i) hereof are distributed to the
Purchasers, or until the Purchasers are advised in writing by the
Company that the use of the applicable prospectus may be resumed and
the Purchasers have received copies of any additional or supplemental
filings that are incorporated or deemed incorporated by reference in
such prospectus. The Company shall not suspend use of a prospectus or
Registration Statement under this Section 8.1(g) for more than 30 days
at a time and more than once in any 12-month period. Any period for
which use of a prospectus or Registration Statement is suspended under
this Section 8.1(g) shall be added to the time for which the Company is
required to maintain the effectiveness of such Registration Statement,
including the prospectus constituting a part thereof, under Section
8.1(c) hereof. Any period for which use of a prospectus or Registration
Statement is suspended in accordance with this Section 8.1(g) shall be
referred to herein as a "Suspension Period").
(h) The Company shall use reasonable efforts to obtain the
withdrawal of any order suspending the effectiveness of the
Registration Statement, or the lifting of any suspension of the
qualification (or exemption from qualification) of any of the Shares
for sale in any jurisdiction, at the earliest possible moment, subject
to Section 8.1(c)(ix) hereof.
(i) The Company shall, upon the occurrence of any event
contemplated by Section 8.1(f)(v) or 8.1(f)(vi) above, prepare a
supplement or post-effective amendment to the Registration Statement or
a supplement to the related prospectus or any document incorporated
therein by reference or file any other required document so that, as
thereafter delivered to the purchasers of the Shares being sold
thereunder, such prospectus will not contain 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, in light of the
circumstances under which they were made, not misleading.
(j) If the Registration Statement (i) is not declared
effective by the Commission on or before ninety (90) days from the
Closing Date or (ii) ceases to be effective (without being succeeded
immediately by an additional registration statement filed and declared
effective) or usable for the offer and sale of Shares at any time prior
to the earlier of (A) such date as all of the Shares have been resold
pursuant to the Registration Statement or (B) such time as all of the
Shares held by Purchasers can be sold without compliance with the
registration requirements of the Securities Act pursuant to Rule 144(k)
(other than during a Suspension Period in accordance with Section
8.1(g) hereof) (each such event referred to in clauses (i) through
(ii), a "Registration Default") the Company shall pay the Purchaser an
amount equal to 2% of the purchase price paid by the Purchaser for the
Shares of the Purchaser registered or to be registered under the
Securities Act pursuant to this Agreement and not previously sold
pursuant to the Registration Statement for every thirty day period
during which one or more Registration Defaults exist (and pro rated for
926907.2
13
<PAGE>
each lesser portion thereof); provided, however, that the aggregate
amount of damages the Purchaser is entitled to under this provision for
any and all Registration Defaults shall be limited to 5% of the
purchase price paid by the Purchaser for such Shares. Amounts payable
pursuant to this Section 8.1(j) shall be paid to the Purchaser within
20 business days after expiration of each 30 day period or lesser
portion thereof during which a Registration Default exists. Any
obligation of the Company to pay any amounts under this Section 8.1(j)
shall survive until such obligation is paid in full. The obligation of
the Company to pay amounts under this Section 8.1(j) is intended to be
in addition to, and not exclusive of, any other remedy that a Purchaser
may have (whether considered in equity or at law) in the event of a
Registration Default.
8.2 Agreements of Purchaser. In connection with any registration
pursuant to Section 8.1 hereof, the Purchaser agrees, as applicable:
(a) that it will not offer or sell its Offered Shares under
the Registration Statement until it has received copies of the
supplemented or amended prospectus contemplated by Section 8.1(c)(ii)
hereof and receives notice that any post-effective amendment (if
required) has become effective; and
(b) that upon receipt of any notice from the Company of the
happening of any transaction or event of the kind described in Section
8.1(g) hereof, such Purchaser will forthwith discontinue disposition of
the Offered Shares pursuant to the Registration Statement until the
Purchaser receives copies of the supplemented or amended prospectus
contemplated by Section 8.1(c)(ii) hereof and receives notice that any
post-effective amendment (if required) has become effective, and, if so
directed by the Company, the Purchaser will deliver to the Company (at
the expense of the Company) all copies in its possession, other than
permanent file copies then in such Purchaser's possession, of the
prospectus covering such Offered Shares current immediately preceding
the time of receipt of such notice.
8.3 Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless the
Purchaser and any officer, director, trustee or affiliate of such
Purchaser from and against any losses, claims, damages or liabilities
(or actions or proceedings in respect thereof) incurred by such
indemnified person pursuant to any actual or threatened (which threat
shall have been made in writing) action, suit, proceeding or
investigation, or to which any of the foregoing persons may become
subject under the Securities Act, the Exchange Act or other federal or
state laws, insofar as such losses, claims, damages or liabilities (i)
arise out of, or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement
or any prospectus (preliminary or final), as amended on the applicable
date thereof, (ii) 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, or
(iii) arise out of any failure by the Company to fulfill any
undertaking included in the Registration Statement or any prospectus
(preliminary or final), as amended on the applicable date thereof,
which, in the case of this clause (iii), results in a violation or
alleged violation of the federal securities laws, any applicable state
securities law or any rule or regulation promulgated under the
Securities Act, the Exchange Act or any applicable state securities
laws, and the Company will, as incurred within 30 days of written
notice thereof to the indemnifying person (regardless of whether it is
ultimately determined that
926907.2
14
<PAGE>
an indemnified person is not entitled to indemnification hereunder),
reimburse such indemnified person for any legal or other expenses
reasonably incurred in investigating, defending or preparing to defend
any such action, suit, proceeding or investigation; provided, however,
that the indemnification required by this Section 8.3 shall not apply
to amounts paid in settlement of any such loss, claim, damage,
liability or expense if such settlement is effected without the consent
of the Company, which consent shall not be unreasonably withheld, nor
shall the Company be liable in any such case to the extent that such
loss, claim, damage or liability arises out of, or is based upon (x) an
untrue statement or an omission made in such Registration Statement in
reliance upon and in conformity with written information furnished to
the Company by or on behalf of the indemnified person specifically for
use in preparation of the Registration Statement, or (y) any untrue
statement or the omission of a material fact in any prospectus that is
corrected in any subsequent prospectus that was delivered to the
indemnified person prior to the pertinent sale or sales by the
indemnified person.
(b) The Purchaser agrees to indemnify and hold harmless the
Company and each officer, director, trustee or affiliate of the Company
from and against any losses, claims, damages or liabilities (or actions
or proceedings in respect thereof), any other Purchaser selling its
Offered Shares in the Registration Statement, any controlling person of
any such other Purchaser (within the meaning of the Securities Act) and
each officer, director, partner, and employee of such other Purchaser
and such controlling person, incurred by such indemnified person
pursuant to any actual or threatened (which threat shall have been made
in writing) action, suit, proceeding or investigation, or to which any
of the foregoing persons may become subject under the Securities Act,
the Exchange Act or other federal or state laws insofar as such losses,
claims, damages or liabilities arise out of, or are based upon an
untrue statement or an alleged untrue statement of material fact made
in such Registration Statement or prospectus (preliminary or final), as
amended on the applicable date thereof, or 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 reliance
upon and in conformity with written information furnished to the
Company by or on behalf of the Purchaser specifically for use in
preparation of the Registration Statement, provided, however, that the
indemnification required by this Section 8.3 shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability or
expense if such settlement is effected without the consent of the
Purchaser, which consent shall not be unreasonably withheld, nor shall
the Purchaser be liable in any such case for any untrue statement or
alleged untrue statement or the omission or alleged omission that has
been corrected, in writing, by the Purchaser, delivered to the Company
before the sale from which such loss occurred, and the Purchaser will,
as incurred within 30 days of written notice thereof to the
indemnifying person (regardless of whether it is ultimately determined
that an indemnified party is not entitled to indemnification
hereunder), reimburse such indemnified person for any legal or other
expenses reasonably incurred in investigating, defending or preparing
to defend any such action, suit, proceeding or investigation; provided,
however, that the Purchaser's indemnification obligation shall be
limited to the net proceeds received from its sale of the Shares.
(c) Promptly after receipt by any indemnified person of a
notice of a claim or the beginning of any action in respect of which
indemnity is to be sought against an indemnifying person pursuant to
this Section 8.3, such indemnified person shall notify the indemnifying
person in writing of such claim or of the commencement of such action,
and, subject to the provisions
926907.2
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<PAGE>
hereinafter stated, in case any such action shall be brought against an
indemnified person and the indemnifying person shall have been notified
thereof, the indemnifying person shall be entitled to participate
therein, and, to the extent that it shall wish, to assume the defense
thereof, with counsel reasonably satisfactory to the indemnifying
person and indemnified persons. The failure to deliver written notice
to the indemnifying person within a reasonable time following the
commencement of any such action, if not otherwise known by the
indemnifying person and materially prejudices or results in forfeiture
of substantial rights or defenses shall relieve such indemnifying
person of any liability to the indemnified party under this Section 8.3
but shall not relieve the indemnifying person of any liability that it
may have to any indemnified party otherwise than pursuant to this
Section 8.3. After notice from the indemnifying person to such
indemnified person of the indemnifying person's election to assume the
defense thereof, the indemnifying person shall not be liable to such
indemnified person for any legal expenses subsequently incurred by such
indemnified person in connection with the defense thereof; provided,
however, that if there exists or shall exist a conflict of interest
such that counsel employed by the indemnifying party could not
faithfully represent both the indemnified person and such indemnifying
person or any affiliate or associate thereof, the indemnified person,
after notifying the indemnifying person in writing of its election to
employ separate counsel, shall be entitled to retain its own counsel at
the expense of such indemnifying person, it being understood, however,
that the indemnifying person shall not, in connection with any one such
action, claim or proceeding or separate but substantially similar or
related actions, claims or proceedings in the same jurisdiction arising
out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one additional firm of
attorneys (together with appropriate local counsel) at any time for all
such indemnified persons, unless in the reasonable judgment of such
indemnified person a conflict of interest may exist between such
indemnified person and any other of such indemnified persons with
respect to such action, claim or proceeding, in which event the
indemnifying person shall be obligated to pay the fees and expenses of
such additional counsel or counsels. No indemnifying person shall be
liable to an indemnified person for any settlement of any action,
proceeding or claim without the written consent of the indemnifying
person, which consent shall not be unreasonably withheld.
(d) If the indemnification provided for in this Section 8.3 is
unavailable to or insufficient to hold harmless an indemnified party
under subsection (a) or (b) above in respect of any losses, claims,
damages or liabilities (or actions or proceedings in respect thereof)
referred to therein, then each indemnifying party shall contribute to
the amount paid or payable by such indemnified party as the result of
such losses, claims, damages or liabilities (or actions in respect
thereof) in such proportion as is appropriate to reflect the relative
fault and benefits of the indemnifying person and indemnified persons
in connection with the statements or omissions which resulted in such
losses, claims, damages or liabilities (or actions in respect thereof),
as well as any other relevant equitable considerations. The relative
fault of such indemnifying person and indemnified persons shall be
determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by
such indemnifying person or indemnified persons and the parties'
relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The relative benefit to
the Purchaser shall be determined by reference to the net proceeds
received by it in connection with the offering to which such losses,
claims, damages or liabilities relate. The relative benefit to the
Company shall be deemed to equal the net
926907.2
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<PAGE>
proceeds to the Company from the sale of the Offered Shares to the
Purchasers pursuant to the Offering Memorandum. The Company and the
Purchaser agree that it would not be just and equitable if contribution
pursuant to this subsection (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 above in this subsection (d). The
amount paid or payable by an indemnified party as a result of the
losses, claims, damages, or liabilities (or actions in respect thereof)
referred to above in this subsection (d) shall be deemed to include,
subject to the limitations set forth in Sections 8.3(a) and (b) hereof,
any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or
claim. Notwithstanding the provisions of this subsection (d), a
Purchaser shall not be required to contribute any amount in excess of
the amount by which the gross amount received by such Purchaser from
the sale of the Shares to which such loss relates exceeds the amount of
any damages which such Purchaser has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or
alleged omission. 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.
(e) The obligations of the Company and the Purchaser under
this Section 8.3 shall be in addition to any liability which the
Company and the Purchaser may otherwise have and shall extend, upon the
same terms and conditions, to directors, officers, employees and agents
of the Company and the Purchaser and to each person, if any, who
controls the Company or any Purchaser within the meaning of Section 15
of the Securities Act and Section 20 of the Exchange Act.
(f) If the indemnification is available under this Section
8.3, the indemnifying parties shall indemnify each indemnified person
to the full extent provided in this Section 8.3 without regard to the
relative fault of such indemnifying person or indemnified person or any
other equitable consideration referred to in Section 8.3(d) hereof.
(g) The obligations of the Company and the Purchaser under
this Section 8.3 shall survive the completion of any offering of the
Offered Shares pursuant to the Registration Statement under this
agreement, and otherwise.
8.4 Underwritten Offerings.
(a) If holders owning a majority of the Offered Shares so
request, an offering of Offered Shares pursuant to the Registration
Statement may be effected as an underwritten offering. In such event,
the managing underwriter for such an offering shall be selected by the
holders of a majority of the Offered Shares to be sold pursuant to the
underwritten offering; provided, however, that each underwriter or
underwriters shall be reasonably satisfactory to the Company.
(b) In the event of an underwritten offering pursuant to
Section 8.3(a), (i) the Company shall (A) enter into an underwriting
agreement, in usual and customary form, with the managing underwriter
and take all such other actions in connection therewith as may
reasonably be required in order to facilitate such underwritten
offering, (B) make such customary representations and warranties to the
underwriters as the underwriters may reasonably request, (C) enter into
such customary indemnification arrangements with the underwriters as
the underwriters
926907.2
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<PAGE>
may reasonably request, and (D) make arrangements for the underwriters
to conduct customary due diligence to the extent the underwriters
reasonably request, (ii) each of the holders of Offered Shares to be
included in such underwritten offering shall enter into an underwriting
agreement, in usual and customary form, with the managing underwriter
and take all such other actions in connection therewith as may
reasonably be required in order to facilitate such underwritten
offering, and (iii) each of the holders of Offered Shares to be
included in such underwritten offering and executive officers and
directors of the Company shall enter into such lock-up agreements with
the underwriters as is customary for similar offerings; provided, that
such lock-up agreements shall not cover a period in excess of 90 days
from the date of the underwritten offering, unless otherwise agreed to
by the party from whom such lock-up agreement is sought.
SECTION 9
Restrictions on Transferability of Shares:
------------------------------------------
Compliance with Securities Act
------------------------------
9.1 Restrictions on Transferability. The Shares shall not be
transferable in the absence of a registration under the Securities Act or an
exemption therefrom or in the absence of compliance with any term of this
Agreement.
9.2 Restrictive Legend. Each certificate representing the Shares shall
bear substantially the following legends (in addition to any other legends
required under applicable law):
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT") OR UNDER ANY STATE
SECURITIES LAWS. THE HOLDER HEREOF, BY PURCHASING THIS
SECURITY, AGREES FOR THE BENEFIT OF HEMASURE INC. (THE
"COMPANY") THAT THIS SECURITY MAY BE RESOLD, PLEDGED OR
OTHERWISE TRANSFERRED ONLY (1) TO THE COMPANY, (2) PURSUANT TO
AN EXEMPTION FROM REGISTRATION IN ACCORDANCE WITH RULE 144 (IF
AVAILABLE) UNDER THE SECURITIES ACT, ESTABLISHED TO THE
COMPANY'S SATISFACTION, OR OTHER EXEMPTION WHICH, IN THE
OPINION OF COUNSEL FOR THE HOLDER, WHICH COUNSEL AND OPINION
ARE REASONABLY SATISFACTORY TO THE COMPANY, IS AVAILABLE, OR
(3) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH THE APPLICABLE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES.
9.3 Transfer of Shares after Registration. Each Purchaser hereby
covenants with the Company not to make any sale of the Shares except either (i)
in accordance with the Registration Statement, in which case such Purchaser
covenants to comply with the requirement of delivering a current prospectus,
(ii) in accordance with Rule 144, in which case Purchaser covenants to comply
with Rule 144, or (iii) in accordance with another exemption from the
registration requirements of the Securities Act. The legend
926907.2
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<PAGE>
set forth in Section 9.2 will be removed from a certificate representing the
Shares following and in connection with any sale of the Shares pursuant to
subsection (i) or (ii) hereof, but not in connection with any sale of Shares
pursuant to subsection (iii) hereof, and also will be removed at such time that
the Shares may be sold under Rule 144 without restriction as to volume and
manner of sale at such time as the resale of the Shares is registered under the
Securities Act. If the above legend is removed from any of the Shares and
thereafter the effectiveness of a registration statement covering such Shares is
suspended or the Company determines that a supplement or amendment thereto is
required by applicable securities laws, then upon reasonable advance notice to
Purchaser the Company may require that the above legend be placed on any such
Shares that cannot then be sold pursuant to an effective registration statement
or under Rule 144 and Purchaser shall cooperate in the replacement of such
legend. Such legend shall thereafter be removed when such Shares may again be
sold pursuant to and effective registration statement or under Rule 144.
9.4 Purchaser Information. Each Purchaser covenants that it will
promptly notify the Company of any changes in the information set forth in the
Registration Statement regarding such Purchaser, under the heading "Selling
Security Holders" or elsewhere, or such Purchaser's "Plan of Distribution."
SECTION 10
Miscellaneous
-------------
10.1 Waivers and Amendments. Neither this Agreement nor any provisions
hereof shall be waived, modified, changed or discharged or terminated except by
an instrument in writing signed by the Company and the Purchaser.
10.2 Placement Agent's Fee. The Purchaser acknowledges that the Company
intends to pay a fee to the Placement Agent on the Closing Date of in connection
with the offer and sale of the Shares. Each of the parties hereto hereby
represents that, on the basis of any actions and agreements by it, there are no
brokers or finders or other consultants entitled to compensation in connection
with the sale of the Shares to the Purchaser, except as aforesaid.
10.3 Governing Law. This Agreement shall be governed in all respects by
and construed in accordance with the laws of the State of New York without any
regard to conflicts of laws principles.
10.4 Survival. The representations, warranties, covenants and
agreements made in this Agreement shall survive any investigation made by the
Company or the Purchasers and the Closing.
10.5 Successors and Assigns. The provisions hereof shall inure to the
benefit of, and be binding upon, the successors, assigns, heirs, executors and
administrators of the parties to this Agreement; 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. If
any successor, assignee or transferee of the Purchaser shall acquire Shares,
such successor, assignee or transferee may succeed to the rights set forth in
Section 8 hereof, provided such successor, assignee or transferee agrees in
writing to be bound by the provisions thereof but in no event shall be entitled
to receive any other rights, interests in or benefits of this Agreement. Nothing
expressed or referred to in this Agreement will be construed to give any person
other than parties to this Agreement and such other parties referred to in
Section 8
926907.2
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<PAGE>
hereof any legal or equitable right, remedy or claim under or with respect to
this Agreement or any provision of this Agreement.
10.6 Entire Agreement. This Agreement, including all exhibits,
schedules and appendices hereto constitutes the full and entire understanding
and agreement between the parties with regard to the subjects hereof and the
transactions contemplated hereby and supersede all prior agreements written or
oral, if there be any, with respect thereto.
10.7 Notices, etc. All notices and other communications required or
permitted under this Agreement shall be in writing and may be delivered in
person, by telecopy, overnight delivery service or registered or certified
United States mail, addressed to the Company or the Purchaser, as the case may
be, at their respective addresses set forth at the beginning of this Agreement
or on the signature page to this Agreement, or at such other address as the
Company or the Purchaser shall have furnished to the other party in writing. All
notices and other communications shall be effective upon the earlier of actual
receipt thereof by the person to whom notice is directed or (i) in the case of
notices and communications sent by personal delivery or telecopy, one business
day after such notice or communication arrives at the applicable address or was
successfully sent to the applicable telecopy number, (ii) in the case of notices
and communications sent by overnight delivery service, at noon (local time) on
the second business day following the day such notice or communication was sent,
and (iii) in the case of notices and communications sent by United States mail,
seven days after such notice or communication shall have been deposited in the
United States mail.
10.8 Severability of this Agreement. If any provision of this Agreement
shall be judicially determined to be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.
10.9 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same instrument.
10.10 Headings. The headings of the various sections of this Agreement
have been inserted for convenience of reference only and shall not affect in any
way the meaning or interpretation of this Agreement.
10.11 Expenses. Except as otherwise specifically provided herein, each
party shall bear its own expenses in connection with this Agreement.
10.12 Publicity. The Purchaser shall not issue any press releases or
otherwise make any public statement with respect to this Agreement or the
transactions contemplated by this Agreement without the prior written consent of
the Company.
926907.2
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives as of the day and year first
above written.
HEMASURE INC.
By: -------------------------------------------
John F. McGuire, III
President and Chief Executive Officer
Print or Type:
Name of Purchaser (Individual or Institution):
------------------------------------------------
Name of Individual representing Purchaser (if
an Institution):
------------------------------------------------
Name of Individual representing Purchaser (if
an Institution):
-----------------------------------------------
Signature by: Individual Purchaser or Individual representing
Purchaser:
------------------------------------------------
Address:________________________________________
Telephone:______________________________________
Telecopier:_____________________________________
926907.2
21
<PAGE>
APPENDIX I(a)
HEMASURE INC.
REGISTRATION STATEMENT QUESTIONNAIRE
In connection with the preparation of the Registration Statement,
please provide us with the following information regarding the Purchaser.
1. Please state your organization's name exactly as it should appear in
the Registration Statement:
2. Have you or your organization had any position, office or other
material relationship within the past three years with the Company or its
affiliates other than as disclosed in the prospectus included in the
Registration Statement?
______________ Yes ____________ No
If yes, please indicate the nature of any such relationship below:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
926907.2
<PAGE>
APPENDIX I(b)
HEMASURE INC.
STOCK CERTIFICATE QUESTIONNAIRE
Pursuant to Section 5.1 of the Agreement, please provide us with the following
information:
1. The exact name that the Shares are to be registered in (this is the name
that will appear on the stock certificate(s)). You may use a nominee name
if appropriate:
------------------------------------------------------
2. The relationship between the Purchaser of
the Shares and the Registered Holder listed
in response to item 1 above:
------------------------------------------------------
3. The mailing address of the Registered
Holder listed in response to item 1 above:
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
4. The Tax Identification Number of the
Registered Holder listed in response to
item 1 above:
------------------------------------------------------
<PAGE>
APPENDIX II
STOCK CERTIFICATE QUESTIONNAIRE
To: American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
Attention:
The undersigned, the Purchaser or an officer thereof, or other person
duly authorized by the Purchaser, hereby certifies that _________________ (fill
in name of Purchaser) institution was the Purchaser of the shares (the "Shares")
of common stock, par value $.01 per share, of HemaSure Inc., evidenced by the
attached certificate, and as such, proposes to transfer such Shares on or about
________________ (date) either
|_| pursuant to a registration statement, in which case the
Purchaser certifies that the requirement of a delivering a
current prospectus has been complied with or will be complied
with in connection with such sale, or
|_| pursuant to Rule 144 under the Securities Act of 1933 ("Rule
144"), in which case the Purchaser certifies that it has
complied with or will comply with the requirements of Rule 144,
or
|_| pursuant to an exemption from registration, other than Rule 144,
in which case the Purchaser is herewith providing the Company
with an opinion of counsel to the effect that the transaction is
so exempt.
Print or Type:
Name of Purchaser:
--------------------------------------------------------
Name of Individual
representing Purchaser
(if an Institution):
--------------------------------------------------------
Title of Individual
representing Purchaser
(if an Institution):
-------------------------------------------------------
Signature by:
Purchaser or Individual
representing Purchaser:
------------------------------------------------------
ANNEX A TO PURCHASE AGREEMENT
Form of Legal Opinion of Battle Fowler LLP(1)
1. The Company is a corporation validly existing and in good standing under
the laws of the State of Delaware and has all requisite corporate power and
authority to conduct its business as presently conducted; and the Company
is duly qualified to conduct its business as a foreign corporation in
Massachusetts.
2. The authorized capital stock of the Company consists of (a) 35,000,000
shares of common stock, $.01 par value per share, and (b) 1,000,000 shares
of undesignated preferred stock, $.01 par value per share.
3. When issued and paid for in accordance with the Agreements, the Shares will
be validly issued, fully paid and non-assessable and will not have been
issued in violation of any preemptive rights contained in the Company's
Certificate of Incorporation or under the Delaware General Corporation Law.
4. The Company has the requisite corporate power and authority (A) to enter
into this Agreement and (B) to issue, sell and deliver the Shares to be
sold by it to the Purchasers as provided in the Purchase Agreements; and
the Purchase Agreements have been duly authorized, executed and delivered
by the Company.
5. The Purchase Agreements constitute the valid and binding obligation of the
Company, enforceable against the Company in accordance with their terms.
6. Neither the offer, sale or delivery of the Shares, the execution, delivery
or performance by the Company of the Purchase Agreements, nor the
consummation by the Company of the transactions contemplated thereby
constitutes or will constitute a breach or violation of, or a default
under, the Certificate of Incorporation or Bylaws of the Company or any
agreement, indenture, lease or other instrument to which the Company is a
party or by which its properties or assets is subject and, in each case,
which is identified as an exhibit to the Company's Annual Report on Form
10-K for the Year Ended December 31, 1998 (the "1998 10-K") or to any
Quarterly Report on Form 10-Q or Current Report on Form 8-K filed with the
Commission subsequent to the 1998 10-K (each such agreement, indenture,
lease or other contract or instrument herein, a "Material Agreement"), or
will result in the creation or imposition of any material lien, charge or
encumbrance upon any property or assets of the Company pursuant to the
terms of any Material Agreement, nor will any such action result in any
material
- ------------------
(1) Subject to customary assumptions, qualifications and limitations.
914864.2
<PAGE>
violation of any existing law, or any regulation, ruling judgment,
injunction, order or decree known to us to be applicable to the Company and
to transactions of the nature contemplated by the Offering.
7. No consent, approval, authorization or other order of, or registration or
filing with, any court, regulatory body, administrative agency or other
governmental body, agency or official is required on the part of the
Company (except such as may be required under state securities or Blue Sky
laws governing the sale of the Shares, the filing of a Form D with respect
to the issuance of the Shares with the Commission, or such as may be
required in connection with the performance by the Company of its
obligations under Section 8 of the Purchase Agreements, as to which we
express no opinion) for the issuance and sale of the Shares to the
Purchasers as contemplated by the Purchase Agreements.
8. To our knowledge, there are no legal or governmental proceedings pending or
threatened against the Company, or to which the Company or any of its
properties are subject, which are not disclosed or identified in the
Offering Memorandum and which, if adversely decided, would likely cause a
Material Adverse Effect or materially and adversely affect the issuance of
the Shares or the consummation of the transactions contemplated by the
Purchase Agreements.
9. The offer and sale of the Shares in the manner contemplated by the Offering
Memorandum, the Placement Agency Agreement and the Purchase Agreements do
not require registration under Section 5 of the Act.
10. The Company is not, and upon consummation of the sale of the Shares will
not be, an "investment company" or a person "controlled" by an "investment
company" within the meaning of the Investment Company Act of 1940, as
amended.
In addition, we have participated in conferences with officers and other
representatives of the Company, representatives of the independent public
accountants of the Company, the Placement Agent and representatives of the
Placement Agent at which the contents of the Offering Memorandum were discussed
and, although we are not passing upon and do not assume responsibility for the
accuracy, completeness or fairness of the statements contained in the Offering
Memorandum, on the basis of the foregoing, nothing has come to the attention of
such counsel that causes them to believe that the Offering Memorandum as of its
date and as of the date hereof contained or contains an untrue statement of a
material fact or omitted or omits to state a material fact required to be stated
therein or necessary to make the statements therein not misleading (it being
understood that we express no opinion with respect to the financial statements
and schedules and other financial, accounting and statistical data included in
or excluded from the Offering Memorandum).
-2-
914864.2
<PAGE>
In rendering their opinion as aforesaid, counsel may rely upon an opinion
or opinions of other counsel retained by it or the Company as to laws of any
jurisdiction other than the United States, the State of New York or the General
Corporation Law of the State of Delaware; provided that (i) each such local
counsel is reasonably acceptable to the Placement Agent, (ii) such reliance is
expressly authorized by each opinion so relied upon and a copy of each such
opinion is delivered to the Placement Agent and is in form and substance
satisfactory to them and their counsel and (iii) counsel shall state in its
opinion that it believes that it and the Placement Agent are justified in
relying thereon.
-3-
914864.2
<PAGE>
Form of Legal Opinion of Heslin & Rothenberg, P.C.
To such counsel's knowledge, the statements in the Offering Memorandum under the
captions "Risk Factors - We May Be Unable to Adequately Protect Our Proprietary
Rights," "Risk Factors - We May Be Sued by Third Parties for Infringement of
Their Proprietary Rights, in the first and second paragraphs under the captions
"Risk Factors - We May Not Prevail in Pending or Potential Lawsuits," "Business
- - Licenses, Patents and Proprietary Information" and in the first through fifth
paragraphs under the caption "Business - Legal Proceedings" insofar as such
statements constitute summaries of intellectual property matters with respect to
the Company and the Subsidiary, are in all material respects accurate and
complete statements or summaries of the matters therein set forth.
-4-
914864.2
<PAGE>
Form of Legal Opinion of Pennie & Edmonds LLP
To such counsel's knowledge, the statements in the Offering Memorandum in the
first and second paragraphs under the caption "Risk Factors - We May Not Prevail
in Pending or Potential Lawsuits" and in the first through fifth paragraphs
under the caption "Business - Legal Proceedings," as of the date of the Offering
Memorandum and as of the date of such opinion, are in all material respects
accurate and complete statements or summaries of the matters therein set forth.
-5-
914864.2
<PAGE>
Form of Legal Opinion of Vinson & Elkins L.L.P.
To such counsel's knowledge, the statements in the Offering Memorandum in the
first and second paragraphs of the section captioned "Risk Factors - We May Not
Prevail in Pending or Potential Lawsuits" and in the third and fourth paragraphs
of the section captioned "Business - Legal Proceedings," as of the date of the
Offering Memorandum and as of the date of such opinion, are in all material
respects accurate and complete statements or summaries of the matters therein
set forth.
-6-
914864.2
<PAGE>
Form of Legal Opinion of Hale and Dorr LLP
To such counsel's knowledge, the statements in the Offering Memorandum under the
captions "Risk Factors - We May Not Be Able to Timely Obtain Regulatory
Approvals, If at All" and "Business - Government Regulation," insofar as such
statements constitute summaries of law under the Federal Food, Drug and Cosmetic
Act applicable to the Company's business and products as set forth in the
Offering Memorandum, as of the date of the Offering Memorandum and as of the
date of such opinion, are in all material respects accurate summaries.
-7-
914864.2
EXHIBIT 10.32
Schedule of Purchasers
A. Janus Investment Fund, on behalf of its series Janus Global Life Sciences
Fund
B. DCF Partners L.P.
C. The DCF Life Sciences Fund Limited
D. ACI Capital America Fund, LP
E. ACI Capital Strategic Fund, LP
F. Pequot Scout Fund, L.P.
G. SMALLCAP World Fund, Inc.
H. American Variable Insurance Series, Global Small Capitalization Fund
I. Essex Performance Fund, Limited Partnership
J. Essex Global Life Sciences Fund is a separate series of Essex Specialty
Pooled Funds, LP
K. DFS Integrity Partners, L.P.
L. Gambro Inc.
934955.1
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements of HemaSure Inc. on Form S-8 (File Nos. 33-79720,
33-79722, 33-79772, 33-94772, 33-94768, 333-05613 and 333-05615) of our
report dated February 4, 2000 except for Note Q for which the date is
March 2, 2000 relating to the financial statements, which appears in
this Annual Report on Form 10-K.
Boston, Massachusetts
March 30, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF HEMASURE INC. FOR THE TWELVE MONTHS ENDED DECEMBER 31,
1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000919745
<NAME> Battle Fowler LLP
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 5,243
<SECURITIES> 0
<RECEIVABLES> 443
<ALLOWANCES> 5
<INVENTORY> 806
<CURRENT-ASSETS> 7,493
<PP&E> 3,871
<DEPRECIATION> 2,324
<TOTAL-ASSETS> 9,090
<CURRENT-LIABILITIES> 7,820
<BONDS> 0
<COMMON> 158
0
0
<OTHER-SE> 1,069
<TOTAL-LIABILITY-AND-EQUITY> 9,090
<SALES> 805
<TOTAL-REVENUES> 805
<CGS> 2,408
<TOTAL-COSTS> 2,408
<OTHER-EXPENSES> 7,770
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,493)
<INCOME-PRETAX> (10,665)
<INCOME-TAX> 0
<INCOME-CONTINUING> (10,665)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,665)
<EPS-BASIC> (0.77)
<EPS-DILUTED> 0
</TABLE>
