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: September 28, 2002
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: 0-18281
HOLOGIC, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 04-2902449
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
|
35 Crosby Drive, Bedford, Massachusetts 01730
(Address of Principal Executive Offices, Including Zip Code)
(781) 999-7300
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
Rights to Purchase Common Stock
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 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 the registrant's Common Stock held by non-affiliates of the registrant as of December 17, 2002 was $245,643,481 based on the price of the last reported sale on the Nasdaq National Market System on that date.
As of December 17, 2002 there were 19,557,602 shares of the registrant's Common Stock, $.01 par value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement for the registrant's annual meeting of stockholders to be filed within 120 days of the end of its fiscal year ended September 28, 2002 (Part III: Items 10, 11, 12 and 13)
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements contained in this report are forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. These statements involve
known and unknown risks, uncertainties and other factors which may cause our or
our industry's actual results, performance or achievements to be materially
different from any future results, performance or achievements expressed or
implied by the forward-looking statements. Forward-looking statements include,
but are not limited to statements regarding:
. our goal to increase revenues and profitability;
. our goal of expanding our market positions;
. the development of new competitive technologies and products;
. regulatory approval and clearances for our products;
. production schedules for our products;
. market acceptance of new products;
. the anticipated growth of our markets;
. the anticipated performance of, and the benefits we expect to receive from, our products;
. business strategies;
. dependence on significant suppliers;
. dependence on significant distributors and customers and strategic alliances;
. compliance with covenants contained in credit facilities and long terms leases;
. general economic conditions;
. the impact of our cost-savings initiatives; and
. our financial condition or results of operations.
In some cases, you can identify forward-looking statements by terms such as "may," "will," "should," "could," "would," "expects," "plans," "anticipates," "believes," "estimates," "projects," "predicts," "potential" and similar expressions intended to identify forward-looking statements. These statements are only predictions and involve known and unknown risks, uncertainties, and other factors that may cause our actual results, levels of activity, performance, or achievements to be materially different from any future results, levels of activity, performance, or achievements expressed or implied by such forward-looking statements. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, these forward-looking statements represent our estimates and assumptions only as of the date of this report. Except as otherwise required by law, we expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement contained in this report to reflect any change in our expectations or any change in events, conditions or circumstances on which any of our forward-looking statements are based. Factors that could cause or contribute to differences in our future financial results include those discussed in the risk factors set forth in Item 7 below as well as those discussed elsewhere in this report. We qualify all of our forward-looking statements by these cautionary statements.
PART I
ITEM 1. BUSINESS
OVERVIEW
We are a leading developer, manufacturer and supplier of diagnostic and medical imaging systems primarily serving the healthcare needs of women. We focus our resources on developing systems and subsystems offering superior image quality and diagnostic accuracy, which has enabled us to capture significant market shares and customer loyalty, despite the presence of large competitors. Our core women's healthcare business units are focused on bone densitometry, mammography and breast biopsy and on developing a direct-to-digital X-ray mammography system. Our bone densitometry product line and our Lorad line of mammography systems are premier brands in their markets. In addition, we develop, manufacture and supply other X-ray-based imaging systems, such as general purpose direct-to-digital X-ray equipment and mini C-arm imaging products. Our customers are hospitals, imaging clinics and private practices and include many of the leading healthcare organizations in the world. Our customers are also major pharmaceutical companies who use our products in conducting clinical trials.
We were founded on and remain committed to the principle of applying superior technology to medical imaging challenges. We achieved our first market and technology position shortly after the first commercial shipment of our initial product targeting bone densitometry in 1987. Our patented technology remains a leading bone densitometry assessment tool, offering superior, cost-effective accuracy and reliability. Starting in 1996, we embarked on an acquisition program intended to expand and diversify our business. In 1996 we acquired Fluoroscan Imaging Systems, a market leader for low intensity, real-time mini C-arm X-ray imaging devices that address the trend towards minimally invasive surgery. We have long identified mammography as an attractive growth opportunity where superior imaging technology could significantly improve diagnosis. With this goal in mind, in June 1999, we acquired Direct Radiography Corp., or DRC, from Sterling Diagnostics and have continued to invest in the development of their direct-to-digital X-ray technology, DirectRay, targeting mammography as well as general radiography applications. While we originally intended to internally develop mammography systems based on DirectRay, in September 2000 we significantly expedited our entry into the mammography market by acquiring the U.S. assets of Trex Medical Corporation, which included the Lorad product line of mammography and minimally invasive breast biopsy systems used to detect breast cancer. We estimate that we have sold over 10,000 mammography systems worldwide and our products are known within the industry for superior image quality and technological innovation. We successfully integrated our DirectRay technology into the Lorad mammography product line and offer both digital upgrades to our existing installed base and new digital systems to potential customers.
As a result of these acquisitions and our commitment to develop digital radiography, particularly for mammography systems, we generated losses in fiscal 1999, 2000 and 2001. In August 2001, we implemented an extensive restructuring plan focused on returning to profitability and strengthening our competitive position in the women's health and emerging digital imaging markets. This restructuring plan included a company-wide cost savings initiative, which resulted in annual cost savings in excess of $11 million. Cost savings initiatives included a reduction of the workforce, reduction of operating expenses in each of our business units and the phase-out of non-core and unprofitable units. The second element of our restructuring plan focused on long-term revenue growth through new marketing programs, expanded distribution channels, and development of strategic business relationships. In January 2002, we officially closed our conventional X-ray equipment manufacturing facility located in Littleton, Massachusetts, which was acquired through our acquisition of the U.S. assets of Trex Medical. This business incurred significant losses during fiscal 2001. We relocated some of the Littleton product lines, and sales and service support personnel to our corporate headquarters in Bedford, Massachusetts. Since the beginning of fiscal 2001 through the end of fiscal 2002, we reduced our workforce by approximately 25%.
We returned the Company to profitability in the second quarter of fiscal 2002. We are continuing to focus on expanding our market position in bone densitometry and mammography, and leading the field of digital mammography. To that end, in October 2002, we received final approval from the FDA to commence marketing activities with respect to our Lorad Selenia full field digital mammography system. We are continuing to evaluate new marketing programs which are designed to expand market share in our core markets and to assess new distribution channels for our product portfolio
and pursuing business relationships that would allow us to further leverage our state-of-the-art technology base.
We were incorporated in Massachusetts in October 1985 and reincorporated in Delaware in March 1990. Unless the context otherwise requires, references to us, Hologic or our company refer to Hologic, Inc. and each of its consolidated subsidiaries. We view our operations and manage our business in five principal operating segments: osteoporosis assessment products, mammography products, direct-to-digital imaging products, mini C-arm imaging products and conventional general radiography products. We have provided financial information concerning these segments in Note 11 of the Notes to our Consolidated Financial Statements included in this report.
The Hologic logo is one of our service marks. ACCLAIM, Affinity, CADfx, Delphi, Direct Radiography, DirectRay, Discovery, DXA, Elite, EPEX, EPEX ER, EPEX Symphony, Express BMD, Express Exam, FAST, FAST Paddle, Fluoroscan, HiBrite, HTC, Image Pro, IVA, Ideas to Images, LORAD, M-IV, MultiCare, Officemate, Omniflex, One Pass, Premier, Premier Encore, Picturing Life, Profile, QDR, RADEX, Sahara, Selenia, Smart Paddle System and StereoLoc are trademarks or registered trademarks of Hologic or Hologic subsidiaries in the United States and other countries.
OUR MARKETS AND PRODUCTS
Our core women's healthcare business units are focused on bone densitometry, mammography and breast biopsy and developing a direct-to-digital X-ray mammography system. In addition, we develop, manufacture and supply general purpose direct-to-digital X-ray equipment, and other X-ray based imaging systems, such as C-arm imaging products.
OSTEOPOROSIS ASSESSMENT PRODUCTS
OVERVIEW
Bone densitometry is the precise measurement of bone density to assist in the diagnosis and monitoring of osteoporosis and other metabolic bone diseases that can lead to debilitating bone fractures, often of the spine and hip. In February 2002, the National Osteoporosis Foundation estimated that osteoporosis is a major public health threat for almost 44 million Americans, the majority of whom are women. Each year osteoporosis contributes to more than 1.5 million new hip, spine and other fractures. The National Osteoporosis Foundation estimated that the national direct expenditures for osteoporotic and associated fractures were $17 billion in 2001 and that the cost is rising. A significant boost for our osteoporosis assessment business was the 1995 introduction of drug therapies to treat and prevent osteoporosis. We believe that the introduction of new drug therapies, the aging of the population, and an increased focus on women's health issues and preventive medical practices has created a growing awareness among patients and physicians that osteoporosis is treatable. As a result, more women than ever are seeking osteoporosis assessment for osteoporosis. We believe that the demand for our bone densitometry systems will continue to be driven by an increase in the number of available therapies to treat osteoporosis, the increase in the at-risk population, and broader reimbursement coverage for bone density testing. In fiscal 2002, we shipped more than 750 dual-energy X-ray bone densitometry systems worldwide.
We introduced our first product serving the bone densitometry market in 1986, began commercial shipments in 1987, and quickly gained recognition for our superior technology. Our patented dual-energy X-ray technology remains a leading bone densitometry assessment tool, offering superior, cost-effective accuracy and reliability. In 1999, we introduced our next-generation densitometer, Delphi, which incorporates our patented fan beam imaging technology and Instant Vertebral Assessment, or IVA, technology. These dual technologies enable physicians to measure bone density and visually assess vertebral status in a clinical setting. The ability to conduct these two diagnostic procedures with one system enables doctors to cost-effectively improve fracture risk assessment and to capture greater reimbursement fees. In May 2001, we received the 2001 Frost & Sullivan Technology Innovation Award in the osteoporosis diagnostics market, given for technical superiority within the industry.
In fiscal 2002, our Delphi systems represented approximately 72% of our revenue from shipments of X-ray bone densitometry systems. Over 1,000 Delphi systems have been installed to date. In addition to sales of new Delphi systems, we also offer upgrade opportunities to purchasers of many of our earlier generation systems in order to incorporate the
technology advantages of Delphi.
In December of 2002, we introduced our next generation of bone densitometers, the Discovery QDR Series. Discovery reduces bone density scan times by 67%, providing bone density and vertebral imaging scans in just 10 seconds. In addition, Discovery provides automation and connectivity features to maximize patient throughput and integrate with electronic information systems. We expect to phase-out the Delphi product line in fiscal 2003 and replace it with the Discovery QDR Series.
PRODUCTS
Our osteoporosis assessment products include a family of QDR X-ray bone densitometers and the Sahara Clinical Bone Sonometer, a low-cost ultrasound device that assesses the bone density of the heel.
QDR X-Ray Bone Densitometers. Since our first commercial shipment of a QDR system in October 1987, we have sold more than 9,000 QDR systems. We believe that advantages of our QDR systems include high precision, low patient radiation exposure equivalent to 1/10th of a conventional chest X-ray, a relatively fast scanning time, low operating cost, and the ability to measure bone density of the most important fracture sites, the spine and hip. Our studies and those of independent investigators have demonstrated that the systems can detect a change in spine bone density with a precision error of less than 1%.
All our QDR systems employ our patented Automatic Internal Reference System, which continuously calibrates each patient's bone density measurement to a known standard. This system virtually eliminates errors that might result from manual calibration and saves operators the time-consuming task of calibrating several times a day. The system automatically compensates for drift in the X-ray system, detectors or other electronic components, which ensures long-term measurement stability.
We have invested substantial resources in developing operating and applications software for our systems. The software includes calibration software, automated scan and analysis programs for each scan site, and a patient data base manager. In 2001 and 2002 we introduced a series of software tools for remote softcopy interpretation and electronic reporting of test results. Electronic reporting is a critical feature for any medical imaging device, as medical providers move towards paperless storage and reporting systems.
In November 1999, we introduced our Delphi QDR Series bone densitometer. Delphi was the first bone densitometer to offer physicians the ability to simultaneously assess two of the strongest risk factors for osteoporotic fracture: existing fractures of the spine and low bone density. Using high-resolution fan beam X-ray imaging technology, Delphi's IVA technology enables clinicians to perform a rapid, low-dose evaluation of the spine in a single office visit during a routine bone densitometry exam. The high-resolution, single-energy images obtained with IVA visually reveal spinal fractures, which substantially increase the risk of future fracture, and thereby affect a clinician's therapeutic decisions. Prior to the introduction of Delphi, spine fractures were rarely evaluated in clinical osteoporosis assessment, primarily due to the inconvenience and high radiation dose associated with obtaining conventional X-ray films. Delphi with IVA provides a simple, point of care tool for vertebral assessment, with only 1% of the radiation dose of standard radiographic assessment. The combination of bone mineral density assessment and spine fracture assessment improves the clinician's ability to accurately target therapy to those who can benefit most. Delphi systems are modular in design, allowing customers to add features and capabilities, while protecting their investment in equipment and patient data. Delphi is available in four different configurations, the C and W models and the more advanced A and SL models.
In December of 2002, we introduced our Discovery QDR Series of bone densitometers. Discovery acquires bone density and vertebral imaging scans in just ten seconds, which we believe provides the most comprehensive assessment of fracture risk in the shortest amount of time. Discovery's CADfx feature automates the classification of spine fractures, and our Express Exam feature completely automates the patient examination procedure. Discovery also offers workflow and connectivity enhancements, including complete electronic integration with hospital information systems. We expect that the Discovery will replace the Delphi product line, which we plan to phase-out during fiscal 2003.
An important feature of the Discovery and Delphi A and SL systems is their ability to perform lateral, side-to-side scans of the lower spine, without turning the patient on her side, in addition to back-to-front measurements. The A and SL systems are capable of producing high quality images of the spine, lateral spine, hip and other skeletal sites. A motorized rotating scan arm allows for multiple scan views without patient repositioning. By using either of the A or SL systems, high-quality lateral images of the entire spine can be obtained in as little as ten seconds.
We also continue to offer our customers two versions of the ACCLAIM QDR Series bone densitometer: the QDR 4500W and the QDR 4500C. These systems do not offer the instant vertebral assessment capability offered by the Delphi and Discovery systems, but can be field upgraded to add this capability.
Our QDR 4000 pencil beam bone densitometer combines the reliability and economy of our DXA bone densitometers with a unique package of value-added applications that provide physicians with bone density measurements of the hip, spine and forearm. The QDR 4000 is targeted at the price-sensitive segment of the market.
Ultrasound. In addition to our QDR X-ray bone densitometers, we have developed and sell a dry ultrasound bone analyzer, called Sahara, that assesses the bone density of the heel. Clinical trials of ultrasound systems have indicated a significant association of low ultrasonic bone measurements of the heel and the risk of fracture. At the time of our introduction of the Sahara, other ultrasound bone analyzers required the patient to place her foot in water. The use of water requires cumbersome plumbing and cleaning mechanisms to be incorporated into the system; our dry Sahara avoids the need for these mechanisms. Advantages of ultrasound examination are the complete absence of radiation and the small size and low cost of the equipment. In addition, since ultrasound devices do not use X-rays in making their measurements, they do not require X-ray licensed or registered operators. However, because ultrasound bone measurements currently are not as precise as X-ray and other measurements, they are less reliable for monitoring of small changes in bone density or for assessing the response to therapies. In addition, they are generally limited to measurements at peripheral skeletal sites, not the more important spine or hip fracture sites. We believe that our Sahara ultrasound system represents a relatively low cost, portable, easy-to-use, non-ionizing measurement technique to assist in the initial diagnosis of osteoporosis. Since our introduction of the Sahara, over 3,000 Sahara systems have been installed worldwide.
MAMMOGRAPHY AND OTHER BREAST CANCER DETECTION PRODUCTS
OVERVIEW
According to the American Cancer Society, breast cancer is the second most common cancer among women, and more than 203,000 new cases of invasive breast cancer are expected to occur among women in the United States during 2002. Breast cancer ranks as the second leading cause of cancer-related deaths among women, causing an estimated 40,000 deaths in 2002. A leading industry analyst estimates that the mammography imaging equipment market was expected to be greater than $300 million in 2002, and anticipates that it may grow to $567 million by 2007. When we acquired the U.S. assets of Trex Medical in September 2000, we immediately gained a significant market share in the mammography and breast biopsy systems market and a leading market share in the high-end segment of the mammography systems market in which we primarily compete. In fiscal 2002, we shipped more than 800 mammography systems worldwide.
PRODUCTS
Our LORAD division offers a broad line of breast imaging products, including the Selenia full field digital mammography system, a series of screen-film mammography systems and a range of breast biopsy systems. The Selenia, which received U.S. FDA marketing approval in October of 2002, is currently the only marketed full field digital mammography system utilizing direct conversion technology. This technology is based on our proprietary, amorphous selenium DirectRay digital detector, which preserves image sharpness by directly converting X-rays to electronic signal. Currently our highest-end LORAD screen-film mammography system, the M-IV Platinum, is considered a technology leader in the mammography marketplace. The M-IV Platinum incorporates our High Transmission Cellular, (HTC) Grid, recognized by Frost & Sullivan in connection with LORAD's receipt of the 2001 Frost & Sullivan Technology Innovation Award, as one of the most effective contrast improvements in 20 years of breast imaging. The patented HTC technology reduces X-ray scatter in two dimensions, delivering superior contrast and resolution without an increase in radiation dose.
We also began full commercial production of our mid-tier system, the LORAD Affinity, which can also be configured with our HTC technology. The LORAD Affinity is a high-performance screen-film mammography system specifically developed to fill a market need for a cost-effective product, with performance characteristics similar to high-end systems. The Affinity replaced our previous mid-tier system, the LORAD Elite, which is no longer manufactured by LORAD.
We also offer two minimally invasive breast biopsy systems, the MultiCare prone stereotactic breast biopsy system and the StereoLoc II upright system. These systems provide an alternative to open surgical biopsy, which is sometimes performed under general anesthesia in the outpatient department of a hospital. Minimally invasive biopsies are most often performed in a physician's office or a breast imaging center on an outpatient basis under local anesthesia. Stereotactic biopsies are less expensive than open surgical biopsies and cause less tissue trauma. The following is a more detailed description of the products sold by our LORAD Division.
Selenia Full Field Digital Mammography System
. LORAD Selenia. The Selenia, which utilizes our DirectRay amorphous selenium flat-panel detector, is the industry's first FDA approved digital mammography system based on direct conversion technology. Direct conversion technology uses amorphous selenium to directly convert X-rays to electronic signals, without first converting them to light, a step required in systems using indirect conversion detectors. This direct conversion process completely eliminates light diffusion and preserves image sharpness, for exceptional digital images.
The Selenia has a number of other features which improve image quality, enhance patient comfort, and streamline patient throughput. For example, the system's detector size of 24 x 29 cm, the largest in the industry, accommodates almost all breast sizes with a single exposure. In addition, our award-winning HTC Grid, which is integrated into the digital detector, significantly reduces radiation scatter and allows geometric magnification views and our shifting Smart Paddle System permits all views, including MLOs, to be taken without changing compression paddles.
The Selenia system facilitates efficient viewing and interpretation by physicians and provides multiple image manipulation options through the use and analysis of electronic and hard copy film printouts and the system's computer workstation. The system is configured to interface with a sophisticated image management system to handle routing, archival, and retrieval of studies.
Screen-Film Mammography Systems
. LORAD M-IV Series, includes the LORAD M-IV and the M-IV Platinum. The LORAD M-IV was introduced in 1996. Since that introduction, more than 3,600 units have been sold. Features of the LORAD M-IV include a bi-angular X-ray tube, dual filter capability, auto filter mode, three-cell AEC sensor, fully automatic collimation and isocentric C-arm rotation. Image quality can be further improved through use of the HTC Grid and Fully Automatic Self-adjusting Tilt (FAST) Paddle, which are standard features of the M-IV Platinum and optional components on the M-IV. Other features of the LORAD M-IV Series include improved patient management through streamlined patient scheduling, integrated auto film identification, ands optional bar code reader. The LORAD M-IV has also been designed to be upgradeable to our Selenia full field digital mammography system.
. LORAD Affinity. We began full commercial production of the Affinity in late 2002. The Lorad Affinity is a screen-film mammography system developed to fill a market need for a cost-effective, high performance mammography product. The Affinity can be used with other LORAD innovations to improve mammographic image quality, including our HTC and FAST Paddle technology.
Stereotactic Breast Biopsy Systems
We provide clinicians with the flexibility of choosing from either upright or prone systems for breast biopsy. Our minimally invasive breast biopsy systems provide an alternative to open surgical biopsy, which is generally performed under general anesthesia.
We offer the StereoLoc II upright biopsy system, which is used in conjunction with our M-IV series of screen-film mammography systems. In addition, for physicians that perform a significant number of biopsies, we offer a dedicated, prone biopsy system called the LORAD MultiCare Breast Biopsy System (formerly called the StereoGuide). Both systems can be used with our digital "spot" mammography system, which enables a doctor to position the sampling device at the site of the suspicious lesion. When performing a biopsy with any of our systems, a doctor has a choice of tissue-sampling devices, which are not manufactured by us.
DIGITAL MAMMOGRAPHY MARKET
We expect digital technology to provide important benefits to mammography. In addition to speed and convenience, digital technology and high-resolution detector plates have the potential for greater image accuracy than conventional films, a critical factor in mammography. While digital mammography systems are presently several times more expensive than conventional systems, we believe they can provide long-term savings as they eliminate the recurring film and processing costs, reduce the cost of image storage, and have the potential to increase patient throughput.
We believe that our Selenia full field direct-to-digital mammography system positions us to expand our share of the mammography market. With the potential for improved imaging and higher patient throughput of our direct-to-digital amorphous selenium technology, we believe our LORAD mammography systems will offer women one of the most advanced tools available for early detection of breast cancer.
General Electric Medical Systems and Fischer Imaging received FDA approval to commercialize their own indirect conversion digital mammography systems in January 2000 and September 2001, respectively. We believe that growth of the digital mammography market will accelerate as product offerings improve image quality over existing systems.
We believe our Selenia system provides excellent image quality, and offers women one of the most advanced tools available for early detection of breast cancer. The Selenia system is offered to our existing customer base through upgrades or replacement systems, or as stand-alone purchases. We estimate that we have sold over 10,000 mammography systems worldwide. We are also seeking to expand our market beyond our historic customer base with expansion of our sales force or co-distribution arrangements. To this end, in 2002 we entered into a strategic alliance with Siemens AG focused on the development of direct-to-digital mammography systems. Under our agreements with Siemens, Siemens agreed to exclusively purchase from us its digital panel requirements for its full field digital mammography system during the five year term of the agreement and we licensed advanced image processing and display software from an affiliate of Siemens. Through this alliance we have combined our proprietary amorphous selenium direct-to-digital technology with Siemens' proprietary software to create a dedicated physician's workstation and bring to market a direct-to-digital mammography system. In connection with these agreements with Siemens, we also agreed to support Siemens in its efforts to release its digital mammography system to the market.
We also entered into a letter of intent with the Agfa-Gevaert Group whereby Hologic would manufacture for Agfa, under a private label, a digital mammography system utilizing our patented direct-to-digital amorphous selenium technology. The launch of this manufacturing agreement is subject to several conditions, including the negotiation and execution of definitive agreements, which we expect will occur over the next several months. We cannot assure that any definitive agreement with Agfa will be reached.
DIRECT-TO-DIGITAL IMAGING PRODUCTS
OVERVIEW
We have made a strategic commitment to digital radiography. We believe that the advantages of digital radiography over conventional film technology and newer computed radiology technology creates a market with significant growth potential in general and in our core mammography systems market in particular.
Within the examination room, digital radiography systems provide the opportunity for more expedient patient
exam flow, fewer repeat exams and increased room utilization. Because digital radiography systems capture and convert X-ray images into a digital format within seconds of exposure, the technologist can quickly preview the digitized image for quality assurance prior to completion of a patient's examination. The digitized image can then be transmitted electronically for reviewing on a diagnostic workstation, printing on film or electronic storage.
The wide dynamic range inherent in most digital images allows a radiologist to adjust the image electronically at a workstation to optimize the desired anatomy view and gain more diagnostic information compared to traditional film screen technology.
For healthcare providers, the benefits of digital radiography systems stem from fast and efficient production of diagnostic quality images. We believe digital radiography systems offer improved patient care, increased staff and equipment productivity, and the potential to attract a greater number of referral patients and physicians. In spite of their high acquisition cost, digital radiography systems can be cost effective in the long-term when considering increased throughput, savings in film-related expenses, image storage and transfer costs as well as the benefits of enhanced diagnostic convenience.
A significant factor in the medical market's acceptance of digital technology is the current transition within the healthcare industry from conventional X-ray film archiving to Picture, Archive and Communication Systems, known as PACS, to store X-ray images electronically. Although only a limited number of hospitals have adopted the PACS environment to date, we expect this adoption rate to accelerate over the next several years as hospitals realize the value and cost savings of a filmless infrastructure. While not all facilities in which X-ray units are installed will migrate to digital technology, we believe most large facilities will, particularly those in the U.S. where PACS is an important initiative.
A leading industry analysis firm, estimates that in 2000 there were approximately 300,000 general radiographic X-ray units installed worldwide with a replacement rate of approximately 11,000 systems per year. By 2007, this analysts project that the market for digital general radiography systems will exceed $1.0 billion annually. Digital radiography technology coupled with analyst's predictions that the worldwide X-ray mammography market will double to close to $600 million in five years. We believe we are positioned to benefit from market opportunities in general radiography and mammography.
Digital radiography X-ray systems can be divided into two classes: those that employ direct methods to convert X-ray energy into an electrical charge and those that use indirect methods. Systems using direct-conversion flat-panel digital detectors, such as our DirectRay flat panel detector, use a semiconductor coating - amorphous selenium (a-Se) - to directly convert X-ray photons into an electrical charge. No intensifying screens or additional processes are required to capture and convert the X-ray energy. Digital radiography systems using indirect conversion detectors employ a two-step process for X-ray detection. Semiconductor coatings, such as cesium iodide or gadolinium oxysulfide, capture X-ray energy and convert it to light. An array of thin-film diodes then converts the light energy to electrical signals. X-ray imaging systems that use light may compromise image sharpness because light scatter can blur the image.
DirectRay selenium coated detectors developed by our Direct Radiography Corp. subsidiary are particularly well suited for high-quality digital imaging because selenium has high X-ray absorption efficiency, very high intrinsic resolution and low noise. We believe that amorphous selenium technology results in the highest quality digital image across a wide range of general radiographic applications and is particularly valuable for mammography which has high-resolution requirements.
Amorphous selenium deposition is a well-developed technology. It has been used for decades in photocopiers, in photocells and exposure meters for photographic use, as well as in solar cells. It is also used as a photographic toner and as an additive in the glass and stainless steel industries. With the only commercially available, FDA-cleared, direct-conversion selenium detectors, we believe that our DirectRay technology has the potential to gain industry acceptance as a standard for direct-to-digital conversion technology.
PRODUCTS
We currently offer DirectRay digital technology in fully integrated radiographic systems, such as our EPEX and RADEX systems, and as a digital component for original equipment manufacturers (OEMs), to incorporate into their own equipment. Our OEMs include Analogic Corporation, a supplier to Eastman Kodak, for general radiography systems, and Siemens for mammography systems. Additionally, we sell digital detectors to Agfa for non-destructive testing for industrial applications not related to healthcare.
In 2002, through our subsidiary Direct Radiography Corp. we continued to expand our line of dose-efficient, high-productivity imaging systems empowered by DirectRay technology. Our digital radiography integrated product line offers high quality imaging, ease-of-use, a full range of motion for easy patient positioning in multiple planes, and full DICOM compliance, which is the standard protocol for communicating with a hospital's Picture, Archive and Communication Systems.
The majority of our digital radiography system sales are in the EPEX family
- one and two detector systems sharing a common overhead X-ray tube subsystem,
designed for the full range of general radiography imaging. Our RADEX system is
a more basic general radiography system designed to provide flexibility as
required by outpatient departments. The division recently launched the EPEX ER,
a system particularly well suited for trauma and emergency department imaging.
The EPEX line also includes a new two-detector system, the EPEX Symphony,
dedicated chest systems with either a floor or ceiling mounted X-ray tube, and
the original EPEX fixed table-imaging system. As of the close of our fourth
quarter of 2002, we had a record backlog of 31 systems, or greater than $8.0
million, due to increasing orders for our EPEX and RADEX imaging systems.
MINI C-ARM IMAGING PRODUCTS
OVERVIEW
We manufacture and distribute Fluoroscan mini C-arm imaging systems. Mini C-arms provide low intensity, real-time X-ray imaging, with high-resolution images at radiation levels and at a cost well below those of conventional X-ray and fluoroscopic equipment. Mini C-arm systems are used primarily by orthopedic surgeons to perform minimally invasive surgical procedures on a patient's extremities, such as the hand, wrist, knee, foot and ankle.
PRODUCTS
Premier. We introduced the Premier mini C-arm system in August 1998. The Premier's .045 mm focal spot X-ray tube, currently the smallest in the mini C-arm industry, provides clear resolution and detailed images on a six-inch field of view. The Premier's mini C-arm is designed to rotate 360 degrees. The Premier also features dual video channels that allow a surgeon to display different views of the anatomy for side-by-side comparison; four image buffer memories for instant recall of previous images; and built-in video and Ethernet connections that allow the user to output images to a printer or workstation, send to or receive from remote work stations, or record, review and archive images using existing Windows NT or hospital PACS.
At the Radiological Society of North America trade show held in December 2002, Fluoroscan introduced the Premier Encore system. The Premier Encore system streamlines system operation using a touch screen interface, configurable physician preference pre-sets, enhanced DICOM image output, and CD image storage. The Premier Encore system is available with a laser positioning pointer and offers 60 degree monitor rotation for maximum operating room flexibility.
OfficeMate. We introduced the OfficeMate imaging system in fiscal 1997. This system was designed specifically to meet the needs of the physician office. The OfficeMate features efficient, user-friendly operation, high resolution real-time and freeze frame images, and the choice of three or four inch field-of-view. Due to its compact size and portability, we believe the OfficeMate is well suited for the in-office extremity imaging requirements of hand and orthopedic surgeons.
CONVENTIONAL GENERAL RADIOGRAPHY PRODUCTS
In January 2002 we officially closed our conventional X-ray equipment manufacturing facility in Littleton, Massachusetts and relocated some of the Littleton product lines and sales and service support personnel to our corporate headquarters in Bedford, Massachusetts. This consolidation was part of our previously announced plan to phase-out non-core and unprofitable product lines. In addition to continuing to provide sales and service for our discontinued product lines, we continue to manufacture and supply the following general radiography products:
. Omniflex, a ceiling mounted X-ray tube support system
. Digital Chest Tube Stand, a floor mounted X-ray tube support system for dedicated chest X-ray rooms
MARKETING AND SALES
In the United States, we sell and service our products through a combination of a direct sales and service force and a network of independent distributors. In early fiscal 2002, we centralized our management of these sales channels for all of our product lines. PSS World Medical, Inc. and its affiliates, our largest distributor network in the United States, accounted for approximately 24% of our product sales for fiscal 2002. In November 2002, PSS sold its Diagnostic Imaging, Inc. subsidiary, which is a distributor of our mammography product line, to Platinum Equity. Diagnostic Imaging, as part of PSS, accounted for approximately 15% of our product sales for fiscal 2002. We do not have a long term agreement with Diagnostic Imaging or PSS obligating them to purchase products from us, or restricting them from purchasing products from our competitors. As of November 30, 2002 our direct sales and service force comprised of over 64 people in sales, support and associated administrative functions. We have recently expanded our direct sales and service efforts for mammography into territories that were previously covered by independent distributors, and we are considering further expanding our direct sales and service coverage in the United States.
Our United States marketing efforts also include the use of two national account managers which are focused on obtaining purchasing contracts from large purchasing entities, such as managed care organizations and government healthcare facilities. The rise of these large purchasing organizations has significantly altered the way we organize ourselves. We believe that our success in capturing managed care accounts will have a significant impact on our growth. We believe that we have made excellent progress penetrating these key accounts as evidenced by contracts obtained from Consorta, Catholic Resource Partners, Broadlane, Heath Trust Purchasing Group, Novation, Premier, and the U.S. Department of Veterans Affairs.
We sell our systems in international markets through a network of independent distributors, as well as a direct sales force in the Benelux countries. In fiscal 2002, we restructured our operations in Europe, which included entering into exclusive distribution agreements with Stephanix, one of the leading French manufacturers of medical X-ray equipment, and its affiliate, Radiologia, S.A., the oldest X-ray equipment manufacturer in Spain, for sales of our product lines in France, Spain and Portugal. We offer our broad range of products in Latin America, including Argentina, Brazil and Chile, and into Pacific Rim countries, including Japan, Australia, The Peoples Republic of China, South Korea and Taiwan, by working with local sales representatives and distributors or entering into strategic marketing alliances in those territories. In fiscal 2000, 2001, and 2002 foreign sales accounted for approximately 33%, 28%, and 20% of our product sales, respectively. See Note 11 of Notes to Consolidated Financial Statements for geographical information concerning those sales.
In fiscal 2002, we entered into a number of agreements which have strengthened the sales and distribution channels for our core product lines, including the following:
. We entered into a non-exclusive distribution agreement with Siemens Medical Solutions, a unit of Siemens AG, for the sale of our X-ray bone densitometers throughout the United States.
. We finalized a strategic alliance with Siemens Medical Solutions focused on the advancement of digital mammography technology. During the term of this five-year agreement, Siemens has agreed to purchase its digital panel requirements exclusively from Hologic.
. We signed a non-binding letter of intent with Afga-Gevaert Group for the joint development of technological advancements in digital mammography. The letter of intent also contemplates reciprocal distribution rights of our Selenia system and Agfa's medical image management system and workstations.
. We entered into a non-exclusive three-year purchasing agreement, with options to extend for two additional years, with Broadlane Inc., a leader in providing supply chain management services to the healthcare industry, for the sale of bone densitometry systems. Broadlane customers include leading healthcare providers such as Kaiser Permanente, Tenet Healthcare Corporation and Universal Health Services.
. We were awarded a sole source three-year agreement with Novation, the leading supply chain management company in healthcare, for the purchase and sale of our Fluoroscan line of mini C-arm imaging systems.
. We have extended our existing non-exclusive agreement with Novation for the sale of LORAD breast imaging systems, including Selenia Full Field Digital Mammography System. Novation and Hologic also have existing non-exclusive agreements in place to cover purchase and sale of Hologic's bone densitometry systems, mini C-arm imaging products, and digital radiographic units.
. We signed a multi-year non-exclusive agreement with the Department of Veterans Affairs for the purchase and sale of our EPEX and RADEX systems for general radiographic applications, our LORAD line of breast imaging systems, and our Fluoroscan line of mini C-arm systems.
. We signed a multi-year non-exclusive contract with the Defense Supply Center of Philadelphia (DSCP), which covers inclusion in the Federal Supply Schedule and allows individual buying hospitals access to our entire product line, including our premier bone densitometry systems; EPEX and RADEX digital imaging systems for general radiographic applications; LORAD breast imaging systems for mammography and stereotactic biopsy procedures; and Fluoroscan mini C-arm systems for orthopedic applications.
. We have extended our existing non-exclusive agreement with HealthTrust Purchasing Group, LP, one of the nation's foremost healthcare group purchasing organizations, for the sale of Lorad mammography systems.
. We were awarded a three-year dual-source contract with HealthTrust Purchasing Group to cover purchase and sale of our Fluoroscan line of mini C-arm imaging systems, effective January 1, 2002.
. We entered into a three-year non-exclusive agreement with Novation for purchase and sale of our digital radiographic systems. The agreement became effective January 15, 2002. The agreement covers our EPEX and RADEX direct-to-digital systems for general radiographic applications, and also designates us as one of only two providers of digital chest X-ray systems.
COMPETITION
The healthcare industry in general, and the market for imaging and osteoporosis assessment products in particular, is highly competitive and characterized by continual change and improvement in technology, and multiple technologies that have been or are under development. A number of companies have developed, or are expected to develop, products that compete or will compete with our products. Many of these competitors offer a range of products in areas other than those in which we compete, which may make such competitors more attractive to hospitals, radiology clients, general purchasing organizations and other potential customers. In addition, many of our competitors and potential competitors
are larger and have greater financial resources than we do and offer a range of products broader than our products. Some of the companies with whom we now compete or may compete in the future have or may have more extensive research, marketing and manufacturing capabilities and significantly greater technical and personnel resources than we do, and may be better positioned to continue to improve their technology in order to compete in an evolving industry. Some of the companies in this industry that have significantly greater resources and product breadth than we do include General Electric Medical Systems (GE), Siemens, Philips and Toshiba. Competitors may develop superior products or products of similar quality for sale at the same or lower prices. Moreover, our products could be rendered obsolete by new industry standards or changing technology. We cannot assure that we will be able to compete successfully with existing or new competitors.
The primary competitor for our osteoporosis assessment products is GE, which manufactures a competing line of dual-energy X-ray and other osteoporosis assessment products to measure bone density of the hip and spine. Other companies have developed competing products as well, including lower priced X-ray based and other systems that assess bone status of peripheral sites, such as the heel, hand or wrist. We believe that competition in the field of dual-energy X-ray bone densitometry is based upon product versatility and features, price, precision, speed of measurement, reputation, cost and ease of operation, product reliability and quality of service. While we are generally not the lowest cost provider of dual-energy X-ray systems, we believe that we have been able to compete effectively because of our advanced technology and product features. We offer our Sahara ultrasound bone analyzer for the more price sensitive segment of the osteoporosis assessment market. We believe that competition in the field of ultrasound systems is based on price, precision, speed of measurement, cost and ease of operation, reputation, product reliability and quality of service. We believe that advantages of our Sahara ultrasound bone analyzer system include the system's dry operation, simple single-button operation, and a compact and self-contained design that does not require the use of a separate computer. We believe that ultrasound systems also compete with dual-energy X-ray systems in the diagnostic market for initial screening of patients. However, we believe that because ultrasound systems can only measure peripheral skeletal sites and do not have the precision of dual-energy X-ray systems, dual-energy X-ray systems will continue to be the predominant means of monitoring bone density for patients being treated for or at high risk for osteoporosis.
Our direct-to-digital imaging products compete with traditional X-ray systems as well as indirect-conversion systems, such as computed radiography systems, which are less expensive than our products. Many of these competitors have established relationships with hospitals and other of our potential customers in our targeted markets. The larger competitors in these markets include GE, Siemens, Kodak, Canon and Varian. GE and Kodak have received FDA clearance to market a digital general radiography X-ray system. The Kodak system currently incorporates our DirectRay detector. There is a significant installed base of conventional X-ray imaging products in hospitals and radiological practices. The use of our direct-to-digital X-ray imaging products would require these potential customers to either modify or replace their existing X-ray imaging equipment. Because of the early stage of the markets for these products, it is likely that our evaluation of the potential markets for these products will materially vary with time.
Our mammography systems compete with products offered by a number of competitors, including GE, Siemens, Instrumentarium, and Fischer Imaging. GE and Fischer Imaging received FDA approval to commercialize their own indirect conversion digital mammography systems in January 2000 and September 2001, respectively. We received FDA approval for our direct-to-digital mammography system, the Selenia in October 2002. Selenia is currently the only marketed full field digital mammography system utilizing direct conversion technology. While we offer a broad product line of breast imaging products, we compete most effectively in the high-end segment of the mammography market. We attribute this success in large part to our patented HTC technology that enables our products incorporating that technology to deliver high contrast and resolution. We believe that our continued success will depend in part upon our ability to market and sell Selenia. Although the Selenia is priced higher than competing technologies, we believe Selenia provides outstanding performance in aiding physicians in the early detection of breast cancer due to its image quality and dose utilization characteristics. We believe that our mammography products compete primarily on the basis of image quality, product features, cost and ease of operation, price, reputation, product reliability and quality of service. Our minimally invasive breast biopsy systems compete with products offered by GE, Philips and Fischer Imaging and with conventional surgical biopsy procedures. We believe that competition for our mammography and breast biopsy products is based largely on image quality, product features, product reliability and reputation as well as price and service.
Our mini C-arm products compete directly with mini C-arms manufactured and sold by a limited number of companies including GE and XiTec. We also compete with manufacturers of conventional C-arm image intensifiers including Philips, Siemens, GE, Fischer Imaging and Picker International. We believe that competition for our mini C-arm systems is based largely on price, quality, reputation, service and production capabilities. We believe that advantages of our mini C-arm systems include low levels of radiation, low costs, mobility, quality and durability.
MANUFACTURING
We manufacture all of our systems, other than our mammography and breast biopsy systems, at our headquarters in Bedford, Massachusetts. We manufacture our mammography and breast biopsy systems at our manufacturing facilities in Danbury, Connecticut. Manufacturing operations for our systems consist primarily of assembly, test, burn-in and quality control. We purchase a major portion of the parts and peripheral components for these products, and manufacture some subsystems, such as high-voltage X-ray power supply, from raw materials. Parts and materials for these systems are generally readily available from several supply sources. However, we rely on one supplier for the HTC grid, an important component for our more advanced mammography systems. In addition, several key components of our mini C-arm systems are manufactured by only one or a small number of suppliers, including the X-ray tube, image intensifier, video camera and fiberoptic taper.
We manufacture our direct radiography plates at our manufacturing facility in Newark, Delaware. Our manufacture of DirectRay plates consists primarily of vapor deposition in clean rooms, assembly, test, burn-in and quality control. We rely on one or only a limited number of suppliers for key components or subassemblies for our plates. In particular we have only one source of supply for our transistor plates and only one source of supply for the coating of those plates. The supplier for the plate coating is Analogic Corporation, which is also a customer as well as a potential competitor. The manufacture of our direct radiography detectors is highly complex and requires precise high quality manufacturing that is difficult to achieve. We have experienced difficulties manufacturing these detectors. Changes in design for our direct radiography detectors, including for our mammography detectors, could result and has in the past resulted in unanticipated production problems, such as a high level of defects for the newly designed plates.
We are seeking to qualify a second supplier for the plate coating to increase our manufacturing capacity, but cannot assure that we will be successful. Obtaining alternative sources of supply of components or systems that are available from only one or a limited number of suppliers could involve significant delays and other costs, and these supplies may not be available to us on reasonable terms, if at all.
BACKLOG
Our backlog as of November 30, 2002 totaled $40.9 million and as of November 30, 2001 totaled $40.5 million. Backlog consists of purchase orders for which a delivery schedule within the next twelve months has been specified by the customer. Orders included in backlog may be canceled or rescheduled by customers without significant penalty. Backlog as of any particular date should not be relied upon as indicative of our net revenues for any future period.
RESEARCH AND DEVELOPMENT
Our research and development efforts are focused on enhancing our existing products and developing new products. Our current emphasis is development of plates, the engineering and system design of new end-use digital radiography products, and software improvements for our existing products. This research and development includes refining and continuing LORAD's research on the full field digital mammography system. In addition, in December 2002 we introduced a new generation bone densitometry product line and a further enhanced mini C-arm product. Our research and development personnel also are involved in establishing protocols, monitoring, and interpreting and submitting test data to the FDA and other regulatory agencies to obtain the requisite clearances and approvals for our products. Our research and product development expenses, without consideration of purchased in-process research and development, were approximately $20.4 in fiscal 2002, $23.3 million in fiscal 2001, and $17.2 million in fiscal 2000.
PATENTS AND PROPRIETARY RIGHTS
We rely primarily on a combination of trade secrets, patents, copyright and trademark laws, and confidentiality procedures to protect our technology. Due to the rapid technological change that characterizes the medical device industry, we believe that the improvement of existing products, reliance upon trade secrets and unpatented proprietary know-how and the development of new products are generally as important as patent protection in establishing and maintaining a competitive advantage. Nevertheless, we have obtained patents and will continue to make efforts to obtain patents, when available, in connection with our product development program.
As of November 30, 2002, we have obtained 46 United States patents relating to our densitometry technology, 36 patents relating to our direct radiography technology, four patents relating to our mini C-arm technology, and 20 patents relating to the Lorad mammography business which we acquired from Trex Medical. These patents have expiration dates ranging from 2004 to 2021. In addition, we have applied for an additional 48 U.S. patents on these technologies. Also, we license patents from others on a variety of terms and hold approximately 57 additional U. S. patents acquired from Trex Medical relating to other matters. We have obtained or applied for corresponding patents and patent applications for some of our patents in selected foreign countries.
We had been involved in extensive patent litigation with Lunar Corporation, which has since been acquired by GE. This litigation was settled by agreement dated November 22, 1995. The agreement provides that neither party will engage the other party in patent litigation for a period of ten years following the date of the agreement, regardless of the infringement claimed and regardless of whether the technology in question currently exists or is developed or acquired by the other party in the future. Neither party is required to disclose to the other any of its technology during this ten year period or otherwise.
On April 2, 1992, Fischer Imaging filed a lawsuit in the United States District Court, District of Colorado, against Trex Medical, alleging that Lorad's prone breast biopsy system infringes a Fischer Imaging patent on a precision mammographic needle-biopsy system. On April 7, 1998, Fischer Imaging filed a second lawsuit in the United States District Court, District of Colorado, against Trex Medical, alleging that Lorad's manufacture of breast-imaging equipment and breast biopsy system equipment infringes on a second Fischer Imaging patent which was issued April 7, 1998. These two lawsuits were consolidated into a single lawsuit. The lawsuit sought to enjoin further violation of Fischer Imaging's patents, unspecified damages of up to three times the amount found or assessed, and attorneys' fees. In connection with our Trex Medical acquisition, we assumed liability for this lawsuit subject to indemnification from Trex Medical and its parent, Thermo Electron Corporation, for any damages, including attorneys' fees, up to our adjusted purchase price for the Trex Medical assets. In June 2002, Trex Medical and Fischer Imaging reached a settlement in this lawsuit. Under the settlement, Fischer Imaging has dismissed all actions against us, we have retained the right to continue to sell this product, and we are not required to pay any damages or ongoing royalties.
There has been substantial litigation regarding patent and other intellectual property rights in the medical device and related industries. We have been, and may be in the future, notified that we may be infringing intellectual property rights possessed by other third parties. If any such claims are asserted against us or our products, we may seek to enter into royalty or licensing arrangements. There is a risk in these situations that no license will be available or that a license will not be available on reasonable terms. Alternatively, we may decide to litigate such claims or to design around the patented technology. These actions could be costly and would divert the efforts and attention of our management and technical personnel. As a result, any infringement claims by third parties or other claims for indemnification by customers resulting from infringement claims, whether or not proven to be true, may harm our business and prospects.
REGULATION
The medical devices manufactured and marketed by us are subject to regulation by the FDA and, in many instances, by foreign governments. Under the Federal Food, Drug and Cosmetic Act, known as the FD & C Act, manufacturers of medical devices must comply with certain regulations governing the design, testing, manufacturing, packaging and marketing of medical devices. Our products are also subject to the Radiation Control for Health and Safety Act, administered by the FDA, which imposes performance standards and record keeping, reporting, product testing and product labeling requirements for devices using radiation, such as X-rays.
The FDA generally must clear the commercial sale of new medical devices. Commercial sales of our medical devices within the United States must be preceded by either a premarket notification filing pursuant to Section 510(k) of the FDA Act or the granting of a premarket approval. The 510(k) notification filing must contain information that establishes that the device is substantially equivalent to an existing device that has been continuously marketed since May 28, 1976.
The premarket approval procedure involves a more complex and lengthy testing and review process by the FDA than the 510(k) premarket notification procedure and often requires at least several years to obtain. We must first obtain an investigational device exemption, known as an IDE, for the product to conduct extensive clinical testing of the device to obtain the necessary clinical data for submission to the FDA. The FDA will thereafter only grant premarket approval if, after evaluating this clinical data, it finds that the safety and efficacy of the product has been sufficiently demonstrated. This approval may restrict the number of devices distributed or require additional patient follow-up for an indefinite period of time. We received premarket approval of our Selenia full field digital mammography system in October 2002. This premarket approval permits us to begin marketing efforts in the United States and launch our commercialization efforts with respect to this product.
Our systems are also subject to approval by certain foreign regulatory and safety agencies. Some of our technology is governed by the International Traffic in Arms Regulations of the United States Department of State. As a result, the export of some of our systems to some countries may be limited or prohibited.
We cannot assure that the FDA or foreign regulatory agencies will give the requisite approvals or clearances for any of our medical devices under development on a timely basis, if at all. Moreover, after clearance is given, these agencies can later withdraw the clearance or require us to change the device or its manufacturing process or labeling, to supply additional proof of its safety and effectiveness, or to recall, repair, replace or refund the cost of the medical device, if it is shown to be hazardous or defective. The process of obtaining clearance to market products is costly and time-consuming and can delay the marketing and sale of our products.
As a manufacturer of medical devices, we are subject to additional FDA regulations, including the Radiation Control for Health and Safety Act of 1968, which specifically regulates radiation-emitting products. In addition, our manufacturing processes and facilities are subject to continuing review by the FDA. Most states and many other foreign countries monitor and require licensing of X-ray devices. Federal, state and foreign regulations regarding the manufacture and sale of medical devices are subject to future change. We cannot predict what impact, if any, such changes might have on our business.
REIMBURSEMENT
In the United States, the Centers for Medicare & Medicaid Services (formerly the Health Care Financing Administration), known as CMS, establishes guidelines for the reimbursement of healthcare providers treating Medicare and Medicaid patients. Under current CMS guidelines, varying reimbursement levels have been established for bone density assessment, mammography and other imaging and diagnostic procedures performed by our products. The actual reimbursement amounts are determined by individual state Medicare carriers and, for non-Medicare and Medicaid patients, private insurance carriers. There are often delays between the reimbursement approvals by CMS and by a state Medicare carrier and private insurance carriers. Moreover, states as well as private insurance carriers may choose not to follow the CMS reimbursement guidelines. The use of our products outside the United States are similarly affected by reimbursement policies adopted by foreign regulatory and insurance carriers.
EMPLOYEES
As of November 30, 2002, we had 729 full-time employees, including 249 in manufacturing operations, 123 in research and development, 262 in marketing, sales and support services, and 95 in finance and administration. In connection with the closure of our Littleton manufacturing facility we eliminated approximately 80 employees. None of our employees are represented by a union.
ITEM 2. PROPERTIES
We own and lease the real property identified below. We believe that we have adequate space for our anticipated needs and that suitable additional space will be available at commercially reasonable prices as needed.
Owned Real Property
We own a 168,000 square foot research and development, manufacturing and administrative site in Newark, Delaware at which DRC conducts its research and development and plate manufacture. We currently occupy approximately 63,000 square feet of this building, which houses our plate manufacturing facility, including both a class 1 and a class 2 clean room. We lease approximately 45,000 square feet of the facility to Agfa under a lease which expires in April 2005. The remaining space in the facility, approximately 60,000 square feet, is leased to Dade Behring under a lease which expires in July 2010. The property is subject to a mortgage to Foothill Capital Corporation.
Leased Real Property
In September 2002, we completed a sale/leaseback transaction for our 200,000 square foot headquarters and manufacturing facility located in Bedford, Massachusetts and our 62,500 square foot LORAD manufacturing facility in Danbury, Connecticut. The new lease for these facilities, including the associated land, has a term of 20 years, with four-five year renewal options. We sublease approximately 20,000 square feet of the Bedford facility to two subtenants, Tech Online and Phonetic Systems, Inc., under leases which expire in May 2005 and July 2003 respectively.
We lease a 60,000 square feet of office and manufacturing space in Danbury, Connecticut near our LORAD manufacturing facility. This lease expires in November 2006.
In connection with our acquisition of the U.S. assets of Trex Medical, we also acquired a lease to a 156,000 square foot office and manufacturing facility in Littleton, Massachusetts. We closed the Littleton facility in January 2002 and have negotiated the termination of that lease, effective July 2003.
We maintain a leased sales and service office in Belgium and a leased support office in France.
ITEM 3. LEGAL PROCEEDINGS
We are not a party to any material pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Market Information. Our common stock is traded on the Nasdaq National Market under the symbol "HOLX." The following table sets forth, for the periods indicated, the high and low sales prices per share of our common stock, as reported by the Nasdaq National Market.
FISCAL YEAR ENDED SEPTEMBER 29, 2001 HIGH LOW First Quarter $ 7.06 $ 4.66 Second Quarter 7.19 4.00 Third Quarter 6.80 4.00 Fourth Quarter 6.60 4.62 FISCAL YEAR ENDED SEPTEMBER 28, 2002 HIGH LOW First Quarter $ 11.44 $ 4.72 Second Quarter 16.60 8.99 Third Quarter 18.05 11.92 Fourth Quarter 14.24 8.56 |
Number of Holders. As of December 17, 2002, there were approximately 1,760 holders of record of our common stock, including multiple beneficial holders at depositaries, banks and brokers listed as a single holder in the street name of each respective depositary, bank or broker.
Dividend Policy. We have never declared or paid cash dividends on our capital stock and do not plan to pay any cash dividends in the foreseeable future. Our current policy is to retain all of our earnings to finance future growth. In addition, our existing credit facility with Foothill Capital Corporation prohibits us from declaring or paying any dividends.
Recent Sales of Unregistered Securities. We did not sell unregistered securities during fiscal 2002.
ITEM 6. SELECTED FINANCIAL DATA.
In 1999, we acquired Direct Radiography Corp. and in 2000 we acquired the
U.S. assets of Trex Medical. The purchase accounting method under APB No. 16 was
used for both of these transactions. Included in the fiscal 2000 financial data
are acquisition related pre-tax charges of $13.3 million related to the Trex
Medical acquisition. Included in the fiscal 2001 financial data are (i) a $2.5
million reduction in expenses as a result of the settlement of the final
purchase price and reassessment of reserves from the Trex Medical acquisition,
(ii) the recognition of $2.1 million of other revenue previously deferred and a
$500,000 reduction to cost of product sales due to excess warranty reserves
related to the settlement of the litigation with Fleet Business Credit, LLC,
(iii) restructuring charges of approximately $1.0 million for severance related
expenses resulting from reductions in our workforce and (iv) a $500,000
nonrecurring charge from the relocation of the Fluoroscan mini C-arm
manufacturing facility from Illinois to Massachusetts. Included in the fiscal
2002 financial data are restructuring costs of approximately $2.1 million
related to closing the conventional general radiography manufacturing facility
and to our continued efforts to streamline operations.
FISCAL YEARS ENDED
September 26, September 25, September 30, September 29, September 28,
1998 1999 2000 2001 2002
------------- ------------- ------------- ------------- -------------
(In thousands, except per share data)
CONSOLIDATED STATEMENT OF OPERATIONS DATA
Revenues:
Product sales $ 102,086 $ 69,924 $ 76,178 $ 137,977 $ 148,834
Service and other revenue 13,998 14,754 18,159 42,219 41,358
------------- ------------- ------------- ------------- -------------
116,084 84,678 94,337 180,196 190,192
------------- ------------- ------------- ------------- -------------
Costs and Expenses:
Cost of product sales 45,273 36,039 46,728 85,712 84,230
Cost of service and other revenue 13,097 15,909 18,726 33,734 34,146
Research and development 9,778 12,664 22,178 23,328 20,362
Selling and marketing 26,630 18,581 22,623 33,858 28,319
General and administrative 10,452 10,963 16,441 20,852 18,908
Restructuring and nonrecurring -- -- -- 1,518 2,070
------------- ------------- ------------- ------------- -------------
105,230 94,156 126,696 199,002 188,035
------------- ------------- ------------- ------------- -------------
Income (loss) from operations 10,854 (9,478) (32,359) (18,806) 2,157
Interest income 5,998 4,204 3,567 1,027 573
Interest/other expense (664) (548) (227) (2,902) (2,980)
------------- ------------- ------------- ------------- -------------
Income (loss) before provision (benefit) for
income taxes 16,188 (5,822) (29,019) (20,681) (250)
Provision (benefit) for income taxes 5,800 (2,075) (10,400) 169 (429)
------------- ------------- ------------- ------------- -------------
Net income (loss) $ 10,388 $ (3,747) $ (18,619) $ (20,850) $ 179
============= ============= ============= ============= =============
Net income (loss) per common and common
equivalent share:
Basic $ 0.78 $ (0.27) $ (1.22) $ (1.35) $ 0.01
============= ============= ============= ============= =============
Diluted $ 0.75 $ (0.27) $ (1.22) $ (1.35) $ 0.01
============= ============= ============= ============= =============
Weighted average number of common shares
outstanding:
Basic 13,259 13,950 15,320 15,475 18,419
============= ============= ============= ============= =============
Diluted 13,766 13,950 15,320 15,475 19,192
============= ============= ============= ============= =============
CONSOLIDATED BALANCE SHEET DATA
Working capital $ 99,633 $ 89,823 $ 53,022 $ 44,679 $ 98,472
Total assets 172,597 175,770 219,655 195,119 184,275
Long-term debt -- -- 25,000 28,416 2,268
Total stockholders' equity 140,382 150,422 131,572 111,807 142,409
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion and analysis should be read in conjunction with the "Selected Consolidated Financial Data" and the Consolidated Financial Statements included elsewhere in this report and the information described under the caption "Risk Factors" below.
CRITICAL ACCOUNTING POLICIES
The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to customer programs and incentives, product returns, bad debts, inventories, investments, intangible assets, income taxes, warranty obligations, restructuring and contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.
REVENUE RECOGNITION
We recognize product revenue upon shipment, provided that there is persuasive evidence of an arrangement, there are no uncertainties regarding acceptance, the sales price is fixed or determinable, collection of the resulting receivable is probable and only perfunctory obligations included in the arrangement remain to be completed. We recognize product revenue upon the completion of installation for shipments that require more than perfunctory obligations at the time of shipment, specifically for our digital imaging systems. A provision is made at the time of revenue recognition for estimated warranty costs to be incurred. Our products are generally covered for a one year period from the date of installation. We test the adequacy of our warranty reserves quarterly by reviewing our most recent warranty repair experience by product. Our product failure rates and service delivery costs have been consistent over the past three fiscal years for our continuing product lines. Our warranty accrual was approximately $5.0 million, $6.5 million and $9.7 million in fiscal 2002, 2001 and 2000, respectively. The decrease in this accrual over the past three fiscal years is directly attributable to our decision to eliminate the unprofitable conventional general radiography product lines which had warranty periods of up to five years. Service and other revenues, which primarily includes maintenance contracts, replacement parts and services and fee-per-scan revenues are recorded ratably over the contract period for maintenance contracts, at the time of shipment for replacement parts, as the service is rendered or as the fees are collected for fee-per-scan revenue.
INVENTORY
Our inventories include material, labor and overhead, and are stated at the lower of cost (first-in, first-out) or market. We write down inventory for estimated obsolescence based upon assumptions about future demand and market conditions, which may negatively affect our ability to dispose of inventory. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required, which would have a negative effect on our results of operations.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. If the financial condition of the customers were to deteriorate, resulting
in an impairment of their ability to make payments, additional allowances may be required. We perform a specific bad debt review on a quarterly basis to determine the amount of reserve required based on the outstanding balance due and the age of the balance. We also provide a general reserve to cover items not specifically reviewed. Our allowance for doubtful accounts was $4.6 million, $4.7 million and $7.9 million in fiscal 2002, 2001 and 2000, respectively. The decrease in the reserve in fiscal 2001 was primarily attributable to our write off of reserves and accounts receivable acquired in the Trex Medical acquisition related to the conventional general radiography product lines we eliminated.
INCOME TAXES
We account for income taxes under SFAS No. 109, "Accounting for Income Taxes". This statement requires that we recognize a current tax liability or asset for current taxes payable or refundable and a deferred tax liability or asset for the estimated future tax effects of temporary differences and carryforwards to the extent they are realizable. We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. While we have considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance, in the event we were to determine that we would be able to realize our deferred tax assets in the future in excess of the net recorded amount, an adjustment to the deferred tax asset would increase income in the period such determination was made. Likewise, should we determine that we would not be able to realize all or part of our net deferred tax asset in the future, an adjustment to the deferred tax asset would be charged to income in the period such determination was made.
During fiscal 2002 we recorded an increase in our valuation allowance against a portion of our remaining potential deferred tax assets. The valuation allowance primarily relates to the net losses generated in fiscal 2001 and 2000 for which we can only realize through the generation of future taxable income and to certain deferred tax assets in foreign jurisdictions, for which realization is uncertain. In fiscal 2002 we had a benefit for income taxes of $429,000 as a result of a $4.5 million tax benefit recorded in the second quarter of fiscal 2002, partially offset by a $3.9 million tax provision recorded in the fourth quarter of fiscal 2002 to reduce our deferred tax asset to $3.6 million that we believe will be fully realizable in the next 12 to 24 months.
We do not provide for U.S. income taxes on earnings of our subsidiaries outside of the U.S. Our intention is to reinvest these earnings permanently or to repatriate the earnings only when tax-effective to do so. It is not practical to estimate the amount of additional taxes that might be payable upon repatriation of foreign earnings; however, we believe that U.S. foreign tax credits would largely eliminate any U.S. taxes or offset any foreign withholding taxes.
LEASE ACCOUNTING
In September 2002, we completed a sale/leaseback of our Bedford, Massachusetts and Danbury, Connecticut facilities, resulting in a loss of $93,000 which is included in interest/other expense in our consolidated statements of operations. Under the terms of the sale/leaseback, we entered into a 20-year operating lease agreement for the two facilities requiring annual rent payments of $3.2 million. In applying the provisions of SFAS No.13, Lease Accounting, certain judgments and estimates must be made to determine if the agreement should be accounted for as a capital or operating lease. Most significant is the determination of our incremental borrowing rate in calculating the present value of minimum lease payments in the event the rate implicit in the lease is unknown. In order for a lease agreement to be accounted as an operating lease, among other requirements, the present value of the minimum lease payments may not be greater than 90% of the fair value of the leased asset. In determining our incremental borrowing rate we considered, among other things, quotes obtained from several lenders assuming we were financing a purchase of the facility. We used an incremental borrowing rate of 10% which we believe to be conservative compared to the range of rates quoted by several lenders.
OVERVIEW
We are engaged in the development, manufacture and distribution of proprietary X-ray, digital X-ray and other medical imaging systems. As a result of our decision to close the conventional general radiography manufacturing facility, we have reclassified the general radiography business from the mammography/general radiography segment into a separate segment. Prior periods have been reclassified to conform to this presentation. Our businesses are reported as five segments: osteoporosis assessment; mammography; digital imaging; mini C-arm imaging; and conventional general radiography.
Our osteoporosis assessment products primarily consist of dual-energy X-ray bone densitometry systems and, to a lesser extent, an ultrasound-based osteoporosis assessment product. Bone densitometry is the precise measurement of bone density to assist in the diagnosis and monitoring of osteoporosis and other metabolic bone diseases that can lead to debilitating bone fractures. Our mammography products include a broad product line of breast imaging products, including mammography systems and breast biopsy systems. Our digital imaging products include general radiographic systems and a digital component for original equipment manufacturers to incorporate into their own equipment. Our mini C-arm products are low intensity, real-time mini C-arm X-ray systems used primarily for minimally invasive surgery on a patient's extremities. In January, 2002, we closed the manufacturing facility for the conventional general radiography products, however, we continue to service and support most of these product lines.
ACQUISITIONS, RECENT DEVELOPMENTS AND RESTRUCTURING AND NONRECURRING CHARGES
Trex Medical Acquisition. On September 15, 2000, we acquired the U.S. business assets of Trex Medical in exchange for approximately $30.0 million in cash and a note in the amount of $25.0 million. The cash portion of the purchase price was subject to adjustment based upon the working capital of Trex Medical as of the closing. Following the acquisition, we disagreed with Trex Medical's calculation of its working capital as reflected on its closing balance sheet. In accordance with the dispute resolution procedures set forth in the purchase agreement, we and Thermo Electron Corporation, sole shareholder of Trex Medical, jointly sought the assistance of an independent arbitrator to determine the closing working capital.
In June 2001, the independent arbitrator determined that adjustments of approximately $2.8 million, in addition to $119,000 of adjustments agreed to by Thermo Electron Corporation before submission to arbitration, were required to the closing balance sheet submitted by Trex Medical. This resulted in a payment of approximately $932,000 to us as an adjustment to the cash portion of the purchase price.
In addition, in November 2001, we finalized the plan to close the conventional general radiography manufacturing facility located in Littleton, Massachusetts that we had acquired as part of the Trex Medical acquisition. In connection with the closure of the Littleton facility, we eliminated approximately 80 employment positions and incurred a restructuring charge, primarily related to severance costs, of approximately $1.0 million, in fiscal 2002.
Also, as a result of the arbitration settlement, we evaluated the components of the $2.8 million of adjustments and determined that approximately $2.1 million of reserves and accruals provided for through charges to earnings in the fourth quarter of fiscal 2000 should be recorded in our allocation of the purchase price for this acquisition. Included in our results for the twelve month period ended September 29, 2001 are expense reductions totaling $2.5 million related to the purchase price reallocation as follows:
. $1.7 million cost of product sales reduction for warranty accrual and for performance upgrades on prior sales;
. $376,000 selling expense reduction for accrued sales commissions; and
. $428,000 general and administrative expense reduction for various expense accruals and bad debt expense.
Fleet Business Credit, LLC Litigation Settlement. In August 2001, we settled our dispute with Fleet Business Credit, LLC ("Fleet") relating to our Strategic Alliance Program under which Fleet, formerly Sanwa Business Credit Corp., acquired our bone densitometry systems to lease to physicians on a fee-per-scan basis throughout the United States.
Under the settlement agreement, the parties dismissed their claims and entered mutual releases. In addition, we paid Fleet $1.5 million in cash and executed a $1.6 million unsecured note payable. The note bears interest at Fleet's prime rate plus 1% with the full amount of principal to be paid on August 10, 2004. We further agreed to continue to assist Fleet in remarketing returned systems, as requested by Fleet, based on separately negotiated market rate terms on a prepaid basis. We also continue to be entitled to benefit from excess lease and other payments made to Fleet under the program, which will offset amounts due under the note payable.
Under the terms of the original agreement with Fleet's predecessor, Sanwa, we were contingently liable for a certain amount per system sold under the agreement. We recorded the amount for which we were contingently liable as deferred revenue. Based on the settlement, we reduced deferred revenue for the $1.5 million cash payment and reflected $1.6 million as a long term note payable in our consolidated balance sheet as of September 29, 2001. We have also recognized as revenue the remaining deferred revenue amounts of $2.1 million. In addition, we reversed $500,000 of related warranty reserves, which were no longer necessary as a result of the settlement, through a reduction of cost of product sales, for a total positive impact on earnings relating to the Fleet settlement of approximately $2.6 million.
Restructuring and Nonrecurring Charges. In addition to the adjustments and charges described above, our results for the year ended September 29, 2001 include the following restructuring and nonrecurring charges:
. On August 13, 2001 we announced a restructuring plan focusing primarily on a company-wide cost savings initiative which includes a planned reduction of the workforce by 10%, or approximately eighty employees, and otherwise trimming operating expenses in each of our business units. As a result of the plan, once completed, we expect to realize annual cost savings of approximately $10 million. We incurred a restructuring charge, primarily related to severance costs, of approximately $1.0 million in fiscal 2001.
. We incurred approximately $500,000 of expenses related to the move of the Fluoroscan mini C-arm product line to the corporate headquarters in Bedford, Massachusetts including approximately $200,000 of moving costs, $100,000 of severance costs, $100,000 to vacate the facility and $100,000 of other costs.
For the year ended September 28, 2002 we incurred approximately $2.1 million of severance costs related to the closing of the conventional general radiography manufacturing facility, closure of our direct sales and service office in Paris, France and our continuing efforts to streamline operations.
Public Offering of Common Stock. In December 2001, we sold 3,000,000 shares of our common stock to the public at a price of $9.00 per share. We received net proceeds from this offering of approximately $24.8 million.
Sale/Leaseback Transaction. In September 2002, we completed a sale/leaseback transaction for our headquarters and manufacturing facility located in Bedford, Massachusetts and our LORAD manufacturing facility in Danbury, Connecticut. The transaction resulted in net proceeds to us of $31.4 million. The new lease for these facilities, including the associated land, has a term of 20 years, with four five-year renewal terms, which we may exercise at our option. The basic rent for the facilities is $3.2 million per year, which is
subject to adjustment for increases in the consumer price index. In addition, we are required to maintain the facilities during the term of the lease and to pay all taxes, insurance, utilities and other costs associated with those facilities. Of the $31.4 million in net proceeds we received from this transaction, we used $26.3 million to immediately repay the Trex Medical $25.0 million note payable plus accrued interest of $1.3 million. The effect of the sale/leaseback transaction is to eliminate interest expense with respect to the Trex Medical Note and the related depreciation expense on the buildings, but on a going forward basis will increase operating expenses as a result of the lease payments. At September 28, 2002 we were in compliance with the covenants contained in the lease.
New Accounting Standards. In September 2001, the Emerging Issues Task Force (EITF) issued No. 00-10, Accounting for Shipping and Handling Costs, relating to the accounting for shipping and handling costs billed to customers. In accordance with Issue No. 00-10, all amounts billed to a customer in a sale transaction related to shipping and handling, if any, represent revenues earned for the goods provided and should be classified as revenue in the statement of operations. We have historically accounted for reimbursements received from shipping and handling costs as a reduction to cost of revenues in the statement of operations to offset the costs incurred. We adopted Issue No. 00-10 in financial reporting periods beginning after September 29, 2001. Accordingly, comparative financial statements herein for prior periods have been reclassified to comply with the guidance in Issue No. 00-10. During the years ended September 28, 2002, September 29, 2001 and September 30, 2000, the amounts billed to customers totaled $1,412,000 $1,705,000 and, $591,000 respectively, which have been reflected as product revenues and cost of revenues in accordance with Issue No. 00-10 in our consolidated statements of operations for all periods presented.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage of revenues represented by items as shown in our consolidated statements of operations.
FISCAL YEARS ENDED
---------------------------------------------
SEPTEMBER 28, SEPTEMBER 29, SEPTEMBER 30,
2002 2001 2000
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Revenues:
Product sales 78.3% 76.6% 80.8%
Service and other revenue 21.7 23.4 19.2
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100.0 100.0 100.0
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Cost and expenses:
Cost of product sales 44.3 47.6 49.5
Cost of service and other revenue 18.0 18.7 19.9
Research and development 10.7 12.9 23.5
Selling and marketing 14.9 18.8 24.0
General and administrative 9.9 11.6 17.4
Nonrecurring and restructuring 1.1 0.8 --
------------- ------------- -------------
98.9 110.4 134.3
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Income (loss) from operations 1.1 (10.4) (34.3)
Interest income 0.3 0.6 3.7
Interest/other expense (1.5) (1.7) (0.2)
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Loss before income taxes (0.1) (11.5) (30.8)
(Benefit) provision for income taxes (0.2) 0.1 (11.1)
Net income (loss) 0.1% (11.6)% (19.7)%
------------- ------------- -------------
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FISCAL YEAR ENDED SEPTEMBER 28, 2002 COMPARED TO FISCAL YEAR ENDED SEPTEMBER 29,
2001
Total Revenues. Total revenues increased 6% to $190.2 million in fiscal 2002 compared to $180.2 million in fiscal 2001. The increase in revenues was primarily due to an increase in unit sales of our mammography products, digital imaging products and to a lesser extent, mini C-arm products. Partially offsetting these increases was a decrease in revenues from our conventional general radiography business, and to a lesser extent, a decrease in the number of Sahara ultrasound units sold primarily in the United States. We completed the phase-out of the unprofitable conventional general radiography product line during the third quarter of fiscal 2002.
Product Sales. Product sales in our mammography business increased approximately 33% to $59.8 million in fiscal 2002 from $44.9 million in fiscal 2001. This increase was primarily due to an increase in the number of mammography systems sold in the United States partially offset by fewer mammography systems sold internationally.
Digital imaging product sales increased 106% to $21.5 million in fiscal 2002 compared to revenues of $10.4 million in fiscal 2001. This increase was primarily due to an increase in the number of digital systems sold and, to a lesser extent, an increase in the number of digital plates sold.
Mini C-arm product sales increased 15% to $14.8 million in fiscal 2002 from $12.8 million in fiscal 2001. This increase was primarily due to an increase in the number of Premier systems sold in the United States.
Osteoporosis Assessment product sales decreased 2% to $48.0 million in fiscal 2002 from $49.1 million in fiscal 2001. These revenues decreased primarily due to a decrease in the number of Sahara ultrasound systems sold in the United States.
Conventional general radiography product sales decreased 77% to $4.8 million in fiscal 2002 from $20.9 million in fiscal 2001. This decrease was primarily due to our decision to phase-out our unprofitable conventional general radiography product line during fiscal 2002.
In fiscal 2002, approximately 80% of product sales were generated in the United States, 9% in Europe and 11% in other international markets. In fiscal 2001, approximately 72% of product sales were generated in the United States, 14% in Europe and 14% in other international markets.
Service and Other Revenue. Service and other revenue decreased 2% to $41.4 million in fiscal 2002 compared to $42.2 million in fiscal 2001. The decrease in service and other revenue in fiscal 2002 was primarily the result of the $2.1 million recognized in fiscal 2001 in connection with the settlement of the Fleet litigation and from a reduction in sales of mammography product options in fiscal 2002. Partially offsetting these decreases was revenue from the licensing of certain digital imaging software and mammography patented technology in fiscal 2002.
Costs of Product Sales. The cost of product sales decreased as a percentage of product sales to 57% in fiscal 2002 from 62% in fiscal 2001. Fiscal 2001 cost of product sales includes a $1.7 million reduction of expenses related to the final purchase price adjustment of the Trex Medical acquisition. Excluding the effect of these reductions, costs of product sales as a percentage of product revenue would have been 63% in fiscal 2001. These costs decreased as a percentage of product sales primarily due to improved gross margins recognized on the mammography and digital imaging products as a result of a significant increase in revenues and cost savings initiatives enacted in the summer of 2001. The increased volume has improved the absorption of manufacturing overhead at both facilities. DRC continues to have significant fixed manufacturing costs and is operating significantly below manufacturing capacity. However, margins on these products were positive for the last three quarters of fiscal 2002 compared to negative margins for prior periods. Our gross margins also improved as a result of the decrease in sales of conventional general radiography products which have had significantly lower margins.
Costs of Service and Other Revenue. Cost of service and other revenue increased as a percentage of service and other revenue to 83% in fiscal 2002 from 80% in fiscal 2001. Fiscal 2001 cost of service and other revenue includes a $500,000 reduction of expenses related to the Fleet litigation settlement. Excluding the reduction of these expenses and the $2.1 million of other revenue recognized from this settlement, fiscal 2001 cost of service and other revenue as a percentage of service and other revenue would have been 85%. These costs decreased as a percentage of service and other revenue due to our closure of the conventional general radiography facility which was partially offset by additional personnel and other costs in our field service area for our other business segments due to the increase in the number of systems in our installed base.
Research and Development Expenses. Research and development expenses decreased 13% to $20.4 million, 11% of total revenues, in fiscal 2002 from $23.3 million, 13% of total revenues, in fiscal 2001. This decrease was primarily due to a decrease in research and development spending and personnel primarily related to our cost-saving initiatives enacted in the summer of 2001. In addition, approximately $6.4 million and $5.4 million of these expenses in fiscal 2002 and 2001, respectively, related to the development of new digital mammography and general radiography systems detectors at DRC.
Selling and Marketing Expenses. Selling and marketing expenses decreased 16% to $28.3 million, 15% of total revenues, in fiscal 2002 from $33.9 million, 19% of total revenues, in fiscal 2001. The decrease in selling and marketing expenses was primarily due to our reduction in personnel related to our cost-saving initiatives enacted during the summer of 2001.
General and Administrative Expenses. General and administrative expenses decreased 9% to $18.9 million, 10% of total revenues, in fiscal 2002 from $20.9 million, 12% of total revenues, in fiscal 2001. The decrease was primarily due to our reduction in personnel and other cost-savings initiatives enacted during the summer of 2001 and, to a lesser extent, the elimination of the legal expenses as a result of the settlement of the Fleet litigation in August, 2001. In addition, in connection with our early adoption of SFAS 142, (see Note 2 of our consolidated financial statements) we eliminated approximately $700,000 of goodwill amortization expense in the current year.
Restructuring and Nonrecurring Charges. Restructuring costs in fiscal 2002 of approximately $2.1 million were primarily the result of our continuing efforts to streamline operations and eliminate unprofitable product lines. We incurred a restructuring charge of approximately $806,000 in the first quarter of fiscal 2002 primarily comprised of severance costs related to the termination of 85 employees at the Littleton facility. In addition, we incurred severance cost of approximately $561,000 and $208,000 in connection with the closure of our direct sales and service office in Paris, France and the continued reduction of Lorad's workforce, respectively. The severance charges related to the workforce reductions of 5 persons in France and 20 persons at Lorad and were across all functional areas. In the second quarter of fiscal 2002, we incurred additional severance costs of approximately $495,000 primarily comprised of severance costs in connection with the reduction of our workforce in the United States and Europe by 13 persons across all functional areas.
Restructuring and nonrecurring costs of approximately $1.5 million in fiscal 2001 were primarily the result of our ongoing efforts to streamline operations. Specifically in fiscal 2001, as a result of a reduction in our workforce, we incurred restructuring charges of approximately $1.0 million, primarily related to severance related expenses. Also in fiscal 2001, we moved our Fluoroscan operations from a facility in Northbrook, Illinois to our corporate headquarters in Bedford, Massachusetts. We incurred approximately $500,000 of nonrecurring expenses in connection with this move.
Interest Income. Interest income decreased to $573,000 in fiscal 2002 from $1.0 million in fiscal 2001. This decrease was primarily attributable to reduced interest rates on our investments.
Interest / Other Expense. In fiscal 2002 and 2001, we incurred interest and other expenses of approximately $3.0 million and $2.9 million, respectively. These expenses included interest costs of approximately $700,000 per quarter on the $25.0 million note payable issued in connection with the Trex Medical acquisition, and to a lesser extent, interest costs related to our lending arrangement with Foothill Capital Corporation, foreign currency transaction gains and interest costs on a bank line of credit used by our European subsidiaries to borrow funds in their local currencies to pay for intercompany sales, thereby reducing the foreign currency exposure on those transactions. In September 2002, we paid off the $25.0 million note payable to Trex Medical from the proceeds from the sale/leaseback transaction of our headquarters and manufacturing facility located in Bedford, Massachusetts and also our LORAD manufacturing facility in Danbury, Connecticut. Therefore, future periods will only include interest costs associated with the remaining lending agreements. To the extent that foreign currency exchange rates fluctuate in the future, we may be exposed to continued financial risk. Although we have established a borrowing line of credit denominated in the foreign currency, the euro, in which our subsidiaries currently conduct business to minimize this risk, we cannot assure that we will be successful or can fully hedge our outstanding exposure.
Provision (Benefit) for Income Taxes. In fiscal 2002 we had a benefit for income taxes of $429,000 as a result of a $4.5 million tax benefit recorded in the second quarter of fiscal 2002, partially offset by a $3.9 million tax provision recorded in the fourth quarter of fiscal 2002 to reduce our deferred tax asset to $3.6 million that we believe will be fully realizable in the next 12 to 24 months. During fiscal 2002, as a result of the Economic Stimulus Bill signed into law in March, we have filed or are in the process of filing, carryback claims of approximately $13.8 million. Of this amount, we have received $6.0 million in cash, and $7.8 million which we expect to receive in fiscal 2003 is included in other current assets in the accompanying balance sheet at September 28, 2002. In fiscal 2001, we recorded a tax provision for minimum state taxes as we believed that it was prudent at the time not to benefit net operating losses that would only be realized by generating sufficient future taxable income.
FISCAL YEAR ENDED SEPTEMBER 29, 2001 COMPARED TO FISCAL YEAR ENDED SEPTEMBER 30,
2000
Total Revenues. Total revenues increased 91.0% to $180.2 million in fiscal 2001 from $94.3 million in fiscal 2000. This increase was primarily due to the addition of revenues of $87.5 million from sales of mammography and conventional general radiography products acquired in connection with the Trex Medical acquisition in September 2000.
Product Sales. Total product sales for our historic businesses, osteoporosis assessment, mini C-arm imaging and digital imaging, increased slightly to $72.2 million in fiscal 2001 from $71.5 million in fiscal 2000. This increase was primarily due to an increase in the number of digital imaging products sold, which was partially offset by a decrease in osteoporosis assessment sales. Total digital imaging sales for fiscal 2001 increased 50% to $11.8 million from $7.9 million in fiscal 2000. This increase was primarily due to an increase in the number of digital imaging systems sold, primarily in the United States. The decrease in osteoporosis assessment sales was primarily due to a decrease in Sahara ultrasound product unit sales in the United States which were partially offset by an increase in revenues from our sales of dual-energy X-ray bone densitometers, principally our newly introduced Delphi product line.
In fiscal 2001, approximately 72% of product sales were generated in the United States, 14% in Europe and 14% in other international markets. In fiscal 2000, approximately 67% of product sales were generated in the United States, 21% in Europe and 12% in other international markets.
Service and Other Revenue. Service and other revenue increased to $42.2 million in fiscal 2001 from $18.2 million in fiscal 2000. This increase was primarily due to the addition of service revenues of $21.8 million in connection with the Trex Medical acquisition in September 2000. The remaining increase was due to increased service contract revenue in the osteoporosis assessment business and increased spare part sales in the digital imaging business. In fiscal 2001 and 2000, other revenue consisted primarily of royalty revenues from our licensing of technology to Vivid Technologies, Inc. (Vivid) for explosives detection screening, and additional revenues generated from our strategic alliance program on a fee-per-scan basis. In fiscal 2001, other revenue also included $2.1 million of revenue attributable to our settlement of the Fleet litigation. In fiscal 2000, other revenue included the $2.0 million of royalty revenue we recognized relating to the buy-out by Vivid of our baggage equipment license. These revenues for both periods were included in our osteoporosis assessment segment revenues.
In November 2001, we announced that we were closing our conventional general radiography equipment manufacturing facility and relocating some product lines and our sales and support personnel to our corporate headquarters. Approximately $27.5 million of revenues in fiscal 2001 and $5.4 million of revenues in the fourth quarter of fiscal 2001 related to this operation. These revenues included service revenues of approximately $6.5 million during the year and $1.5 million in the fourth quarter.
Cost of Product Sales. The cost of product sales increased slightly as a percentage of product sales to 62% in fiscal 2001 from 61% in fiscal 2000. In fiscal 2001, these costs were reduced by $1.7 million related to the final purchase price adjustment of the Trex Medical acquisition. Excluding the effects of this reduction, cost of product sales as a percentage of product revenue would have been 63% in fiscal 2001. Included in the cost of product sales for Lorad and the Trex Medical general radiography products in fiscal 2000 was approximately $5.6 million of acquisition related charges. Excluding the effects of these charges, our costs of product sales as a percentage of product sales would have been 54% in fiscal 2000.
In fiscal 2001, improvements in margins in the osteoporosis assessment and digital imaging businesses were offset by our increased sales of lower margin mammography and conventional general radiography products acquired from Trex Medical and of digital radiography products. Margins from our digital imaging products improved in the current year as compared to the prior year due to increased volume. However, margins on these products continued to be negative reflecting the under absorption of our manufacturing overhead, as a result of our limited sales of those products, and inefficiencies relating to new
product introduction. Our cost of product sales as a percentage of product sales for our osteoporosis assessment, mini C-arm and digital imaging businesses increased to 58% in fiscal 2001 from 56% in fiscal 2000. This increase was primarily due to increased manufacturing and service costs related to digital imaging, which has significant fixed manufacturing costs and is operating significantly below manufacturing capacity.
Cost of Service and Other Revenue. Cost of service and other revenue decreased as a percentage of service and other revenue to 80% in fiscal 2001 from 103% in fiscal 2000. Fiscal 2001 cost of service and other revenue includes a $500,000 reduction related to the Fleet litigation settlement. Absent the reduction of these expenses and the $2.1 million of other revenue recognized from this settlement, fiscal 2001 cost of service and other revenue would have been 85%.
Research and Development Expenses. Research and development expenses increased 5% to $23.3 million, 13% of total revenues, in fiscal 2001 from $22.2 million, 24% of total revenues, in fiscal 2000. The increase, in absolute dollars, was primarily due to the acquisition of Trex Medical which added approximately $4.2 million of research and development expenses in fiscal 2001. Partially offsetting these increases was a reduction in research and development spending primarily related to our bone densitometry products, following our introduction of the Delphi product line. In fiscal 2001, approximately $9.8 million of our research and development expenses related to our development of new digital radiography systems and detectors, compared to approximately $10.2 million of such expenses in fiscal 2000. In addition, in fiscal 2000, our research and development expense included a $5.0 million charge related to purchased in-process research and development acquired in connection with the acquisition of the assets of Trex Medical. As part of the purchase price allocation, all intangible assets that are a part of the acquisition were identified and valued. It was determined that technology assets, certain tradename and assembled workforce had value. As a result of this identification and valuation process, we allocated approximately $5.0 million of the purchase price to in-process research and development projects. This allocation represented the estimated fair value based on risk-adjusted cash flows related to the incomplete research and development projects. At the date of acquisition, the development of these projects had not yet reached technological feasibility, and the research and development in progress had no alternative future uses. Accordingly, these costs were expensed as of the acquisition date.
Selling and Marketing Expenses. Selling and marketing expenses increased 50% to $33.9 million, 19% of total sales, in fiscal 2001 from $22.6 million, 24% of total sales, in fiscal 2000. The increase, in absolute dollars, was primarily due to incremental selling and marketing expenses of $13.0 million related to the mammography and general radiography products acquired from Trex Medical in fiscal 2001, partially offset by a decrease in sales commissions in our other businesses. The reduced sales commissions were primarily attributable to the lower sales volume in the primary care market in the United States, where we generally have higher commission expenses. In fiscal 2001, selling and marketing expenses were also decreased by approximately $400,000 as a result of the Trex Medical purchase price settlement, as compared to fiscal 2000 which included approximately $400,000 of acquisition related charges.
General and Administrative Expenses. General and administrative expenses increased 27% to $20.9 million, 12% of total revenues, in fiscal 2001 from $16.4 million, 17% of total revenues, in fiscal 2000. The increase, in absolute dollars, was primarily due to the addition of approximately $7.1 million of general and administrative expenses related to the acquired Trex Medical businesses in the current year. Fiscal 2000 results included approximately $2.2 million of general and administrative expenses relating to the acquired Trex Medical businesses. In fiscal 2001, we had a reduction of approximately $400,000 to our general and administrative expenses relating to the Trex Medical acquisition to reflect the arbitrated purchase price adjustment. Our increases in general administrative expenses associated with the Trex Medical acquisition were partially offset by a decrease in general and administrative expenses in our historic businesses, primarily due to a reduction in payroll and payroll related expenses and bad debt expense compared to fiscal 2000.
Restructuring and Nonrecurring Charges. Restructuring and nonrecurring costs in fiscal 2001 were primarily the result of our ongoing efforts to streamline operations. In fiscal 2001, as a result of a reduction in
our workforce, we incurred restructuring charges of approximately $1.0 million, primarily related to severance related expenses. In the third quarter of fiscal 2001 we moved our Fluoroscan operations from a facility in Northbrook, Illinois to our corporate headquarters in Bedford, Massachusetts. We incurred approximately $500,000 of expenses in connection with this move.
Interest Income. Interest income decreased to $1.0 million in fiscal 2001 from $3.6 million in fiscal 2000. This decrease was due to a lower investment base than in the prior year, primarily due to the use of cash for the Trex Medical acquisition during fiscal 2000 and our continuing investment in research and development of our digital radiography products.
Interest/Other Expense. We incurred other expense of approximately $2.9 million in fiscal 2001 and $227,000 in fiscal 2000. In fiscal 2001, these expenses were primarily due to interest costs of approximately $2.8 million per year on the $25.0 million note payable issued in connection with the Trex Medical acquisition. In the first quarter of fiscal 2001, these costs were partially offset by insurance proceeds received in excess of cost related to storm damage at Fluoroscan last year. In fiscal 2000, these expenses primarily included foreign currency transaction losses and interest costs on a bank line of credit used by our European subsidiaries to borrow funds in their local currencies to pay for intercompany sales, thereby reducing the foreign currency exposure on those transactions.
Provision (Benefit) for Income Taxes. In fiscal 2000, we had a benefit for income taxes as a result of the loss during the period. In fiscal 2001, our effective tax rate was impacted by our establishing a valuation allowance for the tax benefit associated with our losses arising during that year.
SEGMENT RESULTS OF OPERATIONS
As a result of our decision to close the conventional general radiography manufacturing facility, we have reclassified the General Radiography business from the Mammography/General Radiography segment into a separate segment. Prior periods have been restated to conform to this presentation. Our businesses are reported as five segments: Osteoporosis Assessment; Mammography; Digital Imaging; Mini C-arm Imaging; and General Radiography. The accounting policies of the segments are the same as those described in the footnotes to the accompanying consolidated financial statements. We measure segment performance based on total revenues and operating income or loss. Revenues from each of these segments are described above. The discussion that follows is a summary analysis of the primary changes in operating income or loss by segment.
Osteoporosis Assessment. Reported operating income for the osteoporosis assessment business segment was $6.5 million for fiscal 2002 compared to operating income of $7.4 million in fiscal 2001. Fiscal 2001 operating income includes $2.1 million of additional revenues and $500,000 of decreased expenses as a result of the Fleet litigation settlement. Absent the effect of this settlement, the improvement in operating income for this business segment for fiscal 2002 was primarily due to an overall reduction in operating expenses as a result of our cost-savings initiatives partially offset by an increase in field service and training related expenses including additional headcount.
Mammography. Reported operating income for the mammography segment in fiscal 2002 improved to $4.2 million from $900,000 in fiscal 2001. The fiscal 2001 results for the Mammography business segment included expense reductions of approximately $1.6 million related to the final purchase price adjustment for the Trex acquisition. The significant improvements in operating income in the current year excluding these expense reductions in fiscal 2001 were primarily due to increased revenues and improved gross margin. The increased gross margin was primarily attributable to the increase in revenues and a reduction in manufacturing cost and operating expenses as a result of our cost-saving initiatives enacted during the summer of 2001 and, to a lesser extent, to a non-recurring charge of $800,000 in the first quarter of fiscal 2001 to product cost of sales for the fair market write-up of acquired inventory.
Digital Imaging. The digital imaging business segment reported a 52% decrease in loss from operations to $10.3 million in fiscal 2002 from $21.3 million for fiscal 2001. These decreases were primarily due to increased revenues, improved gross margin and, to a lesser extent, reduced research and development spending related to the completion of the EPEX and RADEX direct-to-digital general radiography systems and a reduction in other operating expenses as a result of our cost-saving initiatives enacted in the summer of 2001.
Mini C-arm Imaging. The mini C-arm business segment reported operating income of $3.5 million for fiscal 2002 compared to operating income of $683,000 for fiscal 2001. These improvements were primarily attributable to increased revenues, improved gross margin plus an overall reduction in manufacturing costs and operating expenses in connection with the assimilation of the Fluoroscan product line into the corporate headquarters located in Bedford, Massachusetts.
General Radiography. As previously discussed, we have closed the manufacturing facility of the conventional general radiography business and relocated certain of its product lines and sales and service support personnel to our corporate headquarters. This business segment reported an operating loss of $1.7 million for fiscal 2002 compared to an operating loss of $6.5 million for fiscal 2001. The decrease in operating losses are primarily due to the elimination of costs in the current year related to the facility closure. We incurred losses from our conventional general radiography business through the first half of fiscal 2002. However, the continuing service business generated operating profits of approximately $1.1 million during the last half of fiscal 2002.
ACQUIRED IN-PROCESS TECHNOLOGY
As part of the Trex Medical purchase price allocation, all intangible assets that were a part of the acquisition were identified and valued. It was determined that technology assets and assembled workforce had value. At the acquisition date, Trex Medical was conducting design, development, engineering and testing activities associated with the completion of several research and development projects related to its mammography and general radiography lines of business. As part of our exit strategy for the conventional general radiography business, we have terminated the development projects and efforts for the general radiography line of business. We will not incur any further expenditures or recognize any revenue related to these projects.
Since the acquisition, we have used the acquired in-process technology to develop new products, which have or are expected to become part of our product lines when completed. However, we are constantly reviewing the allocation of our research and development resources to respond to the ever changing market and technology developments, as well as developments of our own internally developed and acquired evolving technology portfolio. Also, we have combined acquired research and development projects with other of our development activities, and we have delayed two projects.
As of September 28, 2002 our expenditures incurred and estimates to complete our acquired in-process projects related to the mammography business were consistent with our initial expectations other than the delays mentioned above. If we are not successful in implementing our projects, we may be unable to realize the remaining value assigned to this in-process technology. In addition, the remaining value of the other acquired intangible assets associated with this technology may also become impaired.
LIQUIDITY AND CAPITAL RESOURCES
At September 28, 2002 we had approximately $98.5 million of working capital. At that date our cash and cash equivalents totaled $45.8 million. Our cash and cash equivalents balance increased approximately $33.1 during fiscal 2002 primarily due to the proceeds from our sale/leaseback transaction for our Bedford, Massachusetts and Danbury, Connecticut facilities in September 2002, the net proceeds from our common stock public offering in December 2001, and from operating activities, partially offset by the use of cash for the repayment of the Trex Medical note payable and for purchases of property and equipment.
Our cash provided by operating activities was $6.9 million which included net income of $179,000 for fiscal 2002 increased by non-cash charges for depreciation and amortization of $7.5 million and a $3.9 million charge to increase our deferred tax valuation allowance recorded in the fourth quarter of 2002. These amounts were partially offset by changes in our current assets and liabilities net of income tax refunds of approximately $7.8 million which we expect to receive in fiscal 2003, due to the effect of the Economic Stimulus Bill and the reclass of $3.6 million in deferred tax asset which is expected to be realized within the next fiscal year. Cash used in operations due to changes in our current assets and liabilities included a decrease in accounts payable of $7.3 million and a decrease in accrued expenses of $4.7 million. These uses of cash were partially offset by a decrease of $3.0 million in accounts receivable, a decrease in prepaid expenses and other current assets of $2.0 million and a decrease of $1.6 million in inventories. The decrease in accounts receivable was primarily due to improved collections and the decrease in accounts payable, accrued expenses and prepaid expenses were primarily due to the timing of payments.
In fiscal 2002, we provided approximately $25.1 million of cash from investing activities. These cash flows were primarily attributable to the net proceeds from our sale/leaseback transaction of $31.4 million partially reduced by purchases of property and equipment of $6.1 million, which consisted primarily of corporate wide computer information software and hardware, systems and other equipment and building improvements.
In fiscal 2002, financing activities provided us with $1.0 million of cash. These cash flows included approximately $24.8 million, net of offering expenses, from the public sale of 3.0 million shares of our common stock and proceeds from the issuance of common stock pursuant to options and employee stock purchase plan of $4.6 million, partially offset by the repayment of the $25.0 million Trex Medical note payable plus interest and $2.2 million of repayments of our European line of credit and our term loan with Foothill Capital Corp.
As of September 28, 2002 we had short term borrowings, including the current portion of our long term obligations, of $480,000 and long term notes payable totaling $2.3 million. The short term borrowings represent the current portion of our long term notes payable. The long term notes payable consisted of the $1.4 million borrowed from Foothill Capital Corporation as the long term portion of our term loan under our credit facility, and the $842,000 balance due on the note to Fleet in connection with the settlement of the Fleet litigation.
We maintain an unsecured line of credit with a European bank for the equivalent of $3.0 million, which bears interest at the Europe Interbank Offered Rate (3.32% at September 28, 2002) plus 1.5%. The borrowings under this line are primarily used by our European subsidiaries to settle intercompany sales and are denominated in the respective local currencies of its European subsidiaries. The line of credit may be canceled by the bank with 30 days notice. At September 28, 2002, there were no outstanding borrowings under this line.
In September 2001 we obtained a secured loan from Foothill Capital Corporation. The loan agreement with Foothill Capital Corporation provides for a term loan of approximately $2.4 million, which we borrowed at signing, and a revolving line of credit facility. The maximum amount we can borrow under the loan agreement is $25.0 million with an option for us to increase this amount to $30.0 million during the term of the Agreement, if certain conditions are met. The loan agreement contains financial and other covenants and the actual amount which we can borrow under the line of credit at any time is based upon a formula tied to the amount of our qualifying accounts receivable and inventory. In December 2001 we amended this loan agreement primarily to change financial covenants to reflect restructuring charges we incurred in the fourth quarter of fiscal 2001 and the additional charges we expected to incur in connection with our decision to close our Littleton facility. Also, as a result of this amendment, our loan may be limited based upon some financial covenants and formulas. The term loan accrues interest at prime plus 1.25% for five years. The line of credit advances accrue interest at prime plus 0.5%. The line of credit expires in September 2004. We were in compliance with all covenants as of September 28, 2002.
In April 2002, we began an implementation project for an integrated enterprise wide software application. Through September 28, 2002 we have made payments totaling $1.9 million for hardware, software and consulting services. We expect to make additional payments of approximately $1.0 million in fiscal 2003 in connection with this implementation. Most of the cost is currently being capitalized and upon completion will be amortized over its expected useful life.
In September 2002, we completed a sale/leaseback transaction for our headquarters and manufacturing facility located in Bedford, Massachusetts and our LORAD manufacturing facility in Danbury, Connecticut. The transaction resulted in net proceeds to us of $31.4 million. The new lease for these facilities, including the associated land, has a term of 20 years, with four five-year year renewal terms, which we may exercise at our option. The basic rent for the facilities is $3.2 million per year, which is subject to adjustment for increases in the consumer price index. The aggregate total minimum lease payments during the initial 20-year term are $62.9 million. In addition, we are required to maintain the facilities during the term of the lease and to pay all taxes, insurance, utilities and other costs associated with those facilities. Under the lease, we make customary representations and warranties and agree to certain financial covenants and indemnities. In the event we default on the lease, the landlord may terminate the lease, accelerate payments and collect liquidated damages.
The following table summarizes our contractual obligations and commitments as of September 28, 2002:
Payments Due by Period
(in thousands)
Contractual Obligations Total Less than 1 year 2-3 years 4-5 years Thereafter
----------------------- -------- ---------------- --------- --------- ----------
Long Term Debt $ 2,748 $ 480 $ 2,268 $ -- $ --
Operating Leases $ 67,382 $ 5,143 $ 8,512 $ 6,651 $ 47,076
-------- ------- --------- --------- ----------
Total Contractual
Cash Obligations $ 70,130 $ 5,623 $ 10,780 $ 6,651 $ 47,076
======== ======= ========= ========= ==========
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Except as set forth above, we do not have any other significant capital commitments. We are working on several projects, with an emphasis on direct radiography plates and systems. We believe that we have sufficient funds in order to fund our expected operations over the next twelve months.
RECENT ACCOUNTING PRONOUNCEMENTS
In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. This statement supercedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, and certain accounting and reporting provisions of Accounting Principles Board (APB) Opinion No. 30, Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions. Under this statement it is required that one accounting model be used for long-lived assets to be disposed of by sale, whether previously held and used or newly acquired, and it broadens the presentation of discontinued operations to include more disposal transactions. The provisions of this statement are effective for financial statements issued for fiscal years beginning after December 15, 2001, and interim periods within those fiscal years, with early adoption permitted. We do not believe the adoption of this statement will have a material impact on our results of operations or financial condition.
SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, issued in July 2002, addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies EITF Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). The principal difference between Statement 146 and Issue 94-3 relates to Statement 146's requirements for recognition of a liability for a cost associated with an exit or disposal activity. Statement 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under Issue 94-3, a liability for an exit costs as generally defined in Issue 94-3 was recognized at the date of an entity's commitment to an exit plan. Therefore, this Statement eliminates the definition and requirements for recognition of exit costs in issue 94-3. This Statement also established that fair value is the objective for initial measurement of the liability.
The provisions of this Statement are effective for exit or disposal activities that are initiated after December 31, 2002, with early application encouraged. We do not believe the adoption of this statement will have a material impact on our results of operations or financial condition.
FASB INTERPRETATION NO. 45 - GUARANTOR ACCOUNTING
FASB Interpretation No. 45 will significantly change current practice in the accounting for, and disclosure of, guarantees. Most guarantees are to be recognized and initially measured at fair value, which is a change from current practice. In addition, guarantors will be required to make significant new disclosures, even when the likelihood of the guarantor making payments under the guarantee is remote. In general, the Interpretation applies to contracts or indemnification agreements that contingently require the guarantor to make payments to the guaranteed party based on changes in an underlying that is related to an asset, liability, or an equity security of the guaranteed party. The Interpretation's disclosure requirements are effective for financial statements of interim or annual periods ending after December 15, 2002, while the initial recognition and initial measurement provisions are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. We do not believe the adoption of this statement will have a material impact on our results of operations or financial condition.
EITF 00-21 - ACCOUNTING FOR REVENUE ARRANGEMENTS WITH MULTIPLE DELIVERABLES
At the November 21, 2002 meeting, the Task Force reached a consensus on Issue 00-21, which addresses how to account for arrangements that may involve the delivery or performance of multiple products, services, and/or rights to use assets. The final consensus will be applicable to agreements entered into in fiscal periods beginning after June 15, 2003 with early adoption permitted. Additionally, companies will be permitted to apply the consensus guidance to all existing arrangements as the cumulative effect of a change in accounting principle in accordance with APB Opinion No. 20, Accounting Changes.
Following is a brief summary of the final model approved by the Task Force.
. Revenue arrangements with multiple deliverables should be divided into separate units of accounting if the deliverables in the arrangement meet the following criteria:
. The delivered item(s) has value to the customer on a standalone basis. That item(s) has value on a standalone basis if it is sold separately by any vendor or the customer could resell the deliverable on a standalone basis. In the context of a customer's ability to resell the deliverable, the Task Force observed that this criterion does not require the existence of an observable market.
. There is objective and reliable evidence of the fair value of the undelivered item(s).
. If the arrangement includes a general right of return, delivery or performance of the undelivered item(s) is considered probable and substantially in the control of the vendor.
. Arrangement consideration should be allocated among the separate units of accounting based on their relative fair values. The amount allocated to the delivered item(s) is limited to the amount that is not contingent on the delivery of additional items or meeting other specified performance conditions.
. Applicable revenue recognition criteria should be considered separately for separate units of accounting.
We are currently evaluating the ultimate impact of this statement on our results of operations or financial position.
RISK FACTORS
This report contains forward-looking statements that involve risks and uncertainties, such as statements of our objectives, expectations and intentions. The cautionary statements made in this report should be read as applicable to all forward-looking statements wherever they appear in this report. Our actual results could differ materially from those discussed herein. Factors that could cause or contribute to such differences include those discussed below, as well as those discussed elsewhere in this report.
We continue to incur significant losses in our digital imaging business segment and cannot assure that the segment will become profitable.
Our digital imaging business segment incurred net losses of $13.3 million in fiscal 2000, $21.4 million in fiscal 2001, and $10.2 million in fiscal 2002. These losses were a large contributor in our incurring significant overall net losses in fiscal 2000 and 2001, and offset the aggregate net income we recognized on our other business segments in fiscal 2002. We intend to incur significant expenses in connection with the further development, manufacturing ramp-up and commercialization of our direct radiography plates and systems. We cannot assure that the operating results of our digital imaging segment will improve.
The markets for our direct radiography products are in the early stage of development.
In 1998, our subsidiary, Direct Radiography Corp., was the first company to introduce direct-to-digital X-ray imaging products in the United States. The markets for these products are relatively new. There is a significant installed base of conventional X-ray imaging products in hospitals and radiological practices. The use of our direct-to-digital X-ray imaging products in many cases would require these potential customers to either modify or replace their existing X-ray imaging equipment. Moreover, we believe that a major factor in the market's acceptance of direct-to-digital X-ray technology is the trend toward transition by the healthcare industry from conventional film archiving systems to hospital Picture, Archive and Communication Systems, known as PACS, to store X-ray images electronically. Because the benefits of our direct-to-digital technology may not be fully realized by customers until they install a PACS platform, a large potential market for these products may not develop until PACS environments are more widely used. Because of the early stage of the markets for these products, it is likely that our evaluation of the potential markets for these products will materially vary with time. We cannot assure that any significant market will develop for our direct radiography products.
If we fail to achieve and maintain the high manufacturing standards that our direct radiography products require, we will not be successful in developing and marketing those products.
The manufacture of our direct radiography detectors is highly complex and requires precise high quality manufacturing that is difficult to achieve. We have in the past and may in the future experience difficulties in manufacturing these detectors in commercial quantities, primarily related to delays and difficulties in obtaining critical components for these detectors that meet our high manufacturing standards. Our initial difficulties have led to increased delivery lead-times and increased costs of manufacturing these products. Our failure, including the failure of our contract manufacturers, to achieve and maintain the required high manufacturing standards could result in further delays or failures in product testing or delivery, cost overruns, product recalls or withdrawals, or other problems that could harm our business and prospects.
Our success depends on new product development.
We have a continuing research and development program designed to develop new products and to enhance and improve our products. We are expending significant resources on the development of digital X-ray imaging products, including a digital mammography product. The successful development of our products and product enhancements are subject to numerous risks, both known and unknown, including:
. unanticipated delays;
. access to capital;
. budget overruns;
. technical problems; and
. other difficulties that could result in the abandonment or substantial change in the design, development and commercialization of these new products, including, for example, changes requested by the FDA in connection with pre-market approval applications for our products or 510(k) notification.
Given the uncertainties inherent with product development and introduction, we cannot assure that any of our product development efforts will be successful on a timely basis or within budget, if at all. Our failure to develop new products and product enhancements on a timely basis or within budget could harm our business and prospects.
Our business could be harmed if our products contain undetected errors or defects or do not meet customer specifications.
We are continuously developing new products and improving our existing products. Newly introduced products can contain undetected errors or defects. In addition, these products may not meet their performance specifications under all conditions or for all applications. If, despite our internal testing and testing by our customers, any of our products contains errors or defects or any of our products fails to meet customer specifications, then we may be required to enhance or improve those products or technologies. We may not be able to do so on a timely basis, if at all, and may only be able to do so at considerable expense. In addition, any significant reliability problems could result in adverse customer reaction, negative publicity or legal claims and could harm our business and prospects.
The general radiography digital market is a new market which is continuing to develop and our new products for this market may not meet the needs of this market as it continues to develop.
The general radiography digital market is a new market which is continuing to develop and for which customer requirements have not been fully specified. For example, our initial specification for the first two digital products for general radiography, the EPEX and RADEX, did not fulfill all the needs of some potential customers for these systems. We addressed these additional customer requirements through the development and release of new software for these systems. Our introduction of our EPEX and RADEX systems has also resulted in challenges to our direct sales force, which had only limited experience in marketing general radiography products. We cannot assure that we will be able to develop a successful strategy for addressing the general radiography market as it continues to develop. Our failure to do so could harm our business and prospects.
Our reliance on one or only a limited number of suppliers for some key components or subassemblies for our products could harm our business and prospects.
We rely on one or only a limited number of suppliers for some key components or subassemblies for our products. In particular we have only one source of supply for each of the panel and the coating of that panel for our direct radiography products. The supplier for the panel coating is Analogic Corporation, which is also a customer as well as a potential competitor. We are seeking to qualify a second supplier for the panel coating to increase our manufacturing capacity and flexibility, but cannot assure that we will be successful. In addition we have only limited sources of supply for some key components used in our mini C-arm systems. Obtaining alternative sources of supply of these components could involve significant delays and other costs, and may not be available to us on reasonable terms, if at all. The failure of a component supplier or contract assembler to provide acceptable quality and timely components or assembly service at an acceptable price, or an interruption of supplies from such a supplier could harm our business and prospects. Any disruption of supplies of key components could delay or reduce shipments, which could result in lost or deferred sales.
We have recently expanded our direct sales and service efforts for mammography into territories that were previously covered by independent distributors, are considering further expanding our direct sales and service coverage in the United States, and cannot assure that we can effect any such transition effectively.
We have sold and serviced a majority of our mammography systems in the United States primarily through a network of independent distributors and to a lesser extent, through our direct sales force. We have recently expanded our direct sales and service efforts for mammography into territories that were previously covered by independent distributors, and are considering further expanding our direct sales and service coverage in the United States. The transition to a direct sales and service force could adversely affect our relationships with our end-user customers and our sales of mammography systems if we do not manage the transition effectively.
Our reliance on a customer for a significant portion of our revenues could harm our business and prospects.
Our largest independent distributor, Diagnostic Imaging, Inc., recently acquired by a wholly-owned subsidiary of Platinum Equity, LLC from PSS World Medical, Inc., owed us a total of approximately $5.7 million as of September 28, 2002 and accounted for approximately 15% of our product sales for fiscal 2002. We do not have a long-term agreement with Diagnostic Imaging obligating them to purchase products from us, or restricting them from purchasing products from our competitors. A reduction or delay in orders from Diagnostic Imaging, or a delay or default in the payment of their accounts receivable, including in connection with the expansion of our direct sale and service force, could harm our business and prospects.
If we are unable to satisfy our financial covenants under our loan agreement and our long-term leases for our headquarters and Lorad facilities, our loan availability may be limited or the rent due under those leases may be accelerated and we could be required to pay liquidated damages.
Our loan agreement with Foothill Capital Corporation and our long-term leases contain financial and other covenants. If we do not comply with our covenants under our loan agreement, our availability under our loan agreement could be reduced or our lender could declare a default. If we do not comply with our covenants under our long-term leases, the remaining rent payable under those leases could be accelerated and we could be required to pay liquidated damages. Our failure to meet any of our covenants under our loan agreement or long-term leases could significantly harm our liquidity and financial position.
We may not be able to compete successfully.
A number of companies have developed, or are expected to develop, products that compete or will compete with our products. Many of these competitors offer a range of products in areas other than those in which we compete, which may make such competitors more attractive to hospitals, radiology clients, general purchasing organizations and other potential customers. In addition, many of our competitors and potential competitors are larger and have greater financial resources than we do and offer a range of products broader
than our products. Some of the companies with which we now compete or may compete in the future have or may have more extensive research, marketing and manufacturing capabilities and significantly greater technical and personnel resources than we do, and may be better positioned to continue to improve their technology in order to compete in an evolving industry. Our failure to compete successfully could harm our business and prospects.
The primary competitor for our bone densitometry products is General Electric Medical Systems (GE). Our direct-to-digital imaging products compete with traditional X-ray systems as well as computed radiography systems, which are less expensive than our products, and other direct-to-digital systems. The larger competitors in these markets include GE, Siemens, Kodak, Canon and Varian. General Electric has received FDA approval to market a digital general radiography X-ray system. Another company, Fischer Imaging, recently received FDA marketing approval for its general radiography digital X-ray system. Our mammography systems compete with products offered by GE, Siemens, Instrumentarium and Fischer Imaging. Our minimally invasive breast biopsy systems compete with products offered by Fischer Imaging and with conventional surgical biopsy procedures. Our mini C-arm products compete directly with mini C-arms manufactured and sold by a limited number of companies including GE. We also compete indirectly with manufacturers of conventional C-arm image intensifiers including Siemens and GE.
Our success depends upon our ability to adapt to rapid changes in technology and customer requirements.
The market for our products has been characterized by rapid technological change, frequent product introductions and evolving customer requirements. We believe that these trends will continue into the foreseeable future. Our success will depend, in part, upon our ability to enhance our existing products, successfully develop new products that meet increasing customer requirements and gain market acceptance. If we fail to do so our products may be rendered obsolete or uncompetitive by new industry standards or changing technology.
Our failure to manage current or future alliances or joint ventures effectively may harm our business and prospects.
In fiscal 2002 we entered into strategic alliances with Siemens and R2 Technologies and entered into a letter of intent to form a strategic alliance with Agfa. We are also exploring other potential alliances, joint ventures or other business relationships. Siemens and Agfa are competitors or potential competitors to us in some of our business segments, as well as a competitors or potential competitors to some of our customers or potential customers. Our alliance with Siemens, Agfa or any other person could enhance their business to our detriment or make it more difficult for us to enter into advantageous business transactions or relationships with others. Moreover, we may not be able to:
. identify appropriate candidates for alliances or joint ventures;
. assure that any alliance or joint venture candidate will provide us with the support anticipated;
. successfully negotiate an alliance or joint venture on terms that are advantageous to us; or
. successfully manage any alliance or joint venture.
Furthermore, any alliance or joint venture may divert management time and resources. Our entering into a disadvantageous alliance or joint venture or failure to manage an alliance or joint venture effectively could harm our business and prospects.
The uncertainty of healthcare reform could harm our business and prospects.
In recent years, the healthcare industry has undergone significant change driven by various efforts to reduce costs, including efforts at national healthcare reform, trends toward managed care, cuts in Medicare, consolidation of healthcare distribution companies and collective purchasing arrangements by office-based healthcare practitioners. Healthcare reform proposals and medical cost containment measures in the United States and in many foreign countries could:
. limit the use of our products;
. reduce reimbursement available for such use; or
. adversely affect the use of new therapies for which our products may be targeted.
These reforms or cost containment measures, including the uncertainty in the medical community regarding their nature and effect, could harm our business and prospects and make it difficult for us to raise additional capital on advantageous terms, if at all.
We depend on third party reimbursement to our customers for market acceptance of our products. Failure of third party payors to provide appropriate levels of reimbursement for use of our products could harm our business and prospects.
Sales of medical products largely depend on the reimbursement of patients' medical expenses by government healthcare programs and private health insurers. The costs of our products are substantial, and market acceptance of our products depends upon our customers' ability to obtain appropriate levels of reimbursement from third-party payors for use of our products. In the United States, the Centers for Medicare & Medicaid Services, known as CMS, establishes guidelines for the reimbursement of healthcare providers treating Medicare and Medicaid patients. Under current CMS guidelines, varying reimbursement levels have been established for dual-energy X-ray and ultrasound bone density assessment, mammography and other imaging and diagnostic procedures performed by our products. The actual reimbursement amounts are determined by individual state Medicare carriers and, for non-Medicare and Medicaid patients, private insurance carriers. There are often delays between the reimbursement approvals by CMS and by a state Medicare carrier and private insurance carriers. Moreover, states as well as private insurance carriers may choose not to follow the CMS reimbursement guidelines. The use of our products outside the United States is similarly affected by reimbursement policies adopted by foreign regulatory and insurance carriers. A reduction or other adverse change in reimbursement policies for the use of our products could harm our business and prospects.
The future growth of our bone densitometry business depends in large part on the continued development and more widespread acceptance of complementary therapies.
Our bone densitometers and related products are used to assist physicians in diagnosing patients at risk for osteoporosis and other bone disorders, and to monitor the effectiveness of therapies to treat these disorders. As a result, the future growth of the market for these products and of this business will in large part be dependent upon the development and more widespread acceptance of drug therapies to prevent and to treat osteoporosis. Over the last several years, the FDA has approved a number of drug therapies to treat osteoporosis. We also understand that a number of other drug therapies are under development. While sales of our bone densitometry products have benefited from the increased availability and use of these therapies, most patients who are at risk for osteoporosis continue to go untreated. We cannot assure that any therapies under development or in clinical trials will prove to be effective, obtain regulatory approval, or that any approved therapy will gain wide acceptance. Even if these therapies gain widespread acceptance, we cannot assure that this acceptance will increase the sales of our products.
Reductions in revenues could harm our operating results because a high percentage of our operating expenses is relatively fixed.
A high percentage of our operating expenses is relatively fixed. We likely will not be able to reduce spending to compensate for adverse fluctuations in revenues. As a result, shortfalls in revenues are likely to harm our operating results.
Our results of operations are subject to significant quarterly variation and seasonal fluctuation.
Our results of operations have been and may continue to be subject to significant quarterly variation. The results for a particular quarter may vary due to a number of factors, including:
. the overall state of healthcare and cost containment efforts;
. the development status and demand for drug therapies to treat osteoporosis;
. the development status and demand for our direct-to-digital imaging products;
. economic conditions in our markets;
. foreign exchange rates;
. the timing of orders;
. the timing of expenditures in anticipation of future sales;
. the mix of products sold by us;
. the introduction of new products and product enhancements by us or our competitors; and
. pricing and other competitive conditions.
Customers may also cancel or reschedule shipments. Production difficulties could also delay shipments. Any of these factors also could harm our business and prospects.
Our delay or inability to obtain any necessary United States or foreign regulatory clearances or approvals for our products could harm our business and prospects.
Our products are medical devices that are the subject of a high level of regulatory oversight. Our delay or inability to obtain any necessary United States or foreign regulatory clearances or approvals for our products could harm our business and prospects. The process of obtaining clearances and approvals can be costly and time-consuming. There is a risk that any approvals or clearances, once obtained, may be withdrawn or modified. Medical devices cannot be marketed in the United States without clearance or approval by the FDA. Medical devices sold in the United States must also be manufactured in compliance with FDA Good Manufacturing Practices, which regulate the design, manufacture, packing, storage and installation of medical devices. Moreover, medical devices are required to comply with FDA regulations relating to investigational research and labeling. States may also regulate the manufacture, sale and use of medical devices, particularly those that employ X-ray technology. Our products are also subject to approval and regulation by foreign regulatory and safety agencies.
Fluctuations in the exchange rates of European currencies and the other foreign currencies in which we conduct our business, in relation to the U.S. dollar, have harmed and could continue to harm our business and prospects.
Foreign sales accounted for approximately 33% of our product sales in fiscal 2000 and 28% of our product sales in fiscal 2001 and 20% of product sales in fiscal 2002. We maintain a sales and service office in Belgium and a support office in France. The expenses and sales of these offices are denominated in local
currencies. We anticipate that foreign sales and sales denominated in foreign currencies will continue to account for a significant portion of our total sales. Fluctuations in the value of local currencies have caused, and are likely to continue to cause, amounts translated into U.S. dollars to fluctuate in comparison with previous periods. In particular, the continued strength in value of the U.S. dollar to the has resulted in an increase in price for products denominated in those currencies. We believe that these price increases have harmed our ability to compete in these markets. We have hedged our foreign currency exposure by borrowing funds in local European currencies to pay the expenses of our foreign offices. There is a risk that these hedging activities will not be successful in mitigating our foreign exchange risk exposure.
We conduct our business worldwide, which exposes us to a number of difficulties in coordinating our international activities and dealing with multiple regulatory environments.
We sell our products to customers throughout the world. Our worldwide business may be harmed by:
. difficulties in staffing and managing operations in multiple locations;
. greater difficulties in trade accounts receivable collection;
. possible adverse tax consequences;
. governmental currency controls;
. changes in various regulatory requirements;
. political and economic changes and disruptions;
. export/import controls; and
. tariff regulations.
Our business could be harmed if we are unable to protect our proprietary technology.
We rely primarily on a combination of trade secrets, patents, copyright and trademark laws and confidentiality procedures to protect our technology. Despite these precautions, unauthorized third parties may infringe, copy or reverse engineer portions of our technology. We do not know if current or future patent applications will be issued with the scope of the claims sought, if at all, or whether any patents issued will be challenged or invalidated. In addition, we have obtained or applied for corresponding patents and patent applications in several foreign countries for some of our patents and patent applications. There is a risk that these patent applications will not be granted or that the patent or patent application will not provide significant protection for our products and technology. Our competitors may independently develop similar technology that our patents do not cover. In addition, because patent applications in the United States are not publicly disclosed until the patent is issued, applications may have been filed which relate to our technology. Moreover, there is a risk that foreign intellectual property laws will not protect our intellectual property rights to the same extent as United States intellectual property laws. In the absence of significant patent protection, we may be vulnerable to competitors who attempt to copy our products, processes or technology.
Our business could be harmed if we infringe upon the intellectual property rights of others.
There has been substantial litigation regarding patent and other intellectual property rights in the medical device and related industries. We have been, and may be in the future, notified that we may be infringing intellectual property rights possessed by third parties. If any such claims are asserted against our intellectual property rights, we may seek to enter into royalty or licensing arrangements. There is a risk in these situations that no license will be available or that a license will not be available on reasonable terms. Alternatively, we
may decide to litigate such claims or to design around the patented technology. These actions could be costly and would divert the efforts and attention of our management and technical personnel. As a result, any infringement claims by third parties or claims for indemnification by customers resulting from infringement claims, whether or not proven to be true, may harm our business and prospects.
Our future success will depend on the continued services of our key personnel.
The loss of any of our key personnel, particularly our key research and development personnel, could harm our business and prospects. Our success will also depend upon our ability to attract and retain other qualified managerial and technical personnel. Competition for such personnel, particularly software engineers and other technical personnel, is intense. We may not be able to attract and retain personnel necessary for the development of our business. We do not have any key man life insurance for any of our officers or other key personnel.
We are implementing a new corporate-wide management information system, which if not successful could adversely impact our ability to operate virtually all aspects of our business.
We are implementing a new corporate-wide management information system. If we fail to implement this system effectively, our ability to operate virtually all aspects of our business could be adversely harmed, including our ability to purchase and schedule inventory, pay vendors, ship products, bill customers and collect receivables.
There is a risk that our insurance will not be sufficient to protect us from product liability or other claims, or that in the future liability insurance will not be available to us at a reasonable cost, if at all.
Our business involves the risk of product liability and other claims inherent to the medical device business. We maintain product liability insurance subject to deductibles and exclusions. There is a risk that our insurance will not be sufficient to protect us from product and other liability claims, or that product liability insurance will not be available to us at a reasonable cost, if at all. An underinsured or uninsured claim could harm our operating results or financial condition.
We use hazardous materials and products.
Our research and development involves the controlled use of hazardous materials, such as toxic and carcinogenic chemicals and various radioactive compounds. Although we believe that our safety procedures for handling and disposing of such materials comply with the standards prescribed by federal, state and local regulations, we cannot completely eliminate the risk of accidental contamination or injury from these materials. In the event of this type of accident, we could be held liable for any resulting damages, and any such liability could be extensive. We are also subject to substantial regulation relating to occupational health and safety, environmental protection, hazardous substance control, and waste management and disposal. The failure to comply with such regulations could subject us to, among other things, fines and criminal liability.
Provisions in our Certificate of Incorporation and By-laws and our stockholder rights plan may have the effect of discouraging advantageous offers for our business or common stock and limit the price that investors might be willing to pay in the future for shares of our common stock.
Our Certificate of Incorporation, By-laws and the provisions of Delaware corporate law include provisions that may have the effect of discouraging or preventing a change in control. In addition, we have a stockholder rights plan that may have the effect of discouraging or preventing a change in control. These provisions could limit the price that our stockholders might receive in the future for shares of our common stock.
Our stock price is volatile.
The market price of our common stock has been, and may continue to be, highly volatile. We believe that a variety of factors could cause the price of our common stock to fluctuate, perhaps substantially, including:
. announcements and rumors of developments related to our business, or the industry in which we compete;
. quarterly fluctuations in our actual or anticipated operating results and order levels;
. general conditions in the worldwide economy;
. announcements of technological innovations;
. new products or product enhancements by us or our competitors;
. developments in patents or other intellectual property rights and litigation; and
. developments in our relationships with our customers and suppliers.
In addition, in recent years the stock market in general and the markets for shares of small capitalization and "high-tech" companies in particular, have experienced extreme price fluctuations which have often been unrelated to the operating performance of affected companies. Any such fluctuations in the future could adversely affect the market price of our common stock, and the market price of our common stock may decline.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Financial Instruments, Other Financial Instruments, and Derivative Commodity Instruments. SFAS No. 107, Disclosure of Fair Value of Financial Instruments, requires disclosure about fair value of financial instruments. Financial instruments consist of cash equivalents, short and long-term investments, accounts receivable, accounts payable and debt obligations. The fair value of these financial instruments approximates their carrying amount.
Primary Market Risk Exposures. Our primary market risk exposures are in the areas of interest rate risk and foreign currency exchange rate risk. We incur interest expense on loans made under a loan and security agreement with Foothill Capital Corporation (the Foothill Agreement) and a European line of credit. The Foothill Agreement term loan accrues interest at the prime rate plus 1.25% and the European Line of Credit accrues interest at the Europe Interbank Offered Rate plus 1.50%. At September 28, 2002, we had $1.9 million outstanding under the Foothill Agreement and there were no amounts outstanding under the line of credit.
Substantially all of our sales outside the United States are conducted in U.S. dollar denominated transactions. We operate two European subsidiaries which incur expenses denominated in local currencies. However, we believe that these operating expenses will not harm our business, results of operations or financial condition.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated Financial Statements and Supplementary Data of Hologic are listed under Part IV, Item 15, in this report.
Arthur Andersen LLP were the independent auditors for us until June 23, 2002. After reasonable efforts, we were unable to obtain from Arthur Andersen LLP the consent required for the incorporation by reference of their report on our consolidated balance sheets as of September 30, 2000 and September 29, 2001, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended September 29, 2001, into registration statements we filed with the Securities and Exchange Commission that are currently effective under the Securities Act of 1933. Accordingly, pursuant to and in reliance upon Rule 437a of the Securities Act of 1933, we are permitted to dispense with the requirement to file their consent. Because Arthur Andersen LLP have not consented to the incorporation by reference of their report, investors may not be able to recover damages against Arthur Andersen LLP under Section 11 of the Securities Act of 1933 for any untrue statements of a material fact contained in the financial statements audited by Arthur Andersen LLP that are included in this report or any omissions to state a material fact required to be stated therein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
A change in independent accountants from Arthur Andersen LLP to Ernst & Young LLP was reported in our current report on Form 8-K dated June 24, 2002.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this item is incorporated by reference to the sections entitled "Election of Directors" and "Executive Officers" in our Definitive Proxy Statement for our annual meeting of stockholders to be filed with the Securities and Exchange Commission within 120 days after the close of our fiscal year.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item is incorporated by reference to the sections entitled "Executive Compensation" in our Definitive Proxy Statement for our annual meeting of stockholders to be filed with the Securities and Exchange Commission within 120 days after the close of our fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The additional information required by this item is incorporated by reference to the section entitled "Share Ownership of Directors, Officers and Certain Beneficial Owners" in our Definitive Proxy Statement for its annual meeting of stockholders to be filed with the Securities and Exchange Commission within 120 days after the close of our fiscal year.
We maintain a number of equity compensation plans for employees, officers, directors and others whose efforts contribute to our success. The table below sets forth certain information as our fiscal year ended September 28, 2002 regarding the shares of our common stock available for grant or granted under stock option plans that (i) were approved by our stockholders, and (ii) were not approved by our stockholders.
EQUITY COMPENSATION PLAN INFORMATION
NUMBER OF SECURITIES
NUMBER OF SECURITIES REMAINING AVAILABLE FOR
TO BE ISSUED UPON WEIGHTED-AVERAGE EXERCISE FUTURE ISSUANCE UNDER EQUITY
EXERCISE OF PRICE OF OUTSTANDING COMPENSATION PLANS (EXCLUDING
OUTSTANDING OPTIONS, OPTIONS, SECURITIES REFLECTED IN
WARRANTS AND RIGHTS WARRANTS AND RIGHTS COLUMN (a))
PLAN CATEGORY (a) (b) (c)
------------------------- -------------------- ------------------------- -----------------------------
Equity compensation plans 2,222,602 $ 8.71 175,787
approved by security
holders(1)
Equity compensation plans 1,492,191 $ 7.66 452,537
not approved by security
holders(2)
Total 3,714,793 $ 8.29 628,324
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(1) Includes the following plans: 1986 Combination Stock Option Plan; Amended and Restated 1990 Non-employee Director Stock Option Plan; 1995 Combination Stock Option Plan; Amended and Restated
1999 Equity Incentive Plan; and 2000 Employee Stock Purchase Plan. Also includes the following plans which we assumed in connection with our acquisition of Fluoroscan Imaging Systems in 1996: FluoroScan Imaging Systems, Inc. 1994 Amended and Restated Stock Incentive Plan and FluoroScan Imaging Systems, Inc. 1995 Stock Incentive Plan. For a description of these plans, please refer to Footnote 6 contained in our consolidated financial statements.
(2) Includes the following plans: 1997 Employee Equity Incentive Plan and 2000 Acquisition Equity Incentive Plan. A description of each of these plans is as follows:
1997 Employee Equity Incentive Plan. The purposes of the 1997 Employee Equity Incentive Plan (the "1997 Plan"), adopted by the Board of Directors in May 1997, are to attract and retain key employees, consultants and advisors, to provide an incentive for them to assist us in achieving long-range performance goals, and to enable such person to participate in our long-term growth. In general, under the 1997 Plan, all employees, consultants, and advisors who are not executive officers or directors are eligible to participate in the 1997 Plan. The 1997 Plan is administered by a committee consisting of at least three members of the Board appointed by the Board of Directors. Participants in the 1997 Plan are eligible to receive non-qualified stock options, stock appreciation rights, restricted stock and performance shares. A total of 1,100,000 shares of our common stock were reserved for issuance under the 1997 Plan. Of the shares reserved for issuance under the 1997 Plan, options to purchase 995,365 shares have been granted and are outstanding and 8,293 shares remain available for grant.
2000 Acquisition Incentive Plan. The purpose of the 2000 Acquisition Equity Incentive Plan (the "2000 Plan"), adopted by the Board of Directors in April 2001, is to attract and retain (a) employees, consultants and advisors, of newly acquired businesses who have been or are being hired as employees, consultants or advisors of our company or any of our consolidated subsidiaries, and (b) employees, consultants and advisors, of our company who have or are anticipated to provide significant assistance in connection with the acquisition of a newly acquired business or its integration with our company, and to provide such persons an incentive for them to achieve long-range performance goals, and to enable them to participate in our long-term growth. In general, under the 2000 Plan, only employees, consultants and advisors who are not officers or directors of our company are eligible to participate in the 2000 Plan. The 2000 Plan is administered by the Board or, at its option, a committee consisting of at least three members of the Board appointed by the Board of Directors. Participants in the 2000 Plan are eligible to receive non-qualified stock options, stock appreciation rights, restricted stock and performance shares. A total of 1,000,000 shares of our common stock were reserved for issuance under the 2000 Plan. Of the shares reserved for issuance under the 2000 Plan, options to purchase 496,826 shares have been granted and are outstanding and 444,244 shares remain available for grant.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item is incorporated by reference to the sections entitled "Certain Related Transactions" in our Definitive Proxy Statement for our annual meeting of stockholders to be filed with the Securities and Exchange Commission within 120 days after the close of our fiscal year.
ITEM 14. CONTROLS AND PROCEDURES.
Within the 90-day period prior to the date of this report, our Chief Executive Officer and Chief Financial Officer performed an evaluation of our disclosure controls and procedures, which have been designed to permit us to effectively identify and timely disclose important information. They concluded that the disclosure controls and procedures were effective. Since the date of the evaluation, we have made no significant changes in our internal controls or in other factors that could significantly affect our internal controls.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report:
(1) Financial Statements Reports of Independent Public Accountants
Consolidated Balance Sheets as of September 28, 2002 and September 29, 2001
Consolidated Statements of Operations for the years ended September 28, 2002, September 29, 2001 and September 30, 2000
Consolidated Statements of Stockholders' Equity for the years ended September 28, 2002, September 29, 2001 and September 30, 2000
Consolidated Statements of Cash Flows for the years ended September 28, 2002, September 29, 2001 and September 30, 2000
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules
All schedules have been omitted because they are not required or because the required information is given in the Consolidated Financial Statements or Notes thereto.
(3) Listing of Exhibits
Exhibit
Number Reference
---------- ----------
2.01 Asset Purchase and Sale Agreement Among Trex Medical Systems
Corporation, Trex Medical Corporation, ThermoTrex Corporation and
Thermo Electron Corporation and Hologic, Inc. dated August 13, 2000 L-2
3.01 Certificate of Incorporation of Hologic A-3.01
3.02 Amendment to Certificate of Incorporation of Hologic F-3.03
3.03 By-laws of Hologic A-3.02
4.01 Specimen Certificate for Shares of Hologic's Common Stock B-1
4.02 Description of Capital Stock (Contained in the Certificate of
Incorporation of Hologic, as Amended, Filed as Exhibits 3.01 and 3.02). A-3.01; F-3.03
4.03 Rights Agreement dated December 22, 1992 C-1
4.04 Form of Rights Certificate C-2
4.05 Amendment No. 1 to Rights Agreement, dated as of December 13, 1995 G-4.01
4.06 Amendment No. 2 to Rights Agreement, dated as of December 9, 1996 G-4.02
4.07 Amendment No. 3 to Rights Agreement, dated as of April 25, 1999 J-4.03
4.08 Rights Agreement dated September 17, 2002 Q-4
4.09 Form of Rights Certificate Q-4
10.01 1986 Combination Stock Option Plan, as Amended E-10.07*
10.02 Amended and Restated 1990 Non-Employee Director Stock Option Plan F-10.26*
10.03 1995 Combination Stock Option Plan F-10.25*
10.04 Amended and Restated 1999 Equity Incentive Plan I-10*
10.05 1997 Employee Equity Incentive Plan H-99
10.06 2000 Acquisition Equity Incentive Plan P-10.05
10.07 2000 Employee Stock Purchase Plan O-99.3*
10.08 Form of Indemnification Agreement for Directors and Certain Officers of Hologic A-10.12*
10.09 Employment Agreement with an Officer of Hologic D-10.22*
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10.10 Severance Agreement with an Officer of Hologic K-10.08* 10.11 Severance Agreement with an Officer of Hologic K-10.09* 10.12 Severance Agreement with an Officer of Hologic K-10.23* 10.13 Severance Agreement with an Officer of Hologic P-10.11* 10.14 Employment Letter to an Officer of Hologic P-10.12* 10.15 Promissory Note to an Officer of Hologic P-10.13* 10.16 Form of Officer Separation Agreement including List of Officers to Whom Provided P-10.14* 10.17 Supply Agreement N-10.27 10.18 Facility Lease (Danbury) M-10.14 10.19 Loan and Security Agreement P-10.25 10.20 Parent Pledge Agreement P-10.26 10.21 Guaranty and Security Agreement P-10.27 10.22 Mortgage and Security Agreement P-10.28 10.23 First Amendment to the Loan and Security Agreement P-10.29 10.24 Bill of Sale (Danbury and Bedford) filed herewith 10.25 Deed (Danbury) filed herewith 10.26 Deed (Bedford) filed herewith 10.27 Lease Agreement (Danbury and Bedford) filed herewith 10.28 Settlement and Waiver Agreement with an Officer of Hologic filed herewith 16.01 Letter Regarding Change in Certifying Public Accountant R-16* 21.01 Significant Subsidiaries of Hologic filed herewith 23.01 Consent of Ernst & Young LLP filed herewith 99.1 CEO Certification under Section 906 of Sarbanes-Oxley Act of 2002 filed herewith 99.2 CFO Certification under Section 906 of Sarbanes-Oxley Act of 2002 filed herewith |
A We previously filed this exhibit on January 24, 1990 with the referenced exhibit number as an exhibit to our Registration Statement on Form S-1 (Registration No. 33-33128), and the previously filed exhibit is incorporated herein by reference.
B We previously filed this exhibit on January 31, 1990 with the referenced exhibit number as an exhibit to our Registration Statement on Form 8-A, and the previously filed exhibit is incorporated herein by reference.
C We previously filed this exhibit on January 29, 1993 with the referenced exhibit number as an exhibit to our Registration Statement on Form 8-A, and the previously filed exhibit is incorporated herein by reference.
D We previously filed this exhibit on December 22, 1993 with the referenced exhibit number as an exhibit to our 1993 Annual Report on Form 10-K (SEC File No. 000-18281) for the fiscal year ended September 25, 1993, and the previously filed exhibit is incorporated herein by reference.
E We previously filed this exhibit on December 22, 1994 with the referenced exhibit number as an exhibit to our 1994 Annual Report on Form 10-K (SEC File No. 000-18281) for the fiscal year ended September 24, 1994, and the previously filed exhibit is incorporated herein by reference.
F We previously filed this exhibit on May 14, 1996, with the referenced exhibit number as an exhibit to our 1996 Second Quarter Report on Form 10-Q (SEC File No. 000-18281) for the quarter ended March 30, 1996, and the previously filed exhibit is incorporated herein by reference.
G We previously filed this exhibit on January 17, 1997 with the referenced exhibit number as an exhibit to our Registration Statement on Form 8-A/A (SEC File No. 000-18281), and the previously filed exhibit is incorporated herein by reference.
H We previously filed this exhibit on August 20, 1997 with the referenced exhibit number as an exhibit to our Registration Statement on Form S-8 (SEC File No. 333-34003), and the previously filed exhibit is incorporated herein by reference.
I We previously filed this exhibit on May 11, 1999 with the referenced exhibit number as an exhibit to our 1999 Second Quarter Report on Form 10-Q (SEC File No. 000-18281) for the quarter ended March 27, 1999, and the previously filed exhibit is incorporated herein by reference.
J We previously filed this exhibit on May 20, 1999 with the referenced exhibit number as an exhibit to our Registration Statement on Form 8-A/A (SEC File No. 000-18281), and the previously filed exhibit is incorporated herein by reference.
K We previously filed this exhibit on December 23, 1999 with the referenced exhibit number as an exhibit to our Annual Report on Form 10-K (SEC File No. 000-18281) for the fiscal year ended September 25, 1999, and the previously filed exhibit is incorporated by reference.
L We previously filed this exhibit on October 2, 2000 with the referenced exhibit number as an exhibit to our Current Report on Form 8-K (SEC File No. 000-18281) dated as of September 15, 2000, and the previously filed exhibit is incorporated herein by reference.
M Trex Medical Corporation previously filed this exhibit with the referenced exhibit number as an Exhibit to its Registration Statement on Form S-1 (Reg. No. 333-2926), and the previously filed exhibit is incorporated by reference.
N We previously filed this exhibit on December 22, 2000 with the referenced exhibit number as an exhibit to our Annual Report on Form 10-K (SEC File No. 000-18281) for the fiscal year ended September 30, 2000, and the previously filed exhibit is incorporated by reference.
O We previously filed this exhibit on May 2, 2001 with the referenced exhibit number as an exhibit to our Registration Statement on Form S-8 (SEC File No. 333-60046), and the previously filed exhibit is incorporated herein by reference.
P We previously filed this exhibit on December 12, 2001 with the referenced exhibit number as an exhibit to our Annual Report on Form 10-K (SEC File No. 000-18281) for the fiscal year ended September 29, 2001, and the previously filed exhibit is incorporated by reference.
Q We previously filed this exhibit on September 17, 2002 with the referenced exhibit number as an exhibit to our Registration Statement on Form 8-A (SEC File No. 000-18281), and the previously filed exhibit is incorporated herein by reference.
R We previously filed this exhibit on June 27, 2002 with the referenced exhibit number as an exhibit to our Current Report on Form 8-K (SEC File No. 000-18281) dated as of June 27, 2002, and the previously filed exhibit is incorporated herein by reference.
(b) Reports on Form 8-K.
The following Current Report on Form 8-K was filed by the registrant during the last quarter of the period covered by this report:
Current Report on Form 8-K filed on September 26, 2002 regarding shareholder rights agreement.
(d) Financial Statement Schedules.
The financial statement schedules required are included as part of Item (2) above.
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.
HOLOGIC, INC.
By: /s/ John W. Cumming
----------------------------------
JOHN W. CUMMING
Chairman of the Board,
President and Chief Executive
Officer
Dated: December 23, 2002
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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.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ John W. Cumming Chairman of the Board,
------------------------------- President and Chief Executive Officer December 23, 2002
JOHN W. CUMMING (Principal Executive Officer)
/s/ Glenn P. Muir Director, Executive Vice President
------------------------------- Finance and Administration and December 23, 2002
GLENN P. MUIR Treasurer (Principal Financial Officer)
/s/ Jay A. Stein Chairman Emeritus and
------------------------------- Chief Technical Officer December 23, 2002
JAY A. STEIN
/s/ Robert H. Lavallee Vice President, Corporate Controller
------------------------------- (Principal Accounting Officer) December 23, 2002
ROBERT H. LAVALLEE
/s/ Irwin Jacobs Director December 23, 2002
-------------------------------
IRWIN JACOBS
/s/ William A. Peck Director December 23, 2002
-------------------------------
WILLIAM A. PECK
/s/ Gerald Segel Director December 23, 2002
-------------------------------
GERALD SEGEL
/s/ Elaine Ullian Director December 23, 2002
-------------------------------
ELAINE ULLIAN
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CERTIFICATION
I, John W. Cumming, Chief Executive Officer of Hologic, Inc., certify that:
1. I have reviewed this annual report on Form 10-K of Hologic, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: December 23, 2002 /s/ John W. Cumming John W. Cumming Chief Executive Officer |
CERTIFICATION
I, Glenn P. Muir, Chief Financial Officer of Hologic, Inc., certify that:
1. I have reviewed this annual report on Form 10-K of Hologic, Inc., Inc.;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: December 23, 2002 /s/ Glenn P. Muir Glenn P. Muir Chief Financial Officer |
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Hologic, Inc.
Years ended September 28, 2002, September 29, 2001 and September 30, 2000
Hologic, Inc.
Audited Consolidated Financial Statements
Years ended September 28, 2002, September 29, 2001 and September 30, 2000
CONTENTS
Report of Independent Auditors...............................................F-1 Report of Independent Public Accountants.....................................F-2 Audited Financial Statements Consolidated Balance Sheets..................................................F-3 Consolidated Statements of Operations........................................F-4 Consolidated Statements of Stockholders' Equity..............................F-5 Consolidated Statements of Cash Flows........................................F-7 Notes to Consolidated Financial Statements...................................F-9 |
Report of Independent Auditors
To Hologic, Inc.:
We have audited the accompanying consolidated balance sheet of Hologic, Inc. (a Delaware corporation) and subsidiaries as of September 28, 2002 and the related consolidated statements of operations, stockholders' equity and cash flows for the year ended September 28, 2002. The financial statements of Hologic, Inc. as of September 29, 2001 and for each of the two years in the period ended September 29, 2001 were audited by other auditors who have ceased operations and whose report dated December 8, 2001, expressed an unqualified opinion on those statements, before the restatement adjustments described in Note 2. 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 audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Hologic, Inc. and subsidiaries as of September 28, 2002 and the results of their operations and their cash flows for the year ended September 28, 2002, in conformity with accounting principles generally accepted in the United States.
As discussed above, the financial statements of Hologic, Inc. as of September 29, 2001, and for each of the two years then ended were audited by other auditors who have ceased operations. As described in Note 2, in 2002, the Company changed the composition of its reportable segments, adopted Emerging Issues Task Force Issue No. 00-10, Accounting for Shipping and Handling Costs, early-adopted Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets, separately reported service and other revenues and cost of revenues from product sales and cost of sales and reclassified certain selling and marketing expenses to cost of service revenues. The 2001 and 2000 financial statements have been revised to conform to the 2002 composition of reportable segments and to reflect the 2002 presentation of revenues and cost of revenues. These financial statements have also been revised to include the transitional disclosures required by SFAS No. 142, which was adopted by the Company as of September 30, 2001.
We audited the adjustments that were applied to revise the disclosures for reportable segments, shipping and handling costs, service and other revenues and cost of service and other revenues reflected in the 2001 and 2000 financial statements. With respect to reportable segments, our procedures included (a) agreeing the adjusted amounts of segment revenues, operating income, assets, depreciation and amortization and capital expenditures to the Company's underlying records obtained from management, and (b) testing the mathematical accuracy of the reconciliations of segment amounts to the consolidated financial statements. Our audit procedures with respect to the goodwill disclosures in Note 2 relating to 2001 included (a) agreeing the previously reported net income to the previously issued financial statements and the adjustments to reported net income representing amortization expense recognized in 2001 related to goodwill, and (b) testing the mathematical accuracy of the reconciliation of adjusted net income to reported net income, and the related earnings-per-share amounts. In our opinion, such adjustments and disclosures are appropriate and have been properly applied. However, we were not engaged to audit, review, or apply any procedures to the 2001 and 2000 financial statements of the Company other than with respect to such adjustments and disclosures and, accordingly, we do not express an opinion or any other form of assurance on the 2001 and 2000 financial statements taken as a whole.
/s/ Ernst & Young LLP
Boston, Massachusetts,
November 8, 2002
|
THIS REPORT IS A CONFORMED COPY OF THE REPORT PREVIOUSLY ISSUED BY ARTHUR ANDERSEN LLP AND HAS NOT BEEN REISSUED BY THAT FIRM.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Hologic, Inc.:
We have audited the accompanying consolidated balance sheets of Hologic, Inc. (a Delaware corporation) and subsidiaries as of September 30, 2000 and September 29, 2001, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended September 29, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Hologic, Inc. and subsidiaries as of September 30, 2000 and September 29, 2001, and the results of their operations and their cash flows for each of the three years in the period ended September 29, 2001, in conformity with accounting principles generally accepted in the United States.
/s/ Arthur Andersen LLP
Boston, Massachusetts
December 8, 2001
|
ARTHUR ANDERSEN LLP WERE THE INDEPENDENT AUDITORS FOR HOLOGIC, INC. UNTIL JUNE 23, 2002. AFTER REASONABLE EFFORTS, HOLOGIC WAS UNABLE TO OBTAIN FROM ARTHUR
ANDERSEN LLP THE CONSENT REQUIRED FOR THE INCORPORATION BY REFERENCE OF THEIR REPORT ON HOLOGIC'S CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 2000 AND SEPTEMBER 29, 2001, AND THE RELATED CONSOLIDATED STATEMENTS OF OPERATIONS, STOCKHOLDERS' EQUITY AND CASH FLOWS FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED SEPTEMBER 29, 2001, INTO REGISTRATION STATEMENTS FILED BY HOLOGIC, INC. WITH THE SECURITIES AND EXCHANGE COMMISSION THAT ARE CURRENTLY EFFECTIVE UNDER THE SECURITIES ACT OF 1933. ACCORDINGLY, PURSUANT TO AND IN RELIANCE UPON RULE 437A OF THE SECURITIES ACT OF 1933, HOLOGIC IS PERMITTED TO DISPENSE WITH THE REQUIREMENT TO FILE THEIR CONSENT. BECAUSE ARTHUR ANDERSEN LLP HAVE NOT CONSENTED TO THE INCORPORATION BY REFERENCE OF THEIR REPORT, INVESTORS MAY NOT BE ABLE TO RECOVER DAMAGES AGAINST ARTHUR ANDERSEN LLP UNDER SECTION 11 OF THE SECURITIES ACT OF 1933 FOR ANY UNTRUE STATEMENTS OF A MATERIAL FACT CONTAINED IN THE FINANCIAL STATEMENTS AUDITED BY ARTHUR ANDERSEN LLP THAT ARE INCLUDED IN THIS REPORT OR ANY OMISSIONS TO STATE A MATERIAL FACT REQUIRED TO BE STATED THEREIN.
Hologic, Inc.
Consolidated Balance Sheets
(In thousands, except per share data)
SEPTEMBER 28, SEPTEMBER 29,
2002 2001
------------- -------------
ASSETS
Current assets:
Cash and cash equivalents $ 45,836 $ 12,754
Accounts receivable, less reserves of $4,565 and $4,668,
respectively 39,568 42,227
Inventories 37,855 39,285
Prepaid expenses and other current assets 14,811 5,309
------------- -------------
Total current assets 138,070 99,575
------------- -------------
Property and equipment, at cost:
Land 1,500 12,203
Buildings and improvements 13,387 36,556
Equipment 27,112 23,191
Furniture and fixtures 3,607 3,678
Leasehold improvements 1,684 1,571
------------- -------------
47,290 77,199
Less--accumulated depreciation and amortization 17,910 17,143
------------- -------------
29,380 60,056
------------- -------------
Intangible assets:
Patented technology, net of accumulated amortization of $4,705
and $3,402, respectively 2,529 3,741
Developed technology and know-how, net of accumulated amortization
of $1,903 and $991, respectively 7,248 8,160
Goodwill, net of accumulated amortization of $592 5,989 5,989
------------- -------------
15,766 17,890
------------- -------------
Deferred income taxes, net - 16,516
Other assets, net 1,059 1,082
Total assets $ 184,275 $ 195,119
============= =============
LIABILITIES
Current liabilities:
Lines of credit $ - $ 1,998
Current portion of note payable 480 485
Accounts payable 10,929 18,152
Accrued expenses 18,935 25,507
Deferred revenue 9,254 8,754
------------- -------------
Total current liabilities 39,598 54,896
------------- -------------
Notes payable, net of current portion 2,268 28,416
------------- -------------
Commitments and contingencies (Notes 9 and 13)
Stockholders' equity:
Preferred stock, $0.01 par value-1,623 shares authorized; 0 shares
issued - -
Common stock, $0.01 par value-30,000 shares authorized; 19,461 and
15,670 shares issued, respectively 195 157
Capital in excess of par value 141,405 111,300
Retained earnings 3,150 2,971
Accumulated other comprehensive loss (1,877) (2,157)
Treasury stock, at cost--45 shares (464) (464)
------------- -------------
Total stockholders' equity 142,409 111,807
------------- -------------
Total liabilities and stockholders' equity $ 184,275 $ 195,119
============= =============
|
See accompanying notes.
Hologic, Inc.
Consolidated Statements of Operations
(In thousands, except per share data)
YEARS ENDED
SEPTEMBER 28, SEPTEMBER 29, SEPTEMBER 30,
2002 2001 2000
------------- ------------- -------------
Revenues:
Product sales $ 148,834 $ 137,977 $ 76,178
Service and other revenue 41,358 42,219 18,159
------------- ------------- -------------
190,192 180,196 94,337
------------- ------------- -------------
Costs and expenses:
Cost of product sales 84,230 85,712 46,728
Cost of service and other revenue 34,146 33,734 18,726
Research and development 20,362 23,328 17,178
In-process research and development - - 5,000
Selling and marketing 28,319 33,858 22,623
General and administrative 18,908 20,852 16,441
Restructuring and nonrecurring 2,070 1,518 -
------------- ------------- -------------
188,035 199,002 126,696
------------- ------------- -------------
Income (loss) from operations 2,157 (18,806) (32,359)
Interest income 573 1,027 3,567
Interest/other expense (2,980) (2,902) (227)
------------- ------------- -------------
Loss before (benefit) provision for income taxes (250) (20,681) (29,019)
(Benefit) provision for income taxes (429) 169 (10,400)
------------- ------------- -------------
Net income (loss) $ 179 $ (20,850) $ (18,619)
============= ============= =============
Net income (loss) per common share:
Basic $ 0.01 $ (1.35) $ (1.22)
============= ============= =============
Diluted $ 0.01 $ (1.35) $ (1.22)
============= ============= =============
Weighted average number of common shares outstanding:
Basic 18,419 15,475 15,320
============= ============= =============
Diluted 19,192 15,475 15,320
============= ============= =============
|
See accompanying notes.
Hologic, Inc.
Consolidated Statements of Stockholders' Equity
(In thousands, except per share data)
COMMON STOCK
------------------------------- CAPITAL IN
NUMBER OF $0.01 EXCESS OF RETAINED
SHARES PAR VALUE PAR VALUE EARNINGS
-------------- -------------- -------------- --------------
Balance at September 25, 1999 15,303 $ 153 $ 109,624 $ 42,440
Exercise of stock options 13 - 49 -
Stock issued for employee
compensation 12 - 61 -
Issuance of common stock under
employee stock purchase plan 91 1 499 -
Net loss - - - (18,619)
Translation adjustments - - - -
-------------- -------------- -------------- --------------
Comprehensive loss
Balance at September 30, 2000 15,419 154 110,233 23,821
Exercise of stock options 128 1 469 -
Stock issued for employee
compensation 25 1 165 -
Issuance of common stock under
employee stock purchase plan 100 1 433 -
Net loss - - - (20,850)
Translation adjustments - - - -
-------------- -------------- -------------- --------------
Comprehensive loss
TREASURY STOCK ACCUMULATED
------------------------------- OTHER TOTAL COMPREHENSIVE
NUMBER OF COMPREHENSIVE STOCKHOLDERS' INCOME
SHARES AMOUNT LOSS EQUITY (LOSS)
-------------- -------------- -------------- -------------- --------------
Balance at September 25, 1999 45 $ (464) $ (1,331) $ 150,422 $ -
Exercise of stock options - - - 49 -
Stock issued for employee
compensation - - - 61 -
Issuance of common stock under
employee stock purchase plan - - - 500 -
Net loss - - - (18,619) (18,619)
Translation adjustments - - (841) (841) (841)
-------------- -------------- -------------- -------------- --------------
Comprehensive loss $ (19,460)
==============
Balance at September 30, 2000 45 (464) (2,172) 131,572 -
Exercise of stock options - - - 470 -
Stock issued for employee
compensation - - - 166 -
Issuance of common stock under
employee stock purchase plan - - - 434 -
Net loss - - - (20,850) (20,850)
Translation adjustments - - 15 15 15
-------------- -------------- -------------- -------------- --------------
Comprehensive loss $ (20,835)
==============
|
Hologic, Inc.
Consolidated Statements of Stockholders' Equity (continued)
(In thousands, except per share data)
COMMON STOCK
------------------------------- CAPITAL IN
NUMBER OF $0.01 EXCESS OF RETAINED
SHARES PAR VALUE PAR VALUE EARNINGS
-------------- -------------- -------------- --------------
Balance at September 29, 2001 15,670 157 111,300 2,971
Sale of common stock, net of
issuance costs of $2,220 3,000 30 24,750 -
Exercise of stock options 595 6 4,203 -
Stock issued for employee
compensation 140 1 801 -
Issuance of common stock under
employee stock purchase plan 56 1 351 -
Net income - - - 179
Translation adjustments - - - -
-------------- -------------- -------------- --------------
Comprehensive income
Balance at September 28, 2002 19,461 $ 195 $ 141,405 $ 3,150
============== ============== ============== ==============
TREASURY STOCK ACCUMULATED
------------------------------- OTHER TOTAL COMPREHENSIVE
NUMBER OF COMPREHENSIVE STOCKHOLDERS' INCOME
SHARES AMOUNT LOSS EQUITY (LOSS)
-------------- -------------- -------------- -------------- --------------
Balance at September 29, 2001 45 (464) (2,157) 111,807 -
Sale of common stock, net of
issuance costs of $2,220 - - - 24,780 -
Exercise of stock options - - - 4,209 -
Stock issued for employee
compensation - - - 802 -
Issuance of common stock under
employee stock purchase plan - - - 352 -
Net income - - - 179 179
Translation adjustments - - 280 280 280
-------------- -------------- -------------- -------------- --------------
Comprehensive income $ 459
==============
Balance at September 28, 2002 45 $ (464) $ (1,877) $ 142,409
============== ============== ============== ==============
|
See accompanying notes.
Hologic, Inc.
Consolidated Statements of Cash Flows
(In thousands, except per share data)
YEARS ENDED
SEPTEMBER 28, SEPTEMBER 29, SEPTEMBER 30,
2002 2001 2000
------------- ------------- -------------
OPERATING ACTIVITIES
Net income (loss) $ 179 $ (20,850) $ (18,619)
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
Depreciation 5,395 6,189 3,556
Amortization 2,081 2,546 864
Noncash interest expense 187 - -
Reversal of previously recorded Trex reserves - (2,004) -
Deferred income taxes 3,896 293 (10,546)
Loss on sale/leaseback 93 - -
Acquired in-process research and development - - 5,000
Compensation expense related to issuance of common stock and
stock options - 968 105
Noncash interest expense - - -
Changes in assets and liabilities, net of impact of
businesses acquired in 2000
Accounts receivable 3,040 7,859 2,190
Inventories 1,641 2,310 836
Prepaid expenses and other current assets 1,998 (2,098) 4,605
Accounts payable (7,290) 4,698 3,104
Accrued expenses (4,695) (7,173) 6,189
Deferred revenue 436 (2,989) 2,039
------------- ------------- -------------
Net cash provided by (used in) operating activities 6,961 (10,251) (677)
------------- ------------- -------------
INVESTING ACTIVITIES
Purchases of held-to-maturity investments - - (20,938)
Proceeds from maturities of investment securities - - 50,074
Proceeds from settlement of Trex purchase price - 932 -
Purchase of businesses, net of cash acquired - - (30,198)
Proceeds from sale/leaseback, net of costs 31,372 - -
Purchase of property and equipment (6,138) (4,330) (5,821)
Increase in other assets (122) (1,259) (5,218)
------------- ------------- -------------
Net cash provided by (used in) investing activities 25,112 (4,657) (12,101)
------------- ------------- -------------
FINANCING ACTIVITIES
(Repayments) borrowings under lines of credit (2,150) 1,610 (715)
Issuance of note payable 24 2,360 -
Repayments of note payable (26,177) (9) -
Net proceeds from sale of common stock 29,341 904 549
------------- ------------- -------------
Net cash provided by (used in) financing activities 1,038 4,865 (166)
------------- ------------- -------------
Effect of exchange rate changes on cash (29) 19 (786)
------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents 33,082 (10,024) (13,730)
|
Hologic, Inc.
Consolidated Statements of Cash Flows (continued)
(In thousands, except per share data)
YEARS ENDED
SEPTEMBER 28, SEPTEMBER 29, SEPTEMBER 30,
2002 2001 2000
------------- ------------- -------------
Cash and cash equivalents, beginning of period 12,754 22,778 36,508
------------- ------------- -------------
Cash and cash equivalents, end of period $ 45,836 $ 12,754 $ 22,778
============= ============= =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for income taxes $ 236 $ 166 $ 199
============= ============= =============
Cash paid during the period for interest $ 3,072 $ 2,933 $ 38
============= ============= =============
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES:
Stock issued for employee compensation $ 802 $ - $ 61
============= ============= =============
Issuance of Note Payable to Fleet Business Credit Corp. for
litigation settlement $ - $ 1,550 $ -
============= ============= =============
Purchase of Businesses, net of cash acquired:
Fair value of assets acquired $ - $ - $ 57,050
Liabilities assumed - - (25,270)
Cost in excess of net assets acquired - - 19,220
In-process research and development cost acquired - - 5,000
Cash paid - - (30,000)
Acquisition costs incurred - - (1,000)
------------- ------------- -------------
Fair value of stock/note payable issued $ - $ - $ 25,000
============= ============= =============
|
See accompanying notes.
Hologic, Inc.
Notes to Consolidated Financial Statements
September 28, 2002
(In thousands, except per share data)
1. OPERATIONS
Hologic, Inc. (the Company or Hologic) is engaged in the development, manufacture and distribution of diagnostic and medical imaging systems primarily serving the healthcare needs of women. The Company's core women's healthcare business units are focused on bone densitometry, mammography and breast biopsy and on developing a direct-to-digital X-ray mammography system.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements reflect the application of certain accounting policies as described in this note and elsewhere in the accompanying consolidated financial statements.
The Company believes that a critical accounting policy is one that is both important to the portrayal of the Company's financial condition and results and requires managements most difficult, subjective or complex judgments, often as the result of the need to make estimates about the effect of matters that are inherently uncertain. The Company believes the following critical accounting policies affect management's more significant judgments and estimates used in the preparation of the Company's consolidated financial statements: Inventory, Allowance for Doubtful Accounts, Revenue Recognition, Income Taxes, and Lease accounting.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of the Company and all of its wholly-owned subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation.
FISCAL YEAR
The Company's fiscal year ends on the last Saturday in September. Fiscal 2002, 2001 and 2000 ended on September 28, 2002, September 29, 2001 and September 30, 2000, respectively.
Hologic, Inc.
Notes to Consolidated Financial Statements (continued)
(In thousands, except per share data)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
MANAGEMENT'S ESTIMATES AND UNCERTAINTIES
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
The Company is subject to a number of risks similar to those of other companies of similar size in its industry, including a recent history of pre-tax losses, early stage of development of direct-to-digital products, rapid technological changes, competition, limited number of suppliers, customer concentration, integration of acquisitions, government regulations, management of international activities and dependence on key individuals.
CASH AND CASH EQUIVALENTS
The Company considers its highly liquid investments with maturities of three months or less at the time of acquisition to be cash equivalents. Included in cash equivalents at September 28, 2002 and September 29, 2001 are approximately $259 and $541, respectively, of securities purchased under agreements to resell. The securities purchased under agreements to resell are collateralized by U.S. government securities. At September 28, 2002 and September 29, 2001 the Company's other cash equivalents consisted of money market accounts.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that subject the Company to credit risk primarily consist of cash and cash equivalents, trade accounts receivable and long-term receivables. The Company's credit risk is managed by investing its cash and cash equivalents in high-quality money market instruments and securities of the U.S. government and its agencies. The Company generally has not experienced any material losses related to receivables from individual customers or groups of customers in the X-ray and medical devices industry. Due to these factors, no significant additional credit risk, beyond amounts provided for, is believed by management to be inherent in the Company's accounts receivable.
Hologic, Inc.
Notes to Consolidated Financial Statements (continued)
(In thousands, except per share data)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company utilizes a distributor in the United States for certain product lines. This distributor had amounts due to the Company of approximately $7,775 and $6,969 as of September 28, 2002 and September 29, 2001, respectively, and accounted for 23.8% and 20.3% of product revenues for fiscal 2002 and 2001, respectively. There were no other customers with balances greater than 10% of accounts receivable as of September 28, 2002 or September 29, 2001 or customers that represented greater than 10% of product revenues for fiscal 2002 and 2001, respectively. During the year ended September 30, 2000, no individual customers represented greater than 10% of revenue.
In prior years, the Company financed certain sales to Latin American customers over two to three years. The economic and currency related uncertainties in these countries may increase the likelihood of nonpayment. As a result, the Company increased its bad debt reserve during fiscal 2000; no additional amounts were required in fiscal 2001 and 2002.
DISCLOSURE OF FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments mainly consist of cash, accounts receivable, lines of credit, long-term receivables, accounts payable and notes payable. The carrying amounts of the Company's cash equivalents, accounts receivable, lines of credit and accounts payable approximate fair value due to the short-term nature of these instruments. The notes payable to Foothill Capital Corporation and Fleet Business Credit, LLC have variable interest rates and, therefore, fluctuate based on market conditions. As of September 28, 2002, the fair values of the notes payable approximate their carrying amounts based on comparable market terms and conditions.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market and
consist of the following:
SEPTEMBER 28, SEPTEMBER 29,
2002 2001
------------- -------------
Raw materials and work-in-process $ 30,637 $ 27,421
Finished goods 7,218 11,864
------------- -------------
$ 37,855 $ 39,285
============= =============
|
Work-in-process and finished goods inventories consist of materials, labor and manufacturing overhead.
Hologic, Inc.
Notes to Consolidated Financial Statements (continued)
(In thousands, except per share data)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
The Company provides for depreciation and amortization by charges to operations, using the straight-line method, which allocate the cost of property and equipment over the following estimated useful lives:
ASSET CLASSIFICATION ESTIMATED USEFUL LIFE
-----------------------------------------------------------------------
Buildings and improvements 40 years
Equipment 3-8 years
Furniture and fixtures 5-7 years
Leasehold improvements Shorter of Life of Lease or
Estimated Useful Life
|
The Company applies the provisions of American Institute of Certified Public Accountants Statement of Position (SOP) 98-1, Software Developed or Obtained for Internal Use. SOP 98-1 requires computer software costs associated with internal use software to be expensed as incurred until certain capitalization criteria are met. SOP 98-1 also defines which types of costs should be capitalized and which should be expenses. The Company has capitalized $2,280 during fiscal 2002 related to a company-wide Enterprise Resource Planning (ERP) systems implementation project and has included these amounts in equipment in the accompanying consolidated balance sheet. The Company will begin to amortize such costs at such time the ERP system is operational, which is anticipated to be during the first fiscal quarter of 2003.
In September 2002, the Company completed a sale/leaseback of its Bedford, Massachusetts and Danbury, Connecticut facilities, resulting in a loss of $93, which is included in interest/other expense in the accompanying consolidated statement of operations. Under the terms of the sale/leaseback, the Company entered into a 20-year operating lease agreement for the facilities requiring annual rent payments of $3,156, in addition to all operating costs.
In applying the provisions of Statement of Financial Accounting Standards (SFAS) No. 13, Accounting for Leases, certain judgments and estimates must be made to determine if the agreement should be accounted for as a capital or operating lease. Most significant is the determination of the Company's incremental borrowing rate in calculating the present value of minimum lease payments in the event the rate implicit in the lease is unknown. In order for a lease agreement to be accounted as an operating lease, among other
Hologic, Inc.
Notes to Consolidated Financial Statements (continued)
(In thousands, except per share data)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
requirements, the present value of the minimum lease payments may not be greater than 90% of the fair value of the leased asset. In determining the Company's incremental borrowing rate management considered, among other things, quotes obtained from several lenders assuming the Company was financing a purchase of the facility.
LONG-LIVED ASSETS
The Company assesses the realizability of its long-lived assets, including intangible assets except goodwill, in accordance with SFAS No. 121, Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. To date, the Company has not identified any impairments requiring adjustment.
In July 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible Assets. This statement applies to goodwill and intangible assets acquired after June 30, 2001, as well as goodwill and intangible assets previously acquired. Under this statement, goodwill is no longer be amortized, instead goodwill is reviewed for impairment annually, at a minimum, by applying a fair-value-based test. The Company early adopted this statement effective in the first quarter in the fiscal year ended September 2002. Accordingly, the Company reclassified the net book value of assembled workforce of approximately $1,586 to goodwill and ceased amortization of all goodwill.
During the second quarter of fiscal 2002, the Company engaged an independent appraiser, experienced in conducting these impairment tests, to complete the fair value based test of the Company's goodwill as of September 30, 2001, the first day of fiscal 2002. Based on the results of this test, goodwill was deemed not to be impaired for fiscal 2002. The Company has determined that the appraisal completed in the second quarter will serve as its first annual test as well.
Hologic, Inc.
Notes to Consolidated Financial Statements (continued)
(In thousands, except per share data)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Unaudited adjusted net income (loss) and earnings (loss) per share, assuming the adoption of Statement 142 occurred on October 1, 2000 are as follows:
TWELVE MONTHS ENDED
SEPTEMBER 28, SEPTEMBER 29,
2002 2001
------------- -------------
Reported net income (loss) $ 179 $ (20,850)
Add back: Goodwill and assembled
workforce amortization - 549
------------- -------------
Adjusted net income (loss) $ 179 $ (20,301)
============= =============
Basic earnings per share:
Reported net income (loss) $ 0.01 $ (1.35)
Goodwill and assembled workforce
amortization - 0.04
------------- -------------
Adjusted net income (loss) $ 0.01 $ (1.31)
============= =============
Diluted earnings per share:
Reported net income (loss) $ 0.01 $ (1.35)
Goodwill and assembled workforce
amortization - 0.04
------------- -------------
Adjusted net income (loss) $ 0.01 $ (1.31)
============= =============
|
DEFERRED FINANCING COSTS
Included in other assets in the accompanying balance sheets as of September 28, 2002 and September 29, 2001 are deferred financing costs of approximately $441 and $393, respectively, related to the Company's closing of the credit facility with Foothill Capital Corporation (see Note 4.) The Company is amortizing these amounts to interest expense over a three-year period, which approximates the level yield method. The Company amortized $187 and $0 to interest expense related to these amounts during the years ended September 28, 2002 and September 29, 2001, respectively.
Hologic, Inc.
Notes to Consolidated Financial Statements (continued)
(In thousands, except per share data)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FOREIGN CURRENCY TRANSLATION
The Company translates the financial statements of its foreign subsidiaries in accordance with SFAS No. 52, Foreign Currency Translation. In translating the accounts of the foreign subsidiaries into U.S. dollars, assets and liabilities are translated at the rate of exchange in effect at year-end, while stockholders' equity is translated at historical rates. Revenue and expense accounts are translated using the weighted average exchange rate in effect during the year. Gains and losses from foreign currency translation are credited or charged to cumulative translation adjustment, included in stockholders' equity, in the accompanying consolidated balance sheets.
Transaction gains and losses in fiscal 2002, 2001 and 2000 were not significant.
REVENUE RECOGNITION
The Company recognizes product revenue upon shipment, provided that there is persuasive evidence of an arrangement, there are no uncertainties regarding acceptance, the sales price is fixed or determinable, collection of the resulting receivable is probable and only perfunctory Company obligations included in the arrangement remain to be completed. The Company recognizes product revenue upon the completion of installation for shipments that require more than perfunctory obligations at the time of shipment, specifically for our digital imaging systems. A provision is made at that time for estimated warranty costs to be incurred.
In connection with a fee-per-scan program with a leasing company for certain products, the Company entered into a remarketing agreement whereby it agreed to perform certain remarketing activities on a best efforts basis. The Company agreed to perform these activities to help recover any losses incurred by the leasing company up to 10% of the total fee-per-scan contracts funded. The leasing company purchased all such products covered under these contracts from the Company. The Company had reserved for potential losses under these contracts by deferring revenue in an amount equal to 10% of the contracts funded. This program was terminated in fiscal 1999 (see Notes 10 and 13).
Service revenues primarily consist of fee-per-scan revenues, amounts recorded under maintenance contracts and repairs not covered under warranty as well as shipping and handling costs billed to customers. Fee-per-scan revenues have been recorded as the fees are collected. Maintenance contract revenues are recognized ratably over the term of the contract. Other service revenues are recorded when the services are completed.
Hologic, Inc.
Notes to Consolidated Financial Statements (continued)
(In thousands, except per share data)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RESEARCH AND DEVELOPMENT AND SOFTWARE DEVELOPMENT COSTS
Research and development costs are charged to operations as incurred. SFAS No. 86, Accounting for the Costs of Computer Software to Be Sold, Leased or Otherwise Marketed, requires the capitalization of certain computer software development costs incurred after technological feasibility is established. The Company believes that once technological feasibility of a software product has been established, the additional development costs incurred to bring the product to a commercially acceptable level are not significant.
NET INCOME (LOSS) PER SHARE
Basic and diluted net income (loss) per share are presented in conformity with SFAS No. 128, Earnings per Share. Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted net loss per share in 2000 and 2001 is computed in the same way as basic, as all common equivalent shares are considered antidilutive due to the Company's net loss position.
Basic and diluted weighted average common shares for 2002 are as follows (in thousands):
Basic weighted average common shares outstanding 18,419
Weighted average common equivalent shares 773
-------------
Diluted weighted average common shares outstanding 19,192
=============
|
Dilutive weighted average shares outstanding do not include 1,071, 3,367 and 2,712 common-equivalent shares for the end of fiscal years 2002, 2001 and 2000, respectively, as their effect would have been antidilutive.
DERIVATIVE FINANCIAL INSTRUMENTS
At September 28, 2002 and September 29, 2001, the Company had no derivative financial instruments.
2. Summary of Significant Accounting Policies (continued)
Reclassifications
In September 2001, the Emerging Issues Task Force (EITF) reached a consensus on Issue No. 00-10, Accounting for Shipping and Handling Costs, relating to the accounting for shipping and handling costs billed to customers. In accordance with Issue No. 00-10, all amounts billed to a customer in a sale transaction related to shipping and handling, if any, represent revenues earning for the goods provided and should be classified as revenue in the statement of operations. The Company has historically accounted for reimbursements received for shipping and handling costs as a reduction to cost of service and other revenue in the statement of operations to offset the costs incurred. The Company has adopted Issue No. 00-10 in financial reporting periods beginning after September 29, 2001. Accordingly, comparative financial statements herein for prior periods have been reclassified to comply with the guidance in Issue No. 00-10. During the years ended September 28, 2002, September 29, 2001 and September 30, 2000, the amounts billed to customers totaled $1,412, $1,705 and $591, respectively, which has been reflected as service and other revenues and cost of service and other revenues in accordance with Issue No. 00-10 in the accompanying statements of operations for all periods presented.
During 2002, the Company began to separately report Service and Other Revenue from Product Sales and to separately report Cost of Service and Other Revenue from Cost of Product Sales. In addition, in 2002 the Company began reporting certain Selling and Marketing Expenses as Costs of Service and Other Revenue. Prior-period amounts have been reclassified to conform with the current-period presentation. The following is a summary of such reclassifications.
Year End
----------------------------
September 29, September 30,
2001 2000
------------- -------------
Product Sales:
As previously reported $ 175,908 $ 90,864
Less - Service revenues (37,931) (14,686)
------------- -------------
As revised $ 137,977 $ 76,178
------------- -------------
Service and Other Revenue:
As previously reported $ 2,583 $ 2,882
Add - Service revenues 37,931 14,686
Add - Shipping and handling fees 1,705 591
------------- -------------
As revised $ 42,219 $ 18,159
------------- -------------
2. Summary of Significant Accounting Policies (continued)
Year End
----------------------------
September 29, September 30,
2001 2000
------------- -------------
Cost of Product Sales:
As previously reported $116, 177 $ 63,604
Less - Cost of service revenues (30,465) (16,876)
------------- -------------
As revised $ 85,712 $ 46,728
------------- -------------
Cost of Service and Other Revenue:
As previously reported $ - $ -
Add - Cost of service revenues 30,465 16,876
Add - Shipping and handling fees 1,705 591
Add - Application services costs 1,564 1,259
------------- -------------
As revised $ 33,734 $ 18,726
------------- -------------
Selling and Marketing Expenses:
As previously reported $ 35,422 $ 23,882
Less - Application service costs (1,564) (1,259)
------------- -------------
As revised $ 33,858 $ 22,263
------------- -------------
|
As a result of management's decision to close the conventional general radiography manufacturing facility, the Company reclassified the General Radiography business from the Mammography/General Radiography segment into a separate segment in 2002. The segment information presented in Note 11 has been revised in 2001 and 2000 to reflect the 2002 presentation. The following reconciles previously reported segment revenues to the information presented in Note 11.
Year End
---------------------------
September 29, September 30,
2001 2000
------------- -------------
Revenues:
Mammography $ 59,943 $ 2,921
General Radiography 27,590 2,201
Shipping and handling fees (1,063) (36)
------------ -------------
Mammography/General Radiography $ 86,470 $ 5,086
------------ -------------
|
Recently Issued Accounting Policies
In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. This statement supercedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, and certain accounting and reporting provisions of Accounting Principles Board(APB).
Opinion No 30, Reporting the Results of Operations - Reporting the Effects of Dis
Hologic, Inc.
Notes to Consolidated Financial Statements (continued)
(In thousands, except per share data)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
not anticipate the adoption of this Statement to have any material impact on its results of operations or financial condition.
FASB Interpretation No. 45, Guarantor Accounting, will significantly change current practice in the accounting for, and disclosure of, guarantees. Most guarantees are to be recognized and initially measured at fair value, which is a change from current practice. In addition, guarantors will be required to make significant new disclosures, even when the likelihood of the guarantor making payments under the guarantee is remote. In general, the Interpretation applies to contracts or indemnification agreements that contingently require the guarantor to make payments to the guaranteed party based on changes in an underlying that is related to an asset, liability, or an equity security of the guaranteed party. The Interpretation's disclosure requirements are effective for financial statements of interim or annual periods ending after December 15, 2002, while the initial recognition and initial measurement provisions are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. We do not believe the adoption of this statement will have a material impact on our results of operations or financial condition.
EITF 00-21, Accounting for Revenue Arrangements with Multiple Deliverables, the Task Force reached a consensus on Issue 00-21, at the November 21, 2002 meeting, which addresses how to account for arrangements that may involve the delivery or performance of multiple products, services, and/or rights to use assets. The final consensus will be applicable to agreements entered into in fiscal periods beginning after June 15, 2003 with early adoption permitted. Additionally, companies will be permitted to apply the consensus guidance to all existing arrangements as the cumulative effect of a change in accounting principle in accordance with APB Opinion No. 20, Accounting Changes.
Following is a brief summary of the final model approved by the Task Force.
. Revenue arrangements with multiple deliverables should be divided into separate units of accounting if the deliverables in the arrangement meet the following criteria:
. The delivered item(s) has value to the customer on a standalone basis. That item(s) has value on a standalone basis if it is sold separately by any vendor or the customer could resell the deliverable on a standalone basis. In the context of a customer's ability to resell the deliverable, the Task Force observed that this criterion does not require the existence of an observable market.
. There is objective and reliable evidence of the fair value of the undelivered item(s).
. If the arrangement includes a general right of return, delivery or performance of the undelivered item(s) is considered probable and substantially in the control of the vendor.
. Arrangement consideration should be allocated among the separate units of accounting based on their relative fair values. The amount allocated to the delivered item(s) is limited to the amount that is not contingent on the delivery of additional items or meeting other specified performance conditions.
. Applicable revenue recognition criteria should be considered separately for separate units of accounting.
We are currently evaluating the ultimate impact of this statement on our results of operations or financial position.
3. ACQUISITION OF TREX MEDICAL SYSTEMS CORPORATION
On September 15, 2000, pursuant to an Asset Purchase and Sale Agreement between Hologic, Inc. (Hologic) and Trex Medical Systems Corporation (Trex Medical) (the Purchase Agreement), dated August 13, 2000, Hologic acquired the U.S. business assets of Trex Medical in exchange for $30,000 in cash and a note in the amount of $25,000. The note had a term of three years, bore interest at a rate of 11.5% per annum and was repaid in full in September 2002 with the proceeds from the Company's sale/leaseback transaction (see Note 2). The Company recorded interest expense related to this note payable of $2,638, $2,875 and $109 for the years ended September 28, 2002, September 29, 2001 and September 30, 2000, respectively, in the accompanying consolidated statements of operations.
The initial aggregate purchase price for Trex Medical was approximately $56,000, which included approximately $1,000 related to acquisition fees and expenses. The purchase price was subject to an adjustment based upon the working capital position of the business as of September 15, 2000. The Trex Medical acquisition was accounted for as a purchase in accordance with APB Opinion No. 16 and, accordingly, the results of the operations of Trex Medical are included in the accompanying consolidated financial statements from the date of acquisition. In accordance with APB Opinion No. 16, the
Hologic, Inc.
Notes to Consolidated Financial Statements (continued)
(In thousands, except per share data)
3. ACQUISITION OF TREX MEDICAL SYSTEMS CORPORATION (CONTINUED) purchase price was allocated to the acquired assets and assumed liabilities of Trex Medical based on their fair value.
In connection with the allocation of the purchase price to the acquired assets and assumed liabilities of Trex Medical based on their estimated fair value, management determined that the balance of certain reserves and accruals at the closing date were not sufficient to cover the estimated economic exposure. Therefore, the Company increased the balance of the applicable reserves and accruals to reflect management's estimated economic exposure through charges to earnings in the period after acquisition in accordance with the guidance provided under Staff Accounting Bulleting (SAB) No. 100, Restructuring and Impairment. As a result, in the period the acquisition occurred, the Company recorded pre-tax charges totaling $6,800 to increase the reserve for bad debts, warranty accruals and other liabilities.
In June 2001, an independent arbitrator determined that adjustments of $2,839 in addition to $119 of adjustments agreed to by Thermo Electron Corporation before submission to arbitration, were required to the closing balance sheet submitted by Trex Medical. This resulted in a payment of approximately $932 to the Company as an adjustment to the purchase price. In addition, as a result of this arbitration settlement, the Company evaluated the components of the approximate $2,900 of adjustments and determined that approximately $2,100 of reserves and accruals provided for through charges to earnings in the fourth quarter of fiscal 2000 should have been recorded in the allocation of the purchase price for this acquisition. The remaining $700 related to items that were recorded in the original purchase price allocation.
As a result of the above adjustments and other purchase accounting adjustments made during the year, the Company's results for the year ended September 29, 2001 include expense reductions totaling $2,526 relating to the purchase price reallocation as follows:
. $1,722 cost of product sales reduction for warranty accrual and for performance upgrades on prior sales; and
. $376 selling expense reduction for accrued sales commissions and $428 general and administrative expense reduction for various expense accruals and bad debt expense.
As part of the purchase price allocation, intangible assets that are a part of the acquisition were identified and valued. It was determined that technology assets and assembled workforce had separately identifiable values. As a result of this identification and valuation process, the Company allocated approximately $5,000 of the purchase price to
Hologic, Inc.
Notes to Consolidated Financial Statements (continued)
(In thousands, except per share data)
3. ACQUISITION OF TREX MEDICAL SYSTEMS CORPORATION (CONTINUED)
in-process research and development projects. This allocation represented the estimated fair value based on risk-adjusted cash flows related to the incomplete research and development projects. At the date of acquisition, the development of these projects had not yet reached technological feasibility, and the research and development in progress had no alternative future uses. Accordingly, these costs were expensed as of the acquisition date.
In addition, the Company allocated approximately $11,800 and $3,000 to developed technology and assembled workforce, respectively. Developed technology represents patented and unpatented technology and know-how related to the Trex X-ray mammography, breast biopsy and radiography systems. Developed technology is being amortized over a period of 10 years at approximately $910 of amortization expense per year. Assembled workforce is the presence of a skilled workforce that is knowledgeable about company procedures and possesses expertise in certain fields that are important to profitability and growth of a company. In accordance with SFAS No. 142, the Company reclassified the net book value of assembled workforce as of September 29, 2001 to goodwill and ceased amortization at the beginning of fiscal 2002 (see Note 2).
The excess of the purchase price over the fair value of identifiable intangible and tangible net assets, as of September 30, 2000, of approximately $4,420 was allocated to goodwill. The Company early adopted SFAS No. 142 in the first quarter of fiscal 2002 and, accordingly, ceased amortization of goodwill (see Note 2).
Also, in conjunction with the acquisition, the Company committed to dispose of the acquired Trexnet product line. Trex Medical had existing obligations under contractual agreements with customers related to this product line which were assumed by the Company in the acquisition. The Company has transferred these obligations, along with $1,300 in cash and the assets and other liabilities associated with that product line to another company. Such amount had been accrued as part of the purchase price allocation.
Hologic, Inc.
Notes to Consolidated Financial Statements (continued)
(In thousands, except per share data)
3. ACQUISITION OF TREX MEDICAL SYSTEMS CORPORATION (CONTINUED)
The aggregate purchase price (after the adjustments discussed above) of $55,068 including acquisition costs was allocated as follows:
Current assets $ 49,484
Property, plant and equipment 8,098
In-process research and development 5,000
Cost in excess of net assets acquired 15,732
Liabilities assumed (23,246)
-------------
$ 55,068
=============
|
On November 13, 2001, the Company announced they would be closing the general radiography manufacturing facility in Littleton, Massachusetts that the Company had acquired from Trex Medical and that it would relocate certain of its product lines and sales and support personnel to its corporate headquarters in Bedford, Massachusetts. The Company accrued costs of approximately $3,500 related to the closing as part of the final purchase price allocation in the fourth quarter of fiscal 2001. These costs included amounts for lease abandonment, as well as for the write-off of certain fixed assets and accounts receivable. The Company incurred an additional restructuring charge of approximately $961 in fiscal 2002 primarily comprised of severance costs related to the termination of employees at the Littleton location.
4. CREDIT FACILITIES
The Company maintains an unsecured line of credit with a bank for the equivalent of $3,000, which bears interest at the Europe Interbank Offered Rate (3.32% at September 28, 2002) plus 1.50%. As of September 28, 2002, there were no amounts outstanding. The borrowings under this line are primarily used by the Company's European subsidiaries to settle intercompany sales and are denominated in the respective local currencies of its European subsidiaries. The line of credit may be canceled by the bank with 30 days notice. The average outstanding balance during fiscal 2002 was approximately $638 and the weighted average interest rate for fiscal 2002 was 10.4%. Interest expense on this line of credit of approximately $66, $95 and $23 has been included in interest/other expenses in the accompanying consolidated statements of operations for 2002, 2001 and 2000, respectively.
On September 21, 2001, the Company signed a Loan and Security Agreement with Foothill Capital Corporation (the Foothill Agreement). The Foothill Agreement provided
Hologic, Inc.
Notes to Consolidated Financial Statements (continued)
(In thousands, except per share data)
4. CREDIT FACILITIES (CONTINUED)
for a term loan at execution, in the amount of $2,360, payable monthly in equal installments over five years. The term loan accrues interest daily at an annual rate equal to the prime rate (4.75% at September 28, 2002) plus 1.25%. As of September 28, 2002, there was $1,888 outstanding under the Foothill Agreement. The Company also has the ability to receive letters of credit under the Foothill Agreement. The Company must pay a fee related to any letters of credit equal to 1% per annum on the daily balance of the undrawn amount of all outstanding letters of credit.
The Foothill Agreement also allows for revolver advances equal to the lesser of
(i) the Maximum Revolver Amount ($25,000 less amounts outstanding related to
letters of credit) or (ii) the Borrowing Base, as defined, less the letter of
credit usage. The revolver advances accrue interest daily at an annual rate
equal to the prime rate plus 0.5%. The Company has the option to increase the
Maximum Revolver Amount to $30,000 during the term of the Foothill Agreement.
The Company must pay monthly an Unused Line Fee in an amount equal to 0.5% times
the result of (i) the maximum revolver amount less the sum of the average daily
balance of advances, as defined, during the preceding month plus (ii) the
average daily balance of the letter of credit usage, as defined, during the
preceding month.
The Company's ability to borrow under such line of credit is conditional upon the Company's compliance with certain financial and non-financial covenants. The line of credit is collateralized by substantially all assets of the Company, excluding real estate, and expires on September 21, 2004. The Company was in compliance with all covenants as of September 28, 2002.
Hologic, Inc.
Notes to Consolidated Financial Statements (continued)
(In thousands, except per share data)
5. INCOME TAXES
The Company provides for income taxes under the liability method in accordance with SFAS No. 109, Accounting for Income Taxes.
The provision (benefit) for income taxes in the accompanying consolidated statements of operations consists of the following:
YEARS ENDED
SEPTEMBER 28, SEPTEMBER 29, SEPTEMBER 30,
2002 2001 2000
------------- ------------- -------------
Federal:
Current $ (13,527) $ - $ -
Deferred 13,000 - (9,963)
------------- ------------- -------------
(527) - (9,963)
------------- ------------- -------------
State
Current 150 150 134
Deferred (84) - (583)
------------- ------------- -------------
66 150 (449)
------------- ------------- -------------
Foreign
Current 32 19 12
------------- ------------- -------------
$ (429) $ 169 $ (10,400)
============= ============= =============
|
Hologic, Inc.
Notes to Consolidated Financial Statements (continued)
(In thousands, except per share data)
5. INCOME TAXES (CONTINUED)
A reconciliation of the federal statutory rate to the Company's effective tax rate is as follows:
YEARS ENDED
SEPTEMBER 28, SEPTEMBER 29, SEPTEMBER 30,
2002 2001 2000
------------- ------------- -------------
Income tax provision at
federal statutory rate (35.0)% (35.0)% (35.0)%
Increase (decrease) in tax
resulting from:
Change in valuation
allowance and net effect
of losses of foreign
subsidiaries not
benefited (28.5) 40.6 1.3
State tax provision
(benefit), net of
federal benefit 43.1 (1.2) (1.3)
Research and development
tax credit (199.7) (2.5) -
Non-deductible expenses 48.7 - -
Effect of not providing
U.S. taxes on exempt
FSC income - - (0.1)
Other - (1.1) (0.7)
------------- ------------- -------------
(171.4)% 0.8% (35.8)%
============= ============= =============
|
The components of domestic and foreign loss before the provision (benefit) for income taxes are as follows:
YEARS ENDED
SEPTEMBER 28, SEPTEMBER 29, SEPTEMBER 30,
2002 2001 2000
------------- ------------- -------------
Domestic $ 1,327 $ (20,561) $ (27,942)
Foreign (1,577) (120) (1,077)
------------- ------------- -------------
$ (250) $ (20,681) $ (29,019)
============= ============= =============
|
Hologic, Inc.
Notes to Consolidated Financial Statements (continued)
(In thousands, except per share data)
5. INCOME TAXES (CONTINUED)
The components of the net deferred tax asset recognized in the accompanying consolidated balance sheets are as follows:
SEPTEMBER 28, SEPTEMBER 29,
2002 2001
------------- -------------
Deferred tax assets $ 10,952 $ 25,508
Valuation allowance (7,352) (8,992)
------------- -------------
$ 3,600 $ 16,516
============= =============
|
The Company generated significant tax loss carryforwards during fiscal 2001 and 2000, which may be carried forward for 19 and 20 years, respectively. Under SFAS No. 109, the Company can only recognize a deferred tax asset for future benefit of its tax loss carryforward to the extent that it is "more likely than not" that these assets will be realized. In determining the realizability of these assets, the Company considered numerous factors, including historical profitability, estimated future taxable income and the industry in which it operates.
During fiscal 2002, as a result of the Economic Stimulus Bill signed into law in March 2002, the Company has filed or is in the process of filing, carryback claims of approximately $13,800. Of this amount, $6,000, has been received by the Company and $7,800 is included in other current assets in the accompanying balance sheet at September 28, 2002. The reduction in the net deferred tax asset is primarily the result of these carryback claims.
The Company has recorded an increase in the valuation allowance against a portion of its remaining potential deferred tax assets. The valuation allowance primarily relates to the net losses generated in fiscal 2001 and 2000 for which the Company can only realize through the generation of future taxable income and certain deferred tax assets in foreign jurisdictions, for which realization is uncertain. The Company believes that its net deferred tax asset as of September 28, 2002 will be realizable in the next 12-24 months.
Hologic, Inc.
Notes to Consolidated Financial Statements (continued)
(In thousands, except per share data)
5. INCOME TAXES (CONTINUED)
The approximate income tax effect of each type of temporary difference and carryforward before allocation of the valuation allowance is approximately as follows:
SEPTEMBER 28, SEPTEMBER 29,
2002 2001
------------- -------------
Net operating loss carryforwards $ 9,167 $ 19,040
Nondeductible accruals 720 1,147
Nondeductible reserves 3,883 4,079
Other temporary differences (3,935) 696
Research credit 1,008 508
Deferred revenue 109 38
------------- -------------
$ 10,952 $ 25,508
============= =============
|
The following table summarizes the expiration dates of the net operating loss and R&D credit carryforwards:
YEAR OF EXPIRATION
2019 2020 2021 2022 TOTAL
------------- ------------- ------------- ------------- -------------
Net Operating Loss $ 356 $ 10,431 $ 9,937 $ 4,085 $ 24,809
R&D Credit $ - $ - $ 508 $ 500 $ 1,008
|
6. COMMON STOCK
COMMON STOCK OFFERING
On December 12, 2001, the Company completed an offering of 3,000 shares of common stock for net proceeds of $24,780.
STOCK OPTION PLANS
The Company's 1986 Combination Stock Option Plan (the 1986 Plan) is administered by the Board of Directors. Under the terms of the 1986 Plan, the Company granted employees either incentive stock options or nonqualified stock options to purchase shares of the Company's common stock at a price not less than fair market value at the date of grant. In addition, the Company granted nonqualified options to other participants.
Hologic, Inc.
Notes to Consolidated Financial Statements (continued)
(In thousands, except per share data)
6. COMMON STOCK (CONTINUED)
During fiscal 1996, the 1986 Plan was terminated. Options granted under the 1986 Plan vest over a five-year period and are exercisable at varying dates.
The Company's 1994 Stock Option Plan (the 1994 Plan) and the 1995 Stock Option Plan (the 1995 Plan), both of which were originally adopted by FluoroScan and assumed by the Company upon its combination with Fluoroscan, are administered by the Board of Directors. As of September 29, 2001, there were options to purchase 276 shares of the Company's common stock outstanding under these plans. The Company does not intend to grant any additional options under these plans.
In June 1995, the Board of Directors adopted the 1995 Combination Stock Option Plan (the 1995 Combination Plan), pursuant to which the Company is authorized to issue 1,100 options to purchase shares of common stock. Under the terms of the 1995 Combination Plan, the Company may grant employees either incentive stock options or nonqualified stock options to purchase shares of the Company's common stock at a price not less than the fair market value at the date of grant. In addition, the Company may grant nonqualified options to other participants, such as consultants and advisors. As of September 28, 2002, the Company had one share available for future grant under this plan.
The Company's 1990 Nonemployee Director Stock Option Plan (the Directors' Plan) allowed for eligible directors to receive options to purchase 10 shares of common stock upon election as a director. The options vest ratably over a five-year period. In addition, eligible directors were entitled to annual option grants to purchase eight shares of common stock, which vest after six months. Option grants under the Directors' Plan were made at not less than fair market value on the date of grant. The Company reserved 200 shares of common stock for issuance under the Directors' Plan. As of September 28, 2002, the Company had no shares available for future grant.
In May 1997, the Board of Directors adopted the 1997 Employee Equity Incentive Plan (the 1997 Plan), pursuant to which the Company is authorized to issue 1,100 shares of common stock. Under the terms of the 1997 Plan, the Company may grant employees, consultants and advisors who are not executive officers or directors of the Company either nonqualified stock options, stock appreciation rights, performance shares, restricted stock, or stock units. As of September 28, 2002, the Company had eight shares available for future grant under this plan.
Hologic, Inc.
Notes to Consolidated Financial Statements (continued)
(In thousands, except per share data)
6. COMMON STOCK (CONTINUED)
In March 1999, the Board of Directors adopted the 1999 Equity Incentive Plan (the 1999 Plan), pursuant to which the Company is authorized to issue 300 shares, plus an annual increase, as defined, on the first day of each fiscal year following the adoption of the 1999 Plan. Effective September 29, 2002, the Board of Directors increased the number of shares available for issuance under the 1999 Plan from 1,440 to 1,840. Under the terms of the 1999 Plan, the Company may grant employees either incentive stock options or nonqualified stock options. In addition, the Company may grant non-employee directors non-qualified stock options. The exercise price of the options granted under this plan may not be less than the fair market value of the Company's stock on the date on which the option was granted. As of September 28, 2002, the Company had two shares available for future grant under this plan.
In April 2001, the Board of Directors adopted the 2000 Acquisition Equity Incentive Plan (the 2000 Plan), pursuant to which the Company is authorized to issue 1,000 shares of common stock. Under the terms of the 2000 Plan, the Company may grant employees, consultants and advisors of newly acquired businesses either nonqualified stock options, stock appreciation rights, performance shares or restricted stock. As of September 28, 2002, the Company had 444 shares available for future grant under this plan.
Hologic, Inc.
Notes to Consolidated Financial Statements (continued)
(In thousands, except per share data)
6. COMMON STOCK (CONTINUED)
The following table summarizes all stock option activity under all of the plans for the three years in the period ended September 28, 2002:
EXERCISE WEIGHTED
NUMBER PRICE PER AVERAGE
OF SHARES SHARE EXERCISE PRICE
--------- ------------------ --------------
Outstanding at September 25, 1999 2,130 $ 1.81-44.25 $ 9.66
Granted 754 3.19-9.81 5.46
Terminated (159) 2.81-15.88 7.77
Exercised (13) 1.94-6.81 3.77
--------- ------------------ --------------
Outstanding at September 30, 2000 2,712 1.81-44.25 8.63
Granted 1,537 4.00-7.19 5.38
Terminated (753) 1.94-14.94 7.20
Exercised (129) 1.94-6.81 3.68
--------- ------------------ --------------
Outstanding at September 29, 2001 3,367 1.81-44.25 7.65
Granted 1,324 5.05-17.00 9.25
Terminated (380) 3.50-28.13 7.80
Exercised (595) 1.81-13.25 7.07
--------- ------------------ --------------
Outstanding at September 28, 2002 3,716 $ 1.81-44.25 $ 8.29
========= ================== ==============
Exercisable at September 28, 2002 1,563 $ 1.81-44.25 $ 8.82
========= ================== ==============
Exercisable at September 29, 2001 1,555 $ 1.81-44.25 $ 9.29
========= ================== ==============
Exercisable at September 30, 2000 1,262 $ 1.81-44.25 $ 9.75
========= ================== ==============
|
Hologic, Inc.
Notes to Consolidated Financial Statements (continued)
(In thousands, except per share data)
6. COMMON STOCK (CONTINUED)
The range of exercise prices for options outstanding and options exercisable at September 28, 2002 are as follows:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------------------------------------------------------
WEIGHTED
AVERAGE
REMAINING WEIGHTED WEIGHTED
CONTRACTUAL AVERAGE AVERAGE
RANGE OF OPTIONS LIFE EXERCISE OPTIONS EXERCISE
EXERCISE PRICE OUTSTANDING (YEARS) PRICE EXERCISABLE PRICE
---------------------------- ----------- ----------- --------- ----------- --------
$1.81-$3.94 184 5.68 $ 3.53 94 $ 3.15
$4.00-$5.00 544 8.08 4.96 280 4.98
$5.05-$5.78 614 8.45 5.49 162 5.61
$5.85-$7.06 426 7.07 6.60 226 6.67
$7.19-$8.88 443 5.24 8.26 351 8.25
$9.00-$9.50 505 9.89 9.49 17 9.21
$9.74-$10.26 400 9.17 10.23 - 9.81
$10.45-$13.13 432 6.10 11.71 311 11.75
$13.15-$32.59 167 5.51 21.88 122 24.29
$44.25 1 3.75 44.25 - 44.25
----------- ----------- --------- ----------- --------
$1.81-$44.25 3,716 7.58 $ 8.29 1,563 $ 8.82
=========== =========== ========= =========== ========
|
The weighted average grant date fair value under the Black-Scholes option pricing model of options granted during the years ended September 28, 2002, September 29, 2001 and September 30, 2000 under the various plans is $2.82, $3.30 and $3.37 per share, respectively. As of September 28, 2002, September 29, 2001 and September 30, 2000, the weighted average remaining contractual life of outstanding options under these plans is 7.58, 7.46 and 7.26 years, respectively.
The Company accounts for its stock-based compensation plans under APB Opinion No. 25, Accounting for Stock Issued to Employees. The stock-based compensation recorded in the years ended September 29, 2001 and September 30, 2000 of $166 and $47, respectively is the result of awarding restricted common shares to certain key employees. The value of these shares, as measured based on the market value of the Company's common stock on the date of award, is being amortized on a straight-line basis over the period in which the restrictions lapse. All restrictions related to these shares lapsed in fiscal 2000. Additional amounts recorded as stock-based compensation in fiscal 2000
Hologic, Inc.
Notes to Consolidated Financial Statements (continued)
(In thousands, except per share data)
6. COMMON STOCK (CONTINUED)
relate to the amortization of compensation expense due to the issuance of common stock options at less than fair market value in fiscal 1995.
In October 1995 the FASB issued SFAS No. 123, Accounting for Stock-Based Compensation, which established a fair-value-based method of accounting for stock-based compensation plans. The Company has adopted the disclosure-only alternative under SFAS No. 123 that requires disclosure of the pro forma effects on net income (loss) and income (loss) per share as if SFAS No. 123 had been adopted, as well as certain other information.
The Company has computed the pro forma disclosures required under SFAS No. 123 for stock options and stock issuances under the employee stock purchase plan of the Company in fiscal years ended September 28, 2002, September 29, 2001 and September 30, 2000, using the Black-Scholes option pricing model prescribed by SFAS No. 123. The assumptions used to calculate the SFAS No. 123 pro forma disclosure and the weighted average information for the fiscal years ended September 28, 2002, September 29, 2001 and September 30, 2000 are as follows:
2002 2001 2000
----------- ----------- ------------
Risk-free interest rate 3.73% 5.50% 6.00%
Expected dividend yield - - -
Expected lives 4 years 6 years 6 years
Expected volatility 70% 72% 72%
|
The pro forma effect of applying SFAS No. 123 for all options granted, stock issuances under the employee stock purchase plan and warrants granted to employees of the Company in fiscal years ended September 28, 2002, September 29, 2001 and September 30, 2000 would be as follows:
2002 2001 2000
----------- ----------- ------------
Net income (loss) reported $ 179 $ (20,850) $ (18,619)
Pro forma net loss (4,499) (24,150) (21,052)
Diluted net income (loss)
per share, as reported $ 0.01 $ (1.35) $ (1.22)
Pro forma diluted net loss
per share
$ (0.24) $ (1.56) $ (1.37)
|
Hologic, Inc.
Notes to Consolidated Financial Statements (continued)
(In thousands, except per share data)
6. COMMON STOCK (CONTINUED)
EMPLOYEE STOCK PURCHASE PLAN
The Company has an Employee Stock Purchase Plan (the ESP Plan) in compliance with Section 423 of the Internal Revenue Code. Employees who have completed three consecutive months, or two years, whether or not consecutive, of employment with the Company or any of its participating subsidiaries are eligible to participate in the ESP Plan. The ESP Plan allows participants to purchase common stock of the Company at 85% of the fair market value, as defined. During the fiscal years ended September 28, 2002, September 29, 2001 and September 30, 2000, the Company issued 56, 100 and 91 shares, respectively under the ESP Plan. At September 28, 2002, there are 173 shares available for purchase under the ESP Plan.
RIGHTS AGREEMENT
In December 1992, the Company adopted a shareholder rights plan (the December 1992 Rights Plan). The Company amended the plan in December 1995, December 1996 and April 1999. The December 1992 Rights Plan expires on December 31, 2002. The December 1992 Rights Plan is intended to protect shareholders from unfair or coercive takeover practices. In accordance with the December 1992 Rights Plan, the Board of Directors declared a dividend distribution of one common stock purchase right for each share of common stock outstanding until the rights become detachable. Each right entitles the registered holder to purchase from the Company one share of common stock for $90, adjusted for certain events. In the event that the Company is acquired in a merger or other business combination transaction or more than 50% of its assets or earning power is sold, each holder shall thereafter have the right to receive, upon exercise of each right, that number of shares of common stock of the acquiring company that, at the time of such transaction, would have a market value of two times the $60 per share exercise price. The rights will not be detachable or exercisable until certain events occur. The Board of Directors may elect to terminate the rights under certain circumstances.
On September 17, 2002, the Board of Directors adopted a new shareholder rights plan to replace the December 1992 Plan when it expires on December 31, 2002. In addition to certain other modifications, the new rights plan uses preferred stock purchase rights rather than common stock purchase rights. To effect the new rights plan, the Board of Directors declared a dividend distribution of one right for each share of the Company's common stock outstanding as of the close of business on December 31, 2002. Each right entitles the registered holder to purchase one one-thousandth of a share of the Company's Series A Junior Participating Preferred Stock at a purchase price of $60.00. The rights
Hologic, Inc.
Notes to Consolidated Financial Statements (continued)
(In thousands, except per share data)
6. COMMON STOCK (CONTINUED)
will be exercisable if a person or group acquires beneficial ownership of 15% or more of the Company's common stock or announces a tender or exchange offer for 15% or more of the Company's common stock. At such time, each holder of a right (other than the 15% holder) will thereafter have a right to purchase, upon payment of the purchase price of the right, that number of shares of the Company's common stock which have a market value of twice the purchase price of the right. The new rights plan is designed to deter coercive or unfair takeover tactics and to ensure that all of the Company's shareholders receive fair and equal treatment in the event of an unsolicited attempt to acquire the Company.
7. PROFIT SHARING 401(K) PLAN
The Company has a qualified profit sharing plan covering substantially all of its employees. Contributions to the plan are at the discretion of the Company's Board of Directors. The Company has recorded approximately $710, $849, and $301 as a provision for the profit sharing contribution for fiscal 2002, 2001 and 2000, respectively. During 2002, the Company paid the 2001 profit sharing contribution through issuance of its common stock.
8. RELATED PARTY TRANSACTIONS
NOTE RECEIVABLE FROM OFFICER
In fiscal 2000 and 2001, the Company loaned an officer an aggregate of $500,000, which is required to be repaid quarterly beginning in April 2003 through April 2006. In the event of a change in control, as defined, the amounts outstanding will be forgiven. The note is unsecured and bears interest at 7% per annum.
9. COMMITMENTS
OPERATING LEASES
The Company conducts its operations in leased facilities under operating lease agreements that expire through fiscal 2022. The Company leases certain equipment under operating lease agreements that expire through fiscal 2007.
In September 2002, the Company completed a sale/leaseback transaction of its headquarters and manufacturing facility located in Bedford, Massachusetts and its manufacturing facility in Danbury, Connecticut. The transaction resulted in net proceeds
Hologic, Inc.
Notes to Consolidated Financial Statements (continued)
(In thousands, except per share data)
9. COMMITMENTS (CONTINUED)
to the Company of $31.4 million. The new lease for these facilities, including the associated land, has a term of 20 years, with four five-year renewal terms, which the Company may exercise at its option. The basic rent for the facilities is $3.2 million per year, which is subject to adjustment for increases in the consumer price index. In addition, the Company is required to maintain the facilities during the term of the lease and to pay all taxes, insurance, utilities and other costs associated with those facilities. Of the $31.4 million in net proceeds received from this transaction, the Company used $26.3 million to immediately repay the Trex Medical $25.0 million note payable plus accrued interest of $1.3 million. Under the lease, the Company makes customary representations and warranties and agrees to certain financial covenants and indemnities. In the event the Company defaults on the lease, the landlord may terminate the lease, accelerate payments and collect liquidated damages. As of the end of fiscal 2002, the Company was not in default of any covenants contained in the lease.
Future minimum lease payments under all the Company's operating leases are approximately as follows:
FISCAL YEARS ENDING AMOUNT
------------------------------------------------------------ ----------
September 27, 2003 $ 5,143
September 25, 2004 4,286
September 24, 2005 4,226
September 30, 2006 3,481
September 25, 2007 3,170
Thereafter 47,076
----------
$ 67,382
==========
|
Rental expense, net of sublease income, was approximately $2,462, $2,479 and $724 for fiscal 2002, 2001 and 2000, respectively.
10. FEE PER SCAN PROGRAM
The Company had a fee per scan program with a leasing company whereby the Company sold its systems to the leasing company, which, in turn, leased the systems to third parties. Under the terms of the agreement, the Company was contingently liable for a certain amount per system, up to a maximum of the greater of (i) the sale price of four systems or (ii) 10% of the aggregate value of systems sold under the program. The Company recorded the amount for which it was contingently liable as deferred revenue.
Hologic, Inc.
Notes to Consolidated Financial Statements (continued)
(In thousands, except per share data)
10. FEE PER SCAN PROGRAM (CONTINUED)
During fiscal 1999, the Company and the leasing company commenced claims against each other regarding this program and in fiscal 2001 such claims were settled (see Note 13).
11. BUSINESS SEGMENTS AND GEOGRAPHIC INFORMATION
The Company reports segment information in accordance with SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information. Operating segments are identified as components of an enterprise about which separate, discrete financial information is available for evaluation by the chief operating decision maker, or decision making group, in making decisions how to allocate resources and assess performance. The Company's chief decision-maker, as defined under SFAS No. 131, is the chief executive officer. To date, the Company has viewed its operations and manages its business as five principal operating segments: the manufacture and sale of Osteoporosis Assessment products, Mammography products, Digital Imaging products, Mini-C Arm Imaging products and General Radiography products. Intersegment sales and transfers are not significant.
The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company evaluates performance based on revenues and operating income (loss). Segment information for fiscal years ended 2002, 2001 and 2000 is as follows:
YEARS ENDED
SEPTEMBER 28, SEPTEMBER 29, SEPTEMBER 30,
2002 2001 2000
------------- -------------- -------------
Total revenues:
Osteoporosis Assessment $ 63,544 $ 66,155 $ 66,853
Mammography 75,039 59,943 2,921
Digital Imaging 23,660 11,780 7,864
Mini C-Arm Imaging 17,030 14,728 14,498
General radiography 10,919 27,590 2,201
------------- ------------- -------------
$ 190,192 $ 180,196 $ 94,337
============= ============= =============
|
Hologic, Inc.
Notes to Consolidated Financial Statements (continued)
(In thousands, except per share data)
11. BUSINESS SEGMENTS AND GEOGRAPHIC INFORMATION (CONTINUED)
YEARS ENDED
SEPTEMBER 28, SEPTEMBER 29, SEPTEMBER 30,
2002 2001 2000
-------------- -------------- --------------
Operating income (loss):
Osteoporosis Assessment $ 6,450 $ 7,357 $ 88
Mammography 4,174 909 (10,245)
Digital Imaging (10,271) (21,252) (20,327)
Mini C-Arm Imaging 3,509 683 163
General radiography (1,705) (6,503) (2,038)
-------------- -------------- --------------
$ 2,157 $ (18,806) $ (32,359)
============== ============== ==============
Net income (loss):
Osteoporosis Assessment $ 7,079 $ 8,157 $ 2,472
Mammography 1,508 (2,066) (6,541)
Digital Imaging (10,234) (21,374) (13,290)
Mini C-Arm Imaging 3,509 972 57
General radiography (1,683) (6,539) (1,317)
-------------- -------------- --------------
$ 179 $ (20,850) $ (18,619)
============== ============== ==============
Identifiable assets:
Osteoporosis Assessment $ 138,469 $ 117,796 $ 110,425
Mammography 49,726 50,811 61,016
Digital Imaging (3,868) 1,108 10,038
Mini C-Arm Imaging (47) 15,402 17,539
General radiography (5) 10,002 20,637
-------------- -------------- --------------
$ 184,275 $ 195,119 $ 219,655
============== ============== ==============
Depreciation and amortization:
Osteoporosis Assessment $ 3,229 $ 3,422 $ 2,959
Mammography 1,795 3,143 143
Digital Imaging 2,376 1,499 1,085
Mini C-Arm Imaging 76 173 233
General radiography - 498 -
-------------- -------------- --------------
$ 7,476 $ 8,735 $ 4,420
============== ============== ==============
|
Hologic, Inc.
Notes to Consolidated Financial Statements (continued)
(In thousands, except per share data)
11. BUSINESS SEGMENTS AND GEOGRAPHIC INFORMATION (CONTINUED)
YEARS ENDED
SEPTEMBER 28, SEPTEMBER 29, SEPTEMBER 30,
2002 2001 2000
-------------- -------------- --------------
Capital expenditures, net:
Osteoporosis Assessment $ 3,121 $ 1,279 $ 2,890
Mammography 1,550 1,168 20
Digital Imaging 1,467 1,744 2,593
Mini C-Arm Imaging - 162 318
General radiography - (23) -
-------------- -------------- --------------
$ 6,138 $ 4,330 $ 5,821
============== ============== ==============
|
Export sales from the United States to unaffiliated customers, primarily in Europe, Asia and Latin America during fiscal 2002, 2001 and 2000 totaled approximately $29,405, $38,177 and $25,334, respectively.
Transfers between the Company and its European subsidiaries generally are recorded at amounts similar to the prices paid by unaffiliated foreign dealers. All intercompany profit is eliminated in consolidation.
Export product sales, including sales to European subsidiaries, as a percentage of total product sales are as follows:
SEPTEMBER 28, SEPTEMBER 29, SEPTEMBER 30,
2002 2001 2000
------------- ------------- -------------
Europe 9% 14% 21%
Asia 8 8 7
All others 3 6 5
------------- ------------- -------------
20% 28% 33%
============= ============= =============
|
Hologic, Inc.
Notes to Consolidated Financial Statements (continued)
(In thousands, except per share data)
12. ACCRUED EXPENSES
Accrued expenses consist of the following:
SEPTEMBER 28 SEPTEMBER 29,
2002 2001
------------ -------------
Accrued payroll and employee benefits $ 4,282 $ 4,757
Accrued commissions 3,756 3,521
Accrued income taxes 1,481 176
Accrued warranty 4,952 6,480
Accrued tradeshow 81 980
Accrued acquisition reserve 907 1,708
Accrued restructuring 107 784
Accrued professional fees 732 830
Other accrued expenses 2,637 6,271
------------ -------------
$ 18,935 $ 25,507
============ =============
|
13. LITIGATION
On August 9, 2001, the Company and Fleet Business Credit, LLC (Fleet) reached an agreement to settle the litigation between the parties. Under the terms of the $3,050 settlement, Hologic made a cash payment of $1,500 and issued a note payable to Fleet for $1,550 payable in full on August 10, 2004 and bearing interest at a rate of prime (4.75% at September 28, 2002) plus 1%. As of September 28, 2002, there was approximately $842 outstanding on this note.
Under the terms of the Master Product Financing Agreement, the Company was contingently liable for a certain amount per system sold under the agreement. The Company recorded the amount for which it was contingently liable as deferred revenue. As a result of the settlement, the Company recognized the amount deferred in excess of the settlement totaling $2,147 as revenue in the third quarter of 2001. In addition, the Company reversed $500 of related warranty reserves that were no longer necessary through a reduction of cost of product sales during the same period.
In connection with the acquisition of the U.S. assets of Trex Medical, the Company assumed the liability for a lawsuit filed by Fischer Imaging against Trex Medical alleging that the Lorad prone biopsy system infringes upon two Fischer Imaging patents, subject to indemnification from Trex Medical and its parent, Thermo Electron Corporation, for any damages and related costs, including attorneys' fees, up to the adjusted purchase price
Hologic, Inc.
Notes to Consolidated Financial Statements (continued)
(In thousands, except per share data)
13. LITIGATION (CONTINUED)
for the Trex Medical assets. In June 2002, Trex Medical and Fischer Imaging reached a settlement in this lawsuit. Under the settlement, Fischer Imaging has dismissed all actions against the Company, the Company retains the right to continue to sell this product, and the Company is not required to pay any damages or ongoing royalties.
In the ordinary course of business, the Company is party to various types of litigation. The Company believes it has meritorious defenses to all claims, and, in its opinion, all litigation currently pending or threatened will not reasonably be likely to have a material effect on the Company's financial condition or results of operations.
14. RESTRUCTURING AND NONRECURRING CHARGES
In fiscal 2001, the Company incurred a restructuring charge of $1,018 in accordance with Emerging Issues Task Force Issue (EITF) 94-3 and SEC Staff Accounting Bulletin 100 (SAB 100). The restructuring charge included severance-related costs associated with workforce reductions of approximately 102 persons across all functional areas. In addition, the Company recorded $500 of moving and other costs incurred to move the Fluoroscan operations to the corporate headquarters from Northbrook, Illinois.
During the first quarter of fiscal 2002, the Company announced the finalization of an exit strategy for the Hologic Systems Division. As part of this exit strategy, the Company closed its conventional general radiography manufacturing facility in Littleton, Massachusetts, and relocated certain of its product lines and sales and support personnel to the corporate headquarters in Bedford, Massachusetts. The Company accrued costs of approximately $3,500 related to the closing as part of the final Trex Medical purchase price allocation in the fourth quarter of fiscal 2001. These costs included amounts for lease abandonment, as well as for the write-off of certain fixed assets and accounts receivable. The Company commenced the closure for the Littleton manufacturing facility in the first quarter of fiscal 2002 and completed the closure in January 2002. The Company also incurred a restructuring charge of approximately $806 in the first quarter of fiscal 2002 that primarily comprised severance costs related to the termination of 80 employees at the Littleton facility. In addition, the Company incurred severance costs of approximately $561 and $208 in the first quarter of 2002 in connection with the closure of the Company's direct sales and service office in Paris, France and the continued reduction of Lorad's workforce, respectively. The severance charges related to the workforce reductions of five persons in France and 20 persons at Lorad and were across all functional areas.
Hologic, Inc.
Notes to Consolidated Financial Statements (continued)
(In thousands, except per share data)
14. RESTRUCTURING AND NONRECURRING CHARGES (CONTINUED)
In the second quarter of fiscal 2002, the Company incurred additional severance costs of approximately $495 that primarily comprised severance costs in connection with the reduction of the Company's workforce in the United States and Europe by 13 persons across all functional areas.
The following table summarizes the restructuring activity for the year ended September 28, 2002:
BALANCE AT CHARGED TO BALANCE AT
SEPTEMBER 29, COSTS AND SEPTEMBER 28,
2001 EXPENSES PAYMENTS 2002
------------- ---------- ----------- ---------------
$784 $2,070 $(2,747) $107
|
15. QUARTERLY STATEMENT OF OPERATIONS INFORMATION (UNAUDITED)
The following table presents a summary of quarterly results of operations for 2002, 2001 and 2000:
2002
---------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------------ ------------ ------------ ------------
Total revenue $ 47,585 $ 46,401 $ 48,008 $ 48,198
Gross profit 17,669 18,028 18,148 17,971
Net (loss) income (1,573) 4,426 492 (3,166)
Diluted net income (loss) per common and
common equivalent share (0.10) 0.22 0.02 (0.16)
2001
---------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------------ ------------ ------------ ------------
Total revenue $ 44,978 $ 44,090 $ 45,380 $ 45,748
Gross profit 13,271 14,469 18,648 15,926
Net loss (6,765) (7,945) (1,213) (4,927)
Diluted net loss per common and
common equivalent share (0.44) (0.51) (0.08) (0.32)
|
Hologic, Inc.
Notes to Consolidated Financial Statements (continued)
(In thousands, except per share data)
15. QUARTERLY STATEMENT OF OPERATIONS INFORMATION (UNAUDITED)(CONTINUED)
2000
---------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------------ ------------ ------------ ------------
Total revenue $ 21,443 $ 23,359 $ 22,254 $ 27,281
Gross profit 8,263 9,728 8,108 4,043
Net loss (2,870) (2,184) (2,643) (10,922)
Diluted net loss per common and common
equivalent share (0.19) (0.14) (0.17) (0.72)
|
The significant increase in the reported net loss in the fourth quarter of fiscal 2000 is directly attributable to the charges related to the Trex Medical acquisition discussed in Note 3.
The significant decrease in the net loss in the third quarter of fiscal 2001 is directly attributable to the settlement of the litigation with Fleet discussed in Note 13 and the arbitration settlement related to the Trex Medical acquisition discussed in Note 3.
The significant increase in net income in the second quarter of fiscal 2002 is directly attributable to $4,500 tax benefit as a result of the signing of the Ecomonic Stimulus Bill.
The significant decrease in net income in the fourth quarter of fiscal 2002 is directly attributable to the $3,900 tax provision recorded to reduce our net deferred tax asset to $3,600.
Hologic, Inc.
Notes to Consolidated Financial Statements (continued)
(In thousands, except per share data)
16. VALUATION AND QUALIFYING ACCOUNTS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING OF COSTS AND ACQUIRED WRITE-OFFS/ END OF
PERIOD EXPENSES RESERVES PAYMENTS PERIOD
------------ ---------- -------- ----------- ----------
Allowance for Uncollectible Amounts
Period Ended:
September 28, 2002 $ 4,668 $ 742 $ - $ (845) $ 4,565
September 29, 2001 7,923 1,021 (1,702) (2,574) 4,668
September 30, 2000 3,480 1,965 3,226 (748) 7,923
Accrued Acquisition Reserve
Period Ended:
September 28, 2002 $ 1,708 $ - $ - $ (801) $ 907
September 29, 2001 2,000 (1,708) 1,416 - 1,708
September 30, 2000 - 2,000 - - 2,000
Allowance for Sales Returns
Period Ended:
September 28, 2002 $ 255 $ - $ - $ (127) $ 128
September 29, 2001 537 50 - (332) 255
September 30, 2000 - 252 285 - 537
Restructuring Accrual
September 28, 2002 $ 784 $ 2,070 $ - $ (2,747) $ 107
September 29, 2001 - 1,018 - (234) 784
September 30, 2000 - - - - -
|
EXHIBIT 10.24
BILL OF SALE
HOLOGIC, INC.,
a Delaware corporation
to
BONE (DE) QRS 15-12, INC.,
a Delaware corporation
KNOW ALL MEN BY THESE PRESENTS, that HOLOGIC, INC., a Delaware corporation ("Seller"), for and in consideration of Ten Dollars ($10.00) and other good and valuable consideration, to it in hand paid by BONE (DE) QRS 15-12, INC., a Delaware corporation ("Purchaser"), at or before the sealing and delivery of these presents, the receipt and sufficiency of which is hereby acknowledged, has granted, bargained, sold, transferred and delivered, and by these presents does grant, bargain, sell, transfer and deliver unto Purchaser all and singular the following described machinery and equipment owned by Seller and located on that certain property situated in Bedford, Massachusetts as described on Exhibit A-1 attached hereto and made a part hereof and that certain property situated in Danbury, Connecticut as described on Exhibit A-2 attached hereto and made a part hereof (collectively, the "Premises"), to wit:
The machinery and equipment listed and described on Exhibit B attached hereto and made a part hereof (the "Machinery and Equipment").
TO HAVE AND TO HOLD the Machinery and Equipment unto Purchaser, its successors and assigns, to and for its own proper use and benefit forever.
AND Seller for itself and for its successors and assigns, does hereby covenant with Purchaser, its successors and assigns, that it is the true and lawful owner of the Machinery and Equipment hereby sold, and has full power to sell and convey the same; that the title so conveyed is clear, free and unencumbered; and further that it does warrant and will forever defend the same against the claim or claims of all persons whomsoever claiming or to claim the same or any part thereof.
IN WITNESS WHEREOF, Seller has caused its corporate name to be hereunto subscribed and its corporate seal to be hereunto affixed, this 28th day of August, 2002.
ATTEST: HOLOGIC, INC.
By: /s/ Colleen P. Hussey By: /s/ Glenn P. Muir
------------------------- -------------------------------------------
Title: Title: Treasurer and Executive Vice President,
---------------------- Finance and Administration
---------------------------------------
|
EXHIBIT A-1
PROPERTY DESCRIPTION - BEDFORD, MASSACHUSETTS
That certain parcel of land situated in Bedford in the County of Middlesex, Commonwealth of Massachusetts being shown as Lot 12 on a plan of land entitled "Plan of Land in Bedford, Mass. (Middlesex County), Being a Subdivision of Lot 5 on Land Court Plan Number 34759C, Prepared for: Hologic, Inc., Scale 1" = 100'" by the BSC Group, Inc. dated July 26, 2002, and containing approximately 152,128 square feet as shown on said plan. Said parcel of land is shown as Lot 12 on Land Court Plan Number 34759F.
EXHIBIT A-2
PROPERTY DESCRIPTION - DANBURY, CONNECTICUT
Parcel 1
A certain piece or parcel of land, with the buildings and improvements thereon, located in the Town of Danbury, County of Fairfield and State of Connecticut, more particularly bounded and described as follows:
Beginning at a point on the easterly highway line of Ye Old Road at the northwesterly corner of the herein described parcel, thence running in an easterly, southerly and easterly direction along the southerly boundary line of land now or formerly of Seymour R. Powers, Trustee, et als (Parcel "Br") the following courses and distances.
----------------------------- N 70 DEG. 54' 11" E 320.000' ----------------------------- S 19 DEG. 05' 49" E 69.445' ----------------------------- N 72 DEG. 28' 55" E 93.118' ----------------------------- |
to a point on the westerly highway line of Apple Ridge Road (property of Seymour R. Powers, Trustee, et als) and the northeasterly corner of the herein described parcel, thence running along said westerly highway line the following courses and distances:
thence along a curve to the left with a central angle of 87 DEG. 00' 19", a radius of 365.00' and an arc length of 554.263' to a point, thence turning and running in a southerly direction along land of Seymour R. Powers, Trustee, et als on a course bearing S 17 DEG. 05' 23" E a distance of 91.332' to a point on the northerly boundary line of land now or formerly of Mary A. Farwell, thence turning and running along the northerly and westerly boundary lines of said Mary A. Farwell the following courses and distances:
----------------------------- S 49 DEG. 44' 28" W 611.97' ----------------------------- S 30 DEG. 30' 08" E 135.00' ----------------------------- |
to a point on the northerly highway line of Ye Old Road, thence turning and running along the northerly and easterly highway lines of said Ye Old Road (an unimproved highway) the following courses and distances:
----------------------------- S 57 DEG. 15' 16" W 170.10' ----------------------------- S 50 DEG. 48' 11" W 37.62' ----------------------------- |
----------------------------- S 52 DEG. 15' 10" W 78.01' ----------------------------- N 11 DEG. 49' 23" W 36.98' ----------------------------- N 13 DEG. 35' 48" W 109.08' ----------------------------- N 16 DEG. 35' 03" W 201.38' ----------------------------- N 15 DEG. 44' 38" W 264.38' ----------------------------- N 16 DEG. 19' 21" W 186.64' ----------------------------- N 23 DEG. 48' 32" W 32.66' ----------------------------- N 16 DEG. 56' 54" W 234.849' ----------------------------- |
to the point of place of beginning. Said parcel contains 10.973 Acres and is more particularly shown and described on a map entitled "ALTA/ACSM Land Title Survey, Plan of Land in City of Danbury, Connecticut, Prepared for Hologic, Inc.", Dated August 7, 2002 Prepared by the BSC Group, Inc., Rohan Freeman, L.S. 70046.
Together with the perpetual right to pass and repass over, through, under and across the entire length and width of a certain roadway shown and designated as Apple Ridge Road on the above referenced map, for the purpose of egress and ingress and for the purpose of obtaining water, gas electric and telephone service and other utilities, and for the purpose of installing thereon and thereunder all improvements, equipment and appurtenances required for such services and for such ingress and egress, to the above described premises from the public highway known as Kenosia Avenue.
Together with a perpetual drainage and sewer easement as set forth in a deed from Seymour R. Powers to Seymour R. Powers, Trustee dated September 5, 1989 and recorded September 17, 1989 in Volume 931, Page 1002 of the Danbury Land Records. Said easement was partially released by instrument dated May 8, 1996 and recorded in Book 1147, Page 1142 of the Danbury Land Records.
Together with the right to use, pass and repass for all purposes on, over, across and under the roadway known as Ye Old Road, Danbury, Connecticut.
Together with and subject to the provisions of a Road Maintenance Agreement with Thermotrex Corporation dated as of March 31, 1993 and recorded in Book 1045, Page 238 of the Danbury Land Records.
Together with a scenic view easement as set forth in (i) a warranty deed from Seymour R. Powers to Thermotrex Corporation dated March 26, 1993 and recorded April 1, 1993 in Book 1043, Page 819 of the Danbury Land Records; (ii) a warranty deed from Melvyn J. Powers to Thermotrex Corporation dated March 30, 1993 and recorded April 1, 1993 in Book 1043, Page 826 of the Danbury Land Records; (iii) a trustee's deed from Melvyn J. Powers and Union Trust Company, as trustees for Gary S. Kepniss, to Thermotrex Corporation dated March 30, 1993 and recorded April 1, 1993 in Book 1043, Page 833 of the Danbury Land Records; (iv) a
warranty deed from Alice Powers to Thermotrex Corporation dated March 26, 1993
and recorded April 1, 1993 in Book 1043, Page 812 of the Danbury Land Records;
(v) a trustee's deed from Seymour R. Powers, as trustee of the Seymour R. Powers
Revocable Trust Agreement, to Thermotrex Corporation dated March 26, 1993 and
recorded April 1, 1993 in Book 1043, Page 839 of the Danbury Land Records; and
(vi) a quitclaim deed from Pow-Dan II Corporation to Thermotrex Corporation
dated March 30, 1993 and recorded in Book 1043, Page 844 of the Danbury Land
Records.
Parcel 2
A certain piece or parcel of land, with any buildings and improvements thereon, located in the Town of Danbury, County of Fairfield and State of Connecticut, which parcel contains 0.434 Acres more particularly shown and described on map No. 10206 of the Danbury Land Records and is more particularly bounded and described as follows:
Beginning at a point on the easterly highway line of Ye Old Road at the southeasterly corner of the herein described parcel, thence running west S 78 DEG. 10'37" W a distance of 17.50' to a point;
Thence running N 13 DEG. 58'10" W a distance of 144.99' to a point;
Thence running N 15 DEG. 22'00" W a distance of 57.18' to a point;
Thence running N 15 DEG. 37'24" W a distance of 144.37' to a point;
Thence running N 15 DEG. 0l'25" W a distance of 75.46' to a point;
Thence running N 16 DEG. 49'37' W a distance of 152.31' to a point;
Thence running N 16 DEG. 28'35" W a distance of 222.57' to a point;
Thence running N l9 DEG. 57'59" W a distance of 35.75' to a point;
Thence running N 17 DEG. 28'32" W a distance of 231.51' to a point; the last eight courses running along land now or formerly of Wooster School Corp;
Thence running N 73 DEG. 03'06" E a distance of 18.95' to a point; which point marks the northeasterly corner of the herein described parcel;
Thence running S 16 DEG. 56'54" E a distance of 234.849' to a point;
Thence running S 23 DEG. 48'32" E a distance of 32.66' to a point;
Thence running S 16 DEG. 19'21" E a distance of 186.64' to a point;
Thence running S 15 DEG. 44'38" E a distance of 264.38' to a point;
Thence running S 16 DEG. 35'03" E a distance of 201.38' to a point;
Thence running S 13 DEG. 35'48" E a distance of 109.08 to a point;
Thence running S 11 DEG. 49'23" E a distance of 36.98' to the point and place of beginning; which last six courses are along Parcel 1 described herein.
EXHIBIT B
MACHINERY AND EQUIPMENT
All fixtures, machinery, apparatus, equipment, fittings and appliances of every kind and nature whatsoever now or hereafter affixed or attached to or installed in any of the Premises (except as hereafter provided), including all electrical, anti-pollution, heating, lighting (including hanging fluorescent lighting), incinerating, power, air cooling, air conditioning, humidification, sprinkling, plumbing, lifting, cleaning, fire prevention, fire extinguishing and ventilating systems, devices and machinery and all engines, pipes, pumps, tanks (including exchange tanks and fuel storage tanks), motors, conduits, ducts, steam circulation coils, blowers, steam lines, compressors, oil burners, boilers, doors, windows, loading platforms, lavatory facilities, stairwells, fencing (including cyclone fencing), passenger and freight elevators, overhead cranes and garage units, together with all additions thereto, substitutions therefor and replacements thereof required or permitted by that certain Lease Agreement of even date hereof between Purchaser, as landlord, and Seller, as tenant, but excluding all trade fixtures and all personal property, including without limitation all machinery, office, manufacturing and warehouse equipment and furniture used in connection with the operation of Seller's business and which are not necessary to the operation of the buildings which constitute part of the Premises.
EXHIBIT 10.25
SPECIAL WARRANTY DEED
TO ALL PEOPLE TO WHOM THESE PRESENTS SHALL COME, GREETING:
KNOW YE, That HOLOGIC, INC., a Delaware corporation with an office at 35 Crosby Drive, Bedford, Massachusetts ("Grantor"), for good and valuable consideration received to Grantor's full satisfaction does give, grant, bargain, sell and confirm unto the said BONE (DE) QRS 15-12, Inc., a Delaware corporation with an address c/o W.P. Carey & Co., LLC, 50 Rockefeller Plaza, Second Floor, New York, New York 10020 ("Grantee"), and to the Grantee's successors, and assigns forever all of its right, title, interest, claim and demand whatsoever in the premises bounded and described in Exhibit A attached hereto and made a part hereof ("Premises").
TO HAVE AND TO HOLD the above-granted and bargained Premises, with the appurtenances thereof unto the said Grantee, its successors and assigns forever, to Grantee and its own proper use and behoof.
AND ALSO, the said Grantor does for his heirs, executors, administrators, successors and assigns covenant with the said Grantee, its successors and assigns, that at and until the ensealing of these presents Grantor is well seised of the Premises, has a good indefeasible estate in fee simple; and has good right to bargain and sell the same in manner and form as is above written; and that the same is free from all encumbrances created by or through Grantor only (and none other), subject to and with the benefit of all restrictions, easements, covenants, conditions, agreements and other appurtenant rights of record.
AND FURTHERMORE, the said Grantor does by these presents bind himself and his heirs, successors and assigns forever to warrant and defend the above granted and bargained Premises to the said Grantee, its successors and assigns, against defects, liens and encumbrances created by or through Grantor only (and none other), except as hereinbefore mentioned.
IN WITNESS WHEREOF, Grantor has caused these presents to be signed by its corporate officer and its corporate seal to be hereto affixed this 28th day of August, 2002.
Signed, sealed and delivered in
the presence of or attested by: HOLOGIC, INC., a Delaware corporation
/s/ Stephen P. Campbell By: /s/ Glenn P. Muir
------------------------------- -----------------------------------
Name: Glenn P. Muir
Title: Treasurer and Executive Vice
President, Finance and
Administration
/s/ Carl E. Axelrod
-------------------------------
|
COMMONWEALTH OF MASSACHUSETTS )
) ss.
COUNTY OF SUFFOLK )
|
Before me, the undersigned, this 26th day of August, 2002, personally appeared Glenn P. Muir, known to me to be the Treasurer and Executive Vice President - Finance and Administration of Hologic, Inc., and that he as such officer, signer and sealer of the foregoing instrument, acknowledged the execution of the same to be his free act and deed as such officer, and the free act and deed of said Hologic, Inc.
In Witness Whereof, I hereunto set my hand.
/s/ Colleen P. Hussey
-------------------------------------
Commissioner of the Superior Court
Notary Public
My Commission Expires: June 14, 2007
|
EXHIBIT A
Legal Description of Premises
PARCEL 1
A certain piece or parcel of land, with the buildings and improvements thereon, located in the Town of Danbury, County of Fairfield and State of Connecticut, more particularly bounded and described as follows:
Beginning at a point on the easterly highway line of Ye Old Road at the northwesterly corner of the herein described parcel, thence running in an easterly, southerly and easterly direction along the southerly boundary line of land now or formerly of Seymour R. Powers, Trustee, et als (Parcel "Br") the following courses and distances.
N 70 DEG. 54'11" E 320.000' S 19 DEG. 05'49" E 69.445' N 72 DEG. 28'55" E 93.118' |
to a point on the westerly highway line of Apple Ridge Road (property of Seymour R. Powers, Trustee, et als) and the northeasterly corner of the herein described parcel, thence running along said westerly highway line the following courses and distances:
S 20 DEG. 05'04" E 111.00'
thence along a curve to the left with a central angle of 87 DEG. 00'19", a radius of 365.00' and an arc length of 554.263' to a point, thence turning and running in a southerly direction along land of Seymour R. Powers, Trustee, et als on a course bearing S 17 DEG. 05'23" E a distance of 91.332' to a point on the northerly boundary line of land now or formerly of Mary A. Farwell, thence turning and running along the northerly and westerly boundary lines of said Mary A. Farwell the following courses and distances:
S 49 DEG. 44'28" W 611.97' S 30 DEG. 30'08" E 135.00'
to a point on the northerly highway line of Ye Old Road, thence turning and running along the northerly and easterly highway lines of said Ye Old Road (an unimproved highway) the following courses and distances:
S 57 DEG. 15'16" W 170.10' S 50 DEG. 48'11" W 37.62' S 52 DEG. 15'10" W 78.01' N 11 DEG. 49'23" W 36.98' N 13 DEG. 35'48" W 109.08' N 16 DEG. 35'03" W 201.38' N 15 DEG. 44'38" W 264.38' N 16 DEG. 19'21" W 186.64' |
N 23 DEG. 48'32" W 32.66' N 16 DEG. 56'54" W 234.849' |
to the point of place of beginning. Said parcel contains 10.973 Acres and is more particularly shown and described on a map entitled "ALTA/ACSM Land Title Survey, Plan of Land in City of Danbury, Connecticut, Prepared for Hologic, Inc.", Dated August 7, 2002 Prepared by the BSC Group, Inc., Rohan Freeman, L.S. 70046.
Together with the perpetual right to pass and repass over, through, under and across the entire length and width of a certain roadway shown and designated as Apple Ridge Road on the above referenced map, for the purpose of egress and ingress and for the purpose of obtaining water, gas electric and telephone service and other utilities, and for the purpose of installing thereon and thereunder all improvements, equipment and appurtenances required for such services and for such ingress and egress, to the above described premises from the public highway known as Kenosia Avenue.
Together with a perpetual drainage and sewer easement as set forth in a deed from Seymour R. Powers to Seymour R. Powers, Trustee dated September 5, 1989 and recorded September 17, 1989 in Volume 931, Page 1002 of the Danbury Land Records. Said easement was partially released by instrument dated May 8, 1996 and recorded in Book 1147, Page 1142 of the Danbury Land Records.
Together with the right to use, pass and repass for all purposes on, over, across and under the roadway known as Ye Old Road, Danbury, Connecticut.
Together with and subject to the provisions of a Road Maintenance Agreement with Thermotrex Corporation dated as of March 31, 1993 and recorded in Book 1045, Page 238 of the Danbury Land Records.
Together with a scenic view easement as set forth in (i) a warranty deed from
Seymour R. Powers to Thermotrex Corporation dated March 26, 1993 and recorded
April 1, 1993 in Book 1043, Page 819 of the Danbury Land Records; (ii) a
warranty deed from Melvyn J. Powers to Thermotrex Corporation dated March 30,
1993 and recorded April 1, 1993 in Book 1043, Page 826 of the Danbury Land
Records; (iii) a trustee's deed from Melvyn J. Powers and Union Trust Company,
as trustees for Gary S. Kepniss, to Thermotrex Corporation dated March 30, 1993
and recorded April 1, 1993 in Book 1043, Page 833 of the Danbury Land Records;
(iv) a warranty deed from Alice Powers to Thermotrex Corporation dated March 26,
1993 and recorded April 1, 1993 in Book 1043, Page 812 of the Danbury Land
Records; (v) a trustee's deed from Seymour R. Powers, as trustee of the Seymour
R. Powers Revocable Trust Agreement, to Thermotrex Corporation dated March 26,
1993 and recorded April 1, 1993 in Book 1043, Page 839 of the Danbury Land
Records; and (vi) a quitclaim deed from Pow-Dan II Corporation to Thermotrex
Corporation dated March 30, 1993 and recorded in Book 1043, Page 844 of the
Danbury Land Records.
PARCEL 2
A certain piece or parcel of land, with any buildings and improvements thereon, located in the Town of Danbury, County of Fairfield and State of Connecticut, which parcel contains 0.434 Acres more particularly shown and described on map No. 10206 of the Danbury Land Records and is more particularly bounded and described as follows:
Beginning at a point on the easterly highway line of Ye Old Road at the southeasterly corner of the herein described parcel, thence running west S 78 DEG. 10' 37" W a distance of 17.50' to a point;
Thence running N 13 DEG. 58'10" W a distance of 144.99' to a point;
Thence running N 15 DEG. 22'00" W a distance of 57.18' to a point;
Thence running N 15 DEG. 37'24" W a distance of 144.37' to a point;
Thence running N 15 DEG. 0l'25" W a distance of 75.46' to a point;
Thence running N 16 DEG. 49'37' W a distance of 152.31' to a point;
Thence running N 16 DEG. 28'35" W a distance of 222.57' to a point;
Thence running N l9 DEG. 57'59" W a distance of 35.75' to a point;
Thence running N 17 DEG. 28'32" W a distance of 231.51' to a point; the last eight courses running along land now or formerly of Wooster School Corp;
Thence running N 73 DEG. 03'06" E a distance of 18.95' to a point; which point marks the northeasterly corner of the herein described parcel;
Thence running S 16 DEG. 56'54" E a distance of 234.849' to a point;
Thence running S 23 DEG. 48'32" E a distance of 32.66' to a point;
Thence running S 16 DEG. 19'21" E a distance of 186.64' to a point;
Thence running S 15 DEG. 44'38" E a distance of 264.38' to a point;
Thence running S 16 DEG. 35'03" E a distance of 201.38' to a point;
Thence running S 13 DEG. 35'48" E a distance of 109.08 to a point;
Thence running S 11 DEG. 49'23" E a distance of 36.98' to the point and place of beginning; which last six courses are along Parcel 1 described herein.
EXHIBIT 10.26
QUITCLAIM DEED
Hologic, Inc., a Delaware corporation having a place of business at 35 Crosby Drive, Bedford, MA ("Grantor"), for consideration of Twenty Six Million Two Hundred Fifty Thousand and 00/100 Dollars ($26,250,000.00) paid, hereby grants to BONE (DE) QRS 15-12, Inc., a Delaware corporation having a place of business c/o W.P. Carey & Co., LLC, 50 Rockefeller Plaza, Second Floor, New York, New York 10020, with QUITCLAIM COVENANTS.
That certain parcel of land situated in Bedford in the County of Middlesex, Commonwealth of Massachusetts being shown as Lot 12 on a plan of land entitled "Plan of Land in Bedford, Mass. (Middlesex County), Being a Subdivision of Lot 5 on Land Court Plan Number 34759C, Prepared for: Hologic, Inc., Scale 1" = 100'" by the BSC Group, Inc. dated July 26, 2002, and containing approximately 903,621 square feet as shown on said plan. Said parcel of land is shown as Lot 12 on Land Court Plan Number 34759F.
The premises are conveyed subject to, and with the benefit of, all restrictions, easements, covenants, conditions, agreements, and other appurtenant rights of record insofar as the same may be now in force and applicable.
Being a portion of the premises conveyed to Grantor by deed dated July 27, 1998 filed with the Middlesex South Registry District of the Land Court as Document No. 1074531 and Transfer Certificate No. 212281.
This conveyance does not constitute a sale or transfer of all or substantially all of the assets of Grantor in Massachusetts.
Deed stamps in the amount of $119,700.00 are affixed to this deed.
IN WITNESS WHEREOF, said Hologic, Inc. has caused this instrument to be executed under seal, this 4th day of September, 2002.
Hologic, Inc.
By: /s/ Glenn P. Muir
------------------------------------
Name: Glenn P. Muir
Title: Treasurer and Executive Vice President, Finance and Administration
Hereunto duly authorized
|
COMMONWEALTH OF MASSACHUSETTS
Middlesex, ss September 4, 2002
Then personally appeared before me Glenn P. Muir, the Treasurer and Executive Vice President, Finance and Administration, of Hologic, Inc., who acknowledged that he executed the foregoing instrument as his free act and deed in such capacity and the free act and deed of Hologic, Inc.
/s/ Laureen E. McQuaid
--------------------------------
Notary Public Laureen E. McQuaid
My Commission Expires: 6/5/09
|
EXHIBIT 10.27
LEASE AGREEMENT
by and between
BONE (DE) QRS 15-12, INC.,
a Delaware corporation
as LANDLORD
and
HOLOGIC, INC.,
a Delaware corporation,
as TENANT
Premises: 35 Crosby Drive, Bedford, MA
36 Apple Ridge, Danbury, CT
Dated as of: August 28th, 2002
TABLE OF CONTENTS
PAGE
LEASE SUMMARY SHEET................................................. iii LEASE GRANT; TITLE; CONDITION AND NON-TERMINABILITY; SINGLE LEASE... 1 CERTAIN DEFINITIONS................................................. 3 EXTENSION TERMS; NOTICE OF LEASE.................................... 10 USE................................................................. 11 RENT................................................................ 11 IMPOSITIONS......................................................... 13 MAINTENANCE AND REPAIRS............................................. 14 ALTERATIONS......................................................... 15 ASSIGNMENT AND SUBLETTING........................................... 17 LEASEHOLD MORTGAGE.................................................. 21 ENCUMBRANCES BY LANDLORD............................................ 21 RIGHT OF FIRST OFFER................................................ 22 INTENTIONALLY DELETED............................................... 24 LIMITED RIGHT OF FIRST REFUSAL...................................... 24 INSURANCE........................................................... 25 INDEMNIFICATION..................................................... 29 CASUALTY; CONDEMNATION.............................................. 30 TERMINATION EVENTS.................................................. 31 RESTORATION......................................................... 32 PROCEDURES UPON PURCHASE............................................ 34 ACCESS TO THE PREMISES.............................................. 35 ENVIRONMENTAL MATTERS............................................... 36 SUBDIVISION OF BEDFORD PREMISES & POST CLOSING OBLIGATIONS.......... 37 EVENTS OF DEFAULT................................................... 38 REMEDIES AND DAMAGES UPON DEFAULT................................... 40 ESTOPPEL CERTIFICATES............................................... 43 LEGAL REQUIREMENTS.................................................. 43 SURRENDER; HOLD-OVER................................................ 44 |
TABLE OF CONTENTS
(continued)
PAGE
NO MERGER OF TITLE.................................................. 44
BOOKS AND RECORDS................................................... 45
SIGNAGE............................................................. 45
QUIET ENJOYMENT..................................................... 46
NOTICES............................................................. 46
FINANCIAL COVENANTS; SECURITY DEPOSIT............................... 46
NON-RECOURSE........................................................ 48
MISCELLANEOUS....................................................... 48
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EXHIBITS
Exhibit A Legal Description of Land
Exhibit B Description of Equipment
Exhibit C Permitted Encumbrances
Exhibit D Basic Rent Payments
Exhibit E Percentage Allocation of Basic Rent
Exhibit F Covenants
Exhibit G Termination Values
Exhibit H Form of Leasehold Mortgage Agreement
Exhibit 1 Legal Description
Exhibit 2 Equipment
Exhibit I Form Of Recognition Agreement
Exhibit J Plan Of 3-Acre Parcel
Exhibit K Tenant's Post-Closing Environmental Obligations
|
LEASE SUMMARY SHEET
Commencement Date: August 28, 2002
Tenant: Hologic, Inc., a Delaware corporation
35 Crosby Drive
Bedford, MA 01730
Landlord: BONE (DE) QRS 15-12, INC., a Delaware corporation
Bedford Premises: That certain parcel of land, consisting of
approximately 20.74 acres and more particularly
described on Exhibit A attached hereto and
incorporated herein (the "Bedford Land"),
together with all of the improvements now or
hereafter constructed on the Land, including,
without limitation, that certain building (the
"Bedford Building") containing approximately
207,000 square feet and commonly known as 35
Crosby Drive, Bedford, MA (the "Bedford
Improvements") and the fixtures, machinery,
equipment and other property described in
Exhibit B attached hereto and incorporated
herein (collectively, the "Bedford Equipment"),
and the appurtenances, rights, privileges and
easements benefiting, belonging or pertaining
thereto.
Danbury Premises: That certain parcel of land, consisting of
approximately 11.4 acres and more particularly
described on Exhibit A-2 attached hereto and
incorporated herein (the "Danbury Land"),
together with all of the improvements now or
hereafter constructed on the Danbury Land,
including, without limitation, that certain
building (the "Danbury Building") containing
approximately 62,042 square feet and commonly
known as 36 Apple Ridge Way, Danbury, CT (the
"Danbury Improvements") and the fixtures,
machinery, equipment and other property
described in Exhibit B attached hereto and
incorporated herein (collectively, the "Danbury
Equipment"), and the appurtenances, rights,
privileges and easements benefiting, belonging
or pertaining thereto.
Initial Term: Commencing on the Commencement Date and expiring
on the twentieth anniversary of the last day of
the month in which the Commencement Date occurs,
unless earlier terminated or extended as set
forth herein.
Extension Terms: Four (4) options to extend the Initial Term for
five (5) years each, as more particularly set
forth in Section 3 below.
Basic Rent: See Exhibit "D"
Right of First Offer: See Section 12.
Limited Right of First
Refusal: See Section 14.
|
LEASE AGREEMENT
This Lease ("Lease") dated as of the Commencement Date is hereby entered into by and between Landlord and Tenant.
Each reference in this Lease to any of the terms and titles contained in any Exhibit attached to this Lease shall be deemed and construed to incorporate the data stated under that term or title in such Exhibit. All capitalized terms not otherwise defined herein shall have the meanings ascribed to them as set forth in the Lease Summary Sheet which is attached hereto and incorporated herein by reference.
1. LEASE GRANT; TITLE; CONDITION AND NON-TERMINABILITY; SINGLE LEASE.
(a) Upon and subject to the terms, conditions, covenants and provisions hereof, Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord, the Premises for the Term.
(b) The Premises are leased subject to (i) applicable Legal Requirements (hereinafter defined), (ii) the existing state of title of the Premises, including any Permitted Encumbrances (hereinafter defined), (iii) any state of facts which an accurate survey or physical inspection of the Premises might show, (iv) rights of parties in possession and (v) the condition of the Premises as of the Commencement Date, without representation or warranty by Landlord.
(c) Tenant acknowledges that the Premises are in good condition and repair at the inception of this Lease. LANDLORD LEASES AND WILL LEASE AND TENANT TAKES AND WILL TAKE THE PREMISES AS IS. TENANT ACKNOWLEDGES THAT LANDLORD (WHETHER ACTING AS LANDLORD HEREUNDER OR IN ANY OTHER CAPACITY) HAS NOT MADE AND WILL NOT MAKE, NOR SHALL LANDLORD BE DEEMED TO HAVE MADE, ANY WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, WITH RESPECT TO ANY OF THE PREMISES, INCLUDING ANY WARRANTY OR REPRESENTATION AS TO (i) THEIR FITNESS, DESIGN OR CONDITION FOR ANY PARTICULAR USE OR PURPOSE, (ii) THE QUALITY OF THE MATERIAL OR WORKMANSHIP THEREIN, (iii) THE EXISTENCE OF ANY DEFECT, LATENT OR PATENT, (iv) LANDLORD'S TITLE THERETO, (v) VALUE, (vi) COMPLIANCE WITH SPECIFICATIONS, (vii) LOCATION, (viii) USE, (ix) CONDITION, (x) MERCHANTABILITY, (xi) QUALITY, (xii) DESCRIPTION, (xiii) DURABILITY, (xiv) OPERATION, (xv) THE EXISTENCE OF ANY HAZARDOUS SUBSTANCE, HAZARDOUS CONDITION OR HAZARDOUS ACTIVITY OR (xvi) COMPLIANCE OF THE PREMISES WITH ANY APPLICABLE LAW OR LEGAL REQUIREMENT; AND ALL RISKS INCIDENTAL THERETO ARE TO BE BORNE BY TENANT. TENANT ACKNOWLEDGES THAT THE PREMISES ARE OF ITS SELECTION AND TO ITS SPECIFICATIONS AND THAT THE PREMISES HAVE BEEN INSPECTED BY TENANT AND ARE SATISFACTORY TO IT. IN THE EVENT OF ANY DEFECT OR DEFICIENCY IN ANY OF THE PREMISES OF ANY NATURE, WHETHER LATENT OR PATENT, LANDLORD SHALL NOT HAVE ANY RESPONSIBILITY OR LIABILITY WITH RESPECT THERETO OR FOR ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES (INCLUDING STRICT
LIABILITY IN TORT). THE PROVISIONS OF THIS SECTION 1(c) HAVE BEEN NEGOTIATED, AND ARE INTENDED TO BE A COMPLETE EXCLUSION AND NEGATION OF ANY WARRANTIES BY LANDLORD, EXPRESS OR IMPLIED, WITH RESPECT TO ANY OF THE PREMISES, ARISING PURSUANT TO THE UNIFORM COMMERCIAL CODE OR ANY OTHER APPLICABLE LAW NOW OR HEREAFTER IN EFFECT OR ARISING OTHERWISE.
(d) Tenant represents to Landlord that Tenant has examined the title to the Premises prior to the execution and delivery of this Lease and has found the same to be satisfactory for the purposes contemplated hereby. Tenant acknowledges that (i) except as provided in Section 12 hereof with respect to a right of first offer, and Section 14 with respect to a limited right of first refusal, Tenant has only the leasehold right of possession and use of the Premises, as provided herein and (ii) all contractors and subcontractors who have performed work on or supplied materials to the Premises have been fully paid, and all materials and supplies have been fully paid for.
(e) This Lease and the rights of Landlord and the obligations of Tenant hereunder shall not be affected by any event or for any reason or cause whatsoever foreseen or unforeseen. The obligations of Tenant hereunder shall be separate and independent covenants and agreements, all Monetary Obligations (as hereinafter defined) shall continue to be payable in all events (or, in lieu thereof, Tenant shall pay amounts equal thereto), and the obligations of Tenant hereunder shall continue unaffected unless the requirement to pay or perform the same shall have been terminated or modified pursuant to an express provision of this Lease. All Rent payable by Tenant hereunder shall constitute "rent" for all purposes (including Section 502(b)(6) of the Federal Bankruptcy Code).
(f) Tenant, on behalf of itself and any trustee or legal representative (under the Federal Bankruptcy Code or any similar state insolvency proceeding) expressly acknowledges and agrees that, notwithstanding any provision in this Lease to the contrary, it is the express intent of Landlord and Tenant to create, and that this Lease constitutes, a single lease with respect to each and every parcel of Land, Improvements and Equipment included in the Premises (wherever located), and this Lease shall not be (or be deemed to be) divisible or severable into separate leases for any purpose whatsoever, and Tenant, on behalf of itself and any such trustee or legal representative, hereby waives any right to claim or assert a contrary position in any action or proceeding. Tenant further acknowledges and agrees that the allocation of Acquisition Cost and Basic Rent are included to provide a formula for Basic Rent adjustment and lease termination under certain circumstances and as an accommodation to Tenant. Any Event of Default hereunder in connection with either the Bedford Premises or the Danbury Premises shall be deemed to be an Event of Default with respect to the entire Premises (wherever located). The foregoing agreements and waivers by Tenant in this Paragraph 1(f) are made as a material inducement to Landlord to enter into the transaction contemplated by this Lease and that, but for the foregoing agreements and waivers by Tenant, Landlord would not consummate this Lease transaction.
2. CERTAIN DEFINITIONS.
"3-acre Parcel" shall mean that parcel containing approximately 3.4 acres and designated as Lot 13 on Land Court Plan No. 34759F on file with the Middlesex South Registry of Deeds, a copy of which is attached hereto as Exhibit "J".
"Acquisition Cost" shall mean $33,769,634, of which $27,486,911 is allocated to the Bedford Premises and $6,282,723 is allocated to the Danbury Premises.
"Additional Rent" shall mean Additional Rent as defined in
Section 5.
"Adjoining Property" shall mean all sidewalks, driveways, curbs, gores and vault spaces adjoining any of the Premises.
"Affiliate" shall mean with respect to a specified Person, another Person who is controlled by, in control of, or under common control with the Person specified, and for purposes of this definition, "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise.
"Alterations" shall mean all changes, additions or improvements to, all alterations, reconstructions or removals of and all substitutions or replacements for any of the Improvements or Equipment, both interior and exterior, structural and non-structural, and ordinary and extraordinary.
"Appurtenances" shall mean all tenements, hereditaments, easements, rights-of-way, rights, privileges in and to the Land, including (a) easements over other lands granted by any Easement Agreement and (b) any streets, ways, alleys, vaults, gores or strips of land adjoining the Land.
"Assignment" shall mean any assignment of rents and leases from Landlord to a Lender which (a) encumbers any of the Premises and (b) secures Landlord's obligation to repay a Loan, as the same may be amended, supplemented or modified from time to time.
"Basic Rent" shall mean, collectively, Basic Rent for the Bedford Premises and Basic Rent for the Danbury Premises as set forth in Exhibit "D".
"Basic Rent Payment Dates" shall mean the Basic Rent Payment Dates as defined in Section 5.
"Bedford Building" shall mean Bedford Building as defined in the Lease Summary Sheet.
"Bedford Premises" shall mean Bedford Premises as defined in the Lease Summary Sheet.
"Business day(s)" shall mean any day except Saturday, Sunday or days on which national banks in the Commonwealth of Massachusetts are closed for business.
"Casualty" shall mean any damage to or destruction of or which affects the Premises.
"Commencement Date" shall mean Commencement Date as defined in the Lease Summary Sheet.
"Competitor" shall mean a direct business competitor of Tenant in any area of Tenant's business which accounts for more than five percent (5%) of Tenant's gross revenue at the time.
"Condemnation" shall mean (a) any taking of all or a portion of any of the Premises (i) in or by condemnation or other eminent domain proceedings pursuant to any Law, general or special, or (ii) by reason of any agreement with any condemnor in settlement of or under threat of any such condemnation or other eminent domain proceeding, or (b) any de facto condemnation.
"Condemnation Notice" shall mean notice or knowledge of the institution of or intention to institute any proceeding for Condemnation.
"Costs" of a Person or associated with a specified transaction shall mean all reasonable costs and expenses incurred by such Person or associated with such transaction, including without limitation, attorneys' fees and expenses.
"Covenants" shall mean the covenants and agreements described on Exhibit "F".
"CPA 15" shall mean CPA 15 as defined in Paragraph 12(e).
"CPI Ratio" shall mean a fraction, the numerator of which is the CPI-U in effect as of the calendar month two (2) months before the applicable adjustment date, and the denominator of which is the CPI-U in effect as of the calendar month fourteen (14) months before the applicable adjustment date.
"CPI-U" shall mean the Consumer Price Index as published by the United States Department of Labor, Bureau of Labor Statistics for all Urban Consumers, Boston, Subgroup "all items" (1982-84=100).
"Danbury Building" shall mean Danbury Building as defined in the Lease Summary Sheet.
"Danbury Premises" shall mean Danbury Premises as defined in the Lease Summary Sheet.
"Default Rate" shall mean the Default Rate as defined in Section 5(c)(iv).
"Easement Agreement" shall mean any conditions, covenants, restrictions, easements, declarations, licenses and other agreements listed as Permitted Encumbrances or as may hereafter be agreed to in writing by Tenant.
"Environmental Law" shall mean (i) whenever enacted or promulgated, any applicable federal, state and local law, statute, ordinance, rule, regulation, license, permit, authorization, approval, consent, court order, judgment, decree, injunction, code, requirement or agreement with any governmental entity, (x) relating to pollution (or the cleanup thereof), or the protection of air, water vapor, surface water, groundwater, drinking water supply, land (including land surface or subsurface), plant, aquatic and animal life from injury caused by a Hazardous Substance, or (y) concerning exposure to, or the use, containment, storage, recycling, reclamation, reuse, treatment, generation, discharge, transportation, processing, handling, labeling, production, disposal or remediation of Hazardous Substances, Hazardous Conditions or Hazardous Activities, in each case as amended and as now or hereafter in effect, and (ii) any common law or equitable doctrine (including, without limitation, injunctive relief and tort doctrines such as negligence, nuisance, trespass and strict liability) that may impose liability or obligations or injuries or damages due to or threatened as a result of the presence of, exposure to, or ingestion of, any Hazardous Substance. The term Environmental Law includes, without limitation, the federal Comprehensive Environmental Response Compensation and Liability Act of 1980, the Superfund Amendments and Reauthorization Act, the federal Water Pollution Control Act, the federal Clean Air Act, the federal Clean Water Act, the federal Resources Conservation and Recovery Act of 1976 (including the Hazardous and Solid Waste Amendments to RCRA), the federal Solid Waste Disposal Act, the federal Toxic Substance Control Act, the federal Insecticide, Fungicide and Rodenticide Act, the federal Occupational Safety and Health Act of 1970, the federal National Environmental Policy Act and the federal Hazardous Materials Transportation Act, each as amended and as now or hereafter in effect and any similar state or local Law.
"Environmental Violation" shall mean (a) any direct or indirect discharge, disposal, spillage, emission, escape, pumping, pouring, injection, leaching, release, seepage, filtration or transporting of any Hazardous Substance at, upon, under, onto or within the Premises, or from the Premises to the environment, in violation of any Environmental Law or in excess of any reportable quantity established under any Environmental Law or which is reasonably likely to result in any liability to Landlord, Tenant or Lender, any Federal, state or local government or any other Person for the costs of any removal or remedial action or natural
resources damage or for bodily injury or property damage, (b) any deposit,
storage, dumping, placement or use of any Hazardous Substance at, upon, under or
within the Premises or which extends to any Adjoining Property in violation of
any Environmental Law or in excess of any reportable quantity established under
any Environmental Law or which is reasonably likely to result in any liability
to any Federal, state or local government or to any other Person for the costs
of any removal or remedial action or natural resources damage or for bodily
injury or property damage, (c) the abandonment or discarding of any barrels,
containers or other receptacles containing any Hazardous Substances at, upon,
under, onto, within or from the Premises in violation of any Environmental Laws,
(d) any activity, occurrence or condition which is reasonably likely to result
in any liability, cost or expense to Landlord or Lender or any other owner or
occupier of the Premises, or which is reasonably likely to result in a creation
of a lien on the Premises under any Environmental Law, or (e) any violation of
or noncompliance with any Environmental Law which, in any such case of
subsections (a) through (e) above, occurs, exists or arises prior to the
expiration or termination of this Lease.
"Equipment" shall mean, collectively, the Bedford Equipment and the Danbury Equipment.
"Event of Default" shall mean an Event of Default as defined in
Section 24.
"Expansions" shall mean any addition to the Bedford Building or the Danbury Premises which increases square footage and requires the reconstruction of any exterior wall.
"Extension Notice" shall mean Extension Notice as defined in
Section 3.
"Extension Term(s)" shall mean Extension Term as defined in the Lease Summary Sheet and Section 3.
"Fair Market Rental Value" shall mean the fair market rental value of the Premises for the relevant Extension Term determined in accordance with the procedure specified in Exhibit "D".
"Federal Funds" shall mean federal or other immediately available funds which at the time of payment are legal tender for the payment of public and private debts in the United States of America.
"GAAP" shall mean generally accepted accounting principles, consistently applied.
"Hazardous Activity" means any activity, process, procedure or undertaking which directly or indirectly (i) procures, generates or creates any Hazardous
Substance; (ii) causes or results in (or threatens to cause or result in) the release, seepage, spill, leak, flow, discharge or emission of any Hazardous Substance into the environment (including the air, ground water, watercourses or water systems); (iii) involves the containment or storage of any Hazardous Substance; or (iv) would cause the Premises or any portion thereof to become a hazardous waste treatment, recycling, reclamation, processing, storage or disposal facility within the meaning of any Environmental Law.
"Hazardous Condition" means any condition which would support any claim or liability under any Environmental Law, including the presence of underground storage tanks.
"Hazardous Substance" means (i) any substance, material, product, petroleum, petroleum product, derivative, compound or mixture, mineral (including asbestos), chemical, gas, medical waste, or other pollutant, in each case whether naturally occurring, man-made or the by-product of any process, that is toxic, harmful or hazardous or acutely hazardous to the environment or public health or safety or (ii) any substance supporting a claim under any Environmental Law, whether or not defined as hazardous as such under any Environmental Law. Hazardous Substances include, without limitation, any toxic or hazardous waste, pollutant, contaminant, industrial waste, petroleum or petroleum-derived substances or waste, radon, radioactive materials, asbestos, asbestos containing materials, urea formaldehyde foam insulation, lead and polychlorinated biphenyls.
"Impositions" shall mean the Impositions as defined in Section 6.
"Improvements" shall mean, collectively, the Bedford Improvements and the Danbury Improvements.
"Indemnitee" shall mean an Indemnitee as defined in Section 16.
"Initial Term" shall mean Initial Term as defined in the Lease Summary Sheet.
"Insurance Requirements" shall mean the requirements of all insurance policies required to be maintained in accordance with this Lease.
"Land" shall mean, collectively, the Bedford Land and the Danbury Land.
"Landlord's Non-Bifurcation Obligation" shall mean Landlord's obligation not to offer to sell to any Person only the Bedford Premises or only the Danbury Premises.
"Landlord Parties" shall mean Landlord, its agents and employees.
"Law" shall mean any constitution, statute, rule of law, code, ordinance, order, judgment, decree, injunction, rule, regulation, policy, requirement or administrative or
judicial determination, even if unforeseen or extraordinary, of every duly constituted governmental authority, court or agency, now or hereafter enacted or in effect.
"Lease" shall mean this Lease Agreement.
"Lease Summary Sheet" shall mean the Lease Summary Sheet attached hereto which is incorporated in this Lease and made a part hereof.
"Lease Year" shall mean, with respect to the first Lease Year, the period commencing on the Commencement Date and ending at midnight on the last day of the twelfth (12th) consecutive calendar month following the month in which the Commencement Date occurred, and each succeeding twelve (12) month period during the Term.
"Leasehold Mortgage" shall mean any first lien leasehold mortgage, deed of trust, pledge or similar security device covering all of Tenant's leasehold estate in the Premises.
"Leasehold Mortgagee" shall mean a national banking association, state chartered bank, savings and loan association, insurance company, savings bank, foreign bank authorized to do business in the United States, trust company, real estate investment trust or pension fund, each of which shall have net assets in excess of $500,000,000.
"Legal Requirements" shall mean the requirements of all present and future Laws (including but not limited to Environmental Laws and Laws relating to accessibility to, usability by, and discrimination against, disabled individuals) and all covenants, restrictions and conditions now or hereafter of record which may be applicable to Tenant or to any of the Premises, or to the use, manner of use, occupancy, possession, operation, maintenance, alteration, repair or restoration of any of the Premises, even if compliance therewith necessitates structural changes or improvements or results in interference with the use or enjoyment of any of the Premises or requires Tenant to carry insurance other than as required by this Lease.
"Lender" shall mean any person or entity (and its respective successors and assigns) which may, on or after the date hereof, make a Loan to Landlord or be the holder of a Note.
"Loan" shall mean any loan made by one or more Lenders to Landlord, which loan is secured by a Mortgage and an Assignment and evidenced by a Note.
"Monetary Obligations" shall mean Rent and all other sums payable by Tenant under this Lease to Landlord, to any third party on behalf of Landlord or to any Indemnitee.
"Mortgage" shall mean any mortgage or deed of trust from Landlord to a Lender which (a) encumbers all of the Premises and (b) secures Landlord's obligation to repay a Loan, as the same may be amended, supplemented or modified.
"Net Award" shall mean (a) the entire award payable to Landlord or Lender by reason of a Condemnation whether pursuant to a judgment or by agreement or otherwise, or (b) the entire proceeds of any insurance required under clauses (i), (ii) (to the extent payable to Landlord or Lender), (iv), (v) or (vi) of Section 15(a), as the case may be, less any reasonable expenses incurred by Landlord and Lender in collecting such award or proceeds.
"Note" shall mean any promissory note evidencing Landlord's obligation to repay a Loan, as the same may be amended, supplemented or modified.
"Permitted Encumbrances" shall mean those covenants, restrictions, reservations, liens, conditions and easements and other encumbrances, other than any Mortgage or Assignment, listed on Exhibit C hereto (but such listing shall not be deemed to revive any such encumbrances that have expired or terminated or are otherwise invalid or unenforceable).
"Person" shall mean an individual, partnership, association, corporation or other entity.
"Preapproved Assignee" shall mean Preapproved Assignee as defined in Section 9(a).
"Premises" shall mean, singly, either the Bedford Premises or the Danbury Premises and collectively, the Bedford Premises and the Danbury Premises, as the context shall require.
"Present Value" of any amount shall mean such amount discounted by seven percent (7%) per annum.
"Prime Rate" shall mean the annual interest rate as published, from time to time, in The Wall Street Journal as the "Prime Rate" in its column entitled "Money Rate". The Prime Rate may not be the lowest rate of interest charged by any "large U.S. money center commercial banks" and Landlord makes no representations or warranties to that effect. In the event The Wall Street Journal ceases publication or ceases to publish the "Prime Rate" as described above, the Prime Rate shall be the average per annum discount rate (the "Discount Rate") on ninety-one (91) day bills ("Treasury Bills") issued from time to time by the United States Treasury at its most recent auction, plus three hundred (300) basis points. If no such 91-day Treasury Bills are then being issued, the Discount Rate shall be the discount rate on Treasury Bills then being issued for the period of time closest to ninety-one (91) days.
"Relevant Date" shall mean the date immediately prior to the date on which the applicable Condemnation Notice is received, in the event of a Termination Notice under Section 18 which is occasioned by a Taking.
"Rent" shall mean, collectively, Basic Rent and Additional Rent.
"Site Assessment" shall mean a Site Assessment as defined in
Section 22.
"Surviving Obligations" shall mean any obligations of Tenant under this Lease, actual or contingent, which arise on or prior to the expiration or prior termination of this Lease or which survive such expiration or termination by their own terms.
"Term" shall mean, collectively, the Initial Term and the effective Extension Term(s).
"Termination Amount" shall mean the applicable amount set forth on Exhibit G, "Termination Values".
"Termination Date" shall mean Termination Date as defined in
Section 18.
"Termination Event" shall mean a Termination Event as defined in
Section 18.
"Termination Notice" shall mean Termination Notice as defined in
Section 18.
"Third Party Purchaser" shall mean Third Party Purchaser as defined in Paragraph 9(i).
3. EXTENSION TERMS; NOTICE OF LEASE.
(a) Provided no Event of Default has occurred as of the date of (i)
the applicable Extension Notice (hereinafter defined), and (ii) commencement of
the applicable Extension Term (hereinafter defined), Tenant shall have the right
(but not the obligation) to extend the Term for four (4) additional terms of
five (5) years each (each, an "Extension Term"), commencing as of the expiration
of the initial term of the Lease or the prior Extension Term, as the case may
be. If Tenant elects to exercise such option, Tenant shall give Landlord written
notice (the "Extension Notice") on or before the date that is one (1) year prior
to the expiration of the then-current term of the Lease. Upon the timely giving
of such notice, the Term shall be deemed extended upon all of the terms and
conditions of this Lease, except that Basic Rent during each Extension Term
shall be calculated in accordance with Section 5 below and Tenant shall have one
(1) fewer option to further extend the Term. If Tenant fails to give timely
notice,
as aforesaid, Tenant shall have no further right to extend the Term. Notwithstanding the fact that Tenant's proper and timely exercise of each option to extend the Term shall be self-executing, the parties shall promptly execute a lease amendment reflecting such Extension Term after Tenant exercises such option.
(b) Landlord and Tenant each agrees to join in the execution, in recordable form, of a statutory notice of lease in which shall be stated the Term, Tenant's right of first offer (as described in Section 12 below), Tenant's options to purchase (as described in Section 13 below), and limited right of first refusal (as described in Section 14 below) and other non-economic information typically contained in a notice of lease. Tenant shall have the right to file such notice of lease with the Middlesex South Registry District of the Land Court and the Danbury Land Records at Tenant's sole cost and expense.
4. USE.
(a) Subject to Legal Requirements, during the Term Tenant shall use the Premises for any or all of the current uses and any or all of the following purposes: office, assembly, laboratory, distribution, warehousing and light manufacturing and purposes related to the foregoing, and with Landlord's consent, which shall not be unreasonably withheld conditioned or delayed, any other lawful use, and no other purposes.
(b) Tenant shall not use the Premises or any part thereof, or suffer or permit the use or occupancy of the Premises or any part thereof by Tenant's agents, servants, employees, consultants, contractors, subcontractors, licensees and/or subtenants in any manner which would (i) violate any Law, Legal Requirement or Permitted Encumbrance; (ii) increase insurance rates on the Improvements or on property located therein over that applicable when Tenant first took occupancy of the Premises hereunder; or (iii) constitute a public or private nuisance or waste.
5. RENT.
(a) During the Term, Tenant shall pay to Landlord the Basic Rent and Additional Rent (as hereinafter defined). It is expressly understood and agreed by and between the parties that this lease is a net lease, and Rent shall be paid without notice or demand, and without setoff, counterclaim, defense, abatement, suspension, deferment, reduction or deduction, except as expressly provided herein.
(b) Basic Rent shall be paid in advance on the twenty-fifth day of each November, February, May and August during the Term (each such date, a "Basic Rent Payment Date"). Each such rental payment shall be made, at Landlord's sole discretion, (i) to Landlord in accordance with wire transfer instructions delivered to Tenant and/or to one other Person, in accordance with wire transfer instructions delivered to Tenant at such addresses and in such proportions as Landlord may direct by fifteen (15) days' prior written notice to Tenant (in which event Tenant shall give Landlord notice of each such payment concurrent with the making
thereof), and (ii) by wire transfer in Federal Funds no later than the applicable Basic Rent Payment Date. Any change of wire instructions shall be delivered to Tenant in written form not less than fifteen (15) days prior to the payment date for which such instructions are to be effective.
(c) Tenant shall pay and discharge, as additional rent (collectively, "Additional Rent"):
(i) except as otherwise specifically provided herein, all reasonable costs and expenses of Tenant, Landlord and any other Persons specifically referenced herein which are incurred in connection or associated with (A) the performance of any of Tenant's obligations under this Lease, (B) any sale or other transfer of any of the Premises to Tenant under Sections 12 or 18 of this Lease, (C) the exercise or enforcement by Landlord, its successors and assigns, of any of its rights under this Lease, (D) any amendment to or modification or termination of this Lease made at the request of Tenant, (E) reasonable Costs of Landlord's counsel incurred in connection with any act undertaken by Landlord (or its counsel) at the request of Tenant, (F) all costs and fees associated with the wire transfers of Rent payments, and (G) any other items specifically required to be paid by Tenant under this Lease;
(ii) after the date all or any portion of any installment of Basic Rent is due and not paid within three (3) business days after the applicable Basic Rent Payment Date, an amount (the "Late Charge") equal to three percent (3%) of the amount of such unpaid installment or portion thereof;
(iii) a sum equal to any additional sums (including any late charge, default penalties, interest and fees of Lender's counsel) which are payable by Landlord to any Lender under any Note by reason of Tenant's late payment or non-payment of Basic Rent or by reason of an Event of Default; and
(iv) interest at the rate (the "Default Rate") of three percent (3%) over the Prime Rate per annum on the following sums until paid in full: (A) all overdue installments of Basic Rent from the respective due dates thereof if not paid within three (3) business days after the due date therefor, (B) all overdue amounts of Additional Rent relating to obligations which Landlord shall have paid on behalf of Tenant pursuant to the terms of this Lease if not paid within three (3) business days after notice from Landlord, and (C) all other overdue amounts of Additional Rent if not paid within ten (10) days after the notice thereof, from the date when any such amount becomes overdue.
(d) Tenant shall pay and discharge (i) any Additional Rent referred to in Section 5(c) when the same shall become due, provided that amounts which are billed to Landlord or any third party, but not to Tenant, shall be paid within thirty (30) days after Landlord's demand for payment thereof, and (ii) any other Additional Rent, within thirty (30) days after Landlord's demand for payment thereof.
(e) In no event shall amounts payable under Section 5(c)(ii), (iii) and (iv) exceed the maximum amount permitted by applicable Law.
6. IMPOSITIONS.
(a) Tenant shall, before interest or penalties are due thereon, pay and discharge or cause the payment and discharge of all taxes (including real and personal property, franchise, sales, use, gross receipts and rent taxes), all charges for any Easement Agreement maintained for the benefit of any of the Premises, all assessments and levies, all permit, inspection and license fees, all rents and charges for water, sewer, utility and communication services relating to any of the Premises, all ground rents and all other public charges whether of a like or different nature, even if unforeseen or extraordinary, imposed upon or assessed against (i) Tenant, (ii) Tenant's leasehold interest in the Premises, (iii) any of the Premises, (iv) Landlord as a result of or arising in respect of the acquisition, ownership, occupancy, leasing, use, possession or sale of any of the Premises, any activity conducted on any of the Premises, or the Rent, or (v) the 3-acre Parcel, including any Easement Agreement in connection therewith, for so long as the Town of Bedford, Massachusetts does not recognize the 3-acre Parcel as a separate and distinct tax lot and does not issue a separate tax bill in connection therewith (collectively, the "Impositions"); provided, that nothing herein shall obligate Tenant to pay (A) income, excess profits or other taxes of Landlord which are determined on the basis of Landlord's net income or net worth (unless such taxes are in lieu of or a substitute for any other tax, assessment or other charge upon or with respect to the Premises which, if it were in effect, would be payable by Tenant under the provisions hereof or by the terms of such tax, assessment or other charge), (B) any estate, inheritance, succession, gift or similar tax imposed on Landlord or (C) any capital gains tax imposed on Landlord in connection with the sale of the Premises to any Person. If any Imposition may be paid in installments without interest or penalty, Tenant shall have the option to pay such Imposition in installments; in such event, Tenant shall be liable only for those installments which become due and payable during the Term or are attributable to any period prior to the expiration or termination of this Lease. Tenant shall prepare and file all tax reports required by governmental authorities which relate to the Impositions. Tenant shall deliver to Landlord (1) copies of all settlements and notices pertaining to the Impositions which may be issued by any governmental authority within ten (10) days after Tenant's receipt thereof, (2) receipts for or evidence of payment of all taxes required to be paid by Tenant hereunder within thirty (30) days after the due date thereof and (3) receipts for payment of all other Impositions within ten (10) days after Landlord's request therefor.
(b) Following the occurrence of an Event of Default Tenant shall pay to Landlord such amounts (each an "Escrow Payment") quarterly together with payments of Basic Rent so that there shall be in an escrow account an amount sufficient to pay the Escrow Charges (as hereinafter defined) as they become due. As used herein, "Escrow Charges" shall mean real estate taxes and assessments on or with respect to the Premises or payments in lieu thereof and premiums on any insurance required by this Lease and any reserves for capital improvements, deferred maintenance and repair reasonably required by any Lender. Landlord shall reasonably
determine the amount of the Escrow Charges (it being agreed that such amounts shall equal any corresponding escrow installments required to be paid by Landlord to a Lender as a result of an Event of Default) and the amount of each Escrow Payment. As long as the Escrow Payments are being held by Landlord, the Escrow Payments shall not be commingled with other funds of Landlord or other Persons and interest thereon shall accrue for the benefit of Tenant from the date such monies are received and invested until the date such monies are disbursed to pay Escrow Charges. Landlord shall apply the Escrow Payments to the payment of the Escrow Charges in such order or priority as Landlord shall determine or as required by law. If at any time the Escrow Payments theretofore paid to Landlord shall be insufficient for the payment of the Escrow Charges, Tenant, within ten (10) business days after Landlord's demand therefor, shall pay the amount of the deficiency to Landlord.
(c) Tenant or its designees shall have the right to contest or review all such Impositions by legal proceedings, or in such other manner as it may deem suitable (which, if instituted, Tenant or its designees shall conduct promptly at its own cost and expense, and free of any expense to Landlord). Notwithstanding the foregoing, to the extent required by any Lender, Tenant shall provide Landlord security which is satisfactory (but not in excess of the sum of the amount in controversy and reasonable estimates of Costs in connection with such controversy, including interest, penalties, court costs and legal fees), in Landlord's reasonable judgment, to assure that such Impositions are paid, including all Costs that may be incurred or become due in connection therewith, and Tenant shall promptly pay all such Impositions if at any time the Premises or any part thereof shall then be immediately subject to forfeiture or if Landlord shall be subject to any criminal liability, arising out of the nonpayment thereof. The legal proceedings referred to in this Section 6(c) shall include appropriate proceedings and appeals from orders therein and appeals from any judgments, decrees or orders. In the event of any reduction, cancellation or discharge, Tenant shall pay the amount finally levied or assessed against the Premises or adjudicated to be due and payable on any such contested Impositions. If requested by Tenant, Landlord shall join in any contest or proceeding required to be brought by or in the name of Landlord and otherwise cooperate in all reasonable respects with Tenant in the prosecution thereof; provided, however, that Landlord will not be subjected to any liability for the payment of any Costs in connection with any contest or proceedings, and Tenant shall be responsible for any and all Costs reasonably incurred by Landlord in connection therewith, including but not limited to reasonable attorney's fees.
(d) Landlord covenants and agrees that if there shall be any refunds or rebates on account of the Impositions paid by Tenant under the provisions of this Lease, such refund or rebate shall belong to Tenant. Any refunds received by Landlord shall be deemed trust funds and as such are to be received by Landlord in trust and paid to Tenant forthwith. Landlord will, upon the request of Tenant, sign any receipts which may be necessary to secure the payment of any such refund or rebate, and will pay over to Tenant such refund or rebate promptly following receipt thereof by Landlord.
7. MAINTENANCE AND REPAIRS.
(a) Tenant shall, at all times during the Term and at its sole cost and expense keep and maintain (or cause to be kept and maintained) the Premises in as good order, condition and repair as on the date hereof and fit to be used for its intended use, ordinary wear and tear and permanent loss by Condemnation excepted. Such maintenance shall include, without limitation, all structural, non-structural, ordinary and extraordinary repairs and replacements which may be required to keep all parts of the Premises (including without limitation the roof, structure, fixtures and equipment, building systems, wiring, plumbing of the Bedford Building and Danbury Building and the parking areas and landscaped areas appurtenant thereto) in good order, condition and repair. Tenant shall promptly make all Alterations of every kind and nature, whether foreseen or unforeseen, which may be required to comply with the foregoing requirements of this Section 7. Landlord shall not be required to make any Alteration, whether foreseen or unforeseen, or to maintain any of the Premises or Adjoining Property in any way, and Tenant hereby expressly waives any right which may be provided for in any Law now or hereafter in effect to make Alterations at the expense of Landlord or to require Landlord to make Alterations. Any Alteration made by Tenant pursuant to this Section 7 shall be made in conformity with the provisions of Section 8.
(b) If any Improvement, now or hereafter constructed, shall (i) encroach upon any setback or any property, street or right-of-way adjoining the Premises, (ii) violate the provisions of any restrictive covenant affecting the Premises, (iii) hinder or obstruct any easement or right-of-way to which any of the Premises is subject or (iv) impair the rights of others in, to or under any of the foregoing, Tenant shall, promptly after receiving notice or otherwise acquiring knowledge thereof, at Tenant's election, either (A) obtain from all necessary parties waivers or settlements of all claims, liabilities and damages resulting from each such encroachment, violation, hindrance, obstruction or impairment, whether the same shall affect Landlord, Tenant or both, or (B) take such action as shall be necessary to remove all such encroachments, hindrances or obstructions and to end all such violations or impairments, including, if necessary, making Alterations.
(c) Tenant, at its sole cost and expense, will at all times promptly and faithfully abide by, discharge and perform all of the covenants, conditions and agreements contained in any Easement Agreement on the part of landlord or the occupier to be kept and performed thereunder. Neither Landlord nor Tenant will alter, modify, amend or terminate any Easement Agreement, give any consent or approval thereunder, or enter into any new Easement Agreement without, in each case, prior written consent of the other party.
8. ALTERATIONS.
(a) Tenant shall not make any Alterations in or to or Expansions to the Premises without Landlord's prior written consent, which shall not be unreasonably withheld, conditioned or delayed. Notwithstanding the foregoing, provided there is no Event of Default, Tenant may, without Landlord's prior written consent but with notice to Landlord and otherwise subject to the provisions of this Lease, make (i) non-structural Alterations costing less than
$1,000,000 (such amount to be increased on each anniversary of the Commencement Date by the CPI Ratio), provided that Tenant hereby agrees to notify Landlord in writing not less than fifteen (15) days prior to commencing any non-structural Alterations costing more than $250,000 (as increased on each anniversary of the Commencement Date by the CPI Ratio); (ii) decorative changes (such as installation of office partitions, painting, carpeting and window treatments) to the Premises; (iii) Alterations to move or remove any Equipment (provided that any Equipment so removed shall be replaced in accordance with this Section 8); and (iv) Alterations to parking areas, landscaping and other exterior areas. If Tenant makes any Alterations or Expansions pursuant to this Section 8 (such Alterations, Expansions and actions being hereinafter collectively referred to as "Work") whether or not Landlord's consent is required, then the market value of the Premises shall not be lessened in any material respect by any such Work, its usefulness impaired in any material respect or its useful life decreased in any material respect. Tenant shall not construct any additional buildings on the Premises without Landlord's prior written consent, which consent shall not be unreasonably withheld, conditioned or delayed. All Alterations and Expansions shall be done at Tenant's sole cost and expense in a good and workmanlike manner and in compliance with Legal Requirements. If Tenant shall make any Alterations, then Landlord shall notify Tenant in writing, at the time of Landlord's approval thereof or, in the case of Alterations for which Landlord's approval is not required, within fifteen (15) business days after receipt of notice thereof which shall be accompanied by a detailed description of the Alterations to be made, whether Tenant will be required, at the expiration or earlier termination of the Term, to restore the Premises to substantially the same condition as existed immediately prior to such Alteration. Tenant shall provide Landlord with a copy of any as-built plan prepared by or on behalf of Tenant, if any, with respect to any structural Alteration. When Landlord's consent shall be required under this Section 8(a), such consent shall be deemed given unless Landlord gives Tenant written notice of its disapproval within fifteen (15) business days after receipt of request therefor. Any such notice of disapproval from Landlord to Tenant shall state with particularity Landlord's reasons for disapproval.
(b) Any mechanic's lien filed against the Premises for work claimed to have been done for, or materials claimed to have been furnished to, Tenant shall be discharged by Tenant within fifteen (15) business days after Tenant's receipt of notice thereof, at Tenant's expense, by filing the bond required by law or otherwise. Tenant shall have the right to contest any such liens by legal proceedings, or in such other manner as it may deem suitable (which, if instituted, Tenant or its designees shall conduct promptly at its or their own cost and expense). Notwithstanding the foregoing, if the lien is not removed by the filing of a bond, Tenant shall provide Landlord security which is satisfactory (but not in excess of the sum of the amount in controversy and reasonable estimates of costs in connection with such controversy, including interest, penalties, court costs and legal fees) in Landlord's reasonable judgment, to ensure that any such lien is paid. Tenant shall promptly pay and remove all such liens if at any time the Premises or any part thereof shall then be subject to immediate forfeiture as a result of the nonpayment thereof.
(c) Tenant shall (i) procure or cause others to procure on its behalf
all necessary permits before undertaking any Alterations in or Expansions to the
Premises and submit copies of such permits to Landlord prior to the commencement
of any such Alterations or Expansions; (ii) perform all of such Alterations in a
good and workmanlike manner, employing materials of good quality and in
compliance with Legal Requirements; (iii) cause contractors employed by Tenant
to (A) carry Worker's Compensation Insurance in accordance with statutory
requirements, (B) carry Automobile Liability Insurance and Commercial General
Liability Insurance (1) naming Landlord as an additional insured, and (2)
covering such contractors on or about the Premises in the amounts stated in
Section 15 hereof, (C) provide the insurance to the extent required under
Section 15(a)(vi); and (D) submit insurance certificates evidencing such
coverage to Landlord prior to the commencement of any such Alterations or
Expansions; (iv) if any such Work involves the replacement of Equipment or parts
thereto, all replacement Equipment or parts shall have a value and useful life
equal to the greater of (A) the value and useful life on the date hereof of the
Equipment being replaced or (B) the value and useful life of the Equipment being
replaced immediately prior to the occurrence of the event which required its
replacement (assuming such replaced Equipment was then in the condition required
by this Lease); (v) Tenant shall procure and pay for all permits and licenses
required in connection with any such Work; (vi) all such Work shall be the
property of Landlord and shall be subject to this Lease, and Tenant shall
execute and deliver to Landlord any document requested by Landlord evidencing
the assignment to Landlord of all estate, right, title and interest (other than
the leasehold estate created hereby) of Tenant or any other Person thereto or
therein; and (vii) Tenant shall comply, to the extent requested by Landlord or
required by this Lease, with the provisions of Section 7 and Section 18(a),
whether or not such Work involves restoration of the Premises.
9. ASSIGNMENT AND SUBLETTING.
(a) Except as otherwise set forth herein, Tenant shall not, without Landlord's prior written consent, assign, mortgage, transfer or encumber this Lease in whole or in part. Any such notice of disapproval from Landlord to Tenant shall state with particularity Landlord's reasons for disapproval.
(b)
(i) Notwithstanding anything to the contrary herein contained, Tenant shall have the right, upon not less than thirty (30) days prior written notice to Landlord, without obtaining Landlord's consent, to assign this Lease ("Preapproved Assignment") to (any of the following, a "Preapproved Assignee") (i) any Person which at all times during the Term is an Affiliate of Tenant's, (ii) any Person into or with which Tenant is merged or with which Tenant is consolidated or which acquires all or substantially all of Tenant's stock or assets, provided immediately after such assignment such Person has a tangible net worth (determined in accordance with GAAP) equal to or greater than Tenant's tangible net worth (determined in accordance with GAAP) immediately prior to such assignment, or (iii) to any Person that immediately following such assignment will have a publicly traded unsecured senior debt rating
of "Baa1" or better from Moody's Investors Services, Inc. or a rating of "BBB+" or better from Standard & Poor's Corporation (or, if such entity does not then have rated debt, a determination to the reasonable satisfaction of Landlord that its unsecured debt would be so rated by such rating agencies).
(ii) If Tenant desires to assign this Lease, whether by
operation of law or otherwise, to a Person ("Non-Preapproved Assignee") who
would not be a Preapproved Assignee ("Non-Preapproved Assignment") then Tenant
shall, not less than ninety (90) days prior to the date on which it desires to
make a Non-Preapproved Assignment submit to Landlord and Lender information
regarding the following with respect to the Non-Preapproved Assignee
(collectively, the "Review Criteria"): (A) credit, (B) capital structure, (C)
management, (D) operating history, (E) proposed use of the Premises and (F) risk
factors associated with the proposed use of the Premises by the Non-Preapproved
Assignee, taking into account factors such as environmental concerns, product
liability and the like. Landlord and Lender shall review such information and
shall approve or disapprove the Non-Preapproved Assignee no later than the
thirtieth (30th) day following receipt of all such information, and Landlord and
Lender shall be deemed to have acted reasonably in granting or withholding
consent if such grant or disapproval is based on their review of the Review
Criteria applying prudent business judgment (provided that such approval shall
not be unreasonably withheld, delayed or conditioned as to the proposed use of
the Premises or risk factors associated therewith).
(i) Landlord hereby acknowledges that (A) pursuant to that certain Lease dated April 20, 2000 by and between Tenant, as landlord, and TechOnLine Incorporated ("TechOnLine"), as tenant, as amended by that certain First Amendment to Lease dated as of February 28, 2002 and as further amended by that certain Second Amendment to Lease dated August 20, 2002 (collectively, the "TechOnLine Lease"), TechOnLine occupies approximately 10,120 square feet on the second floor of the Bedford Building; and (B) pursuant to that certain Lease dated June 1, 2001 by and between Tenant, as landlord, and Phonetic Systems, Inc. ("Phonetic"), as tenant, as amended by that certain letter agreement dated February 19, 2002 (collectively, the "Phonetic Lease"), Phonetic occupies approximately 10,550 square feet on the third (3rd) floor of the Bedford Building. Simultaneously with the execution hereof, Landlord shall execute a subordination, non-disturbance and attornment agreement in favor of TechOnLine substantially in the form attached hereto as Exhibit "I" (a "Recognition Agreement"). In the event that the per-square-foot rent during the extension of the term under the TechOnLine Lease is set at less than $24.50 per square foot, Tenant shall provide Landlord, prior to the commencement of such extension term, with a security deposit equal to the positive difference between (x) the total rent under the TechOnLine Lease for the extension of the term at a rental rate of $24.50 per square foot and (y) the total rent payable by TechOnLine for the extension of the term.
(ii) Tenant shall have the right, upon ten (10) days' prior written notice to, but without the consent of, Landlord and Lender, to enter into one or more additional subleases (a) that demise, in the aggregate (and with regard to the Bedford Building, together with the TechOnLine Lease and the Phonetic Lease), up to but not in excess of fifty Percent (50%) of the gross rentable square footage in each of the Bedford Building and Danbury Building, and (b) of all or any portion of the Premises to a Preapproved Assignee (each of the foregoing, a "Preapproved Sublet"). Other than pursuant to Preapproved Sublets (which include the TechOnLine Lease and the Phonetic Lease), at no time during the Term shall subleases exist for more than fifty percent (50%) of the gross rentable space in each of the Bedford Building and Danbury Building to any Person without the prior written consent of Landlord which consent shall be granted or withheld based on a review of the Review Criteria as they relate to the proposed sublessee and the terms of the proposed sublease and shall not be unreasonably withheld, delayed or conditioned with respect to the use or risk factors associated therewith. Landlord and Lender shall be deemed to have acted reasonably in granting or withholding consent if such grant or disapproval is based on their review of the Review Criteria. Provided the net rent (gross per square foot rent after deduction for Impositions, insurance and common area maintenance charges) under any Preapproved Sublet or other sublease approved by Landlord is proportionately equal to or greater than the Rent payable by Tenant hereunder on a per-square-foot basis, the Preapproved Sublet or such otherwise approved sublease is for not less than twenty-five (25%) of the gross rentable square feet in the Danbury Building or ten percent (10%) of the rentable square feet in the Bedford Building and the Preapproved Sublet or other such sublease is on terms otherwise reasonably acceptable to Landlord, Landlord shall not unreasonably withhold, condition or delay its consent to any request by Tenant to execute a Recognition Agreement in connection therewith. With respect to any Recognition Agreement required to be executed by Landlord pursuant to this Subsection 9(c)(ii), Landlord, upon request of the subtenant, shall obtain from Lender a recognition agreement substantially in the form of the Recognition Agreement.
(d) If Tenant assigns all its rights and interest under this Lease, the assignee under such assignment shall expressly assume all the obligations of Tenant hereunder, actual or contingent, including obligations of Tenant which may have arisen on or prior to the date of such assignment by a written instrument delivered to Landlord at the time of such assignment. Any approved or permitted sublease of the Premises shall (A) be expressly subject and subordinate to this Lease and any Mortgage encumbering the Premises; (B) not extend beyond the then current Term minus one day; and (C) terminate upon any termination of this Lease (except for the TechOnLine Lease or any other applicable sublease which shall be subject to a Recognition Agreement with Landlord as required by Section 9(c)(i) or Section 9(c)(ii)), unless Landlord elects in writing, to cause the sublessee to attorn to and recognize Landlord as the lessor under such sublease, whereupon such sublease shall continue as a direct lease between the sublessee and Landlord upon all the terms and conditions of such sublease. No assignment or sublease shall affect or reduce any of the obligations of Tenant hereunder, and all such obligations shall continue in full force and effect as obligations of a principal and not as obligations of a
guarantor, as if no assignment or sublease had been made. No assignment or sublease shall impose any additional obligations on Landlord under this Lease.
(e) With respect to any Preapproved Assignment or Preapproved Sublet, Tenant shall provide to Landlord information reasonably required by Landlord to establish that any proposed Preapproved Assignment or Preapproved Sublet satisfies the criteria set forth above.
(f) Tenant shall, within ten (10) days after the execution and delivery of any assignment or sublease, deliver a copy thereof to Landlord. In the event of an assignment of the Lease, Tenant shall deliver to Landlord an original notice of assignment of lease in recordable form executed by Tenant and such assignee.
(g) As security for performance of its obligations under this Lease, Tenant hereby grants, conveys and assigns to Landlord all right, title and interest of Tenant in and to all subleases now in existence or hereafter entered into for any or all of the Premises, any and all extensions, modifications and renewals thereof and all rents, issues and profits therefrom. Landlord hereby grants to Tenant a license to collect and enjoy all rents and other sums of money payable under any sublease of any of the Premises, provided, however, that after an Event of Default and so long as such Event of Default is continuing, Landlord shall have the absolute right at any time upon notice to Tenant and any subtenants to revoke said license and to collect such rents and sums of money provided Landlord shall apply the same to Monetary Obligations payable by Tenant hereunder. Tenant shall not consent to, cause or allow any modification or alteration of any of the terms, conditions or covenants of any of the subleases or the termination thereof, without the prior written approval of Landlord, which consent shall not be unreasonably withheld, conditioned or delayed nor shall Tenant accept any rents more than thirty (30) days in advance of the accrual thereof nor do nor permit anything to be done, the doing of which, nor omit or refrain from doing anything, the omission of which, will or could be a breach of or default in the terms of any of the subleases.
(h) Except as provided in the following Section 10, Tenant shall not have the power to mortgage, pledge or otherwise encumber its interest under this Lease or any sublease of the Premises, and any such mortgage, pledge or encumbrance made in violation of this Section 9 shall be void and of no force and effect.
(i) Subject to the provisions of Sections 12 and 14 below, Landlord may sell or transfer the Premises at any time without Tenant's consent to any third party (each a "Third Party Purchaser"). In the event of any such transfer provided such Third-Party Purchaser expressly assumes all of the obligations of Landlord hereunder, actual or contingent, by a written instrument delivered to Tenant, Tenant shall attorn to any Third Party Purchaser as Landlord so long as such Third Party Purchaser and Landlord notify Tenant in writing of such transfer. At the request of Landlord, Tenant will execute such documents confirming the agreement referred to above and such other agreements as Landlord may reasonably request, provided that such
agreements do not increase the liabilities and obligations or reduce the rights of Tenant hereunder.
10. LEASEHOLD MORTGAGE
Notwithstanding the provisions of Section 9 hereof, Tenant shall have the absolute right, without the consent of Landlord, to mortgage or otherwise encumber this Lease or its rights hereunder (the "Leasehold Estate") with a Leasehold Mortgage to a Leasehold Mortgagee. The Leasehold Mortgagee shall notify Landlord, in the manner hereinafter provided for the giving of notice, of the execution of such Leasehold Mortgage and the name and place for service of notice upon such Leasehold Mortgagee. In the event that at the time of the creation of such Leasehold Mortgage, Landlord shall have mortgaged or otherwise encumbered its fee interest in the Premises, then such notice of such Leasehold Mortgage shall also be given to Lender. Landlord shall cooperate in all reasonable respects with Tenant, at Tenant's sole Cost, in providing necessary information in Landlord's possession or control as to the Premises or this Lease (or any other agreement or instrument executed in connection with the Premises or this Lease) to the Leasehold Mortgagee. Without limiting the foregoing, Landlord shall, at Tenant's sole Cost, endeavor to cause any report by any third party retained by Landlord (including without limitation architects, engineers and title examiners) to address or re-address documents prepared by them, respectively, to the Leasehold Mortgagee and to allow the Leasehold Mortgagee to rely thereon. Upon such notification to Landlord that Tenant has entered into a Leasehold Mortgage, Landlord hereby agrees for the benefit of the Leasehold Mortgagee, and upon written request by Tenant, to execute and deliver to Tenant and the Leasehold Mortgagee a recognition, attornment and assent to leasehold mortgage agreement ("Leasehold Mortgage Agreement") in recordable form, containing terms substantially similar to the terms of the form attached hereto as Exhibit F and incorporated herein and otherwise reasonably acceptable to Landlord and the Leasehold Mortgagee.
11. ENCUMBRANCES BY LANDLORD.
This Lease is and shall at all times be and remain subject and subordinate to the lien of any Mortgage (and to any and all advances made thereunder) upon the Landlord's fee interest in any of the Premises, (unless Landlord or such Lender requires this Lease to be superior to any such Mortgage); provided Landlord obtains and delivers to Tenant a subordination, non-disturbance and attornment agreement from Lender in form and substance reasonably satisfactory to Lender and Tenant, whereby such Lender agrees that, as long as there is not an Event of Default under the Lease, this Lease will not be affected and Tenant's possession and rights hereunder (including, without limitation, Tenant's rights to purchase the Bedford Premises and/or the Danbury Premises pursuant to Sections 12 or 14 below) will not be disturbed by any default in, termination, and/or foreclosure of, such Mortgage. Such subordination, nondisturbance and attornment agreement may require Tenant to confirm that (a) Lender and its assigns will not be liable for any misrepresentation, act or omission of Landlord and (b) Lender and its assigns will not be subject to any counterclaim, demand or offset which Tenant may have against Landlord. In the event any proceedings are brought for foreclosure, or in the event of the exercise of the
power of sale under any Mortgage made by the Landlord covering the Premises, Tenant shall attorn to the purchaser at any such foreclosure, or to the grantee of a deed in lieu of foreclosure, and recognize such purchaser or grantee as the Landlord under this Lease, provided such successor executes an assumption agreement whereby such successor assumes all of Landlord's obligations under the Lease. Tenant shall agree, upon request of Landlord, to supply any such Lender with such notices and information as Tenant is required to give to Landlord hereunder and to extend the rights of Landlord hereunder to any such Lender and to consent to such financing if such consent is requested by such Lender.
12. RIGHT OF FIRST OFFER.
(a) If, at anytime prior to the expiration or earlier termination of this Lease, Landlord decides to offer the Premises (Landlord acknowledging Landlord's Non-Bifurcation Obligation) for sale to any third party, Landlord shall first offer by written notice (the "Offer") to sell the Premises to Tenant for a specific purchase price (the "Purchase Price") and, upon such terms and conditions as Landlord, in Landlord's sole discretion, would otherwise intend to offer to sell the Premises, prior to Landlord's offering to sell the Premises to any such third party except that (i) the terms and conditions of any such sale to Tenant shall be (i) consistent with the terms and provisions of this Section 12 and (ii) the sale to Tenant shall be "as is", without representation or warranty by Landlord except as provided in Section 20. If Landlord shall make the Offer, then, whether or not Tenant has accepted the Offer, Landlord shall have the unilateral right, in Landlord's sole discretion, to revoke the Offer if an Event of Default exists under this Lease on the date on which Landlord shall give, or would otherwise be required to give, Tenant the Offer.
(b) Tenant shall have the right in its name or in the name of any Affiliate of Tenant to accept the Offer only by giving Landlord written notice of such acceptance (the "ROFO Notice") within fifteen (15) business days after delivery by Landlord to Tenant of the Offer. Time shall be of the essence with respect to said fifteen (15) business day period and delivery of the ROFO Notice by Tenant. Upon Tenant's acceptance of the Offer, Tenant shall execute, upon the request of Landlord, any documentation reasonably required by Landlord to reflect Tenant's acceptance of the Offer. Notwithstanding anything to the contrary contained in this Lease, subject only to the provisions of Section 12(d) below, upon the delivery of the ROFO Notice by Tenant, no event or circumstances affecting the Premises (other than the closing of the purchase of the Premises pursuant to Paragraph 20) including, but not limited to, a Condemnation or Casualty, shall give Tenant any right or option of Tenant to cancel, surrender or otherwise terminate this Lease, and, if and only if the failure to close the purchase of the Premises is due to Tenant's wrongful act or omission, any other right or option of Tenant under the Lease to acquire the Premises, shall automatically be deemed to have been waived by Tenant for all purposes under this Lease.
(c) If Tenant does not accept, or fails to accept, the Offer in accordance with the provisions herein, Landlord shall have no further obligation with respect to such Offer
pursuant to the terms contained herein, except as otherwise set forth below, and Tenant shall have forever waived and relinquished its right to such Offer, but not to any subsequent Offer, and Landlord shall at any and all times thereafter be entitled to market the Premises to others upon such terms and conditions as Landlord in its sole discretion may determine, except that if the price ("Third Party Price") for which Landlord enters into a binding contract ("Third Party Contract") to sell the Premises is less than ninety percent (90%) of the Offer, Tenant shall have fifteen (15) days in which to accept the Third Party Price. Tenant shall, within five (5) days after Landlord's request therefor, deliver an instrument in form reasonably satisfactory to Landlord confirming the aforesaid waiver, but no such instrument shall be necessary to make the provisions hereof effective. If (i) Landlord has not sold the portion of the Premises that was the subject of the Offer within twelve (12) months after the earlier to occur of (A) the expiration of the 15 business-day response period, or (B) the day on which Tenant refuses the Offer in writing, and (ii) Landlord still intends to sell the Premises that was the subject of the Offer, then Landlord shall send to Tenant a subsequent Offer to sell the Premises to Tenant for a specific purchase price and, upon such terms and conditions as Landlord, in Landlord's sole discretion, would otherwise intend to offer to sell the Premises.
(d) If Tenant does not timely deliver the ROFO Notice and the Premises are transferred to a Third Party Purchaser, this Lease shall remain in full force and effect, including the provisions of this Section 12 and the right of Tenant to any subsequent Offer, Tenant will attorn to such Third Party Purchaser as Landlord so long as such Third Party Purchaser and Landlord notify Tenant in writing of such transfer and such Third Party Purchaser expressly assumes all of the obligations of Landlord hereunder, actual or contingent, by a written instrument delivered to Tenant. At the request of Landlord, Tenant will execute such documents confirming the agreement referred to above and such other agreements as Landlord may reasonably request, provided that such agreements do not increase the liabilities and obligations or reduce the rights of Tenant hereunder.
(e) Notwithstanding anything to the contrary contained herein, the
provisions of this Section 12 shall not apply to or prohibit (i) any mortgaging,
subjection to deed of trust or other hypothecation of Landlord's interest in the
Premises, (ii) any sale of the Premises pursuant to a private power of sale
under or judicial foreclosure of any Mortgage or other security instrument or
device to which Landlord's interest in the Premises is now or hereafter subject,
(iii) any transfer of Landlord's interest in the Premises to a Lender,
beneficiary under deed of trust or other hold of a security interest therein or
their designees by deed in lieu of foreclosure, (iv) any transfer of the
Premises to any governmental or quasi-governmental agency with power of
condemnation, (v) any transfer of the Premises or any interest in Landlord to
any Affiliate of W.P. Carey & Co. LLC, Carey Institutional Properties
Incorporated, Corporate Property Associates 12 Incorporated, Corporate Property
Associates 14 Incorporated or Corporate Property Associates 15 Incorporated
("CPA 15"), (vi) a transfer to any person or entity to whom CPA 15 sells all or
substantially all of its assets or (vii) any transfer of the Premises to any of
the successors or assigns of any of the persons or entities referred to in the
foregoing clauses (i)
through (iv), provided, however, that all of the terms of this Section 12 (including the exceptions in this Section 12(e)) shall remain in full force and effect with respect to any proposed sale of the Premises by any of the Persons described in this Section 12(e).
(f) Any transfer of the Premises to Tenant or its Affiliate pursuant to this Section 12 shall be held on a date mutually acceptable to Landlord and Tenant that is no later than thirty (30) days following acceptance of the Offer or the date specified in the Third Party Contract, if applicable and shall otherwise be in accordance with Section 20 of this Lease.
13. INTENTIONALLY DELETED.
14. LIMITED RIGHT OF FIRST REFUSAL
(a) Except as otherwise provided in Section 14(g), and provided an Event of Default does not then exist, if Landlord shall enter into a contract (the "Sale Contract") for the sale of the Premises (Landlord acknowledging Landlord's Non-Bifurcation Obligation) to a Competitor (and which may include other property owned by Landlord so long as a specific purchase price is reasonably allocated to the Premises), such Sale Contract shall be conditioned upon Tenant's failure to exercise its right under this Section 14. Promptly following the execution thereof, Landlord shall give written notice to Tenant, together with a copy of the executed Sale Contract.
(b) For a period of thirty (30) days following receipt of such notice, Tenant shall have the right, exercisable by written notice to Landlord given within said thirty (30) day period, to elect to purchase the Premises at the purchase price set forth in the Sale Contract or allocated as set forth above and upon all the terms and conditions set forth in the Sale Contract except that no contingency period contained in such Sale Contract as to real estate due diligence matters such as environmental, engineering, inspection of the Premises, surveys, zoning, state of the title to the Premises (except that Landlord shall be obligated to convey such title as was conveyed to it by Tenant, excepting any title matters consented to by Tenant or created by or through Tenant after such conveyance, and Landlord shall remove any liens, restrictions and encumbrances created by or through Landlord after such conveyance by Tenant), shall apply to Tenant's obligation to purchase the Premises under this Section 14, and Tenant shall be obligated to purchase the Premises "as is, where is" as to such matters.
(c) If at the expiration of the aforesaid thirty (30) day period Tenant shall have failed to exercise the aforesaid right by written notice to Landlord, Landlord may sell the Premises to such Competitor upon the terms set forth in the Sale Contract, subject to the terms of this Lease, including the provisions of this Section 14.
(d) Except as otherwise specifically provided herein, the closing date for any purchase of the Premises by Tenant pursuant to this Section 14 shall be the later to occur of (i) thirty (30) days after the date of Tenant's notice to Landlord of its intention to purchase the
Premises upon the terms of the Sale Contract with a Third Party Purchaser or
(ii) the closing date provided in such Sale Contract. At such closing Landlord
shall convey the Premises to Tenant or to any Affiliate of Tenant as designated
in writing by Tenant in accordance with, and Tenant shall pay to Landlord the
purchase price (or the allocated purchase price as set forth above) and other
consideration set forth in, the applicable Sale Contract, subject in all events
to the limitations set forth in Section 14(b).
(e) Tenant shall have the right during the Term to exercise the foregoing right of first refusal upon each proposed sale of the Premises. IF THE TERM OF THIS LEASE SHALL TERMINATE OR EXPIRE, SUCH RIGHTS OF FIRST REFUSAL GRANTED PURSUANT TO THIS SECTION 14 SHALL TERMINATE AND BE NULL AND VOID AND OF NO FURTHER FORCE AND EFFECT. IN SUCH EVENT TENANT SHALL EXECUTE SUCH DOCUMENTS AS LANDLORD SHALL REASONABLY REQUEST EVIDENCING THE TERMINATION OF ITS RIGHT OF FIRST REFUSAL.
(f) If Tenant does not exercise its right of first refusal to purchase the Premises and the Premises are transferred to a Competitor, Tenant will attorn to any Competitor as Landlord so long as such Competitor and Landlord notify Tenant in writing of such transfer and such Competitor assumes all of the obligations of Landlord hereunder, actual or contingent, by a written instrument delivered to Tenant. At the request of Landlord, Tenant will execute such documents confirming the agreement referred to above and such other agreements as Landlord may reasonably request, provided that such agreements do not increase the liabilities and obligations or reduce the rights of Tenant hereunder.
(g) Notwithstanding anything to the contrary contained herein, the
provisions of this Paragraph 14 shall not apply to or prohibit (i) any
mortgaging, subjection to deed of trust or other hypothecation of Landlord's
interest in the Premises, (ii) any sale of the Premises pursuant to a private
power of sale under or judicial foreclosure of any Mortgage or other security
instrument or device to which Landlord's interest in the Premises is now or
hereafter subject, (iii) any transfer of Landlord's interest in the Premises to
a Lender, beneficiary under deed of trust or other hold of a security interest
therein or their designees by deed in lieu of foreclosure, (iv) any transfer of
the Premises to any governmental or quasi-governmental agency with power of
condemnation, (v) any transfer of the Premises or any interest in Landlord to
any Affiliate of W.P. Carey & Co. LLC, Carey Institutional Properties
Incorporated, Corporate Property Associates 12 Incorporated, Corporate Property
Associates 14 Incorporated or CPA 15, (vi) a transfer to any person or entity to
whom CPA 15 sells all or substantially all of its assets or (vii) any transfer
of the Premises to any of the successors or assigns of any of the persons or
entities referred to in the foregoing clauses (i) through (iv); provided,
however, that all of the terms of this Paragraph 14 (including the exceptions in
Section 14(g)) shall remain in full force and effect with respect to any
proposed sale of the Premises by any of the Persons described in this Section
14(g) to a Competitor.
15. INSURANCE.
(a) Tenant shall maintain the following insurance on or in connection with the Premises:
(i) Insurance against risk of physical loss or damage to the Improvements and Equipment as provided under "Special Form" coverage, and including customarily excluded perils of hail, windstorm, flood coverage (only for the Premises that is in a flood zone), earthquake, and, to the extent required by Lender, terrorism and mold insurance, in amounts no less than the actual replacement cost of the Improvements and Equipment exclusive of foundations and excavations; provided that, (A) if Tenant's insurance company is unable or unwilling to include any of all of such excluded perils, Tenant shall have the option of purchasing coverage against such perils from another insurer on a "Difference in Conditions" form or through a stand-alone policy and (B) terrorism insurance shall be in amounts as are customary for properties of sizes, types, locations and uses as the Premises. Such policies shall contain Replacement Cost and Agreed Amount Endorsements and shall contain deductibles not more than $50,000 per occurrence (such amount to be increased on each anniversary of the Commencement Date by the CPI Ratio).
(ii) Commercial General Liability Insurance and Business Automobile Liability Insurance (including Non-Owned and Hired Automobile Liability) against claims for personal and bodily injury, death or property damage occurring on, in or as a result of the use of the Premises, in an amount not less than $2,000,000 per occurrence/annual aggregate and Ten Million Dollars ($10,000,000) umbrella liability and all other coverage extensions that are usual and customary for properties of size, type, location and use as the Premises provided, however, that the Landlord shall have the right not more often than every three (3) years to require such higher limits as may be reasonable and customary for properties of this size and type.
(iii) Workers' compensation insurance covering all persons employed by Tenant in connection with any work done on or about any of the Premises for which claims for death, disease or bodily injury may be asserted against Landlord, Tenant or any of the Premises or, in lieu of such Workers' Compensation Insurance, a program of self-insurance complying with the rules, regulations and requirements of the appropriate agency of the state in which the respective Premises is located.
(iv) Comprehensive Boiler and Machinery Insurance on any of the Equipment or any other equipment on or in the Premises, in an amount not less than $2,000,000 per accident for damage to property. Either such Boiler and Machinery policy or the Special Form policy required in (i) above shall include at least $1,000,000 per incidence for Off-Premises Service Interruption, Expediting Expenses, Ammonia Contamination, and Hazardous Materials Clean-Up Expense and may contain a deductible not to exceed $50,000 (such amount to be increased on each anniversary of the Commencement Date by the CPI Ratio).
(v) Business Interruption Insurance at limits sufficient to cover 100% of the Rent for not less than twelve (12) months from time of loss. Such insurance shall name
Landlord as loss payee solely with respect to Rent payable to or for the benefit of Landlord as its interest appears under this Lease.
(vi) During any period in which structural or substantial non-structural Alterations in excess of $250,000 at the Premises are being undertaken, builder's risk insurance covering the total completed value including "soft costs" for additional interest expenses, legal and professional fees and insurance premiums and other customary "soft costs" for properties of similar size, use and location, with respect to the Improvements being altered or repaired (on a completed value, non-reporting basis) replacement cost of work performed and equipment, supplies and materials furnished in connection with such construction or repair of Improvements or Equipment, together with such "soft cost" endorsements and such other endorsements as Landlord may reasonably require and general liability, worker's compensation and automobile liability insurance with respect to the Improvements being constructed, altered or repaired.
(vii) Such other insurance (or other terms with respect to any insurance required pursuant to this Section 15, including without limitation amounts of coverage, deductibles, form of mortgagee clause) on or in connection with any of the Premises as Landlord or Lender may reasonably require for properties of comparable sizes, locations, types and uses as the Premises.
(b) The insurance required by Section 14 shall be written by
companies which have a Best's rating of A:IX or above and a claims paying
ability rating of AA or better by Standard & Poor's Rating Services, a division
of the McGraw Hill Companies, Inc. or equivalent rating agency approved by
Landlord and Lender in their reasonable discretion and are admitted in, and
approved to write insurance policies by, the State insurance department for both
Connecticut and Massachusetts. The insurance policies (i) shall be for such
terms as Landlord may reasonably approve and (ii) shall be in amounts sufficient
at all times to satisfy any coinsurance requirements thereof. The insurance
referred to in Section 15(a)(i), 15(a)(iv) and 15(a)(vi) shall name Landlord as
owner and Landlord or Lender as loss payee and Landlord or Tenant as its
interest may appear. The insurance referred to in Section 15(a)(ii) shall name
Landlord and Lender as additional insureds, and the insurance referred to in
Section 15(a)(v) shall name Landlord as insured and Lender and Landlord as loss
payee. If said insurance or any part thereof shall expire, be withdrawn, become
void, voidable, unreliable or unsafe for any reason, including a breach of any
condition thereof by Tenant or the failure or impairment of the capital of any
insurer, Tenant shall immediately obtain new insurance reasonably satisfactory
to Landlord.
(c) Each insurance policy referred to in clauses (i), (iv), (v) and
(vi) of Section 15(a) shall contain standard non-contributory mortgagee clauses
in favor of and acceptable to Lender. Each policy required by any provision of
Section 15(a), except clause (iii) thereof, shall provide that it may not be
cancelled, substantially modified or allowed to lapse on any renewal date except
after thirty (30) days' prior notice to Landlord and Lender. Each such policy
shall also provide that any loss otherwise payable thereunder shall be payable
notwithstanding (i) any act or omission of Landlord or Tenant which might, absent such provision, result in a forfeiture of all or a part of such insurance payment, (ii) the occupation or use of any of the Premises for purposes more hazardous than those permitted by the provisions of such policy, (iii) any foreclosure or other action or proceeding taken by Lender pursuant to any provision of the Mortgage, Note, Assignment or other document evidencing or securing the Loan upon the happening of an event of default therein or (iv) any change in title to or ownership of any of the Premises.
(d) Tenant shall pay as they become due all premiums for the insurance required by Section 15(a), shall renew or replace each policy and deliver to Landlord evidence of the payment of the full premium therefor or installment then due at least thirty (30) days prior to the expiration date of such policy, and shall promptly deliver to Landlord all original certificates of insurance or, if required by Lender, certified policies.
(e) Anything in this Section 15 to the contrary notwithstanding, any insurance which Tenant is required to obtain pursuant to Section 15(a) may be carried under a "blanket" or umbrella policy or policies covering other properties or liabilities of Tenant, provided that such "blanket" or umbrella policy or policies otherwise comply with the provisions of this Section 15 and provided further that Tenant shall provide to Landlord a so-called "Statement of Values" which shall be reviewed annually and amended as necessary by Tenant based on replacement cost valuations. A certificate of insurance or, if required by Lender, a certified copy of each such "blanket" or umbrella policy shall promptly be delivered to Landlord.
(f) Tenant shall promptly comply with and conform to (i) all Insurance Requirements, even if such compliance necessitates Alterations or results in interference with the use or enjoyment of any of the Premises.
(g) Tenant shall not carry separate insurance concurrent in form or contributing in the event of a Casualty with that required in this Section 15 unless (i) Landlord and Lender are included therein as named insureds, with loss payable as provided herein, and (ii) such separate insurance complies with the other provisions of this Section 15. Tenant shall promptly notify Landlord of such separate insurance and shall deliver to Landlord certificates of insurance evidencing such coverage or if required by Lender, certified copies of policies thereof.
(h) All policies under Section 15(a) shall contain effective waivers by the carrier against all claims for insurance premiums against Landlord and shall contain full waivers of subrogation against the Landlord.
(i) All proceeds of any insurance required under Section 15(a) shall be payable as follows:
(i) Proceeds payable under clauses (ii), (iii) and (iv) of
Section 15(a) and proceeds attributable to the general liability coverage of
Builder's Risk insurance under clause (vi) of Section 15(a) shall be payable to
the Person entitled to receive such proceeds.
(ii) Proceeds of insurance required under clause (i) of
Section 15(a) and proceeds attributable to Builder's Risk insurance (other than
its general liability coverage provisions) under clause (vi) of Section 15(a)
shall be payable to Landlord or Lender and applied as set forth in Section 17
or, if applicable, Section 18. Tenant shall apply the Net Award to restoration
of the Premises in accordance with the applicable provisions of this Lease
16. INDEMNIFICATION.
(a) Except to the extent attributable to the gross negligence or willful misconduct of Landlord or its agents, contractors or employees, Tenant shall pay, protect, indemnify, defend, save and hold harmless Landlord Parties, Lender and all other Persons described in Section 35 (each an "Indemnitee") from and against any and all liabilities, losses, damages (subject to Section 36(q) below), penalties, Costs (including reasonable attorneys' fees and costs), causes of action, suits, claims, demands or judgments of any nature whatsoever, howsoever caused, without regard to the form of action and whether based on strict liability, negligence or any other theory of recovery at law or in equity arising from (i) any matter pertaining to the use, non-use, occupancy, operation, condition, design, construction, maintenance, repair or restoration of the Premises or Adjoining Property, (ii) any casualty to persons or property in any manner arising from the Premises or Adjoining Property, whether or not Indemnitee has or should have knowledge or notice of any defect or condition causing or contributing to said casualty, (iii) any violation by Tenant of any provision of this Lease, any Legal Requirement applicable to the Premises or Tenant's use or occupancy thereof or any Permitted Encumbrance or any encumbrance Tenant consented to or the Mortgage or Assignment or (iv) any alleged, threatened or actual Environmental Violation, including (A) liability for response costs and for costs of removal and remedial action incurred by the United States Government, any state or local governmental unit or any other Person, or damages from injury to or destruction or loss of natural resources, including the reasonable costs of assessing such injury, destruction or loss, incurred pursuant to Section 107 of CERCLA, or any successor section or act or provision of any similar state or local Law, (B) liability for costs and expenses of abatement, correction or clean-up, fines, damages, response costs or penalties which arise from the provisions of any of the other Environmental Laws, (C) liability for personal injury or property damage arising under any statutory or common-law tort theory, including damages assessed for the maintenance of a public or private nuisance or for carrying on of a dangerous activity, and (D) any diminution in value or loss of rents after the expiration, termination or rejection of this Lease solely as a result of an Environmental Violation existing as of the date of such expiration, termination or rejection.
(b) In case any action or proceeding is brought against any Indemnitee by reason of any such claim, (i) Tenant may, except in the event of a conflict of interest, retain its
own counsel and defend such action (it being understood that Landlord may employ counsel of its choice to monitor the defense of any such action, the reasonable cost of which shall be paid by Tenant) and (ii) such Indemnitee shall notify Tenant to resist or defend such action or proceeding by retaining counsel reasonably satisfactory to such Indemnitee, and such Indemnitee will cooperate and assist in the defense of such action or proceeding if reasonably requested so to do by Tenant. In the event of a conflict of interest, Landlord shall have the right to select counsel, and the reasonable cost of such counsel shall by paid by Tenant.
(c) The obligations of Tenant under this Section 16 with respect to matters that existed or occurred prior to the termination, expiration or rejection in bankruptcy of this Lease shall survive any termination, expiration or rejection in bankruptcy of this Lease.
17. CASUALTY; CONDEMNATION.
(a) If any Casualty to the Bedford Premises or the Danbury Premises occurs the insurance proceeds for which is reasonably estimated by Tenant to be equal to or in excess of One Hundred Thousand Dollars ($100,000) as increased annually by the CPI Ratio, Tenant shall give Landlord and Lender prompt notice thereof. So long as no Event of Default exists Tenant is hereby authorized to adjust, collect and compromise all claims under any of the insurance policies required by Section 15(a) (except public liability insurance claims payable to a Person other than Tenant, Landlord or Lender) and to execute and deliver on behalf of Landlord all necessary proofs of loss, receipts, vouchers and releases required by the insurers and Landlord shall have the right to join with Tenant therein. Any final adjustment, settlement or compromise of any such claim shall be subject to the prior written approval of Landlord (which approval shall not be unreasonably withheld, delayed or conditioned), and Landlord shall have the right to prosecute or contest, or to require Tenant to prosecute or contest, any such claim, adjustment, settlement or compromise. If an Event of Default exists, Tenant shall not be entitled to adjust, collect or compromise any such claim or to participate with Landlord in any adjustment, collection and compromise of the Net Award payable in connection with a Casualty. Tenant agrees to sign, upon the request of Landlord, all such proofs of loss, receipts, vouchers and releases. Each insurer is hereby authorized and directed to make payment under said policies, including return of unearned premiums, directly to Landlord or, if required by the Mortgage, to Lender instead of to Landlord. The Net Award shall be applied as provided in Section 17(c) or, if the Casualty is a Termination Event, Section 18. The rights of Landlord under this Section 17(a) shall be extended to Lender if and to the extent that any Mortgage so provides.
(b) Landlord, promptly upon receiving a Condemnation Notice, shall notify Tenant thereof. Tenant, promptly upon receiving a Condemnation Notice, shall notify Landlord and Lender thereof. Upon notice to Tenant, Landlord and Lender are authorized to collect, settle and compromise, in their discretion, the amount of any Net Award. Provided that no Event of Default has occurred and is continuing, Tenant shall be entitled to participate with Landlord and Lender in any Condemnation proceeding or negotiations under threat thereof or settlement or compromise negotiations related thereto and to contest the Condemnation or the amount of the
Net Award therefor. No agreement with any condemnor in settlement or under threat of any Condemnation shall be made by Tenant without the written consent of Landlord and Lender, which shall not be unreasonably withheld, conditioned or delayed. Subject to the provisions of this Section 17(b), Tenant hereby irrevocably assigns to Landlord any award or payment to which Tenant is or may be entitled by reason of any Condemnation, whether the same shall be paid or payable for Tenant's leasehold interest hereunder or otherwise; but nothing in this Lease shall impair Tenant's right to any award or payment on account of Tenant's trade fixtures, equipment or other tangible property which is not part of the Equipment, moving expenses or loss of business, if available, to the extent that and so long as (i) Tenant shall have the right to make, and does make, a separate claim therefor against the condemnor and (ii) such claim does not in any way reduce either the amount of the award otherwise payable to Landlord for the Condemnation of Landlord's fee interest in the Premises or the amount of the award (if any) otherwise payable for the Condemnation of Tenant's leasehold interest hereunder. The rights of Landlord under this Section 17(b) shall also be extended to Lender if and to the extent that any Mortgage so provides.
(c) If any Casualty (whether or not insured against) or Condemnation shall occur, this Lease shall continue, notwithstanding such event, and there shall be no abatement or reduction of any Monetary Obligations except as otherwise specifically provided in Paragraph 18. Promptly after such Casualty or Condemnation for which Tenant does not give a Termination Notice, Tenant shall commence and diligently continue to restore the affected Premises as nearly as possible to their value, condition and character immediately prior to such event (assuming the Premises to have been in the condition required by this Lease) and as required by Sections 7 and 8 of this Lease. So long as no Event of Default exists, any Net Award up to and including $500,000 (such amount to be increased on each anniversary of the Commencement Date by the CPI Ratio) shall be paid by Landlord to Tenant and Tenant shall restore the Premises in accordance with the requirements of Sections 8 and 19 of this Lease. Any Net Award in excess of $500,000 (such amount to be increased on each anniversary of the Commencement Date by the CPI Ratio) shall be made available by Landlord (or Lender, if required by the terms of any Mortgage) to Tenant for the restoration of any of the Premises pursuant to and in accordance with the provisions of Section 19 hereof.
18. TERMINATION EVENTS.
(a) If (i) all or a substantial portion of the Bedford Premises
and/or the Danbury Premises shall be subject to a Condemnation (such that Tenant
certifies to Landlord that it will forever abandon operations at the Bedford
Premises and/or the Danbury Premises) or (ii) all or a substantial portion of
either of the Bedford Premises or Danbury Premises shall be subject to a
Casualty during any exercised Extension Term (any such event, a "Termination
Event"), then Tenant shall be obligated, within thirty (30) days after Tenant
receives a Condemnation Notice and Tenant shall have the right within thirty
(30) days after the occurrence of such Casualty to give to Landlord written
notice in the form described in Section 18(b) (a "Termination Notice") of
Tenant's election to terminate this Lease with respect to the Bedford
Premises or the Danbury Premises affected by such Condemnation or Casualty (the "Affected Premises"). If Tenant elects not to give Landlord a Termination Notice, then this Lease shall remain in full force and effect and all obligations of Tenant shall continue in full force and effect with respect to the Bedford Premises and the Danbury Premises. If Tenant delivers to Landlord a Termination Notice with respect to the Affected Premises, then this Lease shall remain in full force and effect with respect to the Premises not subject to Condemnation or Casualty and all obligations of Tenant and Landlord, including the obligation to pay Rent, shall continue in full force and effect with respect to such Premises.
(b) A Termination Notice shall contain (i) notice of Tenant's intention to terminate this Lease with respect to the Affected Premises on the first Basic Rent Payment Date which occurs at least thirty (30) days after the date of the Condemnation Notice or thirty (30) days after the date of the Casualty (the "Termination Date"), and (ii) a binding and irrevocable offer of Tenant to pay to Landlord the Termination Amount for the Affected Premises.
(c) If Landlord shall reject such offer by Tenant to pay to Landlord the Termination Amount for the Affected Premises pursuant to Section 18(b) above by written notice to Tenant (a "Rejection") then this Lease shall terminate with respect to the Affected Premises on the Termination Date; provided that, if Tenant has not paid all Rent then due and owing (collectively, "Remaining Obligations") on the Termination Date, then Landlord may, at its option, extend the date on which this Lease may terminate to a date which is no later than the first Basic Rent Payment Date after the Termination Date on which Tenant has satisfied all Remaining Obligations. Upon such termination (i) on the Termination Date all obligations of Tenant hereunder for the Affected Premises shall terminate except for any Surviving Obligations, (ii) Tenant shall on or before the Termination Date vacate and shall have no further right, title or interest in or to any of the Affected Premises and (iii) the Net Award shall be retained by Landlord.
(d) Unless Tenant shall have received a Rejection not later than the thirtieth (30th) day following the date of the Termination Notice, Landlord shall be conclusively presumed to have accepted such offer from Tenant to pay the Termination Amount for the Affected Premises. If such offer from Tenant to pay the Termination Amount for the Affected Premises is accepted by Landlord then, on the later of (i) the Termination Date or (ii) the date on which Tenant has available funds to pay the Termination Amount (but in no event later than forty-five (45) days after the Termination Date), Tenant shall pay to Landlord the Termination Amount and Rent then due and owing, this Lease shall terminate with respect to the Affected Premises except for any Surviving Obligations and, if requested by Tenant, Landlord shall (i) convey to Tenant the Affected Premises or the remaining portion thereof, if any, and (ii) pay to or assign to Tenant Landlord's entire interest in and to the Net Award, all in accordance with Section 20.
19. RESTORATION.
(a) If any Net Award is in excess of $500,000 (such amount to be increased on each anniversary of the Commencement Date by the CPI Ratio), Landlord (or Lender if required by any Mortgage) shall hold the entire Net Award in a fund (the "Restoration Fund") and disburse amounts from the Restoration Fund only in accordance with the following conditions:
(i) prior to commencement of restoration, (A) the architects, contracts, contractors, plans and specifications and a budget for the restoration shall have been reasonably approved by Landlord and (B) Landlord and Lender shall be provided with acceptable performance and payment bonds which insure satisfactory completion of and payment for the restoration, are in an amount and form and have a surety reasonably acceptable to Landlord in an amount not to exceed the cost of restoration, and name Landlord and Lender as additional dual obligees;
(ii) at the time of any disbursement, no Event of Default shall exist and no mechanics' or materialmen's liens shall have been filed against the Premises affected by such Casualty or Condemnation and remain undischarged or not bonded against or affirmatively insured against by the title company;
(iii) disbursements shall be made from time to time in an
amount not exceeding the cost of the work completed since the last disbursement,
upon receipt of (A) reasonably satisfactory evidence, including architects'
certificates, of the stage of completion, the estimated total cost of completion
and performance of the work to date in a good and workmanlike manner in
accordance with the contracts, plans and specifications, (B) waivers of liens,
(C) contractors' and subcontractors' sworn statements as to completed work and
the cost thereof for which payment is requested, (D) a satisfactory bringdown of
title insurance and (E) other reasonably requested evidence of cost and payment
so that Landlord can verify that the amounts disbursed from time to time are
represented by work that is completed, in place and free and clear of mechanics'
and materialmen's lien claims;
(iv) each request for disbursement shall be accompanied by a certificate of Tenant, signed by the president or a vice president of Tenant, describing the work for which payment is requested, stating the cost incurred in connection therewith, stating that Tenant has not previously received payment for such work and, upon completion of the work, also stating that the work has been fully completed and complies with the applicable requirements of this Lease;
(v) Landlord may retain the same percentage of the restoration fund as and to the extent as may be retained by Tenant under its construction contract with its general contractor (which shall not be less than 10% until 50% completion) until the restoration is fully completed;
(vi) if the Restoration Fund is held by Landlord, the Restoration Fund shall not be commingled with Landlord's other funds and shall bear interest at a rate agreed to by Landlord and Tenant; and
(vii) such other reasonable conditions as Landlord may impose.
(b) Prior to commencement of restoration and at any time during restoration, if the estimated cost of completing the restoration work free and clear of all liens, as determined by Landlord, exceeds the amount of the Net Award available for such restoration, the amount of such excess shall, upon demand by Landlord, be paid by Tenant to Landlord to be added to the Restoration Fund. Any sum so added by Tenant which remains in the Restoration Fund upon completion of restoration shall be refunded to Tenant. For purposes of determining the source of funds with respect to the disposition of funds remaining after the completion of restoration, the Net Award shall be deemed to be disbursed prior to any amount added by Tenant.
(c) If any sum remains in the Restoration Fund after completion of the restoration and any refund to Tenant pursuant to Section 19(b), such sum shall be retained by Landlord or, if required by a Note or Mortgage, paid by Landlord to a Lender.
20. PROCEDURES UPON PURCHASE.
(a) If the Premises or any portion thereof are purchased by Tenant pursuant to Section 12, Section 14 or Section 18 of this Lease, Landlord shall convey the same title thereto than as was conveyed to Landlord by Tenant, and Tenant shall accept such title, subject, however, to the Permitted Encumbrances and to all other liens, exceptions and restrictions on, against or relating to the portion of the Premises being purchased (the "Purchased Property") and to all applicable Laws, but free of the lien of and security interest created by any Mortgage or Assignment and liens, exceptions and restrictions on, against or relating to the Purchased Property which have been created by or suffered or resulted by or from acts of Landlord after the date of this Lease, unless the same are Permitted Encumbrances or were created by or with the concurrence of Tenant or as a result of a default by Tenant under this Lease.
(b) Upon the date fixed for any such purchase of the Purchased Property pursuant to any provision of this Lease (any such date the "Purchase Date"), Tenant shall pay to Landlord, or to any Person to whom Landlord directs payment, the Relevant Amount therefor, in Federal Funds, less any credit of the Net Award received and retained by Landlord or a Lender allowed against the Relevant Amount, and Landlord shall deliver to Tenant or to its Affiliate (i) a quitclaim or similar form deed which describes the Purchased Property and conveys title thereto (but no better title than conveyed to Landlord by Tenant) as provided in Section 20(a), together with Landlord's right, title and interest in and to the Improvements, the Equipment and the Appurtenances relating to the Purchased Property, (ii) a bill of sale for the Equipment, (iii) an assignment of all of the guaranties and warranties, if any, from contractors, construction manager, suppliers and subcontractors, to the extent assignable, (iv) such other instruments as
shall be necessary or reasonably requested by Tenant or the title company to transfer to Tenant or its Affiliate the Purchased Property (or rights to any Net Award not yet received by Landlord or a Lender), and (v) with respect to a purchase under Section 18, any Net Award received by Landlord, not credited to Tenant against the Termination Amount and required to be delivered by Landlord to Tenant pursuant to this Lease; provided, that if any Monetary Obligations remain outstanding on such date, then Landlord may deduct from the Net Award the amount of such Monetary Obligations. If on the Purchase Date any Monetary Obligations remain outstanding and no Net Award is payable to Tenant by Landlord or the amount of such Net Award is less than the amount of the Monetary Obligations, then Tenant shall pay to Landlord on the Purchase Date the amount of such Monetary Obligations. Upon the completion of such purchase, this Lease and all obligations and liabilities of Tenant with regard to the Purchased Property hereunder shall terminate, except any Surviving Obligations.
(c) Landlord shall be obligated to use reasonable efforts to convey
the Purchased Property in conformity with the title standard set forth in
Section 20(a) of this Lease. If the completion of such purchase shall be
delayed, unless such delay is a result of Landlord's refusal to convey the
Purchased Property as required herein, after the Termination Date, in the event
of a purchase pursuant to Section 18 of this Lease then Rent shall continue to
be due and payable until completion of such purchase. If the Landlord is unable
(as opposed to refuses), for a period in excess of ninety (90) days from the
scheduled closing date, to convey title as and when required herein, after using
reasonable efforts to do so, Tenant shall have the right to continue this Lease
in effect and not proceed to closing, accept title as it then exists (with a
credit against the Purchase Price with respect to such title defect, as
reasonably agreed to by Landlord and Tenant) or bring an action for specific
performance.
(d) Any prepaid Monetary Obligations paid to Landlord shall be prorated as of the Purchase Date, and the prorated unapplied balance shall be deducted from the Relevant Amount due to Landlord; provided, that no apportionment of any Impositions shall be made upon any such purchase.
21. ACCESS TO THE PREMISES.
(a) Tenant and Tenant's officers, directors, employees, contractors, servants, agents, customers, invitees, licensees and subtenants shall have access to the Premises twenty-four (24) hours a day, seven (7) days a week, subject to the terms of this Lease.
(b) Subject to the terms hereof, Landlord shall, upon as much advance notice as is practical under the circumstances and no less than forty-eight (48) hours' notice in non-emergency situations, and when accompanied by a representative of Tenant, have the right to access and enter upon the Premises for the purposes of inspection and exercising any right reserved to Landlord by this Lease; and (z) upon no less than forty-eight (48) hours' notice, permit any of the Landlord Parties, at reasonable times, to show the Premises during ordinary business hours to any prospective mortgagee or purchaser of the Premises or of the interest of
Landlord therein, and, if Tenant has not exercised its rights pursuant to
Section 13 above, during the last twelve (12) months of the Term, prospective
tenants; provided such access does not unreasonably interfere with the operation
of Tenant's business and/or Tenant's use, occupancy and enjoyment of, and access
to, any of the Premises.
22. ENVIRONMENTAL MATTERS.
(a) Tenant shall not at any time (i) cause, permit or suffer to occur any Environmental Violation or (ii) permit any sublessee, assignee or other Person occupying the Premises under or through Tenant to cause, permit or suffer to occur any Environmental Violation and, at the request of Landlord or Lender, Tenant shall promptly remediate or undertake any other appropriate response action to correct any existing Environmental Violation. Any and all reports prepared for or by Landlord with respect to the Premises shall be for the sole benefit of Landlord and Lender and no other Person shall have the right to rely on any such reports; provided, however, that upon Tenant's request, Landlord shall cooperate with Tenant, at no cost to Landlord, in Tenant's efforts to obtain a so-called "reliance letter" from the preparer of any such report.
(b) Upon at least three (3) business days' prior written notice from Landlord, Tenant shall permit such persons as Landlord may designate ("Site Reviewers") to visit any of the Premises and perform, environmental site investigations and assessments ("Site Assessments") on any of the Premises (i) in connection with any sale, financing or refinancing of such portion of the Premises, (ii) within the six (6) month period prior to the expiration of the Term if Tenant has not exercised its rights pursuant to Section 13 hereof, (iii) if required by Lender or the terms of any credit facility to which Landlord is bound, (iv) if an Event of Default exists, or (v) at any other time that, in the reasonable opinion of Landlord or Lender, a reasonable basis exists to believe that an Environmental Violation or any condition that could reasonably be expected to result in any Environmental Violation exists. No more than one (1) Site Assessment for each of the Bedford Premises and the Danbury Premises shall be performed per Lease Year unless as a result of subsection (v) above. Such Site Assessments may include both above and below the ground testing for Environmental Violations and such other tests as may be necessary, in the opinion of the Site Reviewers, to conduct the Site Assessments. Tenant shall supply to the Site Reviewers such historical and operational information regarding the Premises as may be reasonably requested by the Site Reviewers to facilitate the Site Assessments, and shall make available for meetings with the Site Reviewers appropriate personnel having knowledge of such matters. If an Environmental Violation is found to exist, the cost of performing and reporting the Site Assessment shall be paid by Tenant. In all other cases the cost shall be paid by Landlord.
(c) If an Environmental Violation occurs or is found to exist and, in Landlord's reasonable judgment, the cost of remediation of, or other response action with respect to, the same is likely to exceed $250,000 (such amount to be increased on each anniversary of the Commencement Date by the CPI Ratio), Tenant shall provide to Landlord, within ten (10) days after Landlord's request therefor, adequate financial assurances that Tenant will effect such
remediation in accordance with applicable Environmental Laws. Such financial assurances shall be a bond or letter of credit reasonably satisfactory to Landlord in form and substance and in an amount equal to Landlord's reasonable estimate, based upon a Site Assessment performed pursuant to Section 21(b), of the anticipated cost of such remedial action.
(d) If Tenant fails, after the expiration of all applicable notice and cure periods, to correct any Environmental Violation which occurs or is found to exist, Landlord shall have the right (but no obligation) to take any and all reasonable actions as Landlord shall deem necessary or advisable in order to cure such Environmental Violation.
(e) Tenant shall notify Landlord immediately after becoming aware of any Environmental Violation (or alleged Environmental Violation) or noncompliance with any of the covenants contained in this Section 22 and shall forward to Landlord immediately upon receipt thereof copies of all orders, reports, notices, permits, applications or other communications relating to any such violation or noncompliance.
(f) All future subleases or occupancy agreements relating to any of the Premises entered into by Tenant shall contain covenants of the other party not to at any time (i) cause any Environmental Violation to occur or (ii) permit any Person occupying the Premises through said subtenant or concessionaire to cause any Environmental Violation to occur.
(g) Tenant shall perform or caused to be performed those obligations listed in Exhibit K hereto within the time period specified in Exhibit K.
23. SUBDIVISION OF BEDFORD PREMISES & POST-CLOSING OBLIGATIONS.
(a) Landlord and Tenant acknowledge that prior to the sale of the Bedford Premises by Tenant to Landlord: (i) Tenant owned a parcel designated as Lot 5 on the Land Court Plan No. 34759C on file with the Middlesex South Registry District of the Land Court (the "Original Parcel") comprised of (1) the Bedford Premises and (2) the 3-acre Parcel; (ii) Tenant subdivided on or about August 13, 2002 in compliance with all applicable subdivision laws, Legal Requirements and Easement Agreements, the Original Parcel into the Bedford Premises and the 3-acre Parcel; (iii) Tenant sold on August 26, 2002, the 3-acre Parcel to N.W. Building 22 Trust (the "Adjoining Property Owner"); and (iv) Tenant and Adjoining Property Owner executed that certain Tax Apportionment Agreement dated August 26, 2002, to account for Tenant's and Adjoining Property Owner's proportionate share of taxes in connection with the Original Parcel until such time that the Bedford Premises and the 3-acre Parcel is separately assessed by the Town of Bedford, Massachusetts.
(b) Tenant shall use reasonable efforts to: (i) cause the separate tax assessment of both the Bedford Premises and the 3-acre Parcel commencing with the July 1, 2003 - June 30, 2004 fiscal year; and (ii) cause the termination and release, within thirty (30) days after the date
hereof, of the Reserved Easements as such term is defined in that certain Deed from BASF Corporation to 35 Crosby Drive LLC, dated April 24, 1997 and filed as Document No. 1029886 at the South Registry of Middlesex County.
24. EVENTS OF DEFAULT.
The occurrence of any one or more of the following shall, at the sole option of Landlord, constitute an "Event of Default" under this Lease:
(a) a failure by Tenant to make any payment of Basic Rent on or prior to its due date, if such failure continues for three (3) business days after written notice with respect to the first late payment in any Lease Year and three (3) business days without notice for any subsequent failure in such Lease Year regardless of the reason for such failure;
(b) a failure by Tenant to make any payment of any other Monetary Obligation on or prior to its due date, if such failure continues for ten (10) days after written notice thereof regardless of the reason for such failure;
(c) a failure by Tenant duly to perform and observe, or a violation or breach of, any other provision hereof not otherwise specifically mentioned in this Paragraph 24, and such failure continues for thirty (30) days (or such additional time, not to exceed ninety (90) days in the aggregate or such longer period as afforded to Landlord under the Mortgage, reasonably necessary to complete the cure of such default if within such thirty (30) day period Tenant shall commence to correct the same and thereafter diligently pursue the completion of such cure) after receipt of a reasonably detailed written notice from Landlord of such failure;
(d) any representation or warranty made by Tenant herein or in any certificate, demand or request made pursuant hereto proves to be incorrect, now or hereafter, in any material respect which has an adverse impact on Landlord based on Landlord's reliance thereon, and the facts are not conformed to such representation or warranty within thirty (30) days after written notice to Tenant from Landlord of such inaccuracy such that Landlord suffers no loss or detriment;
(e) if Tenant fails to pay at maturity or if any lender of Tenant exercises its right to accelerate all payments due under loan documents relating to borrowed money having an original principal balance of $10,000,000 or more in the aggregate;
(f) a final, non-appealable judgment or judgments for the payment of money in excess of $5,000,000 (as such amount is increased on each anniversary of the Commencement Date by the CPI Ratio) in the aggregate shall be rendered against Tenant which is not covered by insurance, and the same shall remain undischarged for a period of sixty (60) consecutive days or such later date as is required by the judgment;
(g) The breach of any Covenant shall occur, unless Tenant shall be in compliance with Section 34;
(h) Tenant shall (A) voluntarily be adjudicated a bankrupt or insolvent, (B) seek or consent to the appointment of a receiver or trustee for itself or for the Premises, (C) file a petition seeking relief under the bankruptcy or other similar laws of the United States, any state or any jurisdiction, (D) make a general assignment for the benefit of creditors, or (E) be unable to pay its debts as they mature;
(i) a court shall enter an order, judgment or decree appointing, without the consent of Tenant, a receiver or trustee for it or for any of the Premises or approving a petition filed against Tenant which seeks relief under the bankruptcy or other similar laws of the United States, any state or any jurisdiction, and such order, judgment or decree shall remain undischarged or unstayed ninety (90) days after it is entered;
(j) unless Tenant is actively seeking subtenants for the Premises, any of the Premises shall have been vacated for a period of more than one hundred twenty (120) consecutive days except during the period of restoration following a Casualty or Condemnation or shall have been abandoned;
(k) Tenant shall be liquidated or dissolved or shall begin proceedings towards its liquidation or dissolution;
(l) the estate or interest of Tenant in any of the Premises shall be levied upon or attached in any proceeding and such estate or interest is about to be sold or transferred or such process shall not be vacated, discharged or bonded against within sixty (60) days after it is made;
(m) a failure by Tenant to perform or observe, or a violation or breach of, or a misrepresentation by Tenant under any provision of any document between Tenant and Lender or from Tenant to Lender, if such failure, violation, breach or misrepresentation gives rise to a default beyond any applicable cure period with respect to any Loan;
(n) Tenant shall fail to deliver the estoppel described in Section 26 within the time period specified therein and such failure continues for ten (10) days after written notice thereof;
(o) Tenant shall fail to provide any insurance required by Section 15;
(p) Tenant shall enter into a sublease or assignment in violation of
Section 9;
(q) Tenant shall sell or transfer all or substantially all of its assets a single transaction or a series of related transactions unless the sale or transfer is to a Pre-Approved Assignee under Section 9(b)(i) or a Non-Approved Assignee under Section 9(b)(ii) approved by
Landlord and Lender applying the Review Criteria set forth in Section 9(b)(ii) who assumes all of Tenant's obligations and liabilities under this Lease; or
(r) Tenant's failure to timely comply with any of Tenant's post-closing environmental obligations in connection with the Danbury Premises as more particularly described in Exhibit "K" attached hereto and made a part hereof and such failure continues for fifteen (15) days after written notice from Landlord.
25. REMEDIES AND DAMAGES UPON DEFAULT.
(a) If an Event of Default shall have occurred and is continuing, Landlord shall have the right, at its sole option, then or at any time thereafter, to exercise its remedies and to collect damages from Tenant in accordance with this Section 25, subject in all events to applicable Law, without demand upon or notice to Tenant except as otherwise provided in Section 24 and this Section 25.
(i) Landlord may give Tenant written notice of Landlord's
intention to terminate this Lease on a date specified in such notice. Upon such
date, this Lease, the estate hereby granted and all rights of Tenant hereunder
shall expire and terminate. Upon such termination, Tenant shall immediately
surrender and deliver possession of the Premises to Landlord in accordance with
Section 28. If Tenant does not so surrender and deliver possession of the
Premises, Landlord may re-enter and repossess the Premises, by legal process,
ejectment or any other lawful means or procedure. Upon or at any time after
taking possession of the Premises, Landlord may, by peaceable means or legal
process, remove any Persons or property therefrom. Landlord shall be under no
liability for or by reason of any such entry, repossession or removal except for
its own gross negligence or willful misconduct. Notwithstanding such entry or
repossession, Landlord may collect the damages set forth in Section 25(b)(i) or
25(b)(ii).
(ii) After repossession of the Premises pursuant to clause (i) above, Landlord shall have the right to relet any of the Premises to such tenant or tenants, for such term or terms, for such rent, on such conditions and for such uses as Landlord in its sole discretion may determine, and collect and receive any rents payable by reason of such reletting. Landlord may make such Alterations in connection with such reletting as it may deem advisable in its sole discretion. Notwithstanding any such reletting, Landlord may collect the damages set forth in Section 25(b)(ii).
(iii) Landlord may declare by notice to Tenant the entire Basic Rent (in the amount of Basic Rent then in effect) for the remainder of the then current Term to be immediately due and payable. Tenant shall immediately pay to Landlord all such Basic Rent discounted to its Present Value, all accrued Rent then due and unpaid, all other Monetary Obligations which are then due and unpaid and all Monetary Obligations which arise or become due by reason of such Event of Default (including any Costs of Landlord). Upon receipt by Landlord of all such accelerated Basic Rent and Monetary Obligations, this Lease shall remain in
full force and effect and Tenant shall have the right to possession of the Premises from the date of such receipt by Landlord to the end of the Term, and subject to all the provisions of this Lease, including the obligation to pay all increases in Basic Rent and all Monetary Obligations that subsequently become due, except that (A) no Basic Rent which has been prepaid hereunder shall be due thereafter during the said Term, (B) Tenant shall have no option to extend or renew the Term and (C) Tenant shall have no further rights under Sections 12, 13 or 14.
(b) The following constitute damages to which Landlord shall be entitled if Landlord exercises its remedies under Section 25(a)(i) or 25(a)(ii):
(i) If Landlord exercises its remedy under Section 25(a)(i) but not its remedy under Section 25(a)(ii) (or attempts to exercise such remedy and is unsuccessful in reletting the Premises) then, upon written demand from Landlord, Tenant shall pay to Landlord, as liquidated and agreed final damages for Tenant's default and in lieu of all current damages beyond the date of such demand (it being agreed that it would be impracticable or extremely difficult to fix the actual damages), an amount equal to the Present Value of the excess, if any, of (A) all Basic Rent from the date of such demand to the date on which the Term is scheduled to expire hereunder in the absence of any earlier termination, re-entry or repossession over (B) the projected fair market rental value of the Premises for the same period. Tenant shall also pay to Landlord all of Landlord's Costs in connection with the repossession of the Premises and any attempted reletting thereof, including all brokerage commissions, legal expenses attorneys' fees, employees' expenses, costs of Alterations and expenses and preparation for reletting.
(ii) If Landlord exercises its remedy under Section 25(a)(i)
or its remedies under Section 25(a)(i) and 25(a)(ii), then Tenant shall, until
the end of what would have been the Term in the absence of the termination of
the Lease, and whether or not any of the Premises shall have been relet, be
liable to Landlord for, and shall pay to Landlord, as liquidated and agreed
current damages all Monetary Obligations which would be payable under this Lease
by Tenant in the absence of such termination less the net proceeds, if any, of
any reletting pursuant to Section 25(a)(ii), after deducting from such proceeds
all of Landlord's Costs (including the items listed in the last sentence of
Section 25(b)(i) hereof) incurred in connection with such repossessing and
reletting; provided, that if Landlord has not relet the Premises, such Costs of
Landlord shall be considered to be Monetary Obligations payable by Tenant.
Tenant shall be and remain liable for all sums aforesaid, and Landlord may
recover such damages from Tenant and institute and maintain successive actions
on the same payment dates on which Basic Rent would be payable if the Lease were
not terminated, or legal proceedings against Tenant for the recovery of such
damages. Nothing herein contained shall be deemed to require Landlord to wait to
begin such action or other legal proceedings until the date when the Term would
have expired by its own terms had there been no such Event of Default.
(c) Notwithstanding anything to the contrary herein contained, in lieu of or in addition to any of the foregoing remedies and damages, Landlord may exercise any remedies and collect any damages available to it at law or in equity. If Landlord is unable to obtain full
satisfaction pursuant to the exercise of any remedy, it may pursue any other remedy which it has hereunder or at law or in equity.
(d) Notwithstanding anything to the contrary contained herein, Landlord shall use reasonable efforts to mitigate any damages hereunder following any termination of this Lease or any termination of Tenant's possession of the Premises. The obligation of Landlord to use reasonable efforts to mitigate damages shall not be construed to require Landlord to rent all or any portion of the Premises for a use which, or to a Person who, would not qualify or if Landlord would not be required to consent thereto pursuant to the assignment and subletting provisions of Section 9 of this Lease, or to prioritize the renting of the Premises over other space which Landlord may have available in other properties owned by Landlord. If any applicable Law shall validly limit the amount of any damages provided for herein to an amount which is less than the amount agreed to herein, Landlord shall be entitled to the maximum amount available under such applicable Law.
(e) No termination of this Lease, repossession or reletting of the
Premises, exercise of any remedy or collection of any damages pursuant to this
Section 25 shall relieve Tenant of any Surviving Obligations.
(f) WITH RESPECT TO ANY REMEDY OR PROCEEDING OF LANDLORD OR TENANT HEREUNDER, LANDLORD AND TENANT HEREBY WAIVE ANY RIGHT TO A TRIAL BY JURY.
(g) Upon the occurrence of any Event of Default, Landlord shall have the right (but no obligation) to perform any act required of Tenant hereunder and, if performance of such act requires that Landlord enter any of the Premises, upon not less than 24 hours prior notice to Tenant (except in the event of any emergency in which case no notice shall be required) Landlord may enter any of the Premises for such purpose.
(h) No failure of Landlord (i) to insist at any time upon the strict performance of any provision of this Lease or (ii) to exercise any option, right, power or remedy contained in this Lease shall be construed as a waiver, modification or relinquishment thereof; and no waiver by Landlord of any provision hereof shall be deemed to have been made unless expressed in a writing signed by Landlord. A receipt by Landlord of any sum in satisfaction of any Monetary Obligation with knowledge of the breach of any provision hereof shall not be deemed a waiver of such breach.
(i) Tenant hereby waives and surrenders, for itself and all those claiming under it, including creditors of all kinds, (i) any right and privilege which it or any of them may have under any present or future applicable Law to redeem any of the Premises or to have a continuance of this Lease after termination of this Lease or of Tenant's right of occupancy or possession pursuant to any court order or any provision hereof, and (ii) the benefits of any
present or future applicable Law which exempts property from liability for debt or for distress for rent.
(j) Except as otherwise provided herein, all remedies are cumulative and concurrent and no remedy is exclusive of any other remedy. Each remedy may be exercised at any time an Event of Default has occurred and is continuing and may be exercised from time to time. No remedy shall be exhausted by any exercise thereof.
26. ESTOPPEL CERTIFICATES.
Either party shall, without charge, at any time and from time to time hereafter, within fifteen (15) business days after written request of the other, certify by written instrument duly executed and acknowledged to any mortgagee or purchaser, or proposed mortgagee or proposed purchaser, or any other Person specified in such request: (a) as to whether this Lease has been supplemented or amended, and if so, the substance and manner of such supplement or amendment; (b) as to the validity and force and effect of this Lease, in accordance with its tenor as then constituted; (c) as to the existence of any known default thereunder; (d) as to the existence of any known offsets, counterclaims or defenses thereto on the part of such other party; (e) as to the commencement and expiration dates of the Term; and (f) other information reasonably requested. Any such certificate may be relied upon by the party requesting it and any other Person to whom the same may be exhibited or delivered, and the contents of such certificate shall be binding on the party executing same.
27. LEGAL REQUIREMENTS.
(a) Tenant, at its sole cost and expense, will at all times promptly and faithfully abide by, discharge and perform all of the covenants, conditions and agreements contained in any Easement Agreement on the part of Landlord or the occupier to be kept and performed thereunder. Neither Landlord nor Tenant will alter, modify, amend or terminate any Easement Agreement, give any consent or approval thereunder, or enter into any new Easement Agreement without, in each case, the prior written consent of the other party.
(b) Tenant shall be responsible at its sole cost and expense for complying with (and keeping the Premises in compliance with) all applicable Legal Requirements and all Insurance Requirements which are applicable to the Premises or Alterations made by Tenant thereto. If Tenant receives notice of any violation of Legal Requirements applicable to the Premises, it shall give prompt notice thereof to Landlord.
(c) Tenant shall have the right to contest by appropriate legal proceedings diligently conducted in good faith, in the name of the Tenant, or Landlord (if legally required), without cost or expense to Landlord, the validity or application of any applicable Legal Requirements and, if by the terms of any such applicable Legal Requirement, compliance therewith may legally be delayed pending the prosecution of any such proceeding, Tenant may delay such compliance therewith until the final determination of such proceeding. Landlord
agrees to execute and deliver any appropriate papers or other instruments which may be reasonably necessary or proper to permit Tenant so to contest the validity or application of any such Legal Requirements and to fully cooperate in all reasonable requests with Tenant in such contest; provided, however, that Landlord will not be subjected to any liability for the payment of any costs or expenses in connection with any contest or proceedings, and Tenant shall be responsible for any and all costs or expenses reasonably incurred by Landlord, including but not limited to reasonable attorney's fees.
28. SURRENDER; HOLD-OVER.
(a) If Tenant or any party claiming by, through or under Tenant, retains possession of the Premises or any part thereof after the expiration or earlier termination of this Lease, then Landlord may, at its option, serve written notice upon Tenant that such holding over constitutes (i) an Event of Default under this Lease, or (ii) a month-to-month tenancy, upon the terms and conditions set forth in this Lease, or (iii) the creation of a tenancy-at-sufferance, upon the terms and conditions set forth in this Lease; provided, however, that the monthly Basic Rent under subsection (ii) (or daily Rent prorated on the basis of a 365 day year for each day Tenant remains in possession under subsection (iii)) shall, in addition to all other sums which are to be paid by Tenant hereunder be equal to one hundred twenty five percent (125%) of Basic Rent with regard to the month immediately proceeding the month in which expiration or termination occurs.
(b) Notwithstanding anything to the contrary contained herein, upon the expiration or earlier termination of this Lease, Tenant shall surrender the Premises in good order, condition and repair (excepting only reasonable wear and tear and damage from a total or substantial Condemnation), free of personal property. The Premises shall be surrendered free and clear of all liens and encumbrances other than those existing at the commencement of the Term and those created, suffered or approved by Landlord.
(c) After the expiration or earlier termination hereof, if Tenant fails to remove any personal property from the Premises within thirty (30) days after written notice from Landlord, such property (the "Abandoned Property") shall be conclusively deemed to have been abandoned, and may either be retained by Landlord as its property or sold or otherwise disposed of in such manner as Landlord may see fit. If any item of Abandoned Property shall be sold, Tenant hereby agrees that Landlord may receive and retain the proceeds of such sale and apply the same, at its option, to the expenses of the sale, the cost of moving and storage and to any arrears of Rent.
29. NO MERGER OF TITLE.
There shall be no merger of the leasehold estate created by this Lease with the fee estate in any of the Premises by reason of the fact that the same Person may acquire or hold or own, directly or indirectly, (a) the leasehold estate created hereby or any part thereof or interest therein and (b) the fee estate in any of the Premises or any part thereof or interest therein, unless and until all
Persons having any interest in the interests described in (a) and (b) above which are sought to be merged shall join in a written instrument effecting such merger and shall duly record the same.
30. BOOKS AND RECORDS.
(a) Tenant shall keep adequate records and books of account with respect to the finances and business of Tenant generally and with respect to the Premises, in accordance with generally accepted accounting principles ("GAAP") consistently applied, and shall permit Landlord and Lender by their respective agents, accountants and attorneys, upon at least two (2) business days' prior written notice to Tenant, to examine (and make copies of) the records and books of account and to discuss the finances and business with the officers of Tenant, at such reasonable times as may be requested by Landlord. Upon the request of Lender or Landlord (either telephonically or in writing), Tenant shall provide the requesting party with copies (at cost) of any information to which such party would be entitled in the course of a personal visit.
(b) Tenant shall deliver to Landlord and to Lender, upon Landlord's request, within thirty (30) days (except as set forth below) of filing, sending or otherwise making the same public, copies of all periodic reports filed by Tenant with the Securities and Exchange Commission ("SEC"); provided, however, that if such statements and reports are not required to be filed with the SEC, Tenant shall deliver to Landlord, (i) within ninety (90) days after the close of each fiscal year, annual audited financial statements of Tenant certified by a nationally recognized firm of independent certified public accountants, accompanied by an opinion of said accountants stating that (1) there are no qualifications as to the scope of the audit or setting forth the nature of such qualifications, and (2) the audit was performed in accordance with GAAP and (ii) within forty-five (45) days after the end of each of the three remaining quarters unaudited financial statements and all other quarterly reports of Tenant, certified by Tenant's chief financial officer. All financial statements shall be prepared in accordance with GAAP. Tenant's chief financial officer shall provide a quarterly certification ("Covenant Certification") that Tenant is in compliance with the Covenants (except as otherwise specified in the Covenant Certification) together with a calculation of the Covenants, that the affiant knows of no Event of Default, or event which, upon notice or the passage of time or both, would become an Event of Default which has occurred and is continuing hereunder or, if any such event has occurred and is continuing, specifying the nature and period of existence thereof and what action Tenant has taken or proposes to take with respect thereto and, except as otherwise specified in such affidavit, that Tenant has fulfilled all of its obligations under this Lease which are required to be fulfilled on or prior to the date of such affidavit. The Covenant Certification shall be dated and delivered within ten (10) business days of the issuance of each such financial statement.
31. SIGNAGE
Subject to Legal Requirements, Tenant shall have the right to install, maintain
and replace in, on or over or in front of any of the Premises, or in or on any
part thereof, signs and advertising matter, and shall obtain any necessary
permits for such purposes at Tenant's sole cost and expense. As used in this
Section 31, the word "sign" shall be construed to include any placard,
light or other advertising symbol or object, irrespective of whether same be temporary or permanent.
32. QUIET ENJOYMENT.
Tenant shall, upon paying the Rent reserved hereunder and observing and performing all of the terms, covenants and conditions on Tenant's part to be observed and performed, peaceably and quietly have and hold, the Premises, without hindrance or molestation by any person or persons claiming by, through or under Landlord, subject, however, to the terms of this Lease.
33. NOTICES. All notices, demands, requests, consents, approvals, offers, statements and other instruments or communications required or permitted to be given pursuant to the provisions of this Lease shall be in writing and shall be deemed to have been given and received for all purposes when delivered in person, when delivery is refused, or by Federal Express or other nationally recognized reliable 24-hour delivery service with receipted delivery or five (5) business days after being deposited in the United States mail, by registered or certified mail, return receipt requested, postage prepaid, addressed to the other party as follows:
If to Tenant: Hologic, Inc.
35 Crosby Drive
Bedford, MA 01730
Attention: Chief Financial Officer
with a copy to: Brown Rudnick Berlack Israels, LLP
One Financial Center
Boston, MA 02111
Attention: Carl E. Axelrod, Esquire
If to Landlord: W.P. Carey & Co. LLC
50 Rockefeller Plaza, Second Floor
New York, NY 10020
Attention: Director, Asset Management
with a copy to: Reed Smith LLP
2500 One Liberty Place
1650 Market Street
Philadelphia, Pennsylvania 19103-7301
Attention: Chairman, Real Estate Department
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For the purposes of this Paragraph 33, any party may substitute another address stated above (or substituted by a previous notice) for its address by giving fifteen (15) days' notice of the new address to the other party, in the manner provided above.
34. FINANCIAL COVENANTS; SECURITY DEPOSIT.
(a) Tenant hereby covenants and agrees to comply with the Covenants.
(b) In the event Tenant fails to be in compliance with either Covenant at the end of any fiscal quarter, an Event of Default shall exist unless within forty-five (45) days following the expiration of such quarter all of the following conditions are met: (i) Landlord has received from Tenant a plan which outlines in reasonable detail Tenant's plans to achieve Covenant compliance; (ii) Tenant's tangible net worth (determined in accordance with GAAP) at the end of such quarter is not less that $90 million; (iii) no other Event of Default exists and (iv) Tenant delivers to Landlord a security deposit (the "Security Deposit") in the amount of six (6) months' Basic Rent.
(c) The Security Deposit shall be, at the election of Tenant, either cash ("Cash Security Deposit") or an irrevocable letter of credit (the "Letter of Credit") shall be issued by a bank reasonably acceptable to Landlord and in form and substance reasonably satisfactory to Landlord. Any Letter of Credit shall be renewed at least thirty (30) days prior to any expiration thereof. If Tenant fails to renew any Letter of Credit by such date, time being of the essence, Landlord shall have the right at any time after the thirtieth (30th) day before such expiration date to draw on such Letter of Credit and to deposit the proceeds of such the Letter of Credit as a Cash Security Deposit in any account for the benefit of Landlord. The Cash Security Deposit shall not be commingled with other funds of Landlord or other Persons and, as long as no Event of Default exists, interest at day-in day-out passbook rate thereon shall be due and payable to Tenant on a quarterly basis.
(d) If, at any time during the Term, Tenant achieves a rating on its senior unsecured debt (which may be a "shadow rating") of at least BBB from Standard & Poor's Corporation, Baa2 from Moody's Investor Services, Inc. or a comparable rating from any other nationally recognized rating agency acceptable to Landlord ("Required Rating"), the Security Deposit shall be returned to Tenant and, for so long as Tenant maintains the Required Rating, Tenant shall be deemed to be in compliance with the Covenants. If at any subsequent time Tenant's rating on its senior unsecured debt falls below the Required Rating the Covenants shall again be applicable, and if Tenant is not then in compliance with such Covenants Tenant shall within fifteen (15) days of the credit downgrade repost the Security Deposit.
(e) If at any time an Event of Default shall have occurred and be continuing, Landlord shall be entitled, at its sole discretion, to draw on the Letter of Credit or to withdraw the Cash Security Deposit from the above-described account and to apply the proceeds in payment of (i) any Rent or other charges for the payment of which Tenant shall be in default, (ii) any expense incurred by Landlord in curing any default of Tenant as permitted herein, and/or (iii) any other sums due to Landlord in connection with any default or the curing thereof, including, without limitation, any damages incurred by Landlord by reason of such default as permitted herein, including any rights of Landlord under Section 24 or to do any combination of the foregoing, all in such order or priority as Landlord shall so determine in its sole discretion and Tenant acknowledges and agrees that such proceeds shall not constitute assets or funds of Tenant or its
estate, or be deemed to be held in trust for Tenant, but shall be, for all purposes, the property of Landlord (or Lender, to the extent assigned).
(f) At such time as Tenant is back in compliance with the Covenants, or at the expiration of the Term, and so long as no Event of Default exists any Letter of Credit or the Cash Security Deposit then held by Landlord, as the case may be, shall be returned to Tenant.
(g) Landlord shall have the right to designate a Lender as the beneficiary of the Letter of Credit or the Cash Security Deposit during the term of the applicable Loan, and such Lender shall have all of the rights and obligations of Landlord under this Section 34 with respect to the Security Deposit. Tenant covenants and agrees to execute such agreements, consents and acknowledgments as may be reasonably requested by Landlord from time to time to change the holder of the Security Deposit as hereinabove provided.
35. NON-RECOURSE.
(a) Notwithstanding anything to the contrary herein provided, if Landlord or any successor-in-interest of Landlord shall be an individual, joint venture, limited liability company, tenancy in common, firm or partnership, general or limited, or a corporation, it is specifically understood and agreed that there shall be absolutely no personal liability on the part of such individual or on the part of the members of such firm, partnership or joint venture or the officers, directors or shareholders of such corporation, with respect to any of the terms, covenants and conditions of this Lease, and Tenant shall look solely to the equity of Landlord or such successor in interest in the fee estate of Landlord in the Premises for the satisfaction of each and every remedy of Tenant in the event of any breach by Landlord or by such successor in interest of any of the terms, covenants and conditions of this Lease to be performed by Landlord, such exculpation of personal liability to be absolute and without any exception whatsoever.
(b) Notwithstanding anything to the contrary herein provided, if Tenant or any successor-in-interest of Tenant shall be an individual, joint venture, limited liability company tenancy in common, firm or partnership, general or limited, or a corporation, it is specifically understood and agreed that there shall be absolutely no personal liability on the part of such individual or on the part of the members or limited partners of such firm, partnership or joint venture or the officers, directors or shareholders of such corporation, with respect to any of the terms, covenants and conditions of this Lease, and such exculpation of personal liability shall be absolute and without any exception whatsoever.
36. MISCELLANEOUS.
(a) If any provision of the Lease or portion of such provision or the application thereof to any person or circumstance is for any reason held invalid or unenforceable, the remainder of the Lease (or the remainder of such provision) and the application thereof to other persons or circumstances shall not be affected thereby.
(b) The captions are inserted only as a matter of convenience and for reference, and in no way define, limit or describe the scope of the Lease nor the intent of any provisions thereof.
(c) Tenant and Landlord each warrants and represents that it has dealt with no broker in connection with the consummation of this Lease. Tenant and Landlord each agrees to defend, indemnify and save the other harmless from and against any Claims arising in breach of the representation and warranty set forth in the immediately preceding sentence.
(d) The Lease, Lease Summary Sheet, Exhibits A-K attached hereto and incorporated herein, the Seller/Lessee's Certificate, Memorandum of Lease and letter regarding the purchase of any Loan, contain the entire and only agreement between the parties and any and all statements and representations, written and oral, including previous correspondence and agreements between the parties hereto, are merged herein. Tenant acknowledges that all representations and statements upon which it relied in executing the Lease are contained herein and that Tenant in no way relied upon any other statements or representations, written or oral. This Lease may not be modified orally or in any manner other than by written agreement signed by the parties hereto.
(e) Each of Landlord and Tenant hereby agree that the Commonwealth of Massachusetts has a substantial relationship to the parties and to the underlying transaction embodied hereby, and in all respects (including, without limiting the generality of the foregoing, matters of construction, validity and performance) this Lease and the obligations arising hereunder shall be governed by, and construed in accordance with, the laws of the Commonwealth of Massachusetts applicable to contracts made and performed therein and all applicable law of the United States of America; except that, at all times, the provisions for the creation of the leasehold estate, enforcement of Landlord's rights and remedies with respect to right of re-entry and repossession, surrender, delivery, ejectment, dispossession, eviction or other in-rem proceeding or action regarding either or both of the Bedford Premises or the Danbury Premises pursuant to Paragraph 23 hereof shall be governed by and construed according to the Laws of the state in which the Premises to which the dispute relates is located, it being understood that, to the fullest extent permitted by law of such State, the law of the Commonwealth of Massachusetts shall govern the validity and the enforceability of the Lease, and the obligations arising hereunder. To the fullest extent permitted by law, Tenant hereby unconditionally and irrevocably waives any claim to assert that the law of any other jurisdiction governs this Lease. Any legal suit, action or proceeding against Tenant arising out of or relating to this Lease may be instituted in any federal court sitting in Boston, Suffolk County, Massachusetts or state court sitting in the County of Middlesex, Commonwealth of Massachusetts, and Tenant waives any objection which it may now or hereafter have to the laying of venue of any such suit, action or proceeding in such County and State, and Tenant hereby expressly and irrevocably submits to the jurisdiction of any such court in any suit, action or proceeding. Notwithstanding the foregoing, nothing herein shall prevent or prohibit Landlord
from instituting any suit, action or proceeding in any other proper venue or jurisdiction in which Tenant is located or where service of process can be effectuated.
(f) By his or her execution hereof, each of the signatories on behalf of the respective parties hereby warrants and represents to the other that he or she is duly authorized to execute the Lease on behalf of such party. Upon either party's request, evidence that any requisite resolution, corporate authority and any other necessary consents have been duly adopted and obtained shall be provided to the requesting party.
(g) Without limiting any other Surviving Obligation which may survive the expiration or earlier termination of the Term, all obligations to indemnify, defend, or hold Landlord harmless, as set forth in this Lease, shall survive the expiration or earlier termination of the Term.
(h) The covenants, agreements, terms, provisions and conditions of this Lease shall bind and benefit the successors and permitted assigns of the parties hereto.
(i) Landlord hereby waives any right it may have to distrain upon trade fixtures or any property of Tenant and any landlord's lien or similar lien upon trade fixtures or any other property of Tenant, regardless of whether such lien is created or otherwise.
(j) Landlord and Tenant each acknowledge and agree that it shall treat this transaction as a true lease for state law purposes and shall report this transaction as a lease for federal income tax purposes with landlord as the owner of the Premises and Tenant as the tenant of the Premises including (i) Landlord, as the owner of the Premises, shall be eligible to claim depreciation deductions under Section 167 or 168 of the Internal Revenue Code of 1986 (the "Code") with respect to the Premises and machinery and equipment therein, (ii) Tenant shall report its rent payments as rent expense under Section 162 of the Code, and (ii) Landlord shall report rent payments as rental income.
(k) As used in this Lease, the singular shall include the plural and any gender shall include all genders as the context requires and the following words and phrases shall have the following meanings: (i) "including" shall mean "including without limitation"; (ii) "provisions" shall mean "provisions, terms, agreements, covenants and/or conditions"; (iii) "lien" shall mean "lien, charge, encumbrance, title retention agreement, pledge, security interest, mortgage and/or deed of trust"; (iv) "obligation" shall mean "obligation, duty, agreement, liability, covenant and/or condition"; (v) "any of the Premises" shall mean "the Premises or any part thereof or interest therein"; (vi) "any of the Land" shall mean "the Land or any part thereof or interest therein"; (vii) "any of the Improvements" shall mean "the Improvements or any part thereof or interest therein"; (viii) "any of the Equipment" shall mean "the Equipment or any part thereof or interest therein"; and (ix) "any of the Adjoining Property" shall mean "the Adjoining Property or any part thereof or interest therein".
(l) Any act which Landlord is permitted to perform under this Lease may be performed at any time and from time to time by Landlord or any person or entity designated by Landlord.
(m) Landlord and Tenant are business entities having substantial experience with the subject matter of this Lease and have each fully participated in the negotiation and drafting of this Lease. Accordingly, this Lease shall be construed without regard to the rule that ambiguities in a document are to be construed against the drafter.
(n) The covenants of this Lease shall run with the land and bind Tenant, its successors and assigns and all present and subsequent encumbrancers and subtenants of any of the Premises, and shall inure to the benefit of Landlord, its successors and assigns. If there is more than one Tenant, the obligations of each shall be joint and several.
(o) If any one or more of the provisions contained in this Lease shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Lease, but this Lease shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein.
(p) If any party to this Lease shall institute an action to enforce the terms hereof, the prevailing party shall be entitled to reasonable attorneys' fees. Reasonable attorneys' fees shall be as fixed by the court. The "prevailing party" shall be the party which by law is entitled to recover its costs of suit, whether or not the action proceeds to final judgment.
(q) Notwithstanding anything to the contrary contained herein, in no event shall either Landlord or Tenant be liable to the other for any indirect, special or consequential or punitive damages or loss of profits or business income arising out of or in connection with this Lease.
(r) Landlord and Tenant each acknowledge and agree that it shall treat this transaction as a true lease for state law proposes and shall report this transaction as a lease for federal income tax purposes with Landlord as the owner of the Premises and Tenant as the tenant of the Premises including (i) Landlord, as the owner of the Premises, shall be eligible to claim depreciation deductions under Section 167 or 168 of the Internal Revenue Code of 1986 (the "Code") with respect to the Premises and machinery and equipment therein; (ii) Tenant shall report its rent payments as rent expense under Section 162 of the Code, and (ii) Landlord shall report rent payments as rental income. To the extent that any provision of this Lease causes this Lease to be categorized as a "capital lease" as opposed to an "operating lease", such provision shall, to the extent of such conflict, be deemed void, but otherwise this Lease shall continue in full force and effect.
[SIGNATURES ON FOLLOWING PAGE]
[SIGNATURE PAGE TO LEASE BY AND BETWEEN
BONE (DE) QRS 15-12, INC., AS LANDLORD,
AND HOLOGIC, INC., AS TENANT
FOR 35 CROSBY DRIVE, BEDFORD, MA AND 36 APPLE RIDGE, DANBURY, CT]
IN WITNESS WHEREOF, the parties hereto have executed this Lease as an instrument under seal as of the Commencement Date.
LANDLORD:
BONE (DE) QRS 15- 12, INC.,
a Delaware corporation
By: /s/ Edward V. LaPuma
----------------------------------------
Edward V. LaPuma, Managing Director
|
TENANT:
HOLOGIC, INC.,
a Delaware corporation
By:__________________________________________
Name:
Title:
[SIGNATURE PAGE TO LEASE BY AND BETWEEN
BONE (DE) QRS 15-12, INC., AS LANDLORD,
AND HOLOGIC, INC., AS TENANT
FOR 35 CROSBY DRIVE, BEDFORD, MA AND 36 APPLE RIDGE, DANBURY, CT]
IN WITNESS WHEREOF, the parties hereto have executed this Lease as an instrument under seal as of the Commencement Date.
LANDLORD:
BONE (DE) QRS 15- 12, INC.,
a Delaware corporation
By: ________________________________________
Name:
Title:
TENANT:
HOLOGIC, INC.,
a Delaware corporation
By: /s/ Glenn P. Muir
------------------------------------------
Name: Glenn P. Muir
Title: Treasurer & Executive Vice President,
Finance & Administration
|
EXHIBIT A
LEGAL DESCRIPTION OF THE BEDFORD PREMISES
That certain parcel of land situated in Bedford in the County of Middlesex, Commonwealth of Massachusetts being shown as Lot 12 on a plan of land entitled "Plan of Land in Bedford, Mass. (Middlesex County), Being a Subdivision of Lot 5 on Land Court Plan Number 34759C, Prepared for: Hologic, Inc., Scale 1" = 100'" by the BSC Group, Inc. dated July 26, 2002, and containing approximately 903,621 square feet as shown on said plan. Said parcel of land is shown as Lot 12 on Land Court Plan Number 34759F.
EXHIBIT A-2
LEGAL DESCRIPTION OF THE DANBURY PREMISES
PARCEL 1:
A certain piece or parcel of land, with the buildings and improvements thereon, located in the Town of Danbury. County of Fairfield and State of Connecticut, more particularly bounded and described as follows:
Beginning at a point on the easterly highway line of Ye Old Road at the northwesterly corner of the herein described parcel, thence running in an easterly, southerly and easterly direction along the southerly boundary line of land now or formerly of Seymour R. Powers, Trustee, et als (Parcel "Br") the following courses and distances.
N 70 DEG. 54' 11" E 320.000' S 19 DEG. 05' 49" E 69.445' N 72 DEG. 28' 55" E 93.118' |
to a point on the westerly highway line of Apple Ridge Road (property of Seymour R. Powers, Trustee, et als) and the northeasterly corner of the herein described parcel, thence running along said westerly highway line the following courses and distances:
S 20 DEG. 05' 04" E 111.00'
thence along a curve to the left with a central angle of 87' 00' 19", a radius of 365.00' and an arc length of 554.263' to a point, thence turning and running in a southerly direction along land of Seymour R. Powers, Trustee, et als on a course bearing S l7 DEG. 05' 23" E a distance of 91.332' to a point on the northerly boundary line of land now or formerly of Mary A. Farwell, thence turning and running along the northerly and westerly boundary lines of said Mary A. Farwell the following courses and distances:
S 49 DEG. 44' 28" W 611.97' S 30 DEG. 30' 08" E 135.00'
to a point on the northerly highway line of Ye Old Road, thence turning and running along the northerly and easterly highway lines of said Ye Old Road (an unimproved highway) the following courses and distances:
S 57 DEG. 15'16" W 170.10'
S 50 DEG. 48'11" W 37.62'
S 52 DEG. 15'10" W 78.01'
N 11 DEG. 49'23" W 36.98'
N 13 DEG. 35'48" W 109.08'
N 16 DEG. 35'03" W 201.38'
N 15 DEG. 44'38" W 264.38'
N 16 DEG. 19'21" W 186.64'
A-2
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N 23 DEG. 48'32" W 32.66' N 16 DEG. 56'54" W 234.849' |
to the point of place of beginning. Said parcel contains 10.973 Acres and is more particularly shown and described on a map entitled "ALTA/ACSM Land Title Survey, Plan of Land in City of Danbury, Connecticut, Prepared for Hologic, Inc.", Dated August 21, 2002 Prepared by the BSC Group, Inc., Rohan Freeman, L.S. 70046
Together with the perpetual right to pass and repass over, through, under and across the entire length and width of a certain roadway shown and designated as Apple Ridge Road on the above referenced map, for the purpose of egress and ingress and for the purpose of obtaining water, gas electric and telephone service and other utilities, and for the purpose of installing thereon and thereunder all improvements, equipment and appurtenances required for such services and for such ingress and egress, to the above described premises from the public highway known as Kenosia Avenue.
Together with a perpetual drainage and sewer easement as set forth in a deed from Seymour R. Powers to Seymour R. Powers, Trustee dated September 5, 1989 and recorded September 17, 1989 in Volume 931, Page 1002 of the Danbury Land Records. Said easement was partially released by instrument dated May 8, 1996 and recorded in Book 1147, Page 1142 of the Danbury Land Records.
Together with the right to use, pass and repass for all purposes on, over, across and under the roadway known as Ye Old Road, Danbury, Connecticut.
Together with the provisions of a Road Maintenance Agreement with Thermotrex Corporation dated as of March 31, 1993 and recorded in Book 1045, Page 238 of the Danbury Land Records.
Together with a scenic view easement as set forth in (i) a warranty deed
from Seymour R. Powers to Thermotrex Corporation dated March 26, 1993 and
recorded April 1, 1993 in Book 1043, Page 819 of the Danbury Land Records; (ii)
a warranty deed from Melvyn 1. Powers to Thermotrex Corporation dated March 30,
1993 and recorded April 1, 1993 in Book 1043, Page 826 of the Danbury Land
Records; (iii) a trustee's deed from Melvyn 1. Powers and Union Trust Company,
as trustees for Gary S. Kepniss, to Thermotrex Corporation dated March 30, 1993
and recorded April 1, 1993 in Book 1043, Page 833 of the Danbury Land Records;
(iv) a warranty deed from Alice Powers to Thermotrex Corporation dated March 26,
1993 and recorded April 1, 1993 in Book 1043, Page 812 of the Danbury Land
Records; (v) a trustee's deed from Seymour R. Powers, as trustee of the Seymour
R. Powers Revocable Trust Agreement. to Thermotrex Corporation dated March 26,
1993 and recorded April 1, 1993 in Book 1043, Page 839 of the Danbury Land
Records; and (vi) a quitclaim deed from Pow-Dan II Corporation to Thermotrex
Corporation dated March 30, 1993 and recorded in Book 1043, Page 844 of the
Danbury Land Records.
Together with two perpetual easements for the maintenance of sewer and/or water lines in favor of the City of Danbury dated July 16, 1985 and recorded August 7, 1985 in Volume 744 at Page 162 of the Danbury Land Records.
Together with a drainage and sewer easement as set forth in a Quit Claim Deed from Seymour R. Powers to Seymour R. Powers, Trustee for "Seymour R. Powers Revocable Trust Agreement" dated September 5, 1989 and recorded September 17, 1989 in Volume 931 at Page 1002 of the Danbury Land
Records. Said easement was partially released by instrument dated May 8, 1996 and recorded in Volume 1147 at Page 1142 of the Danbury Land Records.
Together with an Easement Agreement in favor of The Southern New England Telephone Company dated April 11, 1986 and recorded April 29, 1986 in Volume 779 at Page 710 of the Danbury Land Records
Together with Gas line easement in favor of The Connecticut Light and Power Company dated December 14, 1979 and recorded February 15, 1980 in Volume 635 at Page 472 of the Danbury Land Records.
Together, Gas line easement in favor of The Connecticut Light and Power
Company dated October 15, 1984 and recorded December 5, 1984 in Volume 720 at
Page 506 of the Danbury Land Records.
Parcel 2
A certain piece or parcel of land, with any buildings and improvements thereon, located in the Town of Danbury, County of Fairfield and State of Connecticut, which parcel contains 0.434 Acres more particularly shown and described on map No. 10206 of the Danbury Land Records and is more particularly bounded and described as follows:
Beginning at a point on the easterly highway line of Ye Old Road at the southeasterly corner of the herein described parcel, thence running west S 78 DEG. 10' 37" W a distance of 17.50' to a point;
Thence running N 13 DEG. 58'10" W a distance of 144.99' to a point;
Thence running N 15 DEG. 22'00" W a distance of 57.18' to a point;
Thence running N 15 DEG. 37'24" W a distance of 144.37' to a point;
Thence running N 15 DEG. 0l'25" W a distance of 75.46' to a point;
Thence running N 16 DEG. 49'37" W a distance of 152.31' to a point;
Thence running N 16 DEG. 28'35" W a distance of 222.57' to a point;
Thence running N l9 DEG. 57'59" W a distance of 35.75' to a point;
Thence running N 17 DEG. 28'32" W a distance of 231.51' to a point; the last eight courses running along land now or formerly of Wooster School Corp;
Thence running N 73 DEG. 03'06" E a distance of 18.95' to a point; which point marks the northeasterly corner of the herein described parcel;
Thence running S 16 DEG. 56'54" E a distance of 234.849' to a point;
Thence running S 23 DEG. 48'32" E a distance of 32.66' to a point;
Thence running S 16 DEG. 19'21" E a distance of 186.64' to a point;
Thence running S 15 DEG. 44'38" E a distance of 264.38' to a point;
Thence running S 16 DEG. 35'03" E a distance of 201.38' to a point;
Thence running S 13 DEG. 35'48" E a distance of 109.08 to a point;
Thence running S 11 DEG. 49'23" E a distance of 36.98' to the point and place of beginning; which last six courses are along Parcel 1 described herein.
EXHIBIT B
DESCRIPTION OF EQUIPMENT
All fixtures, machinery, apparatus, equipment, fittings and appliances of every kind and nature whatsoever now or hereafter affixed or attached to or installed in any of the Premises (except as hereafter provided), including all electrical, anti-pollution, heating, lighting (including hanging fluorescent lighting), incinerating, power, air cooling, air conditioning, humidification, sprinkling, plumbing, lifting, cleaning, fire prevention, fire extinguishing and ventilating systems, devices and machinery and all engines, pipes, pumps, tanks (including exchange tanks and fuel storage tanks), motors, conduits, ducts, steam circulation coils, blowers, steam lines, compressors, oil burners, boilers, doors, windows, loading platforms, lavatory facilities, stairwells, fencing (including cyclone fencing), passenger and freight elevators, overhead cranes and garage units, together with all additions thereto, substitutions therefor and replacements thereof required or permitted by that certain Lease Agreement of even date hereof between Purchaser, as landlord, and Seller, as tenant, but excluding all trade fixtures and all personal property, including without limitation all machinery, office, manufacturing and warehouse equipment and furniture used in connection with the operation of Seller's business and which are not necessary to the operation of the buildings which constitute part of the Premises.
EXHIBIT C
PERMITTED ENCUMBRANCES
BEDFORD PREMISES
1. Lease between BONE (DE) QRS 15-12, Inc. as landlord, and Hologic, Inc. as tenant, dated as of August 28, 2002 , a Memorandum of which is dated as of August 28, 2002 and recorded on September 6, 2002 as Document Number 1226707, and the terms and conditions of which include a right of first offer/right of first refusal and a right of subdivision and sale.
2. Unrecorded sublease between Hologic, Inc. as sublandlord and Phonetic Systems, Inc. as subtenant.
3. Unrecorded sublease between Hologic, Inc. as sublandlord and TechOnline, Inc. as subtenant.
4. Taxes and assessments which become due and payable subsequent to the date of policy, a lien not yet due and payable.
5. Provisions of the rights, easements and access easements reserved in a Deed from BASF Corporation to 35 Crosby Drive LLC, dated April 24, 1997 and filed as Document No. 1029886. NOTE: This policy insures against loss or damage arising from any material interference with the insured owner's use or enjoyment of the improvements currently located on the premises, which results from the exercise of rights by those entitled to utilize the said easements.
6. The flow of the natural watercourse shown as "Brook" on Land Court Plan 34759C, and as shown on the said survey plan.
7. The following matters shown on the plan of survey entitled, "ALTA/ACSM Land Title Survey Plan of Land in Bedford, Mass. (Middlesex County) Prepared for Hologic, Inc., Scale 1" = 40'" drawn by The BSC Group, Inc., dated February 24, 1997, revised December 16, 1997, June 11, 1998, August 24, 2000, and July 26, 2002:
a. Volleyball court on the southerly portion of the premises
encroaches onto adjacent property;
b. Drain line runs from Drain Manhole 47' on Lot 7 into catch basin
in northerly part of the premises;
c. Drain line from Monitoring/pumping wells EW8, EW7, and EW6 on Lot
7 enters the northerly part of the premises;
d. Underground Water, Gas and Telephone lines crossing the property
along the westerly boundary.
NOTE: This policy affirmatively insures against loss or damage resulting from a final court order or decree requiring removal of the said encroachment by the volleyball court.
DANBURY PREMISES
1. Real estate taxes and municipal liens that are a lien not yet due and payable.
2. Electric distribution easement in favor of The Connecticut Light and Power Company dated January 8, 1980 and recorded February 14, 1980 in Volume 635 at Page 428 of the Danbury Land Records.
3. Restriction prohibiting the mining and removal of gravel or earth matters as set forth in a deed from Mary A. Farwell a/k/a Mary Farwell, et al to Seymour R. Powers, et al dated September 13, 1979 and recorded September 13, 1979 in Volume 629 at Page 565 of the Danbury Land Records.
4. Road Maintenance Agreement dated March 26, 1993 and recorded in Volume 1045 at Page 238 of the Danbury Land Records.
NOTE: The Company affirmatively insures that as of the date of the Policy hereof that there are no payments due or owing on the above-referenced Road Maintenance Agreement.
5. The following matters as shown on the survey entitled, "ALTA/ACSM Land Title Survey, Plan of Land in City of Danbury Connecticut (Fairfield County)" drawn by BSC Group as Job No. 8.3014.00, dated and signed on August 27, 2002:
a. curb cuts crossing the easterly boundary of the property;
b. W/F shed crosses the 30' Rear Yard Setback line;
c. Remains of stone walls on westerly and southerly boundaries;
d. Stream encroaches onto property on the westerly boundary;
6. Terms and provisions of the Lease by and between BONE (DE) QRS 15-12, INC., as Landlord, and W.P. Carey & Co., LLC, as Tenant, dated August 22, 2002 and a Notice of which is recorded with said Deeds on September 4, 2002 at 3:02 P.M., including the terms and provisions of a Right of First Offer and Limited Right of First Refusal of Tenant to Purchase.
EXHIBIT D
BASIC RENT PAYMENTS
1. Basic Rent During Initial Term.
(a) Basic Rent. Subject to the adjustments provided for in Paragraphs
(b), (c) and (d) below, Basic Rent payable in respect of the Term shall be
$3,155,940.00 per annum, payable quarterly in advance on each Basic Rent Payment
Date, in equal installments of $788,985 each. Pro rata Basic Rent for the period
from the date hereof through the twenty-fourth day of November, 2002 shall be
paid on the date hereof, and pro rata Basic Rent for the period from the
twenty-fifth day of the last month of the Term through the last day of the last
month of the Term shall be paid with the final quarterly installment of Basic
Rent.
(b) CPI Adjustments to Basic Rent. The Basic Rent shall be subject to adjustment, in the manner hereinafter set forth, for increases in the index known as United States Department of Labor, Bureau of Labor Statistics, Consumer Price Index, All Urban Consumers, United States City Average, All Items, (1982-84=100) ("CPI") or the successor index that most closely approximates the CPI. If the CPI shall be discontinued with no successor or comparable successor index, Landlord and Tenant shall attempt to agree upon a substitute index or formula, but if they are unable to so agree, then the matter shall be determined by arbitration in accordance with the rules of the American Arbitration Association then prevailing in New York City. Any decision or award resulting from such arbitration shall be final and binding upon Landlord and Tenant and judgment thereon may be entered in any court of competent jurisdiction. In no event will the Basic Rent as adjusted on the First Rent Adjustment Date (as hereinafter defined) by the CPI adjustment be less than the annual Basic Rent in effect for the five (5) year period immediately preceding the First Rent Adjustment Date or with respect to each subsequent adjustment of Basic Rent be less than the annual Basic Rent in effect for the two (2) year period immediately preceding each such adjustment.
(c) Effective Dates of CPI Adjustments. Basic Rent shall not be adjusted to reflect changes in the CPI until September 1, 2007. As of September 1, 2007 (the "First Rent Adjustment Date") and on each second (2nd) anniversary of the First Rent Adjustment thereafter during the Initial Term, Basic Rent shall be adjusted to reflect increases in the CPI during the five (5) year period immediately preceding the First Rent Adjustment Date or with respect to each subsequent adjustment of Basic Rent, the most recent two (2) year period immediately preceding each of the foregoing anniversary dates (the First Rent Adjustment Date and each subsequent adjustment date being hereinafter referred to as the "Basic Rent Adjustment Date").
(d) Method of Adjustment for CPI Adjustment.
(i) As of each Basic Rent Adjustment Date when the average
CPI determined in clause (A) below exceeds the Beginning CPI (as defined in this
Paragraph (d)(i)), the Basic Rent in effect immediately prior to the applicable
Basic Rent Adjustment Date shall be multiplied by a fraction, the numerator of
which shall be the difference between (A) the average CPI for the three (3) most
recent calendar months (the "Prior Months") ending prior to such Basic Rent
Adjustment Date for which the CPI has been published on or before the
forty-fifth (45th) day preceding such Basic Rent Adjustment Date and (B) the
Beginning CPI, and the denominator of which shall be the Beginning CPI. An
amount equal to the lesser of (1) 200% of the product of such multiplication or
(2) 5.10% of the Basic Rent in effect immediately prior to the First Rent
Adjustment Date and 8.16% of the Basic Rent in effect immediately prior to each
subsequent Basic Rent Adjustment Date shall be added to the Basic Rent in effect
immediately prior to the applicable Basic Rent Adjustment Date. As used herein,
"Beginning CPI" shall mean the average CPI for the three (3) calendar months
corresponding to the Prior Months, but occurring five (5) years earlier for the
first adjustment of Basic Rent Adjustment and two (2) years earlier for each
subsequent adjustment of Basic Rent. If the average CPI determined in clause (A)
is the same or less than the Beginning CPI, the Basic Rent will remain the same
for the ensuing two (2) year period.
(ii) Effective as of a given Basic Rent Adjustment Date, Basic Rent payable under this Lease until the next succeeding Basic Rent Adjustment Date shall be the Basic Rent in effect after the adjustment provided for as of such Basic Rent Adjustment Date.
(iii) Notice of the new annual Basic Rent shall be delivered to Tenant on or before the tenth (10th) day preceding each Basic Rent Adjustment Date, but any failure to do so by Landlord shall not be or be deemed to be a waiver by Landlord of Landlord's rights to collect such sums. Tenant shall pay to Landlord, within ten (10) days after a notice of the new annual Basic Rent is delivered to Tenant, all amounts due from Tenant, but unpaid, because the stated amount as set forth above was not delivered to Tenant at least ten (10) days preceding the Basic Rent Adjustment Date in question.
2. Basic Rent During Extension Terms. The Basic Rent during each Extension Term (the "Extension Term Basic Rent") shall be equal to ninety-five percent (95%) of the Fair Market Rental Value of the Premises as determined in accordance with the process described below, for renewals of space in the vicinity of each of the Bedford Premises and the Danbury Premises of equivalent quality, size, utility and location, with the length of the Extension Term and the credit standing of Tenant to be taken into account. Within thirty (30) days after receipt of Tenant's Extension Notice to extend the Term, Landlord shall deliver to Tenant written notice of its determination of the Extension Term Basic Rent (including a breakdown of the Fair Market Rental Value for each of the Bedford Premises and the Danbury Premises) for the applicable Extension Term. Tenant shall, within thirty (30) days after receipt of such notice, notify Landlord in writing whether Tenant accepts or rejects Landlord's determination of the Extension Term Basic Rent
("Tenant's Response Notice"). If Tenant fails timely to deliver Tenant's Response Notice, Landlord's determination of the Extension Term Basic Rent shall be binding on Tenant. If Tenant's Response Notice is timely delivered to Landlord and indicates that Tenant rejects Landlord's determination of the Extension Term Basic Rent, then the Fair Market Rental Value shall be determined in accordance with the procedure set forth in this Paragraph 2 of this Exhibit "D". In such event, within five (5) days after receipt by Landlord of Tenant's Response Notice, Tenant and Landlord shall each notify the other, in writing, of their respective selections of an appraiser (respectively, "Landlord's Appraiser" and "Tenant's Appraiser"). Landlord's Appraiser and Tenant's Appraiser shall then jointly select a third appraiser (the "Third Appraiser"). All of the appraisers selected shall be individuals with at least five (5) years' commercial appraisal experience in the area in which the Premises are located, shall be members of the Appraisal Institute (M.A.I.), and, in the case of the Third Appraiser, shall not have acted in any capacity for either Landlord or Tenant within five (5) years of his or her selection. The three appraisers shall determine the Fair Market Rental Value in accordance with the requirements and criteria set forth in Paragraph 2 of this Exhibit "D", employing the method commonly known as Baseball Arbitration, whereby Landlord's Appraiser and Tenant's Appraiser each sets forth its determination of the Fair Market Rental Value for each of the Bedford Premises and the Danbury Premises as defined above, and the Third Appraiser must select one or the other (it being understood that the Third Appraiser shall be expressly prohibited from selecting a compromise figure). Landlord's Appraiser and Tenant's Appraiser shall deliver their determinations of the Fair Market Rental Value for each of the Bedford Premises and the Danbury Premises to the Third Appraiser within ten (10) business days of their respective appointments and the Third Appraiser shall render his or her decision within ten (10) business days after receipt of both of the other two determinations of the Fair Market Rental Value for each of the Bedford Premises and the Danbury Premises. The Third Appraiser's decision shall be binding on both Landlord and Tenant. Each party shall bear the cost of its own appraiser and shall share equally in the cost of the Third Appraiser.
EXHIBIT E
PERCENTAGE ALLOCATION OF BASIC RENT
Bedford Premises 81.47%
Danbury Premises 18.53%
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TOTAL 100.00%
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EXHIBIT F
COVENANTS
1. Financial Covenants. So long as the Lease shall remain in effect Tenant and its Subsidiaries shall:
(a) Maintain at the end of each fiscal quarter, commencing with the fiscal quarter ending September 30,2002, a Fixed Charge Coverage Ratio of not less than 1.20 to 1 for the four most recently completed fiscal quarters.
(b) Maintain as of the end of each fiscal quarter, commencing with the fiscal quarter ending September 30, 2002, a Total Debt/EBITDAR Ratio of not more than 4.5 to 1.
2. Definitions.
For the purpose of this Exhibit "G" the following terms shall have the following meanings, and shall terms not otherwise specified herein shall have the meanings assigned to such terms in Paragraph 2 of this Lease.
"Capital Lease" means a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP.
"Capitalized Lease Obligation" means the amount of the liability of any Person which in accordance with GAAP should be capitalized or disclosed on the balance sheet of such Person in respect of a Capital Lease.
"EBITDAR" means, with respect to any fiscal period, the Tenant's and its Subsidiaries consolidated net earnings (or loss), minus extraordinary gains, plus interest expense, income taxes, depreciation and amortization, rental expense, and non-cash charges related to restructuring or acquisition for such period, as determined in accordance with GAAP.
"Fixed Charge Coverage Ratio" shall mean as of any date of determination for the immediately preceding period of four (4) consecutive fiscal quarters, the ratio of (i) EBITDAR to (ii) the sum of (a) rental expense paid during such period and (b) Interest Expense.
"GAAP" shall mean generally accepted accounting principles as in effect from time to time in the United States of America, applied on a consistent basis.
"Indebtedness" means (a) all obligations of Tenant or its Subsidiaries
for borrowed money, (b) all obligations of Tenant or its Subsidiaries evidenced
by bonds, debentures, notes, or other similar instruments and all reimbursement
or other obligations of Tenant or its Subsidiaries in respect of letters of
credit, bankers acceptances, interest rate swaps, or other financial products,
(c) all obligations of Tenant or its Subsidiaries under Capital Leases
(excluding this Lease if same would be reclassified as a Capital Lease), (d) all
obligations or liabilities of others secured by a Lien on any asset of Tenant or
its Subsidiaries, irrespective of whether such obligation or liability is
assumed, (e) all obligations of Tenant or its Subsidiaries
for the deferred purchase price of assets (other than trade debt incurred in the ordinary course of Tenant or its Subsidiaries' business and repayable in accordance with customary trade practices), and (f) any obligation of Tenant or its Subsidiaries guaranteeing or intended to guarantee (whether directly or indirectly guaranteed, endorsed, co-made, discounted, or sold with recourse to a Tenant or its Subsidiaries) any obligation of any other Person.
"Interest Expense" means, for any period, consolidated total interest expense (including, without limitation, that portion of any Capitalized Lease Obligations attributable to interest expense in conformity with GAAP and amortization of capitalized interest) payable in cash during such period with respect to all outstanding Indebtedness of Tenant and its Subsidiaries, including all commissions, discounts and other fees and charges owed with respect to letter of credit and bankers acceptance financing, prepayment charges, agency fees, administrative fees, commitment fees, net payment owed under any interest rate hedging, cap or similar agreement or arrangement, all as determined for Tenant and its Subsidiaries on a consolidated basis for such period in accordance with GAAP.
"Lien" means any interest in an asset securing an obligation owed to, or a claim by, any Person other than the owner of the asset, whether such interest shall be based on the common law, statute, or contract, whether such interest shall be recorded or perfected, and whether such interest shall be contingent upon the occurrence of some future event or events or the existence of some future circumstance or circumstances, including the lien or security interest arising from a mortgagee, deed of trust, encumbrance, pledge, hypothecation, assignment, deposit arrangement, security agreement, conditional sale or trust receipt, or from a lease, consignment, or bailment for security purposes and also including reservations, exceptions, encroachments, easements, rights-of-way, covenants, conditions, restrictions, leases, and other title exceptions and encumbrances affecting Real Property.
"Real Property" means any estates or interests in real property now owned or hereafter acquired by Tenant or any of its Subsidiaries and the improvements thereto.
"Subsidiary(ies)" of a Person means a corporation, partnership, limited liability company, or other entity in which that Person directly or indirectly owns or controls the shares of Stock having ordinary voting power to elect a majority of the board of directors (or appoint other comparable managers) of such corporation, partnership, limited liability company, or other entity.
"Total Debt" means all of the Indebtedness of Tenant and its Subsidiaries.
"Total Debt/EBITDAR Ratio" shall mean the ratio of (a) Total Debt outstanding on the last day of such fiscal quarter to (b) EBITDAR for the immediately preceding period of four (4) consecutive fiscal quarters.
EXHIBIT G
TERMINATION VALUES
YEAR % Bedford Premises Danbury Premises
--------------- ----- ---------------- ----------------
1-2 103.0% 28,311,518 6,471,204
3-4 101.5% 27,899,215 6,376,963
5 100.0% 27,486,911 6,282,723
6-8 98.5% 27,074,607 6,188,482
9-11 97.0% 26,662,304 6,094,241
12-14 95.5% 26,250,000 6,000,000
15-18 94.0% 25,837,696 5,905,759
19-20 92.5% 25,425,393 5,811,518
extension terms 91.0% 25,013,089 5,717,277
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EXHIBIT H
FORM OF LEASEHOLD MORTGAGE AGREEMENT
This Leasehold Mortgage Agreement ("Agreement") is executed as of ____________________, 2002 by and among ____, a ____ ("Landlord") and HOLOGIC, INC., a Delaware corporation ("Tenant") in favor of ___________________________, a _______________ (the "Leasehold Mortgagee").
W I T N E S S E T H
Reference is made to that certain Lease dated ___________, 2002 between Landlord and Tenant (as the same may be amended from time to time, the "Lease"), a memorandum or notice of which has been recorded with the Registry District of the Land Court as Instrument No. _____, with respect to certain premises located at ____________________, and more particularly described in Exhibit 1 attached hereto and incorporated herein.
WHEREAS, Leasehold Mortgagee has or will lend certain sums to Tenant which are to be secured, in part, by a certain Leasehold Mortgage, Security Agreement and Fixture Financing Statement (including any amendments, revisions, modifications, renewals, extensions or replacements thereof, the "Leasehold Mortgage") on Tenant's interest in the property demised under the Lease and all improvements situated or to be constructed thereon (the "Leasehold").
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
1. ASSENT. Landlord does hereby assent to such Leasehold Mortgage and to any subsequent sale or transfer of the Leasehold as provided in such security instrument.
2. ESTOPPEL. As of the date of this agreement, the Lease is in full force and effect; to Landlord's actual knowledge, no default has occurred by either Landlord or Tenant that has not been cured except ___________; and to Landlord's actual knowledge there is no condition which, with the passage of time or the giving of notice or both, would result in an Event of Default by Landlord or Tenant under the terms of the Lease except _____________.
3. REMOVAL OF COLLATERAL. To the extent permitted under the Leasehold Mortgage, Landlord agrees that Leasehold Mortgagee shall have the right to enter upon the Premises and remove from the Leasehold any of the Tenant's personal property which is located at, constructed upon or affixed to the Leasehold (specifically excluding those items described in Exhibit 2) ("Tenant's Property"), whenever Leasehold Mortgagee shall elect to enforce the security interests given by the Tenant therein, either during the term of the Lease or within sixty (60) days after the expiration or the early termination thereof, or for such additional period required by the entry of any order prohibiting Leasehold Mortgagee's timely enforcement of such rights, provided that from and after the expiration or early termination of the Lease Leasehold Mortgagee (i) shall pay the Basic Rent (as defined in the Lease) payable by Tenant immediately prior to such expiration or earlier termination, calculated on a per-diem basis until the day on which Leasehold Mortgagee completes such removal and (ii) shall pay, protect, indemnify, defend and hold harmless Landlord from and against any loss, claim or
damage resulting from Leasehold Mortgage's entry onto the Premises. Furthermore, Landlord hereby disclaims any title to or rights in Tenant's Property and subordinates to Leasehold Mortgagee's security interests therein any landlord's lien, encumbrance or other interest which the Landlord may now or hereafter have or acquire therein under the Lease or applicable law.
4. ADDITIONAL LEASEHOLD MORTGAGEE PROTECTION PROVISIONS. The terms and conditions set forth below in this Section 4 shall be binding upon Landlord as if fully set forth in the Lease, and to the extent of any inconsistency between the terms and provisions contained in the Lease and the terms and conditions set forth below in this Section 4, the terms and conditions set forth below in this Section 4 shall govern and control:
(a) Notices to Leasehold Mortgagee; Leasehold Mortgagee's Right to Cure.
(i) Landlord shall send to Leasehold Mortgagee, by hand delivery or nationally recognized overnight courier (in either case with evidence of delivery or refusal thereof) or by certified or registered mail, a true, correct and complete copy of any notice to Tenant of a default by Tenant under the Lease at the same time as and whenever any such notice of default shall be given by Landlord to Tenant, addressed to Leasehold Mortgagee at the address specified in Section 6 hereof or, if different, the address, if any, last furnished to Landlord by such Leasehold Mortgagee as provided in Section 6 hereof. No notice by Landlord shall be binding upon Leasehold Mortgagee unless and until a copy thereof shall have been so given to and received by Leasehold Mortgagee. Tenant irrevocably directs that Landlord accept, and Landlord agrees to accept, performance and compliance by Leasehold Mortgagee of and with any term, covenant, agreement, provision, condition or limitation on Tenant's part to be kept, observed or performed under the Lease with the same force and effect as though kept, observed or performed by Tenant.
(ii) Notwithstanding anything provided to the contrary in the Lease, the Lease shall not be terminated because of a default or breach thereunder on the part of Tenant until and unless:
(A) Written notice of any such default or breach shall have been delivered to the Leasehold Mortgagee in accordance with the provisions of Section 4(a)(i) above;
(B) With respect to a default or breach that is curable solely by the payment of money, Leasehold Mortgagee has not cured such default or breach within fifteen (15) days following Leasehold Mortgagee's receipt (or refusal of delivery) of notice of such default; and
(C) With respect to a breach that is not curable solely by the payment of money, Leasehold Mortgagee has not cured such default or breach within thirty (30) days following the expiration of any of Tenant's notice and cure periods set forth in the Lease, or, if such default or breach is curable but cannot be cured within such time period, such additional time reasonably necessary (but not in excess of sixty additional days) provided that (1) Leasehold Mortgagee has notified Landlord within such time period that it intends to cure such default or breach, (2) Leasehold Mortgagee has diligently commenced to cure such default or breach, and (3) Leasehold Mortgagee prosecutes such cure to completion.
(b) Landlord's Consent. To the extent provided in the Leasehold Mortgage, Landlord hereby consents to any or all of the following:
(i) The entry by the Leasehold Mortgagee upon the Leasehold during business hours, without notice to Landlord or Tenant, to view the state of the Leasehold;
(ii) A default by Tenant under the Lease being deemed to constitute a default under the Leasehold Mortgage;
(iii) An assignment to Leasehold Mortgagee of Tenant's right, if any, to terminate, cancel, modify, change, supplement, alter, or amend the Lease, including without limitation Tenant's right under Section 365(h)(1) of the Bankruptcy Code (hereinafter defined) to elect to treat the Lease as terminated, and an assignment of all of Tenant's other rights under the Bankruptcy Code;
(iv) An assignment to Leasehold Mortgagee of Tenant's interest
in any sublease now or hereafter entered into by Tenant, subject
and subordinate in all respects to Landlord's rights under
Section 10(g) of the Lease; and
(v) The following rights and remedies (among others) to be available to the Leasehold Mortgagee upon the default under any Leasehold Mortgage:
(A) The foreclosure of the Leasehold Mortgage pursuant to a power of sale, by judicial proceedings or other lawful means and the sale of the Leasehold to the purchaser at the foreclosure sale subject to the terms of Section 10 of the Lease;
(B) The appointment of a receiver, irrespective of whether the Leasehold Mortgagee accelerates the maturity of all indebtedness secured by the Leasehold Mortgage;
(C) The right of the Leasehold Mortgagee or the receiver appointed under subparagraph (B) above to enter and take possession of the Leasehold, to manage and operate the same, to collect the subrentals, issues and profits therefrom, subject and subordinate in all respects to Landlord's rights under Section 10(g) of the Lease, and any other income generated by the Leasehold or the operation thereof and to cure any default under the Leasehold Mortgage or any default by Tenant under the Lease; or
(D) An assignment of Tenant's right, title and interest under the Lease in and to any deposit of cash, securities or other property which may be held to secure the performance of the Leasehold Loan Obligations, including without limitation the covenants, conditions and agreements contained in the Leasehold Mortgage, in the premiums for or dividends upon any insurance provided for the benefit of any Leasehold Mortgagee or required by the terms of the Lease, as well as in all refunds or rebates of taxes or assessments upon or other charges against the Leasehold, whether paid or to be paid, excepting, however, any right of Tenant in and to any Net Award which shall be held and applied as provided in the Lease.
(c) Permitted Transfers. It is acknowledged that the Leasehold Mortgage may be assigned by
Leasehold Mortgagee in accordance with its terms. No such transfer shall require the approval or consent of Landlord, provided, that, Landlord shall have no obligation to recognize as a substitute tenant any Person who is not in compliance with the applicable terms and conditions of Section 10 of the Lease, including Section 10(b).
(d) New Lease to Leasehold Mortgagee. If the Lease is terminated because of rejection of the Lease by a trustee in bankruptcy without Leasehold Mortgagee's participation, then Leasehold Mortgagee may elect to demand a new lease of the Leasehold by written notice to Landlord within thirty (30) days after such rejection. Upon any such election, the following provisions shall apply:
(i) The new lease shall be for the remainder of the term of the Lease, effective on the date of termination, at the same rent and shall contain the same covenants, agreements, conditions, provisions, restrictions and limitations as are then contained in the Lease (including without limitation options to purchase). Such new lease shall be subject to all existing subleases.
(ii) The new lease shall be executed by Landlord within thirty
(30) days after receipt by Landlord of written notice of the
Leasehold Mortgagee's or the election of such other acquiring
person who shall be in compliance with the terms and conditions
of Section 10 to enter into a new lease, including Section 10(b).
(iii) If Tenant refuses to surrender possession of the Leasehold, Landlord shall, at the request of the Leasehold Mortgagee or the election of such other acquiring person who is in compliance with the terms and conditions of Section 10 (including Section 10(b)) institute and pursue diligently to conclusion the appropriate legal remedy or remedies to oust or remove Tenant and all subtenants actually occupying the Leasehold or any part thereof who are not authorized to remain in possession hereunder. Any such action taken by Landlord at the request of the Leasehold Mortgagee or such other acquiring person shall be at the Leasehold Mortgagee's or such other acquiring person's sole expense.
5. BANKRUPTCY PROVISIONS.
(a) If the Tenant shall reject the Lease pursuant to Section 365(a) of the
Bankruptcy Code, the Landlord shall serve on the Leasehold Mortgagee
written notice of such rejection, together with a statement of all
sums at the time due under the Lease (without giving effect of any
acceleration) and of all other defaults under the Lease then known to
the Landlord. The Leasehold Mortgagee shall have the right, but not
the obligation, to serve on the Landlord within thirty (30) days after
service of the notice provided in the proceeding sentence, a notice
that the Leasehold Mortgagee elects to (i) assume the Lease, and (ii)
cure all defaults outstanding thereunder (x) concurrently with such
assumption as to defaults in the payment of money, and (y) within
sixty (60) days after the date of such assumption as to other
defaults. If the Leasehold Mortgagee serves such notice of assumption,
then, as between the Landlord and the Leasehold Mortgagee (i) the
rejection of the Lease by the Tenant shall not constitute a
termination of the Lease, (ii) the Leasehold Mortgagee may assume the
obligations of the Tenant under the Lease without any instrument or
assignment of transfer from the Tenant, (iii) the Leasehold
Mortgagee's rights under the Lease shall be free and clear of all
rights, claims and encumbrances of or in respect of the Tenant, and
(iv) the Leasehold Mortgagee shall consummate the assumption of the
Lease and the payment of
the amounts payable by it to the Landlord pursuant to this Section at a closing to be held at the offices of the Landlord (or its attorneys) within thirty (30) days after the Leasehold Mortgagee shall have served the notice of assumption hereinabove provided. Upon a subsequent assignment of the Lease by the Leasehold Mortgagee, which assignment shall be subject in all respects to the terms and conditions of Section 10 of this Lease (including Section 10(b)), the Leasehold Mortgagee shall be relieved of all obligations and liabilities arising from and after the date of such assignment.
6. NOTICES. Any notices required or permitted hereunder shall be in writing and delivered by hand or by nationally recognized overnight courier (in either case with evidence of delivery or refusal thereof), and addressed as follows:
If to Tenant: Hologic, Inc.
35 Crosby Drive
Bedford, MA 01730
Attention: Glenn Muir
with a copy to: Brown Rudnick Berlack Israels, LLP
One Financial Center
Boston, MA 02111
Attention: Carl E. Axelrod, Esquire
If to Landlord: W.P. Carey & Co. LLC
50 Rockefeller Plaza, Second Floor
New York, NY 10020
Attn: Asset Management
with a copy to: Reed Smith LLP
2500 One Liberty Place
1650 Market Street
Philadelphia, Pennsylvania 19103-7301
Attention: Chairman, Real Estate Department
Telephone: 212-521-5418
Facsimile: 212-521-5450
If to Leasehold Mortgagee:
______________________
______________________
______________________
______________________
with a copy to:
______________________
______________________
______________________
______________________
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or to such other address as any party may designate by notice to the other parties.
7. SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall be binding upon and inure to the benefit of each party's respective successors and permitted assigns.
8. CONTINUED EFFECTIVENESS OF THIS AGREEMENT. The terms of this Agreement, the subordination and the rights of the Leasehold Mortgagee, and the obligations of the Landlord and the Tenant arising hereunder shall not be affected, modified or impaired in any manner or to any extent by: (a) any renewal, replacement, amendment, extension, substitution, revision, consolidation, modification or termination of any of the Leasehold Loan Obligations; (b) the validity or enforceability of any document evidencing or securing the Leasehold Loan Obligations; (c) the release, sale, exchange or surrender, in whole or in part, of any collateral security, now or hereafter existing, for any of the Leasehold Loan Obligations; (d) any exercise or nonexercise of any right, power or remedy under or in respect of the Leasehold Loan Obligations; or (e) any waiver, consent, release, indulgence, extension, renewal, modification, delay or other action, inaction or omission in respect of the Leasehold Loan Obligations, all whether or not any Landlord all have had notice or knowledge of any of the foregoing and whether or not it shall have consented thereto.
9. COUNTERPARTS. This Agreement may be executed in several counterparts, each of which shall be an original, but all of which shall constitute one and the same instrument.
[SIGNATURES ON FOLLOWING PAGE]
Executed as a sealed instrument under the laws of the Commonwealth of Massachusetts as of the date first above written.
LANDLORD:
TENANT: HOLOGIC, INC.
LEASEHOLD MORTGAGEE
EXHIBIT 1
LEGAL DESCRIPTION
EXHIBIT 2
EQUIPMENT
EXHIBIT I
FORM OF RECOGNITION, SUBORDINATION, NON-DISTURBANCE
AND ATTORNMENT AGREEMENT
THIS RECOGNITION, SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT (this "Agreement") is made and entered into as of the ___ day of August, 2002, by and between TechOnLine Incorporated, a Delaware corporation, (the "Subtenant"), whose address is 35 Crosby Drive, Bedford, MA 01730, and BONE (DE) QRS 15-12, Inc., a Delaware corporation (the "Landlord"), whose address is c/o W. P. Carey & Co., LLC, 50 Rockefeller Plaza, Second Floor, New York, New York 10020.
W I T N E S S E T H
REFERENCE is hereby made to that certain lease dated August __, 2002, by and between Landlord, as landlord, and Hologic, Inc. ("Tenant"), as tenant (as it may be amended from time to time, the "Prime Lease") with respect to the properties commonly known as 35 Crosby Drive, Bedford, Massachusetts (the "Bedford Premises") and 36 Apple Ridge Way, Danbury, Connecticut (the "Danbury Premises").
REFERENCE is also hereby made to that certain sublease dated April 20, 2000
by and between Tenant, as sublandlord, and Subtenant, as subtenant, as amended
by that certain First Amendment to Lease dated as of February 28, 2002 and as
further amended by that certain Second Amendment to Lease dated as of August __,
2002 (collectively, the "Sublease"), with respect to a portion of the Bedford
Premises consisting of approximately 10,120 rentable square feet on the second
(2nd) floor of the building located on the Bedford Premises (the "Subleased
Premises").
WHEREAS, pursuant to that certain quitclaim deed dated August __, 2002 and that certain warranty deed dated August __, 2002, Landlord purchased the Bedford Premises and the Danbury Premises, respectively, from Tenant subject to the terms of the Prime Lease; and
WHEREAS, the Lease requires that Landlord recognize the rights of Subtenant under the Sublease and agree not to disturb Subtenant's use and enjoyment of the Subleased Premises, and Landlord has agreed to recognize the rights of Subtenant under the Sublease and agrees not to disturb Subtenant's use and enjoyment of the Subleased Premises, subject to the terms and provisions hereinafter set forth.
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
1. Sublease Subordinate to Prime Lease. Tenant hereby subordinates the Sublease to the Prime Lease.
2. Tenant Not To Be Disturbed. So long as Subtenant is not in default (beyond any period given Subtenant by the terms of the Sublease to cure such default) in the payment of rent or additional rent or of any of the terms, covenants or conditions of the Sublease on Subtenant's part to be performed, (a) Subtenant's possession of the Subleased Premises, and its rights and privileges under the Sublease, including but not limited to any extension or renewal rights, if any, shall not be diminished or interfered with by Landlord, and (b) Landlord will not join Subtenant as a party defendant in any action or proceeding terminating Tenant's possession of the Bedford Premises unless such joinder is necessary to
terminate such possession and then only for such purpose and not for the purpose of terminating the Sublease.
3. Tenant To Attorn To Landlord. If the Prime Lease is terminated pursuant to the terms thereof, the Sublease shall continue in full force and effect as a direct lease between Landlord and Subtenant. Subtenant shall attorn to Landlord as its landlord, said attornment to be effective and self-operative without the execution of any further instruments.
4. Assignment of Sublease. Subtenant shall upon written notice from Landlord to Subtenant pay rent to Landlord at the address set forth in such notice.
5. Sublease Amendments. Subtenant shall not amend the Sublease without the prior written consent of Landlord which consent shall not be unreasonably withheld, conditioned or delayed. It shall be reasonable for Landlord to withhold its consent if such amendment (a) reduces the rent payable under the Sublease, (b) provides for expansion rights in the Bedford Premises, (c) extends the term of the Sublease in addition to Subtenant's current 5-year right to extend the term under the Sublease or (d) reduces any of the liabilities and obligations of Subtenant under the Sublease. Any such amendment made without Landlord's consent shall not be binding on Landlord.
6. Landlord's Right to Notice and Cure. Tenant covenants and agrees to: (a)
concurrently give Landlord the same notices given to Tenant under the Sublease;
(b) provide Landlord with the same opportunities and rights as are available to
Tenant under the Sublease to cure any of Tenant's defaults thereunder; and (c)
accept Landlord's curing of any of Tenant's defaults under the Sublease as
performance by Tenant thereunder.
7. Amendments. This Agreement may not be waived, changed, or discharged orally, but only by agreement in writing and signed by Landlord and Subtenant, and any oral waiver, change, or discharge of this Agreement or any provisions hereof shall be without authority and shall be of no force and effect.
8. Miscellaneous. Paragraph captions are included herein for reference only, and shall in no way constitute any part of this Agreement nor define or limit any of the provisions hereof. The invalidity of any provision of this Agreement, as determined by a court of competent jurisdiction, shall in no way affect the validity of any other provision hereof. This Agreement and each and every covenant, agreement and other provision hereof shall be binding upon and shall inure to the benefit of the parties hereto and their representatives, successors and assigns. This Agreement shall be construed and enforced in accordance with the laws of the state in which the Premises are located.
[signature page follows immediately]
IN WITNESS WHEREOF, the parties hereto have each caused this Agreement to be executed as an instrument under seal as of the date first above written.
LANDLORD:
BONE (DE) QRS 15-12, INC.,
A DELAWARE CORPORATION
Title:
SUBTENANT:
TECHONLINE INCORPORATED,
A DELAWARE CORPORATION
Title:
[ADD STATE ACKNOWLEDGEMENTS]
EXHIBIT J
PLAN OF 3-ACRE PARCEL
[GRAPHIC APPEARS HERE]
EXHIBIT K
TENANT'S POST-CLOSING ENVIRONMENTAL OBLIGATIONS
Tenant shall conduct the following actions at the Danbury Premises and provide Landlord with quarterly status reports on or before December 10, 2002, March 10, 2003, June 10, 2003, September 10, 2003 and quarterly thereafter until satisfactory completion of all of the activities listed below. Tenant shall reimburse Landlord for all of Landlord's reasonable costs, including reasonable attorney fees, incurred by Landlord in reviewing Tenant's progress in completing the activities listed below.
1. Not later than ten (10) days after the date of this Lease, Tenant, at Tenant's sole cost and expense, shall have prepared a Form III and an Environmental Condition Assessment Form in accordance with the provisions of the Connecticut Transfer Act, Conn. Gen. Stat. Sections 22a-134 et seq., and shall have filed such documents with the Connecticut Department of Environmental Protection ("CTDEP"). Tenant shall sign the Form III as the "Certifying Party".
2. Within sixty (60) days after the date of this Lease, Tenant shall implement the investigation scope of work set forth in the attached proposal from Rizzo Associates.
3. Within one-hundred and twenty (120) days after the date of this Lease, Tenant shall implement any additional investigation that may be required by CTDEP.
4. Within one (1) year after the date of this Lease, Tenant shall complete all investigations required for the Danbury Premises unless otherwise agreed to in writing by Tenant and Landlord or unless the delay is solely attributable to or required by CTDEP.
5. Within two (2) years after the date of this Lease, Tenant shall have implemented any required remediation unless otherwise agreed to in writing by Landlord and Tenant or unless the delay is solely attributable to or required by CTDEP.
6. Tenant's obligations hereunder shall terminate upon receipt by Tenant and presentation to Landlord of a written certification or other approval from CTDEP (or, if the Danbury Premises is an LEP-lead site, from Rizzo Associates or another licensed environmental professional engineer reasonably acceptable to Landlord) which provides that no further investigation or remediation is required on the Danbury Premises.
7. Tenant shall provide Landlord with draft copies of all substantive correspondence, investigative work plans, or reports ("Agency Communications") at least twenty (20) days prior to submission to CTDEP, except for the Form III and Environmental Condition Assessment Form referenced in Paragraph 1 above, which shall be provided to Landlord simultaneously with the filing thereof with CTDEP. Agency Communications shall not be submitted to CTDEP by Tenant until Tenant shall have received Landlord's written approval, which shall not be unreasonably withheld, conditioned or delayed. Tenant shall incorporate all reasonable modifications suggested by Landlord and the parties agree to use their best efforts to cooperate in resolving any disagreements over any proposed Agency Communications.
8. Quarterly status reports required to be made by Tenant in accordance with the provisions of this Exhibit "K" and all proposed and final Agency Communications shall be addressed to:
Donna Neiley
Asset Management Department
W. P. Carey & Co., Inc.
50 Rockefeller Plaza
2nd Floor
New York, NY 10020
(212) 492-1100 telephone
(212) 429-3022 fax
dneiley@wpcarey.com
with a second copy to:
Louis A. Naugle, Esquire
Reed Smith LLP
435 Sixth Avenue
Pittsburgh, PA 15219
(412) 288-8587 telephone
(412) 288-3063 fax
lnaugle@reedsmith.com
EXHIBIT 10.28
SETTLEMENT AND WAIVER AGREEMENT
(TRANSLATED FROM THE FRENCH)
BETWEEN:
Hologic France SA, a French company, with a capital of EUR 599 063, having its registered office at 15, rue du Saule Trapu, Massy Cedex, 91 882 Massy Cedex, registered with the Registry of Commerce and Companies of Nanterre under number B 349 961 607 RCS d'Evry, represented by Mr. Muir, legal representative duly authorized,
(hereafter, the "Employer"),
ON THE ONE HAND,
AND
Mr. Jean Chaintreuil, born on March, 1955, a French Citizen, residing36, rue du General Brunet, 75019 Paris,
(hereafter the "Employee"),
ON THE OTHER HAND.
PREAMBLE:
A. The employee was hired by the Hologic France SA, Hologic Europe N.V, Hologic Espana S.A. as a General Manager/ President European Operations pursuant to an indefinite term employment agreement dated October 1, 1991, with a monthly gross salary amounting to FRF 36.667,00 (EUR 5589,85) and a variable compensation in consideration of the achievement by the Employee of objectives defined in the annex B of the employment agreement.
Under Annex C of his employment contract, the Employee is bound by a non-competition undertaking, which is applicable both during and after the termination of his employment contract.
At the same time, the Employee was a corporate officer in his capacity as President of Hologic France and as legal representative ("Administrateur Delegue") of Hologic Europe N.V and as President and a corporate officer of Hologic Espana S.A..
B. As General Manager/ President European Operations, the Employee was in charge of the management of the sales teams and ensuring the reporting of the sales forecast relating to the product line he was in charge of in Europe.
C. Since the new reorganization decided by the Group, the Employee indicated to the Employer his disagreement on the essential points of the commercial policy decided by the company and that he must apply in Europe.
The Employee put into question the commercial plans for which the group gave him management responsibility.
The Employee criticized, several times, the reorganization plan for the European team stating that the reduction and the redeployment of the staff did not permit him to assure the commercial development objectives of the group.
In general, it appears that the Employee was reluctant to apply the decisions of the group in a context in which it is important that the management team fully back company policy.
This criticisms regarding the commercial plans for Europe created a discord with the other managers and demotivated his staff.
Considering the position of the Employee and the highly competitive business in which the company operates, this situation could not continue.
D. Considering this situation, the Employee, decided to resign from his position as an employee of Hologic Europe N.V and Hologic Espana S.A by two letters dated January 15th, 2002 in which he asked to be exempted from working during his notice period. Hologic Europe N.V and Hologic Espana S.A have agreed to exempt the Employee from working during his notice period.
E. The situation between the parties became difficult and the Employer convened the Employee to a preliminary interview scheduled on January 21, 2002 by a letter duly handed to Employee.
During the preliminary interview on January 29, 2002, the Employer explained the reasons why it was considering dismissing the Employee.
The Employer considered that the explanations given by the Employee were not satisfactory and, therefore, the Employer notified the Employee, by registered mail dated February, 1st 2002, of his dismissal for disagreement on the essential points of the commercial policy of the company, which created disagreement with the other managers and demotivated his employees.
The Employer also informed the Employee that it would provide him, at the end of the notice period, with a Labor Certificate ("Certificat de Travail"), an Unemployment Attestation ("Attestation Assedic") and the full amount remaining due to him against written receipt ("Recu pour Solde de tout Compte").
The Employee was also notified that he must respect his contractual confidential, discretion and non-competition undertakings.
F. The Employee immediately contested the reasons for his dismissal arguing that his dismissal was unfair and wrongful and that the Employer did not comply with the legal rules regarding dismissal procedures.
First, the Employee considered that his dismissal was invalid because his dismissal letter was signed by a person who had did not have authority to represent the Employer.
The Employee considered also that his dismissal letter was not duly notified pursuant to the legal requirements, which provide that the dismissal letter should be sent by registered letter with acknowledgment receipt.
The Employee added that the Employer violated the terms of his employment agreement, the annex and the exhibits.
The Employee considered also that the dismissal based on disagreement on the essential points of the commercial policy of the company was without basis and that there was only a disagreement on minor points.
The Employee considered that he has simply exercised his right of expression, which the law and the case law recognize as a legal right.
The Employee added that the Employer did not demonstrate that this so-called disagreement on the essential points of the commercial policy of the company had disturbed, in any way, the proper functioning of the company.
The Employee added that the demotivation of his staff and the resulting internal tensions were the consequences of the group reorganization and not due to his opinion.
G. The Employee asserted that his dismissal was based, in reality, on economic grounds and was not for personal cause.
Therefore, the Employee considered that his dismissal for personal cause was decided by the Employer in order not to comply with the specific procedures for economic dismissals and that the true reason for his dismissal was the decision of the Employer to replace qualified and senior employees by new employees having lower salaries.
The Employee stated that the Employer violated the legal requirements concerning economic dismissals and case law regarding outplacement, as well as the ordered of dismissal rules.
Moreover, the Employee stated that the measures taken against him were very brutal and offensive.
Furthermore, the Employee added that the Employer did not comply with the legal rules regarding dismissal procedures and with its obligations under the terms of the employment agreement and concerning the amounts remaining due to him.
H. Under these conditions, the Employee asserted that, considering the procedures used, the fact that his dismissal was unfair and considering the violation by the Employer of its obligations under the terms of the employment agreement and the contractual documents, he suffered important moral, financial and professional prejudice given his age (46 years old
when his was dismissed), family responsibilities and professional career which will necessarily be affected by the decision of the Employer to put an end to his employment agreement.
The Employee indicated that because of his age (46 years old) he would probably not find a new job after his dismissal.
The Employee added that the damage caused to him was all the more important since the government unemployment allocations are digressive and his dismissal would also came him to lose his complementary retirement points, so that the amount of his complementary pension would substantially decrease.
Lastly, the Employee indicated that because of his senior position his dismissal had an impact on his reputation, both from a professional and personal point of view.
Consequently, the Employee indicated to the Employer that he intended to bring legal action before the labor court in order to obtain damages.
I. The Employer argued that it had complied with the legal rules regarding dismissal procedures and that the dismissal was completely justified by a disagreement on the essential points of the commercial policy of the company which had a negative impact on other managers and staff.
The Employer indicated that the grounds for the dismissal were real and serious and could be verified.
The Employer considered that the disagreement with and the behavior by the Employee resulted in a demotivation of his staff and also created tension inside the company disturbing the functioning of the company.
The Employer considered that the criticism of the Employee exceeded the right of executive expression.
The Employer confirmed that it fully respected the procedural rules.
The Employer considered that the person who signed the letters concerning the dismissal and who was present during the preliminary interview had all necessary authority to represent the Employer.
J. A disagreement therefore exists between the Employee, on the one hand, and the Employer, on the other hand.
Discussions therefore took place, after which the parties, with their counsel, in order to resolve the disagreements arising from the dismissal of the Employee and his claims for damages, an indemnity, payment of additional salary and other amounts, reached an agreement, pursuant Articles 1134 and 2044 to 2058 of the Civil Code, and made reciprocal concessions in order to avoid the cost, uncertainty and the adverse publicity of litigation, and agreed to put an end to their dispute without restriction or limitation.
NOW, THEREFORE, IT HAS BEEN AGREED AS FOLLOWS:
ARTICLE 1
1.1 As a settlement, which does not imply a recognition of any fault and which does not call into question the dismissal, the Employer accepts to take into account the harm that the Employee alleges he suffered as a result of the termination of his employment agreement and the circumstances of his dismissal.
1.2 As a consequence, the Employer accepts to pay to the Employee a total, full, final, lump sum amount of EUR 138.000,00 nets of social contributions (CGS et CRDS), (the social contributions represent a lump sum amount of EUR 11.350,64 which are to be paid by the Employer), for a total gross amount of EUR 149.350,64, covering all existing and future disputes concerning the signature, performance and/or termination of the Employee's employment agreement.
ARTICLE 2
2.1 The amount of the notice period for the period of February 1st, 2002 until May 1st 2002, corresponds to a compensation due in respect of gross amount of EUR 27.530,40, plus a gross amount of EUR 531,28 as an advantage in nature. During the notice period, the Employee will continue to receive normally his gross amount salary on the normal date until the end of the notice period. Professional expenses will also continue to be paid by the Employer during the notice period pursuant to the company's policies.
2.2 Concerning the period until the notification of the dismissal, part accrued vacation has been taken. Thus, the Employer does not owe the Employee anything for part vacation.
The Employer undertakes to pay to the Employee, at the end of the notice period, the entire gross amount of EUR 2.753,04 for the accrued but unused vacation generated during the notice period.
2.3 The Employer accepts to pay to the Employee, effective the date hereof, the amount of EUR 30.937,04 corresponding to his legal dismissal indemnity.
The Employees recognizes that these amounts correspond to what he is legally entitled to and accepts them.
2.4 The amount of the damages and the dismissal indemnity mentioned in Article 1.2 and in Article 2.3 has been paid upon the signature of this agreement by check, for which the Employee hereby acknowledges receipt.
ARTICLE 3
3.1 Subject to the payment of the above-mentioned amounts and the execution of the foregoing obligations by the Employer, the Employee hereby acknowledges that all of his rights and claims relating to the termination of his employment agreement with the Employer,
and other companies of the group to which the Employer belongs (including but not limited to Hologic Inc, Hologic Europe N.V, Hologic Spain), have been satisfied. Accordingly, the Employee acknowledges that he has no further claims against the Employer and the other companies of the group to which the Employer belongs.
3.2 The Employee hereby irrevocably, fully and finally releases and discharges the Employer and/or any employees, officers, directors, shareholders and/or other companies of the group to which the Employer belongs from any and all claims, rights, demands, actions, obligations, liabilities, losses, costs, expenses, damages, interest and causes of action of any and every kind, nature and character, whether known or unknown, which he may have or have ever had against the Employer and/or any of its officers, employees, agents, shareholders, directors and/or any other company of the group to which the Employer belongs.
In particular, the Employee waives irrevocably, fully and finally all rights, actions and claims, whether presently or existing or otherwise, relating to the conclusion, performance and/or termination of his employment agreement, including but not limited to claims for salary, commissions, bonuses, reimbursement of professional expenses, paid vacation, dismissal indemnities, indemnities for violation of proceedings, indemnities for non-competition undertakings, injunction awards or any damages in excess of what is stipulated in Article 1 of this Settlement Agreement.
3.3 The parties consider that they have resolved all matters concerning the conclusion, performance and/or termination of the employment agreement between the Employee and the Employer. All disputes that could exist between the parties concerning the conclusion, performance and/or termination of the employment agreement are hereby settled.
ARTICLE 4
4.1 The Employer, on the one hand, and the Employee, on the other hand, express their wish to mutually end their dispute and maintain a correct relationship.
Consequently, the Employer, on the one hand, and the Employee, on the other hand, undertakes not to say or do anything harmful and/or false in respect of the other party's reputation, directly or indirectly.
The Employee undertakes not to say or do anything which could be harmful to the interests of the Employer and/or any company of the group to which the Employer belongs and/or their employees, officers, directors, shareholders.
In particular, the Employee undertakes not to deliver any document and/or attestation to any employees or previous employees of the Employer which could be used against the Employer and/or any company of the group to which the Employer belongs in case of dispute or litigation of any kind, nature or character, which may arise between the Employer and/or any company of the group to which the Employer belongs and such employees and/or previous employees.
4.2 The Employee undertakes to respect his professional secrecy obligations concerning any confidential information or knowledge that he may have had access to while he was an
employee concerning the activities of the Employer and/or of any company of the group to which it belongs.
ARTICLE 5
5.1 During the notice period, the Employee is expected to make and undertake, at the request of the Employer.
5.2 The Employee undertakes to be at the disposition of the Employee in order to assist, in all operations and to sign and authorize all documents related to his duties as manager of Hologic France, Hologic Europe NV, Hologic Espana S.A. In this regard, he agrees to sign all reports, declarations and banking documents, which may be necessary to the proper functioning of Hologic France, Hologic Spain, and Hologic Europe N.V.
5.3 The Employer agrees to exempt the Employee of his non-competition undertaking by which he was bound under Article 12, Annex C of the Employment Agreement. The Employee waives his right to a non-competition indemnity.
5.4. During the notice period, the Employer agrees to exempt the Employee from his obligation of exclusivity by which he is bound under Article 1 of the Employment Agreement, in order to permit the Employee to set up his own company provided that this does not interfere with executing his notice period.
5.5 During the notice period, the Employee undertakes not to create a business, which competes with the activity of the Hologic France or the other companies of the group.
5.6 The Employee agrees to pay the Employee's moving cost from Belgium to France, based on a mover's quote, which shall not exceed EUR 1000,00.
ARTICLE 6
6.1 The parties acknowledge that this Settlement Agreement reflects their discussions and that they have entered into this agreement freely.
6.2 The Employee recognizes that he had the necessary time to appreciate the consequences of entering into this Settlement Agreement and the consequences of his signature following the termination of his employment agreement.
6.3 The Employee also recognizes that the concessions made by the Employer are true and sincere.
ARTICLE 7
The parties undertake to keep this Settlement Agreement confidential and not to communicate it to any third party, unless it is required to be disclosed by law or regulation or to enforce a party's right hereunder before a Court of law.
ARTICLE 8
The parties recognize that this Settlement Agreement constitutes a Settlement ("Transaction") as defined in Articles 2044 and seq. and, in particular Article 2052 of the French Civil Code.
In two originals
IN WITNESS WHEREOF, the parties have signed as of the above date.
Executed in Bedford (USA) Executed in Paris On March 20, 2002 On March 20, 2002 /s/ Glenn P. Muir /s/ Jean Chaintreuil ------------------------------- ------------------------------- For the Employer The Employee Hologic France Jean Chaintreuil Mr. Muir, Legal representative |
EXHIBIT 21.01
SIGNIFICANT SUBSIDIARIES
------------------------------------------------- ------------------------------ Name Jurisdiction of Organization ------------------------------------------------- ------------------------------ Direct Radiography Corp. Delaware ------------------------------------------------- ------------------------------ Hologic Investment Corp. Massachusetts ------------------------------------------------- ------------------------------ X-Ray Technology Corp. Delaware ------------------------------------------------- ------------------------------ Hologic International Holdings B.V. Netherlands ------------------------------------------------- ------------------------------ Hologic Europe N.V. Belgium ------------------------------------------------- ------------------------------ Hologic France S.A. France ------------------------------------------------- ------------------------------ |
Exhibit 23.01
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements Nos.33-35191, 33-47830, 33-87792, 33-11853, 33-11849, 333-34003, 333-79167, 333-34634, and 333-60046 of Hologic, Inc. of our report dated November 8, 2002, with respect to the consolidated financial statements of Hologic, Inc. included in this Annual Report (Form 10-K) for the year ended September 28, 2002.
Boston, Massachusetts
December 23, 2002
EXHIBIT 99.1
Certification
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)
I, John W. Cumming, President and Chief Executive Officer of Hologic, Inc., a Delaware corporation (the "Company"), do hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) that, to the best of my knowledge and belief:
(1) The Annual Report on Form 10-K for the year ended September 28, 2002 (the "Form 10-K") of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: December 23, 2002 /s/ John W. Cumming
-----------------------------
John W. Cumming
Chairman, President and Chief
Executive Officer
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EXHIBIT 99.2
Certification
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)
I, Glenn P. Muir, Chief Financial Officer of Hologic, Inc., a Delaware corporation (the "Company"), do hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) that, to the best of my knowledge and belief:
(1) The Annual Report on Form 10-K for the year ended September 28, 2002 (the "Form 10-K") of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: December 23, 2002 /s/ Glenn P. Muir
---------------------------
Glenn P. Muir
Chief Financial Officer
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